[Federal Register Volume 61, Number 79 (Tuesday, April 23, 1996)]
[Proposed Rules]
[Pages 18026-18037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9877]




[[Page 18025]]


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Part IV





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Secretary



_______________________________________________________________________



24 CFR Parts 26, 28, 30, et al.



Streamlining Hearing Procedures; Proposed Rule

  Federal Register / Vol. 61, No. 79 / Tuesday, April 23, 1996 / 
Proposed Rules  
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[[Page 18026]]

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Secretary

24 CFR Parts 26, 28, 30, 81, 200, 950, 965, and 3500

[Docket No. FR-4022-P-01]
RIN 2501-AC19


Streamlining Hearing Procedures; Proposed Rule

AGENCY: Office of the Secretary, HUD.

ACTION: Proposed rule.

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SUMMARY: In response to the President's regulatory reform initiatives, 
this proposed rule would streamline and consolidate many of HUD's 
regulations containing hearing procedures. This rule also proposes 
several substantive changes to these regulations in order to improve 
the hearing process and to make the regulations more closely follow 
applicable statutes. This proposed rule would make the regulations 
easier for the public to use and understand.

DATES: Comments due: June 24, 1996.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Rules Docket Clerk, Office of General 
Counsel, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street, SW, Washington, DC 20410-0500. Communications should 
refer to the above docket number and title. Facsimile (FAX) comments 
are not acceptable. A copy of each communication submitted will be 
available for public inspection and copying between 7:30 a.m. and 5:30 
p.m. weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: Emmett N. Roden, Assistant General 
Counsel for Administrative Proceedings, Office of General Counsel, 
Department of Housing and Urban Development, 451 7th Street, S.W., Room 
10251, Washington, D.C. 20410, telephone (202) 708-2350. (This is not a 
toll-free number.) Hearing- and speech-impaired persons may access this 
number via TTY by calling the Federal Information Relay Service at 
(800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Regulatory Reinvention

    On March 4, 1995, President Clinton issued a memorandum to all 
Federal departments and agencies regarding regulatory reinvention. In 
response to this memorandum, the Department of Housing and Urban 
Development conducted a page-by-page review of its regulations to 
determine which can be eliminated, consolidated, or otherwise improved. 
HUD has determined that this proposed rule is necessary to consolidate 
and streamline HUD's various sets of regulations containing hearing 
procedures. Therefore, this proposed rule would consolidate several 
sets of hearing procedures into one part, thereby eliminating 
approximately 20 pages of unnecessary regulations from the Code of 
Federal Regulations (CFR).

II. Background

A. Hearings According to the Administrative Procedure Act

    In this rule, HUD proposes to use 24 CFR part 26 to contain two 
sets of hearing regulations. The first set of regulations would contain 
all the procedures that currently appear in part 26. These procedures 
apply in HUD proceedings before a hearing officer, including 
administrative sanction hearings under part 24 and hearings with 
respect to actions by the Mortgagee Review Board under part 25. This 
proposed rule would not change the substance of any of these 
provisions, but it would set them apart so that they all appear within 
a new subpart A of part 26.
    This proposed rule would add the second set of regulations to form 
a new subpart B. The regulations in subpart B would contain a 
relatively uniform set of hearing procedures for formal hearings 
according to the Administrative Procedure Act (5 U.S.C. 551 et seq.) 
(APA). By adding these uniform procedures to subpart B of part 26, HUD 
intends to consolidate as many of its hearing procedures as possible 
into one part. This should make HUD's hearing procedures easier to use 
and understand.
    The hearing procedures in subpart B would apply to hearings under 
the Program Fraud Civil Remedies Act of 1986, the procedures for which 
currently appear in part 28. Subpart B would also apply to hearings in 
which HUD seeks civil money penalties, the procedures for which 
currently appear in part 30, and to hearings pursuant to the Interstate 
Land Sales Full Disclosure Act, the procedures for which currently 
appear in part 1720. HUD intends that subpart B will be used in 
hearings conducted pursuant to the APA, unless other statutory or 
regulatory provisions apply.
    In addition to consolidating these hearing procedures into one part 
and making them uniform, this proposed rule would also make a number of 
changes in order to streamline pleadings and reduce administrative 
overhead. This proposed rule contains specific time limits to ensure 
rapid disposition of cases (see, e.g., Secs. 26.39, 26.42, 26.44, 
26.50). The proposed rule also would clarify that parties must seek 
Secretarial review in order to exhaust their administrative remedies 
before seeking judicial review, thereby addressing the Supreme Court's 
decision in Darby v. Cisneros, 113 S.Ct. 2539 (1993). This proposed 
rule also incorporates the Federal Rules of Civil Procedure for certain 
aspects of discovery (see Secs. 26.41(a), (c); Sec. 26.43(b)).
    HUD specifically invites the public to comment on these procedural 
changes that would be incorporated into part 26 subpart B, as well as 
ways in which HUD could further streamline its hearing procedures.

B. Program Fraud Civil Remedies Act of 1986

    Part 28 of HUD's regulations contains the procedures for imposing 
civil penalties and assessments, pursuant to the Program Fraud Civil 
Remedies Act of 1986 (PFCRA), upon persons who make false or fraudulent 
claims or statements to Federal authorities. HUD established the 
regulations in part 28 on June 24, 1988 (53 FR 24000). The Department 
of Health and Human Services led a task force to draft a model 
regulation to implement PFCRA, and part 28 follows the model closely 
with only minor variations to accommodate HUD's organizational and 
program structure.
    This proposed rule would streamline the provisions in part 28 by 
removing the hearing procedures, and by retaining in their place a 
cross-reference to the uniform hearing procedures in part 26 subpart B 
(see, e.g., Sec. 28.40 of this proposed rule). This proposed rule would 
also streamline the substantive provisions of the PFCRA regulations by 
eliminating unnecessary language and by clarifying the remaining 
language, making these regulations easier to use and understand. In 
addition to these streamlining changes, HUD also proposes to shorten 
the decision process by removing the reconsideration of initial 
determinations.

C. Civil Money Penalties

    HUD established the civil money penalties regulations in part 30 on 
May 22, 1991 (56 FR 23622). These regulations implemented several 
sections of the Department of Housing and Urban Development Reform Act 
of 1989 (Pub. L. 101-235; approved December 15, 1989), which authorized 
HUD to impose civil money penalties for unlawful conduct in connection 
with a broad array of programs.

[[Page 18027]]

    In this rule, HUD proposes to streamline the regulations in part 
30. As with the regulations in part 28 for PFCRA, this proposed rule 
would remove the hearing procedures from part 30, maintaining a cross-
reference to the uniform hearing procedures in part 26 subpart B. In 
addition, this proposed rule would eliminate three of the civil money 
penalty panels that exist in the current regulations: the Housing Civil 
Penalties Panel (HCPP), the Government National Mortgage Association 
Civil Penalties Panel (GCPP), and the Departmental Civil Penalties 
Panel (DCPP) (see Sec. 30.205 of the current regulations). HUD created 
these panels to review recommendations for and to propose civil money 
penalties. However, this proposed rule would provide that certain 
appropriate HUD officials would replace the panels in their authority 
to initiate actions for civil money penalties. For instance, in 
Sec. 30.20 of this proposed rule, the General Counsel or his or her 
designee, rather than the DCPP, may initiate a civil money penalty 
action against HUD employees who improperly disclose information. See 
also Secs. 30.25 through 30.60 of this proposed rule.
    In addition to the streamlining changes contained in this proposed 
rule, HUD proposes to revise and clarify the list of violations for 
Government National Mortgage Association (GNMA) issuers and custodians 
(Sec. 30.45 of this proposed rule). HUD also proposes to revise the 
list of violations applicable to mortgagees and lenders to include the 
misuse of loan proceeds and the failure to comply with settlement 
agreements with HUD (Sec. 30.35(a)(11) and (a)(15) of this proposed 
rule), and to expand the violation for failure to service Section 235 
mortgages to include other housing programs (Sec. 30.35(a)(10) of this 
proposed rule).
    This proposed rule would also revise part 30 to include the civil 
money penalties that were enacted as part of the Housing and Community 
Development Act of 1992 (Pub. L. 102-550; approved October 28, 1992). 
Specifically, the proposed rule would add provisions concerning failure 
to disclose lead-based paint (Sec. 30.60 of this proposed rule) and 
violations by mortgagees and lenders concerning loan guarantees for 
Indian Housing (Sec. 30.35(a)(14) of this proposed rule).

D. Conforming Changes

    This proposed rule would also make necessary conforming changes, 
which are merely technical and nonsubstantive, to the following HUD 
regulations:
    1. Government Sponsored Enterprises, 24 CFR part 81;
    2. Participation and Compliance Requirements for Federal Housing 
Administration programs, 24 CFR 200.243;
    3. Insurance Entities under the Indian Housing Programs, 24 CFR 
950.190, and the Public Housing Programs, 24 CFR 965.205;
    4. The Real Estate Settlement Procedures Act, 24 CFR part 3500.

