[Federal Register Volume 61, Number 209 (Monday, October 28, 1996)]
[Rules and Regulations]
[Pages 55710-55716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27543]



[[Page 55709]]


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Part III





Department of Housing and Urban Development





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24 CFR Part 291



Disposition of HUD-Acquired Single Family Property; Streamlining Final 
Rule

  Federal Register / Vol. 61, No. 209 / Monday, October 28, 1996 / 
Rules and Regulations  

[[Page 55710]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 291

[Docket No. FR-4116-F-01]
RIN 2502-AG81


Disposition of HUD-Acquired Single Family Property; Streamlining 
Final Rule

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule amends HUD's regulations for the disposition 
of HUD-acquired single family property. In an effort to comply with the 
President's regulatory reform initiatives, this rule will streamline 
these regulations by eliminating provisions that are redundant or are 
otherwise unnecessary. This final rule will make the single family 
property disposition program regulations clearer and more concise.

EFFECTIVE DATE: November 27, 1996.

FOR FURTHER INFORMATION CONTACT: Ann M. Sudduth, Director, Department 
of Housing and Urban Development, Room 9170, 451 Seventh Street, SW, 
Washington, DC 20410; telephone number (202) 708-0740 (this is not a 
toll-free number). For hearing- and speech-impaired persons, this 
number may be accessed via TTY by calling the Federal Information Relay 
Service at 1-800-877-8339.

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 the regulations for the disposition of HUD-
acquired single family properties in 24 CFR part 291 can be improved 
and streamlined by eliminating unnecessary provisions.
    According to the President's regulatory reinvention initiatives, 
the Code of Federal Regulations (CFR) should contain only binding 
regulatory requirements. However, several sections in the single family 
property disposition regulations contain nonbinding guidance, 
information, or explanations. HUD will more appropriately provide this 
information through handbook guidance or other materials. By removing 
provisions from the CFR that are not binding regulatory requirements, 
HUD will clarify to the reader which provisions are actually binding 
requirements. Furthermore, HUD has determined that some of the binding 
requirements in these regulations are no longer necessary. Therefore, 
through this final rule, HUD's regulations for the disposition of 
single family property will contain only those regulatory requirements 
that are necessary for the proper administration of the disposition 
program.
    Specifically, this rule accomplishes the following:
    1. This rule streamlines Sec. 291.1 by revising paragraph (b) 
regarding nondiscrimination requirements. The nondiscrimination 
requirements in paragraph (b) are already contained in 24 CFR part 5, 
which was established by a final rule published on February 9, 1996 (61 
FR 5198). This rule also eliminates paragraph (c), which was 
informational and nonbinding.
    2. This rule consolidates most of the definitions throughout part 
291 into Sec. 291.5 to make them easier to find. This rule removes the 
definition for the term ``revitalization area.'' This definition is 
unnecessary because, due to the other streamlining efforts in this 
rule, this term no longer appears in part 291. This rule also 
streamlines the definition of ``tribe'' by removing language that 
simply repeats a statutory provision.
    3. This rule streamlines Sec. 291.100 regarding HUD's general 
disposition policies by removing unnecessary cross-references and 
nonbinding information. It also revises paragraph (d)(2) to provide 
that when HUD decides to take back a purchase money mortgage (PMM) on a 
property, the mortgage will be available in an amount determined by the 
Secretary. This revision will give HUD more flexibility to offer the 
mortgage at a fair price.
    4. This rule streamlines Sec. 291.105 regarding the competitive 
sales procedure by removing language that is unnecessary or redundant. 
This rule also revises paragraph (f) by clarifying HUD's procedures 
regarding properties subject to an extended listing period. This 
clarification will assist the public by eliminating confusion regarding 
the procedures.
    5. This rule streamlines Sec. 291.110 regarding other sales 
procedures. This rule removes some of the specific information 
regarding other sales procedures that is nonbinding and that HUD could 
more appropriately provide through other means. This rule also revises 
this section slightly to clarify that a property will be sold to the 
first eligible purchaser submitting an acceptable contract. (See 
Sec. 291.110(a)(2)(i) of this final rule. The regulations previously 
provided that properties will be sold on a ``first come-first served 
basis.'')
    6. This rule removes Secs. 291.115 through 291.145. HUD has 
determined that the information and requirements in these sections no 
longer need to appear in the CFR.
    7. This rule streamlines subpart C of part 291 regarding the rental 
of acquired property. This rule will provide HUD's general policy in 
Sec. 291.200, but it will remove the information and requirements that 
no longer need to appear in the CFR.
    8. This rule revises Sec. 291.400 regarding the lease and sale of 
HUD-acquired property for the homeless. This rule removes language that 
is unnecessary or redundant. This rule also adds a new paragraph 
regarding applicant preapproval, which was previously located in 
Sec. 291.410. It is necessary to retain this requirement to inform the 
public of the initial procedures for acquiring properties for the 
homeless.
    9. This rule removes Sec. 291.405. The definitions in this section 
will now appear in Sec. 291.5.
    10. This rule also removes Sec. 291.410. HUD has determined that, 
with the exception of the requirement for applicant preapproval, which 
was moved to Sec. 291.400, the information and requirements in 
Sec. 291.410 no longer need to appear in the CFR.
    11. This rule streamlines Sec. 291.415 by removing paragraph (d) 
regarding property operating costs and insurance. The important 
requirements in that paragraph are disclosed in and enforceable through 
the terms of the lease, and it is unnecessary to retain them in the 
CFR.
    12. This rule removes Secs. 291.420 and 291.425. HUD has determined 
that the information and requirements in these sections no longer need 
to appear in the CFR.
    13. This rule does not amend Sec. 291.430 regarding the elimination 
of lead-based paint hazards.
    14. This rule revises Sec. 291.435 by removing paragraph (c), which 
provided that the requirements for intergovernmental review ``are not 
applicable to applications under this subpart.'' It is unnecessary to 
maintain this information in the CFR.
    This rule will result in the elimination of approximately nine 
pages of unnecessary regulations.

