[Federal Register Volume 60, Number 85 (Wednesday, May 3, 1995)]
[Rules and Regulations]
[Pages 21936-21937]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10803]




[[Page 21935]]

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Part III





Department of Housing and Urban Development





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Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner



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24 CFR Parts 200 and 203



Nationwide Pre-Foreclosure Sale Procedure; Final Rule

  Federal Register / Vol. 60, No. 85 / Wednesday, May 3, 1995 / Rules 
and Regulations   
[[Page 21936]] 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner

24 CFR Parts 200 and 203

[Docket No. R-95-1749; FR-2682-F-02]
RIN 2502-AE72


Nationwide Pre-Foreclosure Sale Procedure

AGENCY: Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: This rule adopts as final the interim rule that set forth the 
requirements and procedures that govern the Department's Pre-
foreclosure Sale (PFS) Procedure. The interim rule was published in the 
Federal Register on September 30, 1994, at 59 FR 50136. The 
requirements and procedures contained in the interim rule are based on 
the Pre-foreclosure Sale Demonstration Program established by a notice 
published in the Federal Register on May 29, 1991, at 56 FR 24324.

EFFECTIVE DATE: June 2, 1995.

FOR FURTHER INFORMATION CONTACT: Joseph Bates, Director, Single Family 
Servicing Division, Office of Insured Single Family Housing, Department 
of Housing and Urban Development, 451 Seventh Street, S.W., Washington, 
D.C. 20410. Telephone (202) 708-3680. A telecommunications device for 
deaf persons (TDD) is available at (202) 708-1112. (These are not toll-
free telephone numbers.)

SUPPLEMENTARY INFORMATION: The information collection requirements 
contained in this rule have been submitted to the Office of Management 
and Budget for review under the provisions of the Paperwork Reduction 
Act of 1980 (44 U.S.C. 3501-3520) and have been assigned approval 
number 2502-0464.

Background

    Sometimes, a mortgagor must confront the twin realities of not 
being able to meet his or her mortgage obligation and static or 
declining property values. Such a situation makes it virtually 
impossible for a financially distressed mortgagor to sell the home and, 
using the proceeds, to fully discharge the mortgage debt. Foreclosure 
of the mortgage is often the method by which these difficulties are 
resolved.
    Over the past few years, much interest has been expressed by 
mortgagors and real estate agents in a transaction known as the ``pre-
foreclosure sale.'' This loss mitigation technique has grown 
significantly in use by the private sector and is also now commonly 
used by Government-sponsored enterprises, such as Fannie Mae (Federal 
National Mortgage Association), to ameliorate their losses from 
defaulted loans. In a successful pre-foreclosure sale involving a 
property subject to an FHA-insured mortgage loan, neither foreclosure 
nor conveyance of the property to the Department occur. A third party 
buys the home from a defaulting mortgagor at its approximate fair 
market value (with certain adjustments, as approved by the Secretary), 
which is less than the owner's outstanding indebtedness at the time of 
sale.
    Section 1064 of the McKinney Homeless Assistance Amendments Act of 
1988 (Pub. L. 100-628) amended section 204(a) of the National Housing 
Act (12 U.S.C. 1710(a)) to authorize HUD to pay a claim to a lender 
equal to the difference between the fair market sale price and the 
outstanding indebtedness (with certain adjustments). A successfully 
completed pre-foreclosure sale benefits the mortgagor, who avoids the 
stigma of foreclosure on his or her credit record, and also benefits 
HUD, which can expect to save by not paying foreclosure-related costs. 
HUD also saves on maintenance costs and marketing expenses for 
properties which would otherwise be conveyed to the Department 
following foreclosure. Finally, mortgagees also benefit through 
incorporating this loss-mitigation technique into their overall loan 
servicing, by frequently being able to file their claim for insurance 
benefits sooner, following a successful pre-foreclosure sale, than they 
would following a post-foreclosure conveyance claim.
    On May 29, 1991, the Department published in the Federal Register, 
at 56 FR 24324, a notice which announced a limited demonstration 
program to gauge the demand for, and the efficacy of, pre-foreclosure 
sales as a means of assisting qualified mortgagors in avoiding 
foreclosure of their FHA-insured mortgages and of saving the Department 
money.
    The Demonstration was successful in that the demand for this 
alternative to foreclosure was found to be very substantial; the 
efficacy of the pre-foreclosure sale transaction was found to be cost-
beneficial to HUD; and feedback obtained from participating local HUD 
offices, program coordinators, mortgagees, homeowners and the general 
public was quite favorable. By expanding the options available to 
financially distressed mortgagors and not adversely affecting any 
mortgagor rights or interests under existing FHA-insured loan servicing 
regulations, the Department has not only acted responsibly toward the 
homeowners with FHA-insured mortgages, but also has operated with an 
eye to the cost-effectiveness of its own policies and procedures.
    The Department then decided to implement the pre-foreclosure sale 
procedure nationwide by incorporating it into the overall approach of 
servicing FHA-insured loans by FHA-approved lender/servicers. 
Therefore, the Department issued an interim rule on September 30, 1994, 
at 59 FR 50136. The September 30, 1994 interim rule made pre-
foreclosure sales an even more efficient servicing tool by streamlining 
procedures and, in some respects, reducing the Department's cost of 
following this course of action.

Public Comments

    The public was given 60 days to comment on the requirements and 
procedures set forth in the September 30, 1994 interim rule. Comments 
were received from one commenter (a national trade association), and 
that comment was totally favorable to the interim rule.

This Final Rule

    This final rule adopts without change the interim rule published on 
September 30, 1994, at 59 FR 50136.

Other Matters

Environmental Finding

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR Part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969. The Finding of No Significant Impact is available for 
public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the 
Office of the Rules Docket Clerk, Office of the General Counsel, 
Department of Housing and Urban Development, Room 10276, 451 Seventh 
Street, S.W., Washington, D.C. 20410.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule does not have a significant 
economic impact on a substantial number of small entities because this 
rule pertains to a limited number of single-family mortgage situations. 
It expands the options available to [[Page 21937]] financially 
distressed mortgagors and does not adversely affect any mortgagor 
rights or interests under existing FHA-insured loan servicing 
regulations.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that this rule 
does not have ``federalism implications'' because it does not have 
substantial direct effects on the States (including their political 
subdivisions), or on the distribution of power and responsibilities 
among the various levels of government. The purpose of this rule is to 
implement the requirements and methods of pre-foreclosure sales as a 
means of assisting qualified mortgagors in avoiding foreclosure of 
their FHA-insured mortgages and of saving the Department money.

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 significant impact on family formation, maintenance, and 
general well-being.

Semiannual Agenda

    This rule was listed as item 1784 in the Department's Semiannual 
Agenda of Regulations published on November 14, 1994 (59 FR 57632, 
57652), pursuant to Executive Order 12866 and the Regulatory 
Flexibility Act.

List of Subjects

24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Housing standards, Incorporation by 
reference, Lead poisoning, Loan programs--housing and community 
development, Minimum property standards, mortgage insurance, 
Organization and functions (Government agencies), Penalties, Reporting 
and recordkeeping requirements, Social Security, Unemployment 
compensation, Wages.

24 CFR Part 203

    Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and 
recordkeeping requirements, Solar energy.

    Accordingly, the Department adopts as final without change the 
interim rule amending 24 CFR parts 200 and 203 published on September 
30, 1994, at 59 FR 50136.

    Dated: April 26, 1995.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 95-10803 Filed 5-2-95; 8:45 am]
BILLING CODE 4210-27-P