III. Other Matters

National Environmental Policy Act

    In accordance with 40 CFR 1508.4 of the regulations of the Council 
on Environmental Quality and 24 CFR 50.20(k) of HUD regulations, the 
policies and procedures contained in this proposed rule relate only to 
hearing procedures and administrative decisions, which do not 
constitute development decisions and do not affect the physical 
condition of a project area or building site. Therefore, this proposed 
rule is categorically excluded from the requirements of the National 
Environmental Policy Act.

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act (5 U.S.C. 
605(b)), the Secretary hereby certifies that this proposed rule would 
not have a significant economic impact on a substantial number of small 
entities. This proposed rule implements statutory authority intended to 
protect HUD's programs from abusive practices, but it will have no 
adverse or disproportionate economic impact on small businesses.

Executive Order 12606, The Family

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

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 proposed 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. 
As a result, the proposed rule is not subject to review under the 
Order.

List of Subjects

24 CFR Part 26

    Administrative practice and procedure, Claims, Fraud, Grant 
programs--housing and community development, Loan programs--housing and 
community development, Mortgages, Penalties.

24 CFR Part 28

    Administrative practice and procedure, Claims, Fraud, Penalties.

24 CFR Part 30

    Administrative practice and procedure, Grant programs--housing and 
community development, Loan programs--housing and community 
development, Mortgages, Penalties.

24 CFR Part 81

    Accounting, Federal Reserve System, Mortgagees, Reporting and 
recordkeeping requirements, Securities.

24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Home improvement, 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 950

    Aged, Grant programs--housing and community development, Grant 
programs--Indians, Indians, Individuals with disabilities, Low and 
moderate income housing, Public housing, Reporting and recordkeeping 
requirements.

24 CFR Part 965

    Energy conservation, Government procurement, Grant programs--
housing and community development, Lead poisoning, Loan programs--
housing and community development, Public housing, Reporting and 
recordkeeping requirements, Utilities.

24 CFR Part 3500

    Consumer protection, Condominiums, Housing, Mortgages, Mortgage 
servicing, Reporting and recordkeeping requirements.


[[Page 18028]]


    Accordingly, parts 26, 28, 30, 81, 200, 950, 965, and 3500 of title 
24 of the Code of Federal Regulations are proposed to be amended as 
follows:

PART 26--HEARING PROCEDURES

    1. The part heading for part 26 is revised to read as set forth 
above.
    2. The authority citation for 24 CFR part 26 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d).

    3. The heading of subpart A is revised to read, ``Subpart A--
Hearings Before Hearing Officers''.

Subparts B, C, D, E, F, and G  [Redesignated]

    4. The headings for subparts B, C, D, E, F, and G are redesignated 
as undesignated center headings; and Secs. 26.2 through 26.26 of 
subparts B, C, D, E, F, and G are redesignated as Secs. 26.2 through 
26.26 of subpart A.
    5. A new subpart B is added to read as follows:

Subpart B--Hearings Pursuant to the Administrative Procedure Act

General

Sec.
26.27  Purpose and scope.
26.28  Definitions.
26.29  Powers and duties of the Administrative Law Judge (ALJ).
26.30  Ex parte contacts.
26.31  Disqualification of ALJ.
26.32  Parties to the hearing.
26.33  Separation of functions.
26.34  Time computations.
26.35  Service and filing.
26.36  Sanctions.

Prehearing Procedures

26.37  Commencement of action.
26.38  Motions.
26.39  Default.
26.40  Prehearing conferences.
26.41  Discovery.
26.42  Subpoenas.
26.43  Protective order.

Hearings

26.44  General.
26.45  Witnesses.
26.46  Evidence.
26.47  The record.
26.48  Posthearing briefs.
26.49  Initial decision.
26.50  Appeal to the Secretary.
26.51  Exhaustion of administrative remedies.
26.52  Judicial review.
26.53  Collection of civil penalties and assessments.
26.54  Right to administrative offset.

Subpart B--Hearings Pursuant to the Administrative Procedure Act

General


Sec. 26.27  Purpose and scope.

    Unless otherwise specified in this part, the rules in this subpart 
B apply to hearings that HUD is required by statute to conduct pursuant 
to the Administrative Procedure Act (5 U.S.C. 554 et seq.).


Sec. 26.28  Definitions.

    The following definitions apply to subpart B of this part:
    Chief Docket Clerk means the Chief Docket Clerk of the Office of 
Administrative Law Judges at the following address: 409 3rd Street, 
S.W., Suite 320, Washington, D.C. 20024.
    Complaint means the notice from HUD alleging violations of a HUD 
statute and/or regulation, citing the legal authority upon which it is 
issued, stating the relief HUD seeks, and informing a respondent of his 
or her right to file a response and to request an opportunity for a 
hearing before an Administrative Law Judge.
    Response means the written response to a complaint, admitting or 
denying the allegations in the complaint and setting forth any 
affirmative defense and/or any mitigating factors or extenuating 
circumstances. A response is deemed a request for a hearing.


Sec. 26.29  Powers and duties of the Administrative Law Judge (ALJ).

    Authority of the Administrative Law Judge (ALJ). The ALJ shall 
conduct a fair and impartial hearing, avoid delay, maintain order, and 
assure that a record of the proceeding is made. The ALJ is authorized 
to:
    (a) Set and change the date, time, and place of the hearing upon 
reasonable notice to the parties;
    (b) Continue or recess the hearing in whole or in part for a 
reasonable period of time;
    (c) Hold conferences to identify or simplify the issues, or to 
consider other matters that may aid in the expeditious disposition of 
the proceeding;
    (d) Administer oaths and affirmations;
    (e) Issue subpoenas requiring the attendance of witnesses and the 
production of documents at depositions or at hearings;
    (f) Rule on motions and other procedural matters;
    (g) Regulate the scope and timing of discovery;
    (h) Regulate the course of the hearing and the conduct of 
representatives and parties;
    (i) Examine witnesses;
    (j) Receive, rule on, exclude, or limit evidence;
    (k) Upon motion of a party, take official notice of facts;
    (l) Upon motion of a party, decide cases, in whole or in part, by 
summary judgment where there is no disputed issue of material fact;
    (m) Conduct any conference, argument, or hearing on motions in 
person or by telephone; and
    (n) Exercise such other authority as is necessary to carry out the 
responsibilities of the ALJ under this part.


Sec. 26.30  Ex parte contacts.

    No party or person (except employees of the ALJ's office) shall 
communicate in any way with the ALJ on any matter at issue in a case, 
unless on notice and opportunity for all parties to participate. This 
provision does not prohibit a person or party from inquiring about the 
status of a case or asking routine questions concerning administrative 
functions or procedures.


Sec. 26.31  Disqualification of ALJ.

    (a) An ALJ in a particular case may disqualify himself or herself.
    (b) A party may file with the ALJ a motion for the ALJ's 
disqualification. The motion shall be accompanied by an affidavit 
alleging the grounds for disqualification.
    (c) Upon the filing of a motion and affidavit, the ALJ shall 
proceed no further in the case until the matter of disqualification is 
resolved.


Sec. 26.32  Parties to the hearing.

    (a) General. The parties to the hearing shall be the respondent and 
HUD.
    (b) Rights of parties. Except as otherwise limited by subpart B of 
this part, all parties may:
    (1) Be accompanied, represented, and advised by a representative;
    (2) Participate in any conference held by the ALJ;
    (3) Conduct discovery;
    (4) Agree to stipulations of fact or law, which shall be made part 
of the record;
    (5) Present evidence relevant to the issues at the hearing;
    (6) Present and cross-examine witnesses;
    (7) Present oral arguments at the hearing as permitted by the ALJ; 
and
    (8) Submit written briefs and proposed findings of fact and 
conclusions of law after the hearing.


Sec. 26.33  Separation of functions.

    No officer, employee, or agent of the Federal Government engaged in 
the performance of investigative, conciliatory, or prosecutorial 
functions in connection with the proceeding shall, in that proceeding 
or any factually

[[Page 18029]]

related proceeding under subpart B of this part, participate or advise 
in the decision of the administrative law judge, except as a witness or 
counsel during the proceeding, or in its appellate review.


Sec. 26.34  Time computations.

    (a) In computing any period of time under subpart B of this part, 
the time period begins the day following the act, event, or default and 
includes the last day of the period, unless the last day is a Saturday, 
Sunday, or legal holiday observed by the Federal Government, in which 
case the time period includes the next business day. When the 
prescribed time period is seven days or less, intermediate Saturdays, 
Sundays, and legal holidays shall be excluded from the computation.
    (b) Entry of orders. In computing any time period involving the 
date of the issuance of an order or decision by an administrative law 
judge, the date of issuance is the date the order or decision is served 
by the Chief Docket Clerk.
    (c) Service by mail. If a document is served by mail, five days 
shall be added to the time permitted for a response.