Justification for Final Rulemaking

    HUD generally publishes a rule for public comment before issuing a 
rule for

[[Page 55711]]

effect, in accordance with its own regulations on rulemaking in 24 CFR 
part 10. However, part 10 provides for exceptions to the general rule 
if the agency finds good cause to omit advance notice and public 
participation. The good cause requirement is satisfied when prior 
public procedure is ``impracticable, unnecessary, or contrary to the 
public interest'' (24 CFR 10.1). HUD finds that good cause exists to 
publish this rule for effect without first soliciting public comment. 
This rule merely removes unnecessary regulatory provisions and 
clarifies existing procedures; it does not establish or affect 
substantive policy. Therefore, prior public comment is unnecessary.

Findings and Certifications

Environmental Impact

    This rule does not have an environmental impact. This rule simply 
amends existing regulations by consolidating and streamlining 
provisions; it does not alter the environmental effect of the 
regulations being amended. As HUD developed the regulations in part 
291, Findings of No Significant Impact with respect to the environment 
were made in accordance with regulations in 24 CFR part 50 that 
implement section 102(2)(C) of the National Environmental Policy Act of 
1969 (42 U.S.C. 4332). Those findings remain applicable to this rule, 
and are available for public inspection between 7:30 a.m. and 5:30 p.m. 
weekdays in the Office of the Rules Docket Clerk, Office of General 
Counsel, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street, SW, Washington, DC.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this final rule, thereby 
certifying that this rule will not have a significant economic impact 
on a substantial number of small entities. This rule merely streamlines 
regulations. It will have no adverse or disproportionate economic 
impact on small entities.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that this rule 
will not have substantial direct effects on States or their political 
subdivisions, on the relationship between the Federal Government and 
the States, or on the distribution of power and responsibilities among 
the various levels of government. No programmatic or policy changes 
will result from this rule that would affect the relationship between 
the 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 will not have 
the potential for significant impact on family formation, maintenance, 
or 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.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. 
L. 104-4; approved March 22, 1995) establishes requirements for Federal 
agencies to assess the effects of their regulatory actions on State, 
local, and tribal governments, and on the private sector. This rule 
does not impose any Federal mandates on any State, local, or tribal 
governments, or on the private sector, within the meaning of the UMRA.

List of Subjects in 24 CFR Part 291

    Community facilities, Conflict of interests, Homeless, Lead 
poisoning, Low and moderate income housing, Mortgages, Reporting and 
recordkeeping requirements, Surplus government property.

    Accordingly, for the reasons stated in the preamble, 24 CFR part 
291, subparts A, B, C, and E are revised as set forth below:

PART 291--DISPOSITION OF HUD-ACQUIRED SINGLE FAMILY PROPERTY

    1. The authority citation for 24 CFR part 291 continues to read as 
follows:

    Authority: 12 U.S.C. 1709 and 1715b; 42 U.S.C. 1441, 1441a, 
1551a, and 3535(d).

    2. Subparts A, B, and C are revised to read as follows:

Subpart A--General Provisions

Sec.
291.1  Purpose and scope.
291.5  Definitions.

Subpart B--Disposition by Sale

291.100  General policy.
291.105  Competitive sales procedures.
291.110  Other sales procedures.
291.150  Sanctions against fradulent purchase.

Subpart C--Rental of Acquired Property

291.200  General policy.
* * * * *

Subpart A--General Provisions


Sec. 291.1  Purpose and scope.

