[Federal Register Volume 59, Number 39 (Monday, February 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4484]


[Federal Register: February 28, 1994]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 792 and 892

[Docket No. R-94-1708; FR-3487-F-01]
RIN 2501-AB65


Implementation of Section 129 of the Housing and Community 
Development Act of 1992

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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SUMMARY: This final rule establishes procedures for public housing 
agencies and Indian housing authorities (HAs) to follow to permit HAs 
to retain a portion of certain section 8 fraud recoveries from tenants 
and owners for use in section 8 programs. Section 129 of the Housing 
and Community Development Act of 1992 expands HA retention of section 8 
fraud recoveries to include recoveries obtained through administrative 
repayment agreements, as well as litigation (including settlement of a 
lawsuit) or a court-ordered restitution. This rule applies to the 
section 8 rental certificate, rental voucher, moderate rehabilitation 
programs, and private owner/HA new construction and substantial 
rehabilitation projects subject to an Annual Contributions Contract.

EFFECTIVE DATE: March 30, 1994.

FOR FURTHER INFORMATION CONTACT: For the Section 8 Rental Certificate, 
Rental Voucher and Moderate Rehabilitation Programs: Madeline Hastings, 
Director, Rental Assistance Division, Office of Assisted Housing, room 
4226, Department of Housing and Urban Development, 451 Seventh Street, 
SW., Washington, DC 20410, (202) 708-1842. Hearing or speech-impaired 
individuals may call HUD's TDD number (202) 708-0850.
    For issues concerning computer matching/tenant income verification 
matters: David L. Decker, Director, Computer Matching Activities 
Division, room 4122, Department of Housing and Urban Development, 451 
Seventh Street, SW., Washington, DC 20410, (202) 708-0099. Hearing or 
speech-impaired individuals may call HUD's TDD number (202) 708-0850.
    For Section 8 private owner/HA new construction and substantial 
rehabilitation projects subject to an ACC between HUD and an HA: James 
Tahash, Director, Planning and Procedures Division, Office of Insured 
Multifamily Housing Development, room 6182, Department of Housing and 
Urban Development, 451 Seventh Street, SW., Washington, DC 20410, (202) 
708-3944. Hearing or speech-impaired individuals may call HUD's TDD 
number (202) 708-4594.
    (The telephone numbers cited above are not toll free numbers.)

SUPPLEMENTARY INFORMATION:

I. Background:

    Some tenants receiving section 8 assistance submit false statements 
which underreport income to obtain excessive housing assistance. 
Similarly, some owners also commit fraud in order to receive section 8 
rental assistance payments to which they are not entitled. Examples of 
owner fraud include billing for vacant dwelling units, charging more 
rent for assisted units than unassisted units in the same building, 
receiving sidepayments from assisted tenants, and knowingly admitting 
ineligible tenants into section 8 substantial rehabilitation and new 
construction projects. Through various methods, such as direct 
observation, informants, investigative action and computer matches, HAs 
discover that tenants and owners have committed fraud in order to 
receive either benefits or payments for which they were not entitled.
    In 1981, Congress enacted legislation aimed at stemming this fraud 
and abuse. Section 326(d)(1) of the Housing and Community Development 
Amendments of 1981 (Pub. L. 97-35; hereafter referred to as ``1981 HCD 
Act'') allowed HAs to retain ``out of judgments obtained by them in 
recovering amounts wrongfully paid as a result of fraud and abuse'' a 
portion of the fraud recoveries to encourage HAs to recover amounts 
overpaid as a result of such fraud and abuse. On August 20, 1986 (51 FR 
29633), the Department published a final rule implementing section 
326(d)(1) of the 1981 HCD Amendments. In the final rule, HUD construed 
the term ``judgments'' to allow HAs to retain amounts recovered by 
means of litigation, including a settlement of litigation.
    However, most section 8 fraud recoveries result from administrative 
repayment agreements between the HA and the families, or between the HA 
and the owner. As such, nearly all tenant and owner fraud recoveries 
have gone to HUD, and HAs have had little monetary incentive to 
identify tenant and owner fraud and pursue repayment.
    Section 129 of the Housing and Community Development Act of 1992, 
(Pub. L. 102-550, approved October 28, 1992; hereafter referred to as 
``1992 HCD Act''), allows HAs to retain a portion of rental assistance 
fraud recoveries obtained through litigation, court-ordered 
restitutions, and administrative repayment agreements pursuant to an 
administrative grievance procedure except in cases where HUD is the 
principal party initiating or sustaining the recovery action. By 
allowing HAs to retain a portion of the monies recovered under 
administrative repayment agreements, the Act provides an additional 
incentive for HAs to aggressively pursue cases of suspected fraud.
    Under the Act and this regulation, an HA can retain the greater of: 
(1) 50 percent of the amount collected or (2) the actual, reasonable, 
and necessary expenses related to the collection, including the cost of 
investigation, legal fees and collection fees. The recoveries may be 
obtained through litigation (including settlement of a lawsuit), a 
court-ordered restitution, or an administrative repayment agreement 
pursuant to an administrative grievance procedure. The rule applies to 
the Section 8 Rental Certificate, Rental Voucher, Moderate 
Rehabilitation Programs and private owner/HA new construction and 
substantial rehabilitation projects subject to an Annual Contributions 
Contract (ACC) between HUD and an HA.
    Finally, in August of 1986, the Department added a final rule 
implementing section 326(d)(1) of the 1981 HCD Amendments as a new part 
892. This final rule transfers the requirements of 892 to a new part 
792, and removes part 892. The rule also changes the reference from 
public housing agency (PHA) to housing agency (HA) to recognize 
definitional changes resulting from the Indian Housing Act of 1988 
(Pub. L. 100-358).