Sec. 26.35  Service and filing.

    (a) Filing. All documents shall be filed with the Chief Docket 
Clerk, at the address listed in Sec. 26.28. Filing may be by first 
class mail, delivery, facsimile transmission, or electronic means; 
however, the ALJ may place appropriate limits on filing by facsimile 
transmission or electronic means. All documents shall clearly designate 
the docket number and title of the proceeding.
    (b) Service. One copy of all documents filed with the Chief Docket 
Clerk shall be served upon each party by the persons filing them and 
shall be accompanied by a certificate of service stating how and when 
such service has been made. Service may be made by delivery, first 
class mail, facsimile transmission, or electronic means; however, the 
ALJ may place appropriate limits on service by facsimile transmission 
or electronic means. Documents shall be served upon a party's address 
of residence or principal place of business, or, if the party is 
represented by counsel, upon counsel of record at the address of 
counsel. Service is complete when handed to the person or delivered to 
the person's office or residence and deposited in a conspicuous place. 
If service is by first-class mail, facsimile transmission or electronic 
means, service is complete upon deposit in the mail or upon electronic 
transmission.


Sec. 26.36  Sanctions.

    (a) The ALJ may sanction a person, including any party or 
representative, for failing to comply with an order, rule, or procedure 
governing the proceeding; failing to prosecute or defend an action; or 
engaging in other misconduct that interferes with the speedy, orderly, 
or fair conduct of the hearing.
    (b) Any sanction, including but not limited to those listed in 
paragraphs (c), (d), and (e) of this section, shall reasonably relate 
to the severity and nature of the failure or misconduct.
    (c) Failure to comply with an order. When a party fails to comply 
with an order, including an order compelling discovery, the ALJ may:
    (1) Draw an inference in favor of the requesting party with regard 
to the information sought;
    (2) In the case of requests for admission, regard each matter about 
which an admission is requested to be admitted;
    (3) Prohibit the party failing to comply with the order from 
introducing evidence concerning, or otherwise relying upon, testimony 
relating to the information sought; or
    (4) Strike any part of the pleadings or other submissions of the 
party failing to comply with the order.
    (d) If a party fails to prosecute or defend an action under this 
part, the ALJ may dismiss the action or may issue an initial decision 
against the respondent.
    (e) The ALJ may refuse to consider any motion, request, response, 
brief or other document that is not filed in a timely fashion.

Prehearing Procedures


Sec. 26.37  Commencement of action.

    An action under subpart B of this part shall commence with the 
Government's filing of a complaint, and a response thereto, as those 
terms are defined in Sec. 26.28, with the Chief Docket Clerk. If the 
respondent fails to file a response, then the Government may file a 
motion for a default judgment, together with a copy of the complaint, 
in accordance with Sec. 26.39.


Sec. 26.38  Motions.

    (a) General. All motions shall state the specific relief requested 
and the basis therefor and, except during a conference or the hearing, 
shall be in writing. Written motions shall be filed and served in 
accordance with Sec. 26.35.
    (b) Response to motions. Unless otherwise ordered by the ALJ, a 
response to a written motion may be filed within 7 days after service 
of the motion. A party failing timely to respond to a motion shall be 
deemed to have waived any objection to the granting of the motion.


Sec. 26.39  Default.

    (a) General. The respondent may be found in default, upon motion, 
for failure to file a timely response to the Government's complaint. 
The motion shall include a copy of the complaint and a proposed default 
order, and shall be served upon all parties. The respondent shall have 
7 days from such service to respond to the motion.
    (b) Default order. The ALJ shall issue a decision on the motion 
within 15 days after the expiration of the time for filing a response 
to the default motion. If a default order is issued, it shall 
constitute the final agency action.
    (c) Effect of default. A default shall constitute an admission of 
all facts alleged in the Government's complaint and a waiver of 
respondent's right to a hearing on such allegations. The penalty 
proposed in the complaint shall be set forth in the default order and 
shall be immediately due and payable by respondent without further 
proceedings.


Sec. 26.40  Prehearing conferences.

    (a) The ALJ may schedule prehearing conferences as appropriate.
    (b) Upon the motion of any party, the ALJ shall schedule at least 
one prehearing conference at a reasonable time in advance of the 
hearing.
    (c) Prehearing conferences may consider the following:
    (1) Simplification of the issues;
    (2) Stipulations of fact and of the authenticity, accuracy, and 
admissibility of documents;
    (3) Submission of the case on briefs in lieu of an oral hearing;
    (4) Limitation of the number of witnesses;
    (5) The exchange of witness lists and of proposed exhibits;
    (6) Discovery;
    (7) The time and place for the hearing; and
    (8) Such other matters as may tend to expedite the fair and just 
disposition of the proceedings.


Sec. 26.41  Discovery.

    (a) Unless otherwise stated in subpart B of this part, discovery 
shall be conducted in accordance with the Federal Rules of Civil 
Procedure, except for Rule 26(a), (d) and (f).
    (b) Discovery in Program Fraud Civil Remedies actions (24 CFR part 
28), unless agreed to by the parties, shall be available only as 
ordered by the ALJ. The party opposing discovery shall have 10 days to 
respond to a motion for discovery. The ALJ shall grant a motion

[[Page 18030]]

for discovery only if he or she finds that discovery is necessary for 
the expeditious, fair, and reasonable consideration of the issues, is 
not unduly costly or burdensome, will not unduly delay the proceeding, 
and does not seek privileged information. The ALJ may grant discovery 
subject to a protective order under Sec. 26.43. The request for 
approval sent to the Attorney General from the General Counsel or 
designee, as described in Sec. 28.20 of this title, is not discoverable 
under any circumstances.
    (c) The following types of discovery are authorized:
    (1) Requests for production of documents for inspection and 
copying. Nothing contained herein shall be interpreted to require the 
creation of a document.
    (2) Requests for admissions.
    (3) Written interrogatories. Such interrogatories shall be limited 
in number in accordance with Rule 33 of the Federal Rules of Civil 
Procedure.
    (4) Depositions.
    (d) Motions to compel. A party may file a motion to compel 
discovery. The motion shall describe the information sought, cite the 
opposing party's objection, and provide arguments supporting the 
motion. The opposing party may file a response to the motion, including 
a request for a protective order. The ALJ may issue an order compelling 
a response, issue sanctions pursuant to Sec. 26.36, or issue a 
protective order. For purposes of paragraph (d) of this section, an 
evasive or incomplete answer to a request for discovery is treated as a 
failure to answer.
    (e) Each party shall bear its own costs of discovery.


Sec. 26.42  Subpoenas.

    (a) General. Upon written request of a party, the ALJ may issue a 
subpoena requiring the attendance of a witness at a deposition or 
hearing, and/or the production of documents. The request shall specify 
any documents to be produced and shall list the names and addresses of 
the witnesses.
    (b) Time of request. A request for a subpoena in aid of discovery 
shall be filed in time to permit the conclusion of discovery 15 days 
before the date fixed for the hearing. A request for a subpoena to 
testify at the hearing shall be filed at least three days prior to the 
hearing, unless otherwise allowed by the ALJ for good cause shown.
    (c) The subpoena shall specify the time and place at which the 
witness is to appear and any documents the witness is to produce.
    (d) Service and fees. Subpoenas shall be served, and fees and costs 
paid to subpoenaed witnesses, in accordance with Rule 45(b)(1) of the 
Federal Rules of Civil Procedure.
    (e) Motion to quash. The individual to whom the subpoena is 
directed or a party may file a motion to quash the subpoena within 10 
days after service, or on or before the time specified in the subpoena 
for compliance if it is less than 10 days after service.


Sec. 26.43  Protective order.

    (a) A party or a prospective witness or deponent may file a motion 
for a protective order with respect to discovery sought by an opposing 
party or with respect to the hearing, seeking to limit the availability 
or disclosure of evidence.
    (b) In issuing a protective order, the ALJ may issue any order that 
justice requires to protect a party or person from annoyance, 
embarrassment, oppression, or undue burden or expense, as provided for 
in Rule 26(c) of the Federal Rules of Civil Procedure.

Hearings


Sec. 26.44  General.