    (a) Purpose. (1) This part governs the disposition of one-to-four 
family properties that are acquired by HUD or are otherwise in HUD's 
custody. Detailed policies and procedures that must be followed in 
specific areas are issued by each HUD field office.
    (2) The purpose of the property disposition program is to reduce 
the inventory of acquired properties in a manner that expands 
homeownership opportunities, strengthens neighborhoods and communities, 
and ensures a maximum return to the mortgage insurance fund.
    (b) Nondiscrimination policy. The requirements set forth in 24 CFR 
parts 5 and 110 apply to the administration of any activity under this 
part.


Sec. 291.5  Definitions.

    The terms ``HUD'' and ``Secretary'' are defined in 24 CFR part 5.
    Applicant means a State, metropolitan city, urban county, 
governmental entity, tribe, or private nonprofit organization that 
submits a written expression of interest in eligible properties under 
subpart E of this part. Governmental entities include those that have 
general governmental powers (e.g., a city or county), as well as those 
with limited or special powers (e.g., public housing agencies or state 
housing finance agencies). In the case of applicants leasing properties 
while their applications for Supportive Housing assistance are pending, 
``applicant'' is defined in 24 CFR part 583.
    Closing agent means a qualified firm or person under contract to 
HUD to administer closings involving the sale of HUD-acquired single 
family properties.
    Competitive sale means a sale through a sealed bid process (or 
other bid process specifically authorized by the Secretary) in 
competition with other bidders in which properties have been publicly 
advertised to all prospective purchasers for bids.
    Direct sale means a sale to a selected purchaser to the exclusion 
of all others without resorting to advertising for bids. Such a sale is 
available only to approved applicants.
    Disposition means the sale, or lease with option to purchase, of 
eligible properties for use by the homeless.
    Eligible properties means all vacant single family properties 
acquired by HUD under the Mutual Mortgage Insurance Fund, the Special 
Risk Insurance Fund, the General Insurance Fund, or other housing 
programs, except properties committed to other HUD programs.

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    Homeless means:
    (1) Individuals or families who lack the resources to obtain 
housing, whose annual income is not in excess of 50 percent of the 
median income for the area, as determined by HUD, and who:
    (i) Have a primary nighttime residence that is a public or private 
place not designed for, or ordinarily used as, a regular sleeping 
accommodation for human beings;
    (ii) Have a primary nighttime residence that is a supervised 
publicly or privately operated shelter designed to provide temporary 
living accommodations (including welfare hotels, congregate shelters, 
and transitional housing, but excluding prisons or other detention 
facilities); or
    (iii) Are at imminent risk of homelessness because they face 
immediate eviction and have been unable to identify a subsequent 
residence, which would result in emergency shelter placement (except 
that persons facing eviction on the basis of criminal conduct such as 
drug trafficking and violations of handgun prohibitions shall not be 
considered homeless for purposes of this definition); or
    (2) Handicapped persons who are about to be released from an 
institution and are at risk of imminent homelessness because no 
subsequent residences have been identified and because they lack the 
resources and support networks necessary to obtain access to housing.
    Insured mortgage means a mortgage insured under the National 
Housing Act (12 U.S.C. 1701 et seq.).
    Investor purchaser means a purchaser who does not intend to use the 
property as his or her principal residence.
    Lessee means the applicant, approved by HUD as financially 
responsible, that executes a lease agreement with HUD for an eligible 
property.
    Occupant, for purposes of the lease and sale of HUD-acquired single 
family properties for the homeless, means a homeless individual or 
family that occupies an eligible property after that property has been 
leased to an applicant.
    Owner-occupant purchaser means a purchaser who intends to use the 
property as his or her principal residence; a State, governmental 
entity, tribe, or agency thereof; or a private nonprofit organization 
as defined in this section. Governmental entities include those with 
general governmental powers (e.g., a city or county), as well as those 
with limited or special powers (e.g., public housing agencies).
    Preapproved means a commitment has been obtained from a recognized 
mortgage lender for mortgage financing in a specified dollar amount 
sufficient to purchase the property.
    Private nonprofit organization means a secular or religious 
organization, no part of the net earnings of which may inure to the 
benefit of any member, founder, contributor, or individual. The 
organization must:
    (1) Have a voluntary board;
    (2)(i) Have a functioning accounting system that is operated in 
accordance with generally accepted accounting principles; or
    (ii) Designate an entity that will maintain a functioning 
accounting system for the organization in accordance with generally 
accepted accounting principles;
    (3) Practice nondiscrimination in the provision of assistance in 
accordance with the authorities described in Sec. 291.435(a); and
    (4) Have nonprofit status as demonstrated by approval under section 
501(c)(3) of the Internal Revenue Code (26 U.S.C. 501(c)(3)), or 
demonstrate that an application for such status is currently pending 
approval.
    Purchase money mortgage, or PMM means a note secured by a mortgage 
or trust deed given by a buyer, as mortgagor, to the seller, as 
mortgagee, as part of the purchase price of the real estate.
    Single family property means a property designed for use by one to 
four families.
    State means any of the several States, the District of Columbia, 
the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American 
Samoa, the Northern Mariana Islands, the Trust Territory of the Pacific 
Islands, and any other territory or possession of the United States.
    Tribe has the meaning provided for the term ``Indian tribe'' in 
section 102 of the Housing and Community Development Act of 1974 (42 
U.S.C. 5302).

