[Federal Register Volume 63, Number 103 (Friday, May 29, 1998)]
[Proposed Rules]
[Pages 29496-29503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14014]



[[Page 29495]]

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Part IV





Department of Housing and Urban Development





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24 CFR Part 291



Disposition of HUD-Acquired Single Family Property; Proposed Rule

  Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Proposed 
Rules  

[[Page 29496]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 291

[Docket No. FR-4244-P-02]
RIN 2502-AG96


Disposition of HUD-Acquired Single Family Property; Proposed Rule

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend HUD's regulations for the 
disposition of HUD-acquired single family properties. Through this 
proposed rule, HUD is seeking comments on an efficient, innovative, and 
cost-effective alternative for selling HUD's inventory of single family 
properties. This alternative would allow HUD to enter into a property 
acquisition agreement or agreements with an individual, partnership, 
corporation or other legal entity. The agreement would provide for the 
right and obligation of the entity to acquire designated properties, 
including properties that are currently in HUD's inventory, but 
primarily those that are or will be ``in the pipeline.'' HUD's goals 
are to reduce the inventory of single family properties while 
continuing to expand homeownership opportunities for American families 
and to ensure the stability of the Federal Housing Administration (FHA) 
Mortgage Insurance Fund.

DATES: Comment due date: June 29, 1998.

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. 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: Joseph McCloskey, Director, Single 
Family Asset Management Division, Office of Insured Single Family 
Housing, Department of Housing and Urban Development, Room 9184, 451 
Seventh Street, SW, Washington, DC 20410; telephone number (202) 708-
1672 (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 1-800-877-8399.

SUPPLEMENTARY INFORMATION:

I. Background--Program of Sales of Single Family Properties

    Section 204 of the National Housing Act (Act) (12 U.S.C. 1710) 
governs the Federal Housing Administration (FHA) insurance claim 
process and property disposition. Specifically, section 204(g) of the 
Act pertains to the management and disposition of HUD-acquired single 
family properties. HUD's implementing regulations are contained in 24 
CFR part 291.
    These statutory and regulatory authorities for the acquisition, 
handling, and disposing of HUD-acquired property make up HUD's Single 
Family Property Disposition program. Essentially, HUD is charged with 
implementing a program of sales of HUD-acquired properties along with 
appropriate credit terms and standards to be used in carrying out the 
program. Currently, HUD's principal method of selling properties is 
through competitive sales of individual properties to individual 
purchasers.
    The competitive sales of individual properties is a time consuming 
process that does not result in efficient and prompt delivery of the 
single family properties to the sales market. HUD has the largest real 
estate-owned (REO) operation in the nation, selling in excess of 50,000 
properties each year. While this volume of property sales represents 
only a small percentage of the total number of home sales nationwide 
(see the ``Regulatory Flexibility Act'' section of this preamble for 
further discussion), it represents a significant administrative 
responsibility for HUD. Both HUD and potential homeowners are 
disadvantaged by the processing time required involved in competitive 
sales of individual properties. It is critical for HUD to find more 
timely and less costly methods to dispose of its REO inventory in order 
to further its mission of providing homeownership opportunities for 
American families. In addition, HUD must dispose of these properties 
efficiently in order to minimize any losses to the insurance fund and 
to keep the costs of insurance low.
    On June 13, 1997 (62 FR 32251), HUD published in the Federal 
Register an advance notice of proposed rulemaking (ANPR) to solicit 
public comments on better methods of disposing of HUD-owned single 
family properties. The ANPR suggested that such methods could include 
bulk sales of current inventory or future acquisitions on a regional or 
national basis, or arrangements similar to joint ventures, profit-
sharing arrangements, or private-public partnerships. In addition to 
soliciting comments through the ANPR published in the Federal Register, 
HUD requested public input through a notice published in the following 
newspapers: The Washington Post, The New York Times, The Wall Street 
Journal, Barron's, and U.S.A. Today.