    (a) Time of hearing. The hearing shall commence not later than 60 
days following the filing of the complaint and response under 
Sec. 26.37, unless the time is extended for good cause. The ALJ shall 
provide written notice to all parties of the reasons for any extension 
of time.
    (b) Location of hearing. The hearing shall be held where the 
respondent resides or transacts business, or in such other place as may 
be agreed upon by the parties and the ALJ. Hearings for Program Fraud 
Civil Remedies Act cases shall be located in accordance with 31 U.S.C. 
3803(g)(4).
    (c) Notice of hearing. The ALJ shall issue a notice of hearing to 
all parties specifying the time and location of the hearing, the 
matters of fact and law to be heard, the legal authority under which 
the hearing is to be held, a description of the procedures for the 
conduct of the hearing, and such other matters as the ALJ determines to 
be appropriate.
    (d) Limitations for Program Fraud Civil Remedies Act cases. The 
notice of hearing must be served upon the respondent within 6 years 
after the date on which the claim or statement is made. If the 
respondent fails to file a timely response to the Government's 
complaint, service of a default judgment under Sec. 26.39 shall be 
regarded as a notice of hearing for purposes of this section. The 
statute of limitations may be extended by agreement of the parties.
    (e) Burden and standard of proof. HUD shall prove the respondent's 
liability and any aggravating factors by a preponderance of the 
evidence. Respondent shall prove any affirmative defenses and any 
mitigating factors by a preponderance of the evidence.
    (f) Public hearings. Unless otherwise ordered by the ALJ for good 
cause shown, the hearing shall be open to the public.


Sec. 26.45  Witnesses.

    (a) Except as provided in paragraph (b) of this section, testimony 
at the hearing shall be given orally by witnesses under oath or 
affirmation.
    (b) At the discretion of the ALJ, testimony may be admitted in the 
form of a written statement or deposition. In order to be admissible, 
any written statement must be provided to all other parties along with 
the last known address of the witness, in a manner that allows 
sufficient time for other parties to subpoena the witness for cross-
examination at the hearing.


Sec. 26.46  Evidence.

    (a) The ALJ shall admit any relevant oral or documentary evidence 
that is not privileged. The ALJ may, however, exclude evidence if its 
probative value is substantially outweighed by the danger of unfair 
prejudice, by confusion of the issues, or by considerations of undue 
delay, waste of time, or needless presentation of cumulative evidence.
    (b) Evidence concerning offers of compromise or settlement shall be 
inadmissible to the extent provided in Rule 408 of the Federal Rules of 
Evidence.
    (c) All documents and other evidence offered or taken for the 
record shall be open to examination by all parties, unless otherwise 
ordered by the ALJ in accordance with Sec. 26.43.


Sec. 26.47  The record.

    (a) The hearing will be recorded and transcribed. The transcript of 
testimony, exhibits, and other evidence admitted at the hearing and all 
papers and requests filed in the proceeding constitute the record for 
the decision by the ALJ and the Secretary or designee.
    (b) The record may be inspected and copied (upon payment of a 
reasonable fee) by anyone, unless otherwise ordered by the ALJ in 
accordance with Sec. 26.43.


Sec. 26.48  Posthearing briefs.

    Posthearing briefs shall be filed only upon order by the ALJ.


Sec. 26.49  Initial decision.

    (a) The ALJ shall issue an initial decision based only on the 
record, which shall contain findings of fact, conclusions of law, and 
the relief

[[Page 18031]]

granted. The ALJ shall consider such factors as may be set forth in 
applicable statutes and regulations.
    (b) The ALJ shall serve the initial decision on all parties within 
45 days after either the close of the record, or the expiration of time 
permitted for submission of posthearing briefs, whichever is later. The 
initial decision shall include a statement of each party's right to 
file a request for Secretarial review. The ALJ may extend the 45-day 
period for serving the initial decision in writing for good cause.
    (c) If no appeal is timely filed with the Secretary or designee, 
the initial decision shall become the final agency action.


Sec. 26.50  Appeal to the Secretary.

    (a) Except as otherwise set forth in paragraph (b) of this section, 
either party may file with the Secretary a petition for review within 
30 days after the ALJ issues an initial decision. The Secretary or 
designee may extend the 30-day period for good cause. If the Secretary 
or designee does not act upon the petition for review within 90 days of 
its service, then the initial decision shall become final.
    (b) Appeals of Program Fraud Civil Remedies Act decisions (24 CFR 
part 28). Only the respondent may file a petition for Secretarial 
review. The petition must be filed within 30 days after the ALJ issues 
the initial decision. The Secretary or designee may extend the 30-day 
period for good cause. If the Secretary or designee does not act upon 
the petition for review within 30 days of its service, then the initial 
decision shall become final.
    (c) Brief in support of petition. The petition for review shall be 
accompanied by a written brief, not to exceed 10 pages, specifying 
exceptions to the initial decision and reasons supporting the 
exceptions.
    (d) Service. The party submitting the petition for review shall 
serve a copy of the petition and brief in support on the other parties 
and on the Chief Docket Clerk.
    (e) Forwarding of the record. Upon the filing of a petition for 
review, the ALJ shall forward the record of the proceeding to the 
Secretary or designee.
    (f) Brief in opposition. Any opposing party may file a brief 
opposing review, not to exceed 10 pages, within 20 days of receiving 
the petition for review and accompanying brief. The brief in opposition 
shall be served on all parties.
    (g) Additional briefs. If the petition is granted, then the 
Secretary or designee may order the filing of additional briefs.
    (h) There is no right to appear personally before the Secretary or 
designee.
    (i) There is no right to appeal any interlocutory ruling by the 
ALJ.
    (j) In reviewing the initial decision, the Secretary or designee 
shall not consider any objection that was not raised before the ALJ 
unless a demonstration is made of extraordinary circumstances causing 
the failure to raise the objection.
    (k) The Secretary or designee shall consider only evidence 
contained in the record forwarded by the ALJ. However, if any party 
demonstrates to the satisfaction of the Secretary or designee that 
additional evidence not presented at the hearing is material and that 
there were reasonable grounds for the failure to present such evidence 
at such hearing, the Secretary or designee shall remand the matter to 
the ALJ for consideration of such additional evidence.
    (l) The prohibitions of ex parte contacts in Sec. 26.30 shall apply 
to contacts with the Secretary or designee.
    (m) The Secretary or designee may affirm, reduce, reverse, 
compromise, remand, or settle any relief granted in the initial 
decision. The Secretary or designee shall consider, and include in any 
final determination, such factors as may be set forth in applicable 
statutes or regulations.
    (n) The Secretary or designee shall promptly serve each party to 
the appeal with a copy of his or her decision and a statement 
describing the right to seek judicial review.
    (o) Judicial review. Generally, a party must file a petition for 
judicial review within 20 days of service of the Secretary's 
determination, or the Secretary's determination shall become final and 
not subject to judicial review. In Program Fraud Civil Remedies Act 
matters (24 CFR part 28), the respondent shall have 60 days from the 
date that the determination is sent to the respondent in which to file 
a petition.


Sec. 26.51  Exhaustion of administrative remedies.

    In order to fulfill the requirement of exhausting administrative 
remedies, a party must seek Secretarial review under Sec. 26.50 prior 
to seeking judicial review of any initial decision issued under subpart 
B of this part.


Sec. 26.52  Judicial review.

    Judicial review shall be in accordance with applicable statutory 
procedures and the procedures of the appropriate Federal court. The 
Government may not seek judicial review of an adverse determination of 
a Program Fraud Civil Remedies Act matter.


Sec. 26.53  Collection of civil penalties and assessments.

    Collection of civil penalties and assessments shall be in 
accordance with applicable statutory provisions.


Sec. 26.54  Right to administrative offset.

    The amount of any penalty or assessment that has become final, or 
for which a judgment has been entered under Secs. 26.52 or 26.53, or 
agreed upon in a compromise or settlement among the parties, may be 
collected by administrative offset under 31 U.S.C. 3716 or other 
applicable law. In Program Fraud Civil Remedies Act matters, an 
administrative offset may not be collected against a refund of an 
overpayment of Federal taxes then or later owing by the United States 
to the respondent.
    6-8. Part 28 is revised to read as follows:

PART 28--IMPLEMENTATION OF THE PROGRAM FRAUD CIVIL REMEDIES ACT OF 
1986

Sec.
28.1  Purpose.
28.5  Definitions.
28.10  Basis for civil penalties and assessments.
28.15  Investigation.
28.20  Request for approval by the Justice Department.
28.25  Notice of civil penalty (and assessment).
28.30  Response.
28.35  Disclosure of documents.
28.40  Hearings.
28.45  Settlements.

    Authority: 31 U.S.C. 3801; 42 U.S.C. 3535(d).


Sec. 28.1  Purpose.

    This part:
    (a) Establishes administrative procedures for imposing civil 
penalties and assessments against persons who make, submit, or present, 
or cause to be made, submitted, or presented, false, fictitious, or 
fraudulent claims or written statements to Federal authorities or to 
their agents; and
    (b) Specifies the hearing and appeal rights of persons subject to 
allegations of liability for such penalties and assessments. Hearings 
under this part shall be conducted pursuant to 24 CFR part 26, subpart 
B.


Sec. 28.5  Definitions.