II. Other Matters

A. Environmental Impact

    In accordance with 40 CFR 1508.4 of the regulations of the Council 
on Environmental Quality and 24 CFR 50.20(k) of the HUD regulations, 
the policies and procedures contained in this rule relate only to HUD 
administrative procedures and, therefore, are categorically excluded 
from the requirements of the National Environmental Policy Act.

B. Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this rule will not have substantial direct effects on 
states or their political subdivisions, or the relationship between the 
Federal government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Specifically, 
the rule increases the amount a housing agency may recover in fraud and 
abuse cases. As such, the rule will not impinge on the relationship 
between the Federal and state and local governments, and the rule is 
not subject to review under the order.

C. Executive Order 12606, the Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this rule does not have 
potential for significant impact on family formation, maintenance, and 
general well-being, and, thus, is not subject to review under the 
order. No significant change in existing HUD policies or programs will 
result from promulgation of this rule, as those policies and programs 
relate to family concerns.

D. Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) has reviewed and approved this rule, and in so doing 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities, because the number of 
recoveries by housing agencies is expected to be small and so the 
number of small public housing agencies affected will be small. In any 
event, the effect on small entities is expected to be positive rather 
than negative.

E. Paperwork

    The changes made by this final rule to the regulatory text in 24 
CFR part 892, which now appears as 24 CFR part 792, will not add any 
additional information collection burden than that already approved by 
the Office of Management and Burden under the Paperwork Reduction Act 
and assigned OMB approval number 2577-0053.

F. Regulatory Agenda

    This rule was listed as item no. 1655 in the Department's 
Semiannual Agenda of Regulations published on October 25, 1993 (58 FR 
56402, 56453) in accordance with Executive Order 12991 and the 
Regulatory Flexibility Act.

G. Justification for Final Rulemaking

    In general, the Department publishes rules for public comment 
before their issuance for effect, in accordance with its own 
regulations on rulemaking, 24 CFR part 10. However, part 10 provides 
exceptions from that general rule where the agency finds good cause to 
omit advance notice and public participation. The good cause 
requirement is satisfied when prior public procedure is 
``impracticable, unnecessary, or contrary to the public interest'' (24 
CFR 10.1). The Department finds that good cause exists to publish this 
rule for effect without first soliciting public comment, in that prior 
public procedure is unnecessary because the changes being made to part 
892, which now appears as part 792, merely implement statutory 
amendments that do not involve the exercise of any discretion by the 
Department.
    H. The Catalog of Federal Domestic Assistance program number(s) are 
14.156, Lower Income Housing Assistance Programs.

List of Subjects in 24 CFR Parts 792 and 892

    Fraud, Grant programs--housing and community development, Rent 
subsidies, Reporting and recordkeeping requirements.

    Accordingly, for the reasons set forth in the preamble, title 24 of 
the Code of Federal Regulations is amended by redesignating part 892 as 
part 792 and by revising the newly designated part 792 to read as 
follows:

PART 792--HOUSING AGENCY SECTION 8 FRAUD RECOVERIES

Subpart A--General Provisions

Sec.
792.101  Purpose.
792.102  Applicability.
792.103  Definitions.

Subpart B--Recovery of Section 8 Funds

792.201  Conduct of litigation.
792.202  HA retention of proceeds.
792.203  Application of amounts recovered.
792.204  Recordkeeping and reporting.

    Authority: 42 U.S.C. 1437f note; 42 U.S.C. 3535(d).

Subpart A--General Provisions


Sec. 792.101  Purpose.

    The purpose of this part is to encourage public housing agencies 
and Indian housing authorities (HAs) to investigate and pursue 
instances of tenant and owner fraud and abuse in the operation of the 
section 8 housing assistance payments programs.


Sec. 792.102  Applicability.