Subpart B--Disposition by Sale


Sec. 291.100  General policy.

    (a) Qualified purchaser. (1) Anyone, regardless of race, color, 
religion, sex, national origin, familial status, age, or disability may 
offer to buy a HUD-owned property, except that:
    (i) No member of or delegate to Congress is eligible to buy or 
benefit from a purchase of a HUD-owned property; and
    (ii) No nonoccupant mortgagor (whether an original mortgagor, 
assumptor, or a person who purchased ``subject to'') of an insured 
mortgage who has defaulted, thereby causing HUD to pay an insurance 
claim on the mortgage, is eligible to repurchase the same property.
    (2) HUD will not offer former mortgagors in occupancy who have 
defaulted on the mortgage the right of first refusal to repurchase the 
same property.
    (3) HUD will offer tenants accepted under the occupied conveyance 
procedures outlined in 24 CFR 203.670 through 203.685 the right of 
first refusal to purchase the property only if:
    (i) The tenant has a recognized ability to acquire financing and a 
good rent-paying history, and has made a request to HUD to be offered 
the right of first refusal; or
    (ii) State or local law requires that tenants be offered the right 
of first refusal.
    (b) List price. The list price, or ``asking price,'' assigned to 
the property is based upon an appraisal conducted by an independent 
real estate appraiser using nationally recognized industry standards 
for the appraisal of residential property.
    (c) Method of sale. (1) HUD sells properties on an ``as-is'' basis, 
without repairs or warranties. The principal method of sale is the 
competitive sales procedure. Where appropriate, the Secretary may use 
another sales procedure, as described in Sec. 291.110.
    (2) Properties may be sold under the following programs:
    (i) Insured. A property that HUD believes meets the intent of the 
Minimum Property Standards (MPS) for existing dwellings (Requirements 
for Existing Housing, One to Four Family Living Units, HUD Handbook 
4905.1) will be offered for sale in ``as-is'' condition with FHA 
mortgage insurance available.
    (ii) Insured with repair escrow. A property that requires no more 
than $5,000 for repairs to meet the intent of the MPS, as determined by 
the Secretary, will be offered for sale in ``as-is'' condition with FHA 
mortgage insurance available, provided the mortgagor establishes a cash 
escrow to ensure the completion of the required repairs.
    (iii) Uninsured. A property that fails to qualify under either 
paragraph (c)(2)(i) or (ii) of this section will be offered for sale 
either in ``as-is'' condition without mortgage insurance available, or 
under section 203(k) of the National Housing Act (12 U.S.C. 1709(k)).
    (d) Financing. (1) Except as provided in paragraph (d)(2) of this 
section, the purchaser is entirely responsible for obtaining financing 
for purchasing a property.

[[Page 55713]]

    (2) HUD, in its sole discretion, may take back purchase money 
mortgages (PMMs) on property purchased by governmental entities or 
private nonprofit organizations who buy property for ultimate resale to 
owner-occupant purchasers with incomes at or below 115 percent of the 
area median income. When offered by HUD, a PMM will be available in an 
amount determined by the Secretary to be appropriate, at market rate 
interest, for a period not to exceed five years. Mortgagors must meet 
FHA mortgage credit standards.
    (e) Environmental requirements and standards. Sales under this part 
are subject to the environmental requirements and standards described 
in 24 CFR part 50, as applicable.
    (f) Flood insurance requirements. Flood insurance must be obtained 
and maintained as provided in 24 CFR 203.16a.
    (g) Lead-based paint poisoning prevention. Properties constructed 
before 1978 are subject to the lead-based paint poisoning prevention 
requirements contained in 24 CFR part 35 and 24 CFR part 200, subpart 
O.
    (h) Open listings. Except as provided in paragraph (i) of this 
section, properties are sold on an open listing basis with 
participating real estate brokers. Any real estate broker who has 
agreed to comply with HUD requirements may participate in the sales 
program. Purchasers participating in the competitive sales program, 
except government entities and nonprofit organizations, must submit 
bids through a participating broker.
    (i) Asset management and listing contracts. (1) A field office may 
invite firms experienced in property management to compete for 
contracts that provide for an exclusive right to manage and list 
specified properties in a given area.
    (2) In areas where a broker has an exclusive right to list 
properties, a purchaser may use a broker of his or her choice. The 
purchaser's broker must submit the bid to HUD through the exclusive 
broker.