    The terms ALJ and HUD are defined in 24 CFR part 5.
    Benefit means anything of value, including, but not limited to, any 
advantage, preference, privilege, license, permit, favorable decision, 
ruling, status, or loan insurance or guarantee.
    Claim means any request, demand, or submission:

[[Page 18032]]

    (1) Made to HUD for property, services, or money (including money 
representing grants, loans, insurance, or benefits);
    (2) Made to a recipient of property, services, or money from HUD or 
to a party to a contract with HUD; or
    (3) Made to HUD which has the effect of decreasing an obligation to 
pay or account for property, services, or money.
    Knows or has reason to know means that a person has actual 
knowledge that a claim or statement is false, fictitious, or 
fraudulent; acts in deliberate ignorance of the truth or falsity of the 
claim or statement; or acts in reckless disregard of the truth or 
falsity of the claim or statement.
    Person means any individual, partnership, corporation, association, 
private organization or entity.
    Respondent means any person alleged to be liable for a civil 
penalty or assessment under Sec. 28.25.
    Statement means any representation, certification, affirmation, 
document, record, or accounting or bookkeeping entry made:
    (1) With respect to a claim, to obtain approval or payment of a 
claim, or relating to eligibility to make a claim; or
    (2) With respect to or relating to eligibility for a contract, bid, 
or proposal for a contract with; or a grant or cooperative agreement, 
loan, or benefit from; HUD, any State, any political subdivision of a 
State, or other party, if the United States Government provides any 
portion of the money or property under the contract or the grant or 
cooperative agreement, loan, or benefit, or if the Government will 
reimburse the State, political subdivision, or party for any portion of 
the money or property under the contract or for the grant or 
cooperative agreement, loan, or benefit.


Sec. 28.10  Basis for civil penalties and assessments.

    (a) Claims. (1) A civil penalty of not more than $5,000 may be 
imposed upon a person who makes a claim that the person knows or has 
reason to know:
    (i) Is false, fictitious, or fraudulent;
    (ii) Includes or is supported by a written statement that either 
contains a material fact which is false, fictitious, or fraudulent; or 
omits a material fact which the person has a duty to include and is 
false, fictitious, or fraudulent as a result of the omission; or
    (iii) Is for payment for the provision of property or services that 
the person has not provided as claimed.
    (2) Each voucher, invoice, claim form, or other individual request 
or demand for property, services, or money constitutes a separate 
claim.
    (3) A claim shall be considered made to HUD, to a recipient, or to 
a party when the claim actually is made to an agent, fiscal 
intermediary, or other entity, including any State or political 
subdivision of a State, acting for or on behalf of HUD, the recipient, 
or the party.
    (4) Each claim for property, services, or money is subject to a 
civil penalty without regard to whether the property, services, or 
money actually is delivered or paid.
    (5) Limit on amount of claim. Liability under this part shall not 
lie if the amount of money or value of property or services claimed 
exceeds $150,000 as to each claim that a person submits. For purposes 
of paragraph (a) of this section, a group of claims submitted 
simultaneously as part of a single transaction shall be considered a 
single claim.
    (6) Assessment. If the Government has made any payment, transferred 
property or provided services on a claim, then the Government may 
assess a person found liable up to twice the amount of the claim or 
portion of the claim that is determined to be in violation of paragraph 
(a)(1) of this section.
    (b) Statements. (1) A civil penalty of up to $5,000 may be imposed 
upon a person who makes a written statement that:
    (i) The person knows, or has reason to know, contains a material 
fact which is false, fictitious, or fraudulent; or omits a material 
fact that the person has a duty to include and is false, fictitious, or 
fraudulent because of that omission; and
    (ii) Contains or is accompanied by an express certification or 
affirmation of the truthfulness and accuracy of the contents of the 
statement.
    (2) Each written representation, certification, or affirmation 
constitutes a separate statement.
    (3) A statement shall be considered made to HUD when the statement 
is actually made to an agent, fiscal intermediary, or other entity, 
including any State or political subdivision of a State, acting for or 
on behalf of HUD.
    (c) Limit on liability. If the claim or statement relates to low-
income housing benefits or housing benefits for the elderly or 
handicapped, then a person may be held liable only if he or she has 
made the claim or statement in the course of applying for such 
benefits, with respect to his or her eligibility, or family's 
eligibility, to receive such benefits. For purposes of paragraph (c) of 
this section, housing benefits means any instance wherein funds 
administered by the Secretary directly or indirectly permit low-income 
families or elderly or handicapped persons to reside in housing which 
otherwise would not be available to them.
    (d) No proof of specific intent to defraud is required to establish 
liability under this section.
    (e) Joint and several liability. A civil penalty or assessment may 
be imposed jointly and severally where more than one person is 
determined to be liable.


Sec. 28.15  Investigation.

    (a) General. HUD may initiate a Program Fraud Civil Remedies Act 
(31 U.S.C. 3801) case against a respondent only upon an investigation 
by the Inspector General or his or her designee.
    (b) Subpoena. Pursuant to 31 U.S.C. 3804(a), the Inspector General 
or designee may require by subpoena the production of records and other 
documents. The subpoena shall state the authority under which it is 
issued, identify the records sought, and name the person designated to 
receive the records. The recipient of the subpoena shall provide a 
certification that the documents sought have been produced, that the 
documents are not available and the reasons they are not available, or 
that the documents, suitably identified, have been withheld based upon 
the assertion of an identified privilege.
    (c) Investigation report. If the Inspector General or designee 
concludes that an action under the Program Fraud Civil Remedies Act may 
be warranted, her or she shall submit a report containing the findings 
and conclusions of the investigation to the General Counsel or his or 
her designee.
    (d) The Inspector General may refer allegations directly to the 
Department of Justice for suit under the False Claims Act (31 U.S.C. 
3730) or for other civil relief, or may postpone submitting a report to 
the General Counsel to avoid interference with a criminal investigation 
or prosecution. The Inspector General shall report violations of 
criminal law to the Attorney General.


Sec. 28.20  Request for approval by the Justice Department.

    (a) If the General Counsel or designee determines that the 
investigation report supports an action under this part, he or she must 
submit a written request to the Department of Justice for approval to 
issue a notice under Sec. 28.25.
    (b) The request shall include a description of the claims or 
statements at issue; the evidence supporting the notice; an estimate of 
the amount of money or the value of property, services, or other 
benefits requested or demanded in violation of Sec. 28.10; any 
exculpatory or mitigating circumstances that may relate to the claims 
or

[[Page 18033]]

statements; and a statement that there is a reasonable prospect of 
collecting an appropriate amount of penalties and assessments.


Sec. 28.25  Notice of civil penalty (and assessment).

    (a) General. Upon obtaining approval from the Department of 
Justice, the General Counsel or designee may issue a notice of civil 
penalty (and assessment, if appropriate) to the respondent. The notice 
shall be sent by certified mail, return receipt requested, or shall be 
personally served.
    (b) Notice. The notice shall include:
    (1) The allegations of liability against the respondent, including 
the statutory basis for liability, the claims or statements at issue, 
and the reasons why liability arises from those claims or statements;
    (2) The amount of penalties and assessments for which the 
respondent may be held liable;
    (3) That the respondent may request a hearing by submitting a 
written response to the notice;
    (4) The address to which a response must be sent; and
    (5) That failure to submit an answer within 30 days of receipt of 
the notice may result in the imposition of the maximum amount of 
penalties and assessments sought without right of appeal.
    (c) A copy of this part 28 and of 24 CFR part 26, subpart B shall 
be included with the notice.


Sec. 28.30  Response.

    (a) The respondent may submit a written response to HUD within 30 
days of service of the notice of civil penalty. The response shall be 
deemed to be a request for hearing. The response should include the 
admission or denial of each allegation of liability made in the notice; 
any defense on which the respondent intends to rely; any reasons why 
the penalties and assessments should be less than the amount set forth 
in the notice; and the name, address, and telephone number of the 
person who will act as the respondent's representative, if any.
    (b) Filing with the Administrative Law Judges. The Department shall 
file the notice and response with the Chief Docket Clerk, Office of 
Administrative Law Judges. If no response is submitted, then the 
Department may file a motion for default judgment, together with a copy 
of the notice, in accordance with 24 CFR 26.39.


Sec. 28.35  Disclosure of documents.

    Upon receipt of a notice of penalty, the respondent may, upon 
written request to the General Counsel or designee, review any relevant 
and material nonprivileged documents, including any exculpatory 
documents, that relate to the allegations set out in the notice. 
Exculpatory information that is contained in a privileged document must 
be disclosed.


Sec. 28.40  Hearings.

