Federal Housing Administration v. Darlington, Inc.

Background

A South Carolina corporation formed in 1949 to obtain FHA mortgage insurance built an apartment project in Charleston. The owner filed rental schedules with the FHA but did not disclose that some apartments would be furnished or rented to transients. An affiliate furnished units and rented some by the day without FHA approval. The owner sued, and a district court (and a three-judge court) held the pre-1954 law did not bar such rentals and struck down application of the 1954 amendment to the owner.

Reasoning

The Court examined the National Housing Act, its FHA regulations, and the agency’s consistent administrative interpretations. The majority found the program was aimed at providing permanent family housing for veterans, relied on FHA statements and rules that favored nontransient occupancy, and read Congress’s 1954 amendment as accepting that view. On that basis the Court concluded the Act and its administration did not include a right to rent as short-term hotel space and upheld the agency’s power to bar transients.

Real world impact

The ruling means owners of apartments with FHA-insured mortgages face enforceable limits on short-term, hotel-style rentals while insurance remains outstanding. The Court said the 1954 amendment applies prospectively and that the owner was not being punished for past conduct. The decision gives weight to FHA’s prior practice and to Congress’s later declaration favoring permanent residential use.

Dissents or concurrances

Three Justices dissented, arguing the pre-1954 statute and regulations did not clearly prohibit occasional transient rentals and that applying the 1954 rule to a 1949-insured mortgage improperly impairs contractual expectations.