Sec. 291.105  Competitive sales procedure.

    (a) General. (1) Properties are sold to the general public on a 
competitive bid basis through local real estate brokers, except as 
provided in Sec. 291.100(h).
    (2) For properties being offered with mortgage insurance, priority 
will be given to owner-occupant purchasers, as defined in Sec. 291.5, 
for a period of up to 30 days, as determined by HUD. For properties 
offered without mortgage insurance, priority will be given to 
governmental entities and nonprofit organizations prior to other owner-
occupant purchasers.
    (b) Net offer. The net offer is calculated by subtracting from the 
bid price the dollar amounts for the following:
    (1) If requested by the purchaser in the bid, HUD will pay all or a 
portion of the financing and loan closing costs and the broker's sales 
commission, not to exceed the percentage of the purchase price 
determined appropriate by the Secretary for the area. In no event will 
the amount for broker's sales commission exceed 6 percent of the 
purchase price, except for cash bonuses offered to brokers by HUD for 
the sale of hard-to-sell properties.
    (2) In the case of properties sold under the insured sales with 
repair escrow program, the repair escrow amount is also deducted from 
the bid to determine the net offer.
    (c) Acceptable bid. HUD will accept the bid producing the greatest 
net return to HUD and otherwise meeting the terms of HUD's offering of 
the property, with priority given to owner-occupant purchasers as 
described in paragraph (a)(2) of this section. The greatest net return 
is calculated based on the net offer, as described in paragraph (b) of 
this section.
    (d) Bid period. After properties are initially advertised, bids are 
accepted for a 10-day period, with all offers received during the 10 
days considered to have been received simultaneously, except as 
described in paragraph (e) of this section. Offers received on a 
property before the 10-day bidding period begins will be returned. 
Offers received after the 10-day period will not be considered at the 
bid opening, but will be considered during the extended listing period 
if no acceptable bid was received during the 10-day period.
    (e) Full price offers. HUD field offices that operate under a 
``full price offer'' program open offers at specified times during the 
10-day bidding period. If an offer for the full list price and 
otherwise meeting the terms of the offering is received, it will be 
accepted at the time of the opening and the 10-day bid period 
cancelled.
    (f) Extended listing period. Properties not sold at the bid opening 
will remain available for an extended listing period. All bids received 
on each day of the extended listing period will be considered as being 
received simultaneously, and will be opened together at the next 
scheduled daily bid opening. Properties that fail to sell within 30 
days after being offered for competitive bidding will be reanalyzed and 
relisted. If a property's price or terms are changed, it will be 
subject to another competitive bidding period as described in paragraph 
(d) of this section.
    (g) Bid requirements. (1) All bids submitted, whether during the 
10-day bid period or the extended listing period, must be in the form 
of a fully completed sales contract, in a form prescribed by HUD, 
signed by both the submitting real estate broker and the prospective 
purchaser. If the purchase is to be an insured sale, a field office may 
also require that supporting exhibits for mortgage credit analysis 
accompany the initial submission of the bid.
    (2) Unless the Secretary specifically authorizes another bid 
process, bids must be placed in sealed envelopes marked with the 
property number, address, and return address of the broker. All bids 
not indicating that the purchaser will occupy the property will be 
considered as investor offers.
    (3) Noncomplying bids will be returned to the broker with an 
explanation for the noncompliance decision and information about 
whether the property is still available.
    (h) Earnest money deposits. (1) The amount of earnest money deposit 
required for a property with a sales price of $50,000 or less is $500, 
except that for vacant lots the amount is 50 percent of the list price. 
For a property with a sales price greater than $50,000, the amount of 
earnest money deposit required in the area is set by the field office, 
in an amount not less than $500 or more than $2,000. Information on the 
amount of the required earnest money deposit is available from the 
field office or participating real estate brokers.
    (2) All bids must be accompanied by earnest money deposits in the 
form of a cash equivalent as prescribed by the Secretary, or a 
certification from the real estate broker that the earnest money has 
been deposited in the broker's escrow account. If a bid is accepted by 
HUD, the earnest money deposit will be credited to the purchaser at 
closing; if the bid is rejected, the earnest money deposit will be 
returned. Earnest money deposits are subject to total or partial 
forfeiture for failure to close a sale.
    (i) Multiple bids. Real estate brokers may submit unlimited numbers 
of bids on an individual property provided each bid is from a different 
prospective purchaser. If a purchaser submits multiple bids on the same 
property, only the bid producing the highest net return to HUD will be 
considered. If a prospective owner-occupant purchaser submits a bid on 
more than one property, the first of those bids that produces the 
greatest net return to HUD will be accepted and all other bids from 
that purchaser will be eliminated from

