[Federal Register Volume 61, Number 121 (Friday, June 21, 1996)]
[Rules and Regulations]
[Pages 32264-32265]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15735]




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Part V





Department of Housing and Urban Development





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24 CFR Part 290



Sale of HUD-Held Multifamily Mortgages; Final Rule

  Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Rules 
and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 290

[Docket No. FR-3970-F-02]
RIN 2502-AG59


Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner; Sale of HUD-Held Multifamily Mortgages

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

ACTION: Final rule.

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SUMMARY: This rule amends the Department's regulations governing the 
sale of multifamily mortgages. It adds a provision protecting leases of 
residential tenants in the event of foreclosure of certain mortgages 
after they have been sold by HUD. This rule continues the protections 
already provided to tenants that are receiving project-based federal 
rental assistance or Section 8 tenant-based rental assistance. This 
rule also clarifies a requirement added by the earlier interim rule 
which continued, after the mortgage was sold by HUD, the prohibition on 
project owners against discrimination in admitting tenants based on 
their holding Section 8 certificates or vouchers. This rule clarifies 
that this requirement continues until the mortgage debt is satisfied. 
These amendments are intended to further the Department's efforts to 
return its inventory of HUD-held multifamily mortgages to the private 
sector in a manner that is beneficial to HUD and the residents of these 
projects.

EFFECTIVE DATE: July 22, 1996.

FOR FURTHER INFORMATION CONTACT: Audrey Hinton, Associate Director for 
Program Operations, Office of Multifamily Asset Management and 
Disposition, Office of Housing, Room 6160, Department of Housing and 
Urban Development, 451 Seventh Street, S.W., Washington, D.C. 20410, 
telephone (202) 708-3730, Ext. 2691. (This is not a toll-free number.) 
Hearing or speech-impaired individuals may call 1-800-877-8399 (Federal 
Information Relay Service TTY).
SUPPLEMENTARY INFORMATION:

Background

    On February 6, 1996, the Department published an interim rule (61 
FR 4850) which added two sections to 24 CFR part 290 that provided 
certain tenant protections when HUD sold multifamily mortgages. On 
March 21, 1996, as part of its effort to reinvent and streamline all of 
its regulations, the Department published a final rule that contained a 
complete revision of 24 CFR part 290. That final rule contained the 
pertinent sections and indicated that HUD would republish the sections 
in a final rule after considering public comment.
    Section 290.112 of the interim rule (now Sec. 290.37) provided 
that, in the sale of delinquent mortgages on subsidized projects and 
partially-assisted unsubsidized, HUD will require project purchasers, 
including foreclosure purchasers, to assume federal rental subsidy 
contracts. In addition, mortgage purchasers may not foreclose in a 
manner that would terminate such assisted tenants' leases.
    The interim rule preamble discussion of the then Sec. 290.112 also 
sought comment on adding a requirement that existing leases of 
unassisted tenants in such projects must be maintained after 
foreclosure for a period equal to the remaining term of the lease or 
one year, whichever period is shorter, if the leases could otherwise be 
extinguished under state foreclosure law. The Department did not 
actually effectuate this provision in the interim rule because it did 
not believe it had a basis to forego prior public comment.
    Section 290.114 of the interim rule (now Sec. 290.39) provided that 
owners of subsidized projects and partially-assisted unsubsidized 
projects will continue to be subject to a prohibition against 
discriminating against certificate and voucher holders after a mortgage 
sale without insurance. In addition, for all mortgages that are 
delinquent when sold by HUD, owners both of subsidized projects and 
unsubsidized projects must agree to record a covenant running with the 
land to continue this obligation through the maturity date of the 
mortgage as part of the consideration of a loan restructuring or 
compromise of the mortgage indebtedness with the mortgage purchaser. 
Alternatively, if the mortgage purchaser forecloses, this 
nondiscrimination obligation would apply to the project purchaser at 
foreclosure.
    The preamble to the interim rule (61 FR 4581) also provided 
additional guidance on how HUD intends to implement the then 
Sec. 290.110(b) (now Sec. 290.35(b)).
    The Department received one public comment on the interim rule, 
which supported the changes made by the interim rule. The commenter did 
not directly respond to the issue, raised in the preamble, of 
safeguarding the possessory rights of unassisted tenants after 
foreclosure.