    (a) This part applies to an HA acting as a contract administrator 
under an annual contributions contract with HUD in any section 8 
housing assistance payments program. To be eligible to retain section 8 
tenant or owner fraud recoveries, the HA must be the principal party 
initiating or sustaining an action to recover amounts from families.
    (b) This part applies only to those instances when a tenant or 
owner committed fraud, and the fraud recoveries are obtained through 
litigation brought by the HA (including settlement of the lawsuit), a 
court-ordered restitution pursuant to a criminal proceeding, or an 
administrative repayment agreement with the family or owner as a result 
of an HA administrative grievance procedure pursuant to, or 
incorporating the requirements of, Sec. 882.216 or 887.405. This part 
does not apply to cases of owner fraud in HA-owned or controlled units, 
or where incorrect payments were made or benefits received because of 
calculation errors instead of willful fraudulent activities.
    (c) This part applies to all tenant and owner fraud recoveries 
resulting from litigation brought by the HA (including settlement of 
the lawsuit), or a court-ordered restitution pursuant to a criminal 
proceeding obtained on or after October 8, 1986, and to all tenant and 
owner fraud recoveries obtained through administrative repayment 
agreements signed on or after October 28, 1992.


Sec. 792.103  Definitions.

    Fraud and abuse. Fraud and abuse means a single act or pattern of 
actions:
    (1) That constitutes false statement, omission, or concealment of a 
substantive fact, made with intent to deceive or mislead; and
    (2) That results in payment of section 8 program funds in violation 
of section 8 program requirements.
    HA (Housing Agency). HA (Housing Agency) means any State, county, 
municipality, or other governmental entity or public body, including 
any Indian Housing Authority, acting as a section 8 contract 
administrator under an annual contributions contract with HUD.
    Judgment. Judgment means a provision for recovery of section 8 
program funds obtained through fraud and abuse, by order of a court in 
litigation or by a settlement of a claim in litigation, whether or not 
stated in a court order.
    Litigation. A lawsuit brought by a HA to recover section 8 program 
funds obtained as a result of fraud and abuse.
    Principal party in initiating or sustaining an action to recover. 
Principal party in initiating or sustaining an action to recover means 
the party that incurs more than half the costs incurred in:
    (1) Recertifying tenants who fraudulently obtained section 8 rental 
assistance;
    (2) Recomputing the correct amounts owed by tenants; and
    (3) Taking needed actions to recoup the excess benefits received, 
such as initiating litigation.
    Costs incurred to detect potential excessive benefits in the 
routine day-to-day operations of the program are excluded in 
determining the principal party in initiating or sustaining an action 
to recover. For example, the cost of income verification during an 
annual recertification would not be counted in determining the 
principal party in initiating or sustaining an action to recover.
    Repayment agreement. Repayment agreement means a formal document 
signed by a tenant or owner and provided to an HA in which a tenant or 
owner acknowledges a debt, in a specific amount, and agrees to repay 
the amount due at specific time period(s).

Subpart B--Recovery of Section 8 Funds


Sec. 792.201  Conduct of litigation.

    The HA must obtain HUD approval before initiating litigation in 
which the HA is requesting HUD assistance or participation.


Sec. 792.202  HA retention of proceeds.

    (a) Where the HA is the principal party initiating or sustaining an 
action to recover amounts from tenants that are due as a result of 
fraud and abuse, the HA may retain, the greater of:
    (1) Fifty percent of the amount it actually collects from a 
judgment, litigation (including settlement of lawsuit) or an 
administrative repayment agreement pursuant to, or incorporating the 
requirements of, Sec. 882.216 or Sec. 887.405; or
    (2) Reasonable and necessary costs that the HA incurs related to 
the collection from a judgment, litigation (including settlement of 
lawsuit) or an administrative repayment agreement pursuant to, or 
incorporating the requirements of, Sec. 882.216 or Sec. 887.405. 
Reasonable and necessary costs include the costs of the investigation, 
legal fees and collection agency fees.
    (b) If HUD incurs costs on behalf of the HA in obtaining the 
judgment, these costs must be deducted from the amount to be retained 
by the HA.


Sec. 792.203  Application of amounts recovered.

    (a) The HA may only use the amount of the recovery it is authorized 
to retain in support of the section 8 program in which the fraud 
occurred.
    (b) The remaining balance of the recovery proceeds (i.e., the 
portion of recovery the HA is not authorized to retain) must be applied 
as directed by HUD.


Sec. 792.204  Recordkeeping and reporting.

    To permit HUD to audit amounts retained under this part, an HA must 
maintain all records required by HUD, including:
    (a) Amounts recovered on any judgment or repayment agreement;
    (b) The nature of the judgment or repayment agreement; and
    (c) The amount of the legal fees and expenses incurred in obtaining 
the judgment or repayment agreement and recovery.

(Approved by the Office of Management and Budget under Control 
Number 2577-0053)

    Dated: February 17, 1994.
Henry G. Cisneros,
Secretary of Housing and Urban Development.
[FR Doc. 94-4484 Filed 2-25-94; 8:45 am]
BILLING CODE 4210-32-P