    (a) General. Hearings under this part shall be conducted in 
accordance with the procedures in 24 CFR part 26, subpart B.
    (b) Factors to consider in determining amount of penalties and 
assessments. In determining an appropriate amount of civil penalties 
and assessments, the administrative law judge (ALJ) and, upon appeal, 
the Secretary shall consider and state in their opinions any mitigating 
or aggravating circumstances. Because of the intangible costs of fraud, 
the expense of investigating fraudulent conduct, and the need for 
deterrence, ordinarily double damages and a significant civil penalty 
should be imposed. The ALJ and the Secretary shall consider the 
following factors in determining the amount of penalties and 
assessments to be imposed:
    (1) The number of false, fictitious, or fraudulent claims or 
statements;
    (2) The time period over which such claims or statements were made;
    (3) The degree of the respondent's culpability with respect to the 
misconduct;
    (4) The amount of money or the value of the property, services, or 
benefit falsely claimed;
    (5) The value of the Government's actual loss as a result of the 
misconduct, including foreseeable consequential damages and the cost of 
investigation;
    (6) The relationship of the civil penalties to the amount of the 
Government's loss;
    (7) The potential or actual impact of the misconduct upon national 
defense, public health or safety, or public confidence in the 
management of Government programs and operations, including 
particularly the impact on the intended beneficiaries of such programs;
    (8) Whether the respondent has engaged in a pattern of the same or 
similar misconduct;
    (9) Whether the respondent attempted to conceal the misconduct;
    (10) The degree to which the respondent has involved others in the 
misconduct or in concealing it;
    (11) Where the misconduct of employees or agents is imputed to the 
respondent, the extent to which the respondent's practices fostered or 
attempted to preclude the misconduct;
    (12) Whether the respondent cooperated in or obstructed an 
investigation of the misconduct;
    (13) Whether the respondent assisted in identifying and prosecuting 
other wrongdoers;
    (14) The complexity of the program or transaction, and the degree 
of the respondent's sophistication with respect to it, including the 
extent of the respondent's prior participation in the program or in 
similar transactions;
    (15) Whether the respondent has been found, in any criminal, civil, 
or administrative proceeding, to have engaged in similar misconduct or 
to have dealt dishonestly with the Government of the United States or 
of a State, directly or indirectly;
    (16) The need to deter the respondent and others from engaging in 
the same or similar misconduct; and
    (17) Any other factors that in any given case may mitigate or 
aggravate the offense for which penalties and assessments are imposed.
    (c) Stays ordered by the Department of Justice. If at any time the 
Attorney General of the United States or an Assistant Attorney General 
designated by the Attorney General notifies the Secretary in writing 
that continuation of the Department's case may adversely affect any 
pending or potential criminal or civil action related to the claim or 
statement at issue, the ALJ or the Secretary shall stay the process 
immediately. The case may be resumed only upon receipt of the written 
authorization of the Attorney General.


Sec. 28.45  Settlements.

    (a) The Department and the respondent may enter into a settlement 
agreement at any time prior to the issuing of a notice of final 
determination under 24 CFR 26.50.
    (b) Failure of the respondent to comply with a settlement agreement 
shall be sufficient cause for resuming an action under this part, or 
for any other judicial or administrative action.
    9-11. Part 30 is revised to read as follows:

PART 30--CIVIL MONEY PENALTIES: CERTAIN PROHIBITED CONDUCT

Subpart A--General

Sec.
30.1  Purpose and scope.
30.5  Effective dates.
30.10  Definitions.
30.15  Application of other remedies.

Subpart B--Violations

30.20  Ethical violations by HUD employees.
30.25  Violations by applicants for assistance.
30.30  Urban Homestead violations.

[[Page 18034]]

30.35  Mortgagees and lenders.
30.40  Multifamily and Section 202 mortgagors.
30.45  GNMA issuers and custodians.
30.50  Interstate Land Sales violations.
30.55  Dealers or loan correspondents.
30.60  Failure to disclose lead-based paint hazards.

Subpart C--Procedures

30.65  Prepenalty notice.
30.70  Response to prepenalty notice.
30.75  Factors in determining appropriateness and amount of civil 
money penalty.
30.80  Notice of civil money penalty.
30.85  Response to the penalty notice.
30.90  Hearings.
30.95  Settlements.

    Authority: 12 U.S.C. 1701q-1, 1703, 1723i, 1735f-14, 1735f-15; 
15 U.S.C. 1717a; 42 U.S.C. 3535(d).

Subpart A--General


Sec. 30.1  Purpose and scope.

    Unless provided for elsewhere in this title or under separate 
authority, this part implements HUD's civil money penalty provisions. 
The procedural rules for hearings under this part are set forth in 24 
CFR part 26, subpart B.


Sec. 30.5  Effective dates.

    (a) Under Sec. 30.20, a civil money penalty may be imposed for 
violations occurring on or after May 22, 1991.
    (b) Under Secs. 30.25, 30.35, 30.40, 30.45, 30.50, and 30.55, but 
not Sec. 30.35(a)(14), a civil money penalty may be imposed for any 
violations that occur on or after December 15, 1989.
    (c) Under Sec. 30.30, a civil money penalty may be imposed with 
respect to any property transferred for use under section 810 of the 
Housing and Community Development Act of 1974, as amended (12 U.S.C. 
1706e), after January 1, 1981, to a state, a unit of general local 
government, or a public agency or qualified community organization 
designated by a unit of general local government, or a transferee of 
any such entity.
    (d) Under Sec. 30.35(a)(14), concerning loan guarantees for Indian 
housing, a civil money penalty may be imposed for violations occurring 
on or after October 28, 1992.
    (e) Under Sec. 30.60, a civil money penalty may be imposed for 
violations occurring on or after the following dates:
    (1) September 6, 1996, for owners of more than four residential 
dwellings; or
    (2) December 6, 1996, for owners of one to four residential 
dwellings.


Sec. 30.10  Definitions.

    Since this part is primarily procedural, terms not defined in this 
section shall have the meanings given them in relevant program 
regulations. Comprehensive definitions are in 24 CFR part 4 
(Prohibition of Advance Disclosure of Funding Decisions) and 24 CFR 
part 12 (Accountability in the Provision of HUD Assistance). The terms 
ALJ, Department, HUD, and Secretary are defined in 24 CFR part 5.
    Agent. Any person who acts on behalf of another person and includes 
officers, directors, partners and trustees.
    Dealer. A seller, contractor or supplier of goods or services 
having a direct or indirect financial interest in the transaction 
between the borrower and the lender, and who assists the borrower in 
preparing the credit application or otherwise assists the borrower in 
obtaining the loan from the lender.
    Knowing or Knowingly. Having actual knowledge of or acting with 
deliberate ignorance of or reckless disregard for the prohibitions 
under subpart B of this part or under 24 CFR parts 4 or 12.
    Loan correspondent. A lender or loan correspondent as defined at 
Sec. 202.2 of this title.
    Material or Materially. In some significant respect or to some 
significant degree.
    Person. An individual, corporation, company, association, 
authority, firm, partnership, society, state, local government or 
agency thereof, or any other organization or group of people.
    Respondent. A person against whom a civil money penalty action is 
initiated.


Sec. 30.15  Application of other remedies.

    A civil money penalty may be imposed in addition to other 
administrative sanctions or any other civil remedy or criminal penalty.

Subpart B--Violations


Sec. 30.20  Ethical violations by HUD employees.

    (a) General. The General Counsel, or his or her designee, may 
initiate a civil money penalty action against HUD employees who 
improperly disclose information pursuant to Sec. 4.110 of this title.
    (b) Maximum penalty. The maximum penalty is $10,000 for each 
violation.


Sec. 30.25  Violations by applicants for assistance.

    (a) General. The General Counsel, or his or her designee, may 
initiate a civil money penalty action against applicants for 
assistance, as defined in 24 CFR part 12, who knowingly and materially 
violate the provisions of Sec. 12.32 (a), (b), or (c) of this title.
    (b) Maximum penalty. The maximum penalty for each violation is 
$10,000.


Sec. 30.30  Urban Homestead violations.

    (a) General. The Assistant Secretary for Community Planning and 
Development, or his or her designee, or the Director of the Office of 
Technical Assistance and Management may initiate a civil money penalty 
action against persons who knowingly and materially violate section 810 
of the Housing and Community Development Act of 1974, as amended (12 
U.S.C. 1706e), or the provisions of 24 CFR part 590, in the use or 
conveyance of property made available under the Urban Homestead 
Program.
    (b) Maximum penalty. The maximum penalty is either twice the amount 
of the gross profit realized from any impermissible use or conveyance 
of the property, or the amount of section 810 funds used to reimburse 
HUD, the Department of Veterans Affairs, the Resolution Trust 
Corporation, or the Farmers Home Administration (or its successor 
agency under Public Law 103-354) for the property, whichever is 
greater. If the property is still held by the violator, the gross 
profit shall include any appreciation between the amount the violator 
paid for the property and its current value as determined by an 
independent, HUD-qualified appraiser.


Sec. 30.35  Mortgagees and lenders.