[[Page 55714]]

consideration. However, if the prospective owner-occupant purchaser has 
submitted the only acceptable bid on another property, then that bid 
must be accepted and all other bids from that purchaser on any other 
properties will be eliminated from consideration.
    (j) Opening the bids. Unless the Secretary specifically authorizes 
another bid process:
    (1) The bids will be opened publicly at a time and place designated 
by the HUD field office.
    (2) Each bid will be announced when opened, and acknowledgment made 
of the offer that produces the greatest net return to HUD. Successful 
bidders will be notified through their real estate brokers by mail, 
telephone, or other means. Acceptance of a bid is final and effective 
only upon HUD's execution of the sales contract and mailing of a copy 
of the executed contract to the successful bidder or the bidder's 
agent.
    (k) Counteroffers. If all bids received on a property are 
unacceptable, a field office may notify all bidders or their brokers 
that HUD will accept an offer equalling a predetermined net acceptable 
price. Bidders must submit an acceptable offer before the established 
bid cut-off period, to be determined by the field office. The highest 
acceptable offer received within the specified period of time, 
including any offer received from a bidder who did not submit a bid 
during the bid period, will be accepted, thus terminating the 
counteroffer negotiations. In case of identical bids, award will be 
determined by drawing lots.

(Approved by the Office of Management and Budget under OMB control 
numbers 2502-0306, 2502-0059, and 2502-0429)


Sec. 291.110  Other sales procedures.

    (a) Direct sales of properties without mortgage insurance to 
governmental entities and private nonprofit organizations. (1) State 
and local governments, public agencies, and qualified private nonprofit 
organizations that have been preapproved to participate by HUD, 
according to standards determined by the Secretary, may purchase 
properties directly from HUD at a discount off the list price 
determined by the Secretary to be appropriate, but not less than 10 
percent, for use in HUD and local housing or homeless programs.
    (2)(i) Purchasers under paragraph (a)(1) of this section must 
designate geographical areas of interest, by ZIP code, to appropriate 
HUD field offices. Upon request, for those properties not eligible for 
mortgage insurance, and before they are publicly listed, field offices 
will notify governmental entities and nonprofit organizations in 
writing when eligible properties become available in the areas 
designated by them. Field offices will coordinate the dissemination of 
the information to ensure that if more than one purchaser designates a 
specific area, those purchasers receive the list of properties at the 
same time, based on intervals agreed upon between HUD and the 
purchasers. A property in this section will be sold to the first 
eligible purchaser submitting an acceptable contract.
    (ii) Purchasers under paragraph (a)(1) of this section must notify 
HUD of preliminary interest in specific properties within five days of 
the notification of available properties (if notification is by mail, 
the five days will begin to run five days after mailing). Those 
properties in which purchasers express an interest will be held off the 
market for a 10-day consideration and inspection period. Other 
properties on the list will continue to be processed for public sale. 
HUD may limit the number of properties held off the market for a 
purchaser at any one time, based upon the purchaser's financial 
capacity as determined by HUD and upon past performance in HUD 
programs. At the end of the 10-day consideration and inspection period, 
properties in which no governmental entity or nonprofit organization 
has expressed a specific intent to purchase will be offered for sale 
under the competitive bid process. Properties in which a governmental 
entity or nonprofit organization expressed an intent to purchase, 
during the 10-day period, will continue to be held off the market 
pending receipt of the sales contract. If a sales contract is not 
received within a time period of up to 10 days, as determined by HUD, 
following expiration of the 10-day consideration and inspection period, 
and no other governmental entity or nonprofit organization has 
expressed an interest, then the property will be offered for sale under 
the competitive bid process.
    (3) In order to ensure that properties purchased at a discount are 
being utilized for expanding affordable housing opportunities, HUD may 
require, as appropriate, periodic, limited information regarding the 
purchase and resale of such properties, and certain restrictions on the 
resale of such properties.
    (b) Sales to other individuals or entities. HUD may also seek to 
dispose of properties through other methods, such as direct sales to 
displaced persons, sales of razed lots, bulk sales, auctions, or direct 
sales to other individuals or entities that do not meet any of the 
categories specified in this section, if a finding is made by the 
Assistant Secretary for Housing-Federal Housing Commissioner or his or 
her designee in writing that such sales would further the goals of the 
National Housing Act (12 U.S.C. 1701 et seq.) and would be in the best 
interests of the Secretary. These sales will be upon such terms and 
conditions as the Secretary may prescribe.