II. HUD's New Innovative Sales Method

    After considering all the comments received on the ANPR, which are 
discussed below, HUD is proposing that competitive sales of individual 
properties to individuals will no longer be HUD's principal method of 
sale, as the regulations in 24 CFR part 291 currently provide. The 
proposed rule provides that HUD may, in its discretion, on a case-by-
case basis or as a regular course of its business, choose from a 
variety of sales methods. The proposed rule also would add a new 
innovative and cost-effective sales method.
    Under the new sales method, HUD will invite interested entities to 
participate in a competitive selection process for the right and 
obligation to acquire properties designated by HUD. (For purposes of 
this rule, HUD refers to this sales method as the ``future REO 
acquisition method.'') HUD intends that these designated properties 
would consist primarily of ``pipeline'' properties. Pipeline properties 
are those that would otherwise come into HUD's inventory in the future. 
These designated properties could also include properties that are 
currently in HUD's inventory. HUD and the selected entity/transferor 
would enter into a property acquisition agreement, which would provide 
for the right and obligation of the transferor to acquire the 
designated properties as the properties become available. Under this 
method, HUD would have the right to negotiate the specific terms of 
such an agreement with the selected transferor. HUD is considering 
defining the entity's obligation to acquire the properties in terms of 
a specific geographic region or regions over a specific period of time, 
as well as utilizing the capacity of such entity to support HUD's loss 
mitigation efforts. The selected transferor would generally be 
responsible for managing and selling the individual REO properties. 
With respect to this method of disposition, HUD encourages qualified 
entities that currently are engaged in the process of management and 
disposition of HUD's REO inventory to consider participation in the 
future REO acquisition method by partnering

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with other qualified entities, if they themselves lack the resources to 
participate individually. Furthermore, HUD will make available to the 
selected transferor(s) a list of all entities (by service and 
geography) who currently participate in HUD's REO disposition process 
for its use in performing the future acquisition method.
    As noted earlier, HUD has the discretion to use other methods of 
sale, in addition to this future REO acquisition method, including 
competitive sales of individual properties to individuals, direct 
sales, bulk sales, and other sales as determined necessary by the 
Secretary. HUD anticipates, however, that the new future REO 
acquisition method or other similar arrangements would allow HUD to 
transfer most of the properties it acquires (or would otherwise 
acquire), quickly and efficiently and in a manner that allows HUD to 
better achieve its national housing goals.
    The ability to move the properties out of HUD's inventory quickly 
and efficiently is crucial. The longer the properties remain in HUD's 
inventory, the more HUD's holding costs increase, and the longer they 
remain unavailable as homeownership opportunities for potential 
purchasers. Using disposition methods such as the future REO 
acquisition method would be more efficient and expedient than HUD's 
current sales methods, since HUD anticipates that the entities 
interested in such arrangements will be experienced in high-volume 
property sales. HUD anticipates that competition among interested 
entities would enhance this benefit and result in maximum efficiency 
and return. Therefore, using innovative property disposal methods such 
as the future REO acquisition method should not only ensure the maximum 
possible return to the mortgage insurance fund; it should also help to 
strengthen neighborhoods and communities and help to expand 
homeownership opportunities in order to help provide decent, safe, and 
affordable housing.
    HUD anticipates, however, that the future REO acquisition method 
could result in fewer properties available for direct sales to 
nonprofit organizations and units of government. HUD understands that 
there are entities that rely upon HUD-acquired properties as a resource 
for their housing programs, and HUD is committed to continuing its 
partnership with these groups. Therefore, in order to minimize the 
anticipated effects of any decreased availability of properties, HUD 
intends to make available a portion of the properties acquired in HUD-
designated revitalization areas to nonprofit organizations (including 
homeless providers and nonprofit organizations representing persons 
with disabilities or other classes of persons protected by the Fair 
Housing Act) and units of government for use in HUD and local housing 
or homeless programs (see Sec. 291.90(c)(1) of this proposed rule).

III. Discussion of Public Comments on ANPR

    HUD received 52 comments in response to the June 13, 1997 ANPR and 
simultaneous newspaper publications. The following discussion provides 
a summary of the issues and recommendations raised by the commenters.

