## Facts

- Congress created Fannie Mae and Freddie Mac as government-sponsored enterprises to support the secondary mortgage market.
- After the 2008 financial crisis, Congress enacted the Housing and Economic Recovery Act of 2008 (HERA), creating the Federal Housing Finance Agency (FHFA) and authorizing it to place the GSEs into conservatorship.
- In 2008, FHFA placed Fannie Mae and Freddie Mac into conservatorship and assumed broad control over corporate governance and operations, including appointing boards and exercising shareholder and director powers.
- The conservatorship had no fixed end date; the FHFA Director had discretion over whether and when control would end.
- Judith Sisti became delinquent on her mortgage; Nationstar Mortgage LLC, acting as Freddie Mac’s agent, conducted a nonjudicial foreclosure under Rhode Island law.
- Cynthia Boss defaulted on her mortgage; after assignment to Fannie Mae, Fannie Mae conducted a nonjudicial foreclosure under Rhode Island law.
- Plaintiffs alleged the foreclosing entities functioned as federal actors and deprived them of property without Fifth Amendment due process because the nonjudicial process provided no hearing or comparable protections.

## Issues

1. Whether FHFA, Fannie Mae, and Freddie Mac plausibly qualified as “government actors” for Fifth Amendment purposes under the conservatorship structure.
2. Whether the challenged nonjudicial foreclosures plausibly constituted federal government action subject to Fifth Amendment due process constraints.
3. Whether defendants were entitled to judgment on the pleadings under Rule 12(c).

## Decision

- The court denied defendants’ Rule 12(c) motions for judgment on the pleadings.
- Accepting the pleadings as true, the court held plaintiffs plausibly alleged that FHFA, Fannie Mae, and Freddie Mac were government actors for constitutional claims.
- The court further held plaintiffs plausibly alleged that the nonjudicial foreclosures could constitute government action subject to the Fifth Amendment.
- The ruling was limited to plausibility at the pleadings stage and did not decide ultimate liability or the adequacy of any specific process on the merits.

## Legal Principles

- Under Lebron, an entity may be treated as part of the federal government for constitutional purposes when it is (1) created by special law, (2) formed to further governmental objectives, and (3) subject to government-retained “permanent” authority to appoint a majority of its directors (or equivalent control).
- “Permanence” under Lebron may be assessed functionally; indefinite, unconstrained federal control can satisfy the permanence requirement even if described as temporary.
- Statutory labels stating an entity is not a government instrumentality do not, by themselves, exempt federal entities or federally controlled entities from constitutional constraints.
- At the Rule 12(c) stage, a complaint survives if it plausibly alleges government-actor status and plausible government action connected to the challenged deprivation.

## Conclusion

The court allowed the Fifth Amendment due process claims to proceed, holding that plaintiffs plausibly alleged FHFA’s indefinite conservatorship control made the GSEs federal actors and that the nonjudicial foreclosures undertaken by or for the GSEs could constitute federal action.


Sisti v. Fed. Hous. Fin. Agency, 324 F. Supp. 3d 273 (D.R.I. 2018)