(Approved by the Office of Management and Budget under OMB control 
number 2502-0306)


Sec. 291.150  Sanctions against fraudulent purchase.

    False certification by a purchaser concerning occupancy of single 
family properties financed by an insured mortgage is a violation of 18 
U.S.C. 1001, which may result in the required prepayment of the 
mortgage in the amount of the difference between the downpayment made 
and the downpayment required if the loan had been processed as an 
investor purchaser loan, or in criminal prosecution.

Subpart C--Rental of Acquired Property


Sec. 291.200  General policy.

    HUD will lease acquired property to comply with other designated 
HUD programs, or when the Secretary determines that it is in the 
interest of HUD. Leases may include an option to purchase in 
appropriate circumstances.
* * * * *
    3. Subpart E is amended by revising Secs. 291.400, 291.415, 
291.435, and 291.440 and by removing Secs. 291.405, 291.410, 291.420, 
and 291.425 to read as follows:

Subpart E--Lease and Sale of HUD-Acquired Single Family Properties 
for the Homeless


Sec. 291.400  Purpose and scope.

    (a) Purpose. HUD seeks to assist individuals and families who are 
homeless by providing them with transitional housing and appropriate 
supportive services with the goal of helping them move to independent 
living. Therefore, HUD will make available, to applicants approved by 
HUD, certain HUD-acquired single family properties for use by the 
homeless.
    (b) Applicant preapproval. Before a field office may notify an 
applicant of eligible properties, the applicant must be preapproved by 
HUD, according to procedures available from the field office.

[[Page 55715]]

    (c) Property available for lease with option to purchase. HUD will 
make available up to 10 percent of its total inventory of properties, 
before or after they are listed for sale to the public.
    (d) Property available under a McKinney Act Supportive Housing 
program lease-option agreement. Eligible properties will be available 
under a lease-option to purchase agreement to Supportive Housing 
program applicants for acquisition grants under 24 CFR part 583.
    (e) Properties available for sale. Eligible properties will be 
available for competitive sale or direct sale for fair market value, 
less a discount determined appropriate by the Secretary but not less 
than 10 percent.
    (f) Concentration of properties. To the extent practicable and 
possible, HUD will avoid excessive concentration in a single 
neighborhood of properties leased or sold under this subpart.
    (g) Failure to comply with requirements. Failure to comply with 
this subpart, or a lease issued under this subpart, may result in 
termination from the program.

(Approved by the Office of Management and Budget under OMB control 
number 2502-0412)


Sec. 291.415  Lease with option to purchase properties for use by the 
homeless.

    (a) Certification. Eligible properties are available for lease to 
applicants, approved by HUD, that certify that the property will be 
utilized only for the purpose of providing transitional housing for the 
homeless during the lease term, and that the intended use of the 
property will be consistent with all local laws and regulations. The 
lease agreement will be in a form prescribed by the Secretary. Lessees 
must execute a sublease with occupants in a form prescribed by the 
Secretary limiting an occupant's tenancy to no longer than two years.
    (b) Term of lease. (1) A lease of an eligible property may be 
negotiated for such time as the lessee requires, not to exceed one 
year. Leases are renewable, at the option of the lessee and with the 
approval of HUD, at the end of the first lease term for up to four 
additional one-year terms, on a year-to-year basis, provided the lessee 
has met the requirements under this program.
    (2) Approvals for lease renewals will be denied if HUD determines 
that the lessee has not complied with the requirements of this part of 
the lease.
    (3) A property will not be leased to a lessee for a period longer 
than five years. At the end of the five-year period, if the lessee has 
not exercised the option to purchase, HUD will notify the lessee to 
vacate the property and, if necessary, will take appropriate action 
under the eviction laws of the jurisdiction in which the property is 
located. All property returned to HUD must be vacant, and will be 
placed on the market for sale to the general public.
    (4) Within 30 days of leasing a property from HUD or within 30 days 
after a property is vacated, a lessee must sublease the property to the 
homeless, unless a longer period is approved by HUD.
    (c) Rent. (1) The lessee must pay HUD a nominal rent of $1 for each 
one-year lease period.
    (2) A lessee may charge rent, including utilities, to an occupant 
at a rate appropriate to the financial means of the occupant. Unless 
HUD approves after consideration of such factors as the cost of 
operating housing in the area and the amount of the lessee's 
contributions to the program, such rent may not exceed the highest of:
    (i) Thirty percent of the family's monthly adjusted income 
(adjustment factors include the number of people in the family, age of 
family members, medical expenses, and child care expenses);
    (ii) Ten percent of the family's monthly income; or
    (iii) If the family is receiving payments for welfare assistance 
from a public agency and a part of the payments, adjusted in accordance 
with the family's actual housing costs, is specifically designated by 
the agency to meet the family's housing costs, the portion of the 
payments that is designated.
    (3) In no event may the rent charged an occupant exceed the 
occupant's pro rata share of the lessee's costs of operating the 
property.
    (d) Damage to leased properties. Any damage to leased property 
caused by the intentional or negligent acts of the lessee or occupants 
must be repaired by the lessee at its own expense. If the lessee does 
not make the necessary repairs within a reasonable time after the 
damage occurs, HUD may, at its option, make the repairs and charge the 
cost to the lessee. Failure by the lessee to make the necessary repairs 
or to reimburse HUD for the cost of repairs will constitute grounds for 
termination of the lease and may result in termination from the 
program.
    (e) Purchase of leased properties. (1) Lessees that desire to 
purchase leased properties during the lease term will be offered the 
properties at the lower of the fair market value established at the 
time of the initiation of the lease or at the time of the sale, less a 
discount determined appropriate by the Secretary but not less than 10 
percent, provided lessees agree to use the properties either to house 
low-income tenants for a period of not less than 10 years or to resell 
the properties to low-income buyers. If the lessee does not agree to 
such conditions, the lessee must purchase the properties at the higher 
of the fair market value at the time of the initiation of the lease or 
at the time of the sale, less 10 percent. Any repairs to or 
rehabilitation of a property done by a lessee during the lease term 
will not be reflected in the purchase price.
    (2) Sales of leased properties will be on as-is, all-cash basis. 
HUD will not pay a fee for a selling broker. HUD will pay the closing 
agent's fee. The purchaser must pay all other closing costs.