New Methods of Sale

    A few commenters offered suggestions for new methods of sale for 
HUD's inventory. For example, one commenter proposed that HUD enter 
into a contract with that commenter, which proposed to provide 
electronic marketing of HUD-owned single family properties. While HUD 
currently lists properties available for sale in large circulation 
newspapers, and some offices list properties on the World Wide Web, HUD 
is looking for a new means to reduce substantially the on-hand 
inventory, now and into the future, rather than a new means to market 
that inventory.
    Another commenter suggested that HUD outsource the REO management 
and liquidation function to experienced companies located in areas that 
correspond to HUD's Homeownership Centers. HUD is considering expanding 
the use of the management and marketing-type contracting that is being 
tested in New Orleans, Baltimore, and Sacramento, which would rely upon 
local real estate brokers, appraisers, and closing agents for the 
inventory not sold through the future REO acquisition method. 
Therefore, HUD will continue to consider the suggestions of these 
commenters. At this time, however, HUD is proposing to rely upon the 
future REO acquisition process described above to transfer most of the 
properties.
    One commenter suggested that HUD form joint venture arrangements 
with selected nonprofit real estate development organizations to reduce 
the inventory. Another commenter suggested that HUD sell properties in 
identified neighborhoods in bulk to a State agency that would then 
enter into a joint venture with a nonprofit. Several other commenters 
suggested that HUD give greater priority to nonprofits and/or 
government agencies. HUD intends to continue to offer a certain 
percentage of properties to nonprofit organizations and local 
government entities. In addition, this proposed rule would not preclude 
States and nonprofits from participating in the sales process described 
in this rule through partnering arrangements with each other or with 
the successful transferor. HUD believes, however, that reducing the 
inventory through the future REO acquisition method would be more cost-
effective.
    One commenter recommended that Federal agencies combine their 
resources and sell properties via auctions under the Government Owned 
Real Estate (G.O.R.E.) project. HUD has participated in G.O.R.E. 
auctions in the past and anticipates doing so in the future. However, 
since HUD has a much higher volume of properties in its inventory and a 
greater need for frequent sales than other Federal agencies, the 
G.O.R.E. auctions have a limited utility for HUD. HUD anticipates that 
the effort described in this proposed rule would be a more efficient 
method of selling the bulk of its inventory, because transferors could 
be available to acquire properties on a continual basis in many 
regions.

Opposition to Bulk Sales

    Several commenters opposed selling HUD's single family acquired 
properties through bulk sales. Two commenters warned that bulk sales 
will negatively affect real estate values and could cause a local 
depression of the real estate market. Three commenters (real estate 
brokers/managers) claimed that bulk sales would put them out of 
business.
    Contrary to these commenters' objections, however, HUD is primarily 
considering selling a pipeline of properties to transferors chosen 
through a competitive process, rather than selling acquired properties 
through bulk sales. HUD does not believe that the sales arrangement 
described in this proposed rule would adversely affect real estate 
values or cause a depression of local real estate markets, since HUD 
anticipates that the ultimate sales of the individual properties by the 
chosen transferors will result in fair market pricing. Although HUD may 
sell properties that are currently in inventory through a bulk sale 
arrangement, any such sales will be structured to take into account the 
impact on local communities.
    HUD has performed an analysis on the impact the future REO 
acquisition method would have on small businesses that do business with 
HUD, such as real estate brokers. This analysis is described below 
under the heading ``Regulatory Flexibility Act.'' This new sales method

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should not significantly affect small businesses, especially if the 
transferors use a process of selling the properties that is similar to 
HUD's. In an effort to mitigate any such impact, however, HUD would 
encourage its transferors to use local firms to assist in their 
disposal of the single family acquired properties.