Changes Effected by This Final Rule

    This final rule amends Sec. 290.37(b) to adopt the change proposed 
in the preamble to the interim rule. Namely, it requires a mortgagee 
(and its successors and assigns) that purchases from HUD a delinquent 
mortgage on a subsidized project or a partially-assisted unsubsidized 
project and subsequently forecloses the mortgage to ensure that the 
purchaser at foreclosure takes possession subject to the rights of 
residential tenants who are not receiving federal project-based or 
Section 8 tenant-based rental assistance. This tenant protection lasts 
for the remaining term of the lease or for one year, whichever period 
is shorter.
    The scope and duration of this tenant protection is similar to that 
which would apply under section 369E of the Multifamily Mortgage 
Foreclosure Act of 1981, as amended, (12 U.S.C. 3713(c), see also 24 
CFR 27.45(b)) when HUD forecloses on a mortgage that it holds.
    The amendment does not affect residential tenants who receive 
rental assistance. They are protected by existing requirements now in 
Sec. 290.37(b)(1) (Sec. 290.112(b) in the interim rule). Under that 
section, the mortgage purchaser and its successors and assigns, if they 
foreclose, must foreclose in a manner that does not interfere with any 
lease related to federal project-based assistance or any lease related 
to tenant-based, Section 8 housing assistance payments.
    This final rule makes one additional change to clarify the duration 
of the nondiscrimination against certificate and voucher holders 
requirement in current Sec. 290.39. Section 290.39 (Sec. 290.114 of the 
interim rule) prohibits a project owner from unreasonably refusing to 
lease a unit because the tenant is a certificate or voucher holder. The 
prohibition applies to owners of subsidized projects or partially-
assisted unsubsidized projects. Section 290.39(c)(2) of the current 
rule provides that ``This requirement shall continue until the mortgage 
is paid in full, including by a mortgage prepayment, except as provided 
in paragraph (d) of this section.'' The intent of this provision was to 
continue the nondiscrimination requirement for as long as the project 
was subject to the mortgage debt. (See the preamble discussion of 
Sec. 290.114 in the interim rule at 61 FR 4583.) The above-quoted rule 
text, however, is unclear as to the effect of a satisfaction of the 
mortgage with less than a full payment. This rule amends Sec. 290.39 to 
state explicitly that the nondiscrimination requirement

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continues in effect until the mortgage debt is satisfied.

Other Matters

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.

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 on 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 rule is not subject to review under the Order. 
Specifically, the requirements of this rule are directed to HUD 
administrative procedures, and do not impinge upon the relationship 
between Federal government and State and local governments.

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.

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. This rule 
will not affect the ability of small entities, relative to larger 
entities, to bid for and acquire HUD-held mortgages that HUD decides to 
sell.

List of Subjects in 24 CFR Part 290

    Low and moderate income housing, Mortgage insurance.

    Accordingly part 290 of Title 24 of the Code of Federal Regulations 
is amended as follows:

PART 290--MANAGEMENT AND DISPOSITION OF HUD-OWNED MULTIFAMILY 
PROJECTS AND CERTAIN MULTIFAMILY PROJECTS SUBJECT TO HUD-HELD 
MORTGAGES

    1. The part heading for part 290 is revised as set forth above.
    2. The authority citation for part 290 is revised to read as 
follows:

    Authority: 12 U.S.C. 1701z-11, 1701z-12, 1713, 1715b, 1715z-1b; 
42 U.S.C. 3535(d) and 3535(i).


Sec. 290.30   [Amended]

    3. In Sec. 290.30, paragraph (a) is amended by removing the 
reference to ``Sec. 290.32(a)(2)'' and adding in its place 
``Sec. 290.31(a)(2)''.
    4. In Sec. 290.37, paragraph (b) is revised to read as follows:


Sec. 290.37  Requirements for continuing federal rental subsidy 
contracts.

* * * * *
    (b) In the event of foreclosure of the mortgage sold by HUD, the 
mortgage purchaser and its successors and assigns:
    (1) Shall foreclose in a manner that does not interfere with any 
lease related to federal project-based assistance or any lease related 
to tenant-based, Section 8 housing assistance payments; and
    (2) Shall foreclose in manner that ensures that the right of 
possession of the purchaser at a foreclosure sale shall be subject to 
the terms of any residential lease not subject to paragraph (b)(1) of 
this section for the remaining term of the lease or for one year, 
whichever period is shorter.
* * * * *
    3. In Sec. 290.39, paragraph (c)(2) is revised to read as follows:


Sec. 290.39   Nondiscrimination in admitting certificate and voucher 
holders.

* * * * *
    (c) * * *
    (2) This requirement shall continue in effect until the mortgage 
debt is satisfied.
* * * * *
    Dated: June 11, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 96-15735 Filed 6-20-96; 8:45 am]
BILLING CODE 4210-27-P