    (a) General. The Mortgagee Review Board may initiate a civil money 
penalty action against any mortgagee or lender who knowingly and 
materially:
    (1) Violates the provisions listed in 12 U.S.C. 1735f-14(b);
    (2) Fails to comply with the requirements of Sec. 201.27(a) of this 
title regarding approval and supervision of dealers;
    (3) Approves a dealer that has been suspended, debarred, or 
otherwise denied participation in HUD's programs;
    (4) Makes a payment that is prohibited under Sec. 202.12(p) of this 
title;
    (5) Fails to remit, or timely remit, mortgage insurance premiums, 
loan insurance charges, or late charges or interest penalties;
    (6) Permits loan documents for an FHA insured loan to be signed in 
blank by its agents or any other party to the loan transaction unless 
expressly approved by the Secretary;
    (7) Fails to follow the mortgage assignment procedures set forth in 
Secs. 203.650 through 203.664 of this title or in Secs. 207.255 through 
207.258b of this title.
    (8) Fails to timely submit documents that are complete and accurate 
in connection with a conveyance of

[[Page 18035]]

property or a claim for insurance benefits, in accordance with 
Secs. 203.365, 203.366, or 203.368 of this title;
    (9) Fails to:
    (i) Process requests for formal release of liability under an FHA 
insured mortgage;
    (ii) Obtain a credit report, issued not more than 90 days prior to 
approval of a person as a borrower, as to the person's creditworthiness 
to assume an FHA insured mortgage;
    (iii) Timely submit proper notification of a change in mortgagor or 
mortgagee as required by Sec. 203.431 of this title;
    (iv) Timely submit proper notification of mortgage insurance 
termination as required by Sec. 203.318 of this title;
    (v) Timely submit proper notification of a change in mortgage 
servicing as required by Sec. 203.502 of this title; or
    (vi) Report all delinquent mortgages to HUD, as required by 
Sec. 203.332 of this title;
    (10) Fails to service FHA insured mortgages, in accordance with the 
requirements of 24 CFR parts 201, 203, and 235;
    (11) Fails to fund loans that it originated, or otherwise misuses 
loan proceeds;
    (12) Fails to comply with the conditions relating to the assignment 
or pledge of mortgages as required by Sec. 207.261 of this title;
    (13) Fails to comply with the provisions of the Real Estate 
Settlement Procedures Act (12 U.S.C. 2601 et seq.), the Equal Credit 
Opportunity Act (15 U.S.C. 1691 et seq.), or the Fair Housing Act (42 
U.S.C. 3601 et seq.);
    (14) Violates the provisions of 12 U.S.C. 1715z-13a(g)(2) 
concerning loan guarantees for Indian housing;
    (15) Fails to comply with the terms of a settlement agreement with 
HUD.
    (b) Continuing violation. Each day that a violation continues shall 
constitute a separate violation.
    (c) Amount of penalty. The maximum penalty is $5,000 for each 
violation, up to a limit of $1,000,000 for all violations committed 
during any one-year period. Each violation shall constitute a separate 
violation as to each mortgage or loan application.


Sec. 30.40  Multifamily and Section 202 mortgagors.

    (a) General. The Assistant Secretary for Housing-Federal Housing 
Commissioner, or his or her designee, may initiate a civil money 
penalty action against any mortgagor of property that includes five or 
more living units and is subject to a mortgage insured, coinsured, or 
held by the Secretary, who knowingly and materially commits a violation 
listed at 12 U.S.C. 1735f-15(b) or (c), or 12 U.S.C. 1701q-1(b) or (c).
    (b) Maximum penalty. The maximum penalty for each violation of 12 
U.S.C. 1735f-15(b) and 12 U.S.C. 1701q-1(b) is the amount of loss that 
the Secretary incurs at a foreclosure sale, or a sale after 
foreclosure, with respect to the property involved. The maximum penalty 
for each violation of 12 U.S.C. 1735f-15(c) and 12 U.S.C. 1701q-1(c) is 
$25,000.


Sec. 30.45  GNMA issuers and custodians.

    (a) General. The President of GNMA, or his or her designee, may 
initiate a civil money penalty action against a GNMA issuer or 
custodian that knowingly and materially violates any provision of 12 
U.S.C. 1723i(b), title III of the National Housing Act, or any 
implementing regulation, handbook, guaranty agreement, or contractual 
agreement, or participant letter issued by GNMA, or fails to comply 
with the terms of a settlement agreement with GNMA.
    (b) Continuing violation. Each day that a violation continues shall 
constitute a separate violation.
    (c) Amount of penalty. The maximum penalty is $5,000 for each 
violation, up to a limit of $1 million during any one-year period. Each 
violation shall constitute a separate violation with respect to each 
pool of mortgages.


Sec. 30.50  Interstate Land Sales violations.

    (a) General. The Assistant Secretary for Housing-Federal Housing 
Commissioner, or his or her designee, may initiate a civil money 
penalty action against any person who knowingly and materially violates 
any provision of the Interstate Land Sales Full Disclosure Act (15 
U.S.C. 1701 et seq.); the rules and regulations set forth at 24 CFR 
parts 1710, 1715, and 1720, or any order issued thereunder.
    (b) Continuing violation. Each day that a violation continues shall 
constitute a separate violation.
    (c) Maximum penalty. The maximum penalty is $1,000, up to a limit 
for any particular person of $1 million during any one-year period. 
Each violation shall constitute a separate violation as to each sale or 
lease or offer to sell or lease.


Sec. 30.55  Dealers or loan correspondents.

    (a) General.  The Assistant Secretary for Housing-Federal Housing 
Commissioner, or his or her designee, may initiate a civil money 
penalty action against any dealer or loan correspondent who violates 
section 2(b)(7) of the National Housing Act (12 U.S.C. 1703). Such 
violations include, but are not limited to:
    (1) Falsifying information on an application for dealer approval or 
reapproval submitted to a lender;
    (2) Falsifying statements on a HUD credit application, improvement 
contract, note, security instrument, completion certificate or other 
loan document;
    (3) Failing to sign a credit application if the dealer or loan 
correspondent assisted the borrower in completing the application;
    (4) Falsely certifying to a lender that the loan proceeds have been 
or will be spent on eligible improvements;
    (5) Falsely certifying to a lender that the property improvements 
have been completed;
    (6) Falsely certifying that a borrower has not been given or 
promised any cash payment, rebate, cash bonus, or anything of more than 
nominal value as an inducement to enter into a loan transaction;
    (7) Making a false representation to a lender with respect to the 
creditworthiness of a borrower or the eligibility of the improvements 
for which a loan is sought.
    (b) Continuing violation. Each day that a violation continues shall 
constitute a separate violation.
    (c) Amount of penalty. The maximum penalty is $5,000 for each 
violation, up to a limit of $1 million during any one-year period.


Sec. 30.60  Failure to disclose lead-based paint hazards.

    (a) General. The Director of the Office of Lead-Based Paint 
Abatement and Poisoning Prevention, or his or her designee, may 
initiate a civil money penalty action against any person who knowingly 
violates 42 U.S.C. 4852d(b)(1) or any provision of 24 CFR part 35, 
subpart H.
    (b) Amount of penalty. The maximum penalty is $10,000 for each 
violation.

Subpart C--Procedures


Sec. 30.65  Prepenalty notice.

    Whenever HUD intends to seek a civil money penalty, the official 
designated in subpart B of this part, or his or her designee (or the 
chairperson of the Mortgagee Review Board, or his or her designee, in 
actions under Sec. 30.35), shall issue a written notice to the 
respondent. This prepenalty notice shall include the following:
    (a) That HUD is considering seeking a civil money penalty;
    (b) The specific violations alleged;
    (c) The maximum civil money penalty that may be imposed;
    (d) The opportunity to reply in writing to the designated program 
official within 30 days after receipt of the notice; and
    (e) That failure to respond within the 30-day period may result in 
issuance of

[[Page 18036]]

a notice of civil money penalty under Sec. 30.80 without consideration 
of any information that the respondent may wish to provide.


Sec. 30.70  Response to prepenalty notice.

    The response shall be in a format prescribed in the prepenalty 
notice. The response shall include any arguments opposing the 
imposition of a civil money penalty that the respondent may wish to 
present.


Sec. 30.75  Factors in determining appropriateness and amount of civil 
money penalty.

    In determining whether to seek a penalty, and the amount of such 
penalty, the officials designated in subpart B of this part shall 
consider the following factors:
    (a) The gravity of the offense;
    (b) Any history of prior offenses. For violations under 
Secs. 30.25, 30.35, 30.40, 30.45, 30.50, and 30.55, but not violations 
under Sec. 30.35(a)(14), offenses that occurred prior to December 15, 
1989 may be considered;
    (1) The ability to pay the penalty;
    (2) The injury to the public;
    (3) Any benefits received by the violator;
    (4) The extent of potential benefit to other persons;
    (5) Deterrence of future violations;
    (6) The degree of the violator's culpability;
    (7) With respect to Urban Homestead violations under Sec. 30.30, 
the expenditures made by the violator in connection with any gross 
profit derived; and
    (8) Such other matters as justice may require.
    (c) In addition to the above factors, with respect to violations 
under Secs. 30.40, 30.50, and 30.55, the Assistant Secretary for 
Housing-Federal Housing Commissioner, or his or her designee, shall 
also consider:
    (1) Any injury to tenants; and/or
    (2) Any injury to lot owners.