IV. Changes to Regulations in 24 CFR Part 291

    Specifically, this proposed rule would amend the regulations in 24 
CFR part 291 to:
    1. Add a new section (see Sec. 291.200 of this proposed rule) to 
describe basic procedures for the future REO acquisition sales method. 
The proposed Sec. 291.200 contains general information regarding the 
process by which HUD anticipates conducting the new sales method. HUD 
plans to advertise the availability of acquisition opportunities to the 
public, and to provide detailed information to interested eligible 
entities.
    2. Reorganize the property disposition regulations to allow for and 
to recognize the use of innovative sales procedures such as the future 
REO acquisition method, by:
    a. Revising Sec. 291.5 (Definitions), primarily by moving relevant 
definitions to subpart E;
    b. Creating a new Sec. 291.90 in subpart B to describe all the 
sales methods that will be available to the Secretary;
    c. Moving the flood insurance requirements from Sec. 291.100(f) to 
Sec. 291.100(c)(1) regarding individual properties that are sold with 
FHA mortgage insurance; HUD's requirements for flood insurance apply 
only to FHA-insured mortgages in these circumstances.
    d. Redesignating Sec. 291.200 of the current regulations, regarding 
HUD's policy for the rental of acquired property, as Sec. 291.10 in 
subpart A of part 291.
    e. Revising the heading of existing subpart C to read ``Sales 
Procedures.'' This rule would move the provisions of Secs. 291.105 and 
291.110 into subpart C (see Secs. 291.205 and 291.210 of this proposed 
rule), to follow the new Sec. 291.200 regarding the future REO 
acquisition method (described above).
    HUD anticipates that it would rely heavily upon the future REO 
acquisition method or similar arrangements to sell its inventory of 
single family properties (so long as such arrangements are found to be 
economically viable and in furtherance of the national housing goals), 
rather than the sales methods described in Secs. 291.205 and 291.210 of 
this rule. However, this rule would preserve the procedures for those 
sales methods and retain them as viable sales options. If HUD seeks to 
use direct sales to other individuals or entities that do not meet any 
of the other categories of sales, this rule would continue to require 
the Assistant Secretary for Housing-Federal Housing Commissioner to 
make a finding that disposing of properties in such a manner would be 
in the best interest of the Secretary (see Sec. 291.210(c) of this 
rule.)

V. Nondiscrimination Requirements

    HUD's responsibilities and priorities include ensuring compliance 
with applicable nondiscrimination requirements, such as the Americans 
with Disabilities Act, section 504 of the Rehabilitation Act of 1973, 
and the Fair Housing Act. With regard to the disposition of single 
family properties in HUD's inventory, all resales by public entities 
are subject to compliance with Title II of the Americans with 
Disabilities Act. All resales by both public and private entities are 
subject to compliance with the Fair Housing Act.
    In addition, HUD must comply with section 504 of the Rehabilitation 
Act of 1973, which requires nondiscrimination based on disability in 
programs or activities conducted by any executive agency. HUD 
regulations implementing this requirement are in 24 CFR part 9. Under 
Sec. 9.155(a) of those regulations, HUD must ensure that its Property 
Disposition Program policies and practices do not discriminate on the 
basis of disability, against a qualified individual with disabilities. 
HUD will take appropriate steps to ensure effective communication with 
applicants, participants, personnel of other Federal entities, and 
members of the public. HUD will provide appropriate auxiliary aids as 
necessary to afford an individual with disabilities an equal 
opportunity to participate in this program.

VI. Justification for Shortened Comment Period

    In general, it is HUD's policy that notices of proposed rulemaking 
are to afford the public not less than 60 days for submission of 
comments, in accordance with its regulations on rulemaking in 24 CFR 
part 10. However, HUD has determined that there is good cause to reduce 
the public comment period for this proposed rule to 30 days. As 
discussed earlier in this preamble, HUD anticipates that this future 
REO acquisition method of disposing of single family properties would 
be more efficient and expedient than HUD's current method of 
competitive individual property sales, thereby increasing homeownership 
opportunities and helping to build strong neighborhoods and 
communities. The completion of this rulemaking would be necessary in 
order for HUD to begin the process of selecting and negotiating with 
the transferor(s). (However, nothing in this rule prevents HUD from 
conducting a bulk sale of property in its inventory.)
    HUD has provided the public with notice and an opportunity to 
comment on innovative sales procedures in the advanced notice of 
proposed rulemaking published in the Federal Register on June 13, 1997 
(62 FR 32251). HUD also sought public input by publishing a notice in 
several prominent newspapers and business journals. Therefore, HUD has 
determined that the 30-day comment period for this proposed rule should 
provide sufficient notice and opportunity for interested entities to 
comment. In order to provide the fullest and most expedient access to 
the provisions of this proposed rule, HUD will make it available on the 
HUD Home Page on the World Wide Web at http://www.hud.gov, on the date 
of publication in the Federal Register. HUD will also directly notify 
entities that have expressed a significant interest to HUD by sending 
such entities a copy of this proposed rule.

VII. Findings and Certifications

Executive Order 12866

    The Office of Management and Budget (OMB) reviewed this proposed 
rule under Executive Order 12866, Regulatory Planning and Review. OMB 
determined that this rule is a ``significant regulatory action,'' as 
defined in section 3(f) of the Order. Any changes made to this rule as 
a result of that review are clearly identified in the docket file. The 
docket file and the Economic Analysis prepared for this rule are 
available for public inspection between 7:30 a.m. and 5:30 p.m. in the 
Office of the Rules Docket Clerk, Department of Housing and Urban 
Development, Room 10276, 451 Seventh Street, S.W., Washington, DC.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made in accordance with HUD regulations in 24 CFR part 50 that 
implement section 102(2)(C) of the National Environmental Policy Act of 
1969 (42 U.S.C. 4223). The Finding is available for public inspection 
between 7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules 
Docket Clerk, Office of General Counsel, Room 10276, Department of 
Housing and Urban

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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 this proposed rule before publication and 
by approving it certifies that this rule would not have a significant 
economic impact on a substantial number of small entities.
    (1) No Significant Economic Impact. The future REO acquisition 
method would not result in a significant economic impact on a 
substantial number of small entities. During fiscal year 1997, the sale 
of HUD homes represented only 1.2 percent of total home sales, using 
only 1.6 percent of the active selling brokers. Since HUD's home sales 
are a very small portion of the overall home sales business, the 
economic impact of this rule would not be significant, and it would not 
affect a substantial number of small entities.
    (2) A Substantial Number of Small Entities Will Not be Affected. 
HUD has determined that there are approximately 18,000 small entities 
that could be affected by this rule, including nonprofit organizations, 
State and local governments, Real Estate Asset Managers (REAMs), real 
estate brokers, selling agents, closing agents, and repair contractors. 
The number of entities potentially affected by this rule is not 
substantial, and any potential economic impact would not be 
significant. A transferor under this new arrangement may use a sales 
process similar to HUD's previous sales process, in which case a number 
of the entities that would continue to be involved in the ultimate 
sales of the properties would be small entities. In an effort to 
mitigate any potential impact on small entities, HUD would encourage 
the transferor(s) to use small local firms to assist in their disposal 
of single family acquired properties.
    Notwithstanding HUD's determination that this rule would not have a 
significant economic effect on a substantial number of small entities, 
HUD specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

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 would 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. This rule 
simply allows HUD to use innovative methods of selling its inventory of 
single family homes. As a result, this rule is not subject to review 
under the Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) establishes requirements for Federal 
agencies to assess the effects of their regulatory actions on State, 
local, and tribal governments, and 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 is proposed to be amended as follows:

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. In part 291, subparts A, B, and C are revised to read as 
follows:

Subpart A--General Provisions

Sec.
291.1  Purpose and general requirements.
291.5  Definitions.
291.10  General policy regarding rental of acquired property.

Subpart B--Disposition by Sale

291.90 Sales methods.
291.100  General policy.

Subpart C--Sales Procedures

291.200 Future REO acquisition method.
291.205  Competitive sales of individual properties.
291.210  Direct sales procedures.

Subpart A--General Provisions


Sec. 291.1  Purpose and general requirements.

    (a) Purpose. (1) This part governs the disposition of one-to-four 
family properties. HUD will issue detailed policies and procedures that 
must be followed in specific areas.
    (2) The purpose of the property disposition program is to dispose 
of 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. In addition, in accordance with 24 CFR 9.155(a), HUD must ensure 
that its policies and practices in conducting the single family 
property disposition program do not discriminate on the basis of 
disability.


Sec. 291.5  Definitions.

    (a) The terms HUD and Secretary are defined in 24 CFR part 5.
    (b) Other terms used in this part are defined as follows:
    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 to individual means a sale of an individual 
property to an individual bidder 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.
    Eligible properties means HUD-acquired properties designated by HUD 
for property disposition or other housing programs.
    HUD-acquired properties means all single family properties acquired 
by HUD or properties that HUD is otherwise obligated to acquire 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.
    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.
    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

[[Page 29500]]

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).


Sec. 291.10  General policy regarding rental of acquired property.

    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.

Subpart B--Disposition by Sale


Sec. 291.90  Sales methods.

    HUD will prescribe the terms and conditions for all methods of 
sale. HUD may, in its discretion, on a case-by-case basis or as a 
regular course of business, choose from among the following methods of 
sale:
    (a) Future REO acquisition method. The Future Real Estate-Owned 
(REO) acquisition method consists of a property acquisition agreement 
(or agreements) between HUD