Sec. 291.435  Applicability of other Federal requirements.

    In addition to the requirements set forth in 24 CFR part 5, the 
following Federal requirements apply to lessees and purchasers under 
this subpart:
    (a) Nondiscrimination and equal opportunity. (1) The 
nondiscrimination and equal opportunity requirements set forth in 24 
CFR part 5 are modified as follows:
    (i) As applicable, lessees and purchasers must also comply with the 
Americans With Disabilities Act (42 U.S.C. 12131) and implementing 
regulations in 28 CFR parts 35 and 36.
    (ii) The requirements of section 3 of the Housing and Urban 
Development Act of 1968 (12 U.S.C. 1701u), and Executive Order 11246 
(30 FR 12319, 12935, 3 CFR, 1946-1965 Comp., p. 339; Executive Order 
11625 (36 FR 19967, 3 CFR, 1971-1975 Comp., p. 616); Executive Order 
12432 (48 FR 32551, 3 CFR, 1983 Comp., p. 198; and Executive Order 
12138 (44 FR 29637, 3 CFR, 1979 Comp., p. 393) do not apply to this 
subpart.
    (2) Lessees or purchasers that intend to serve designated 
populations of the homeless must comply, within the designated 
population, with the requirements for nondiscrimination on the basis of 
race, color, religion, sex, national origin, age, familial status, and 
disability.
    (3) If the procedures that the lessee or purchaser intends to use 
to make known the availability of housing are unlikely to reach persons 
of any particular race, color, religion, sex, age, national origin, 
familial status, or disability who may qualify for admission to the 
housing, the recipient must establish additional procedures that will 
ensure that interested persons can obtain information concerning the 
availability of the housing.

[[Page 55716]]

    (4) The lessee or purchaser must adopt procedures to make available 
information on the existence and locations of facilities and services 
that are accessible to persons with a handicap and maintain evidence of 
implementation of the procedures.
    (b) Conflicts of interest. No person who is an employee, agent, 
consultant, officer, or elected or appointed official of the lessee or 
purchaser of property under this subpart, or who is in a position to 
participate in a decisionmaking process or gain inside information with 
regard to the lease or purchase of the property, may obtain a personal 
or financial interest or benefit from the lease or purchase of the 
property, or have an interest in any contract, subcontract, or 
agreement with respect thereto, or the proceeds thereunder, either for 
himself or herself or for those with whom he or she has family or 
business ties, during his or her tenure or for one year thereafter.


Sec. 291.440  Recordkeeping requirements.

    Each lessee must establish and maintain sufficient records to 
enable the Secretary to determine whether the requirements of this 
subpart have been met. This includes, where available, racial, ethnic, 
gender, and disability status data on the applicants for, and 
beneficiaries of, this homeless initiative.

(Approved by the Office of Management and Budget under OMB control 
number 2502-0412)

    Date: October 7, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 96-27543 Filed 10-25-96; 8:45 am]
BILLING CODE 4210-27-P