Sec. 30.80  Notice of civil money penalty.

    (a) General. Upon the expiration of the period for the respondent 
to submit a response to the prepenalty notice, the official designated 
in subpart B of this part, or his or her designee (or the Mortgagee 
Review Board in actions under Sec. 30.35) shall determine whether to 
seek a civil money penalty. Such determination shall be based upon a 
review of the prepenalty notice, the response, if any, and the factors 
listed at Sec. 30.75. A determination by the Mortgagee Review Board to 
seek a civil money penalty shall be by a majority vote of the Board.
    (b) Notice. If a determination is made to seek a civil money 
penalty, the official or his or her designee, or the Mortgagee Review 
Board, shall so notify the respondent, in writing. The notice shall 
state the following:
    (1) The factual basis for the decision to seek a penalty;
    (2) The applicable civil money penalty statute;
    (3) The amount of penalty sought;
    (4) The right to submit a response in writing, within 15 days of 
receipt of the notice, requesting a hearing on any material fact in the 
notice, or on the appropriateness of the penalty sought;
    (5) The address to which a response must be sent;
    (6) That the notice shall serve as HUD's complaint if a hearing is 
requested; and
    (7) That the failure to submit a response may result in the 
imposition of the penalty in the amount sought.
    (c) A copy of this part and of 24 CFR part 26, subpart B shall be 
included with the notice.
    (d) Service of the notice. The notice shall be served on the 
respondent by first class mail, personal delivery, or other means. In 
cases of violations by mortgagees and lenders of 12 U.S.C. 1735f-
14(b)(1)(D) or (1)(F), or by GNMA issuers or custodians of 12 U.S.C. 
1723i(b)(1)(G) or (1)(I), a copy of the notice shall be provided to the 
Attorney General.


Sec. 30.85  Response to the penalty notice.

    (a) General. The respondent may submit to HUD a written response to 
the penalty notice within 15 days of its receipt. The response shall be 
considered a request for a hearing. The response should include the 
admission or denial of each allegation of liability made in the notice; 
any defense on which the respondent intends to rely; any reasons why 
the civil money penalty is not warranted or should be less than the 
amount sought in the notice; and the name, address, and telephone 
number of the person who will act as the respondent's representative, 
if any.
    (b) Filing with the Administrative Law Judges. HUD shall file the 
notice and response with the Chief Docket Clerk, Office of 
Administrative Law Judges. If no response is submitted, then HUD may 
file a motion for default judgment, together with a copy of the notice, 
in accordance with Sec. 26.39 of this title.


Sec. 30.90  Hearings.

    Hearings under this part shall be conducted in accordance with the 
procedures at 24 CFR part 26, subpart B.


Sec. 30.95  Settlements.

    The officials listed at subpart B of this part, or their designees 
(or the Mortgagee Review Board for violations under Sec. 30.35), are 
authorized to enter into settlement agreements of civil money penalty 
claims. Settlement agreements may be executed at any time prior to the 
issuing of a notice of final determination under Sec. 26.50 of this 
title, and may include sanctions for failure to comply with the terms 
of the agreement.

PART 81--REGULATIONS IMPLEMENTING THE AUTHORITY OF THE SECRETARY OF 
THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT OVER THE CONDUCT OF 
THE SECONDARY MARKET OPERATIONS OF THE FEDERAL NATIONAL MORTGAGE 
ASSOCIATION (FNMA)

    12. The authority citation for 24 CFR part 81 continues to read as 
follows:

    Authority: 12 U.S.C. 1451 et seq., 1716-1723h, and 4501-4641; 42 
U.S.C. 3535(d) and 3601-3619.

    13. Section 81.46 is amended by revising the first sentence of 
paragraph (e)(1) to read as follows:


Sec. 81.46  Remedial actions.

* * * * *
    (e) * * * (1) Where a lender timely requests a hearing on a 
remedial action, a hearing shall be conducted before a HUD 
Administrative Law Judge (ALJ) and a final decision rendered in 
accordance with the procedures set forth in 24 CFR part 26, subpart B, 
to the extent such provisions are not inconsistent with subpart C of 
this part or FHEFSSA. * * *
* * * * *
    14. Section 81.82 is amended by revising the second sentence of 
paragraph (b)(2) to read as follows:


Sec. 81.82  Cease-and-desist proceedings.

* * * * *
    (b) * * *
    (2) Administrative Law Judge.  * * * The hearing shall be conducted 
in accordance with Sec. 81.84 and, to the extent the provisions are not 
inconsistent with any of the procedures in this part or FHEFSSA, with 
24 CFR part 26, subpart B.
* * * * *
    15. Section 81.83 is amended by revising paragraph (d)(3) to read 
as follows:


Sec. 81.83  Civil money penalties.

* * * * *
    (d) * * *
    (3) Administrative Law Judge. A HUD ALJ shall preside over any 
hearing

[[Page 18037]]

conducted under this section, in accordance with Sec. 81.84 and, to the 
extent the provisions are not inconsistent with any of the procedures 
in this part or FHEFSSA, with 24 CFR part 26, subpart B.
* * * * *
    16. Section 81.84 is amended by:
    a. Revising paragraph (b)(2);
    b. Revising paragraph (d);
    c. Amending the third sentence of paragraph (h)(1) by removing the 
reference to ``Sec. 30.515'', and by adding in its place a reference to 
``Sec. 26.38'';
    d. Amending the first sentence of paragraph (j)(2) by removing the 
reference to ``Sec. 30.910'', and by adding in its place a reference to 
``Sec. 26.51 (c)''; and amending the second sentence of paragraph 
(j)(2) by removing the reference to ``Sec. 30.910 (c) and (d)'', and by 
adding in its place a reference to ``Sec. 26.51(f)''; to read as 
follows:


Sec. 81.84  Hearings.

* * * * *
    (b) * * *
    (2) Hearings shall be conducted by a HUD ALJ authorized to conduct 
proceedings under 24 CFR part 26, subpart B.
* * * * *
    (d) Procedure. Hearings shall be conducted in accordance with the 
procedures set forth in 24 CFR part 26, subpart B to the extent that 
such provisions are not inconsistent with any of the procedures in this 
part or FHEFSSA.
* * * * *


Sec. 81.85  [Amended]

    17. In section 81.85(c)(1), the third sentence is amended by 
removing the reference to ``Sec. 30.515'', and by adding in its place a 
reference to ``Sec. 26.38''.

PART 200--INTRODUCTION

    18. The authority citation for 24 CFR part 200 continues to read as 
follows:

    Authority: 12 U.S.C. 1701-1715z-18; 42 U.S.C. 3535(d).


Sec. 200.243  [Amended]

    19. In Sec. 200.243, the second sentence of the introductory text 
of paragraph (a) is amended by adding the phrase ``, subpart A,'' after 
the phrase ``24 CFR part 26''.

PART 950--INDIAN HOUSING PROGRAMS

    20. The authority citation for 24 CFR part 950 continues to read as 
follows:

    Authority: 25 U.S.C. 450e(b); 42 U.S.C. 1437aa-1437ee, and 
3535(d).


Sec. 950.190  [Amended]

    21. In Sec. 950.190, the last sentence of paragraph (e) is amended 
by adding the phrase ``, subpart A'' after the phrase ``24 CFR part 
26''.

PART 965--PHA-OWNED OR LEASED PROJECTS--MAINTENANCE AND OPERATION

    22. The authority citation for 24 CFR part 965 continues to read as 
follows:

    Authority: 42 U.S.C. 1437, 1437a, 1437d, 1437g, and 3535(d). 
Subpart H is also issued under 42 U.S.C. 4821-4846.


Sec. 965.205  [Amended]

    23. In Sec. 965.205, the last sentence of paragraph (e) is amended 
by adding the phrase ``, subpart A'' after the phrase ``24 CFR part 
26''.

PART 3500--REAL ESTATE SETTLEMENT PROCEDURES ACT

    24. The authority citation for 24 CFR part 3500 continues to read 
as follows:

    Authority: 12 U.S.C. 2601 et seq.


Sec. 3500.17  [Amended]

    25. In Sec. 3500.17, paragraphs (n)(1) and (n)(4)(iii) are amended 
by removing the phrase ``, subpart E,''.

    Dated: March 12, 1996.
Henry G. Cisneros,
Secretary.
[FR Doc. 96-9877 Filed 4-22-96; 8:45 am]
BILLING CODE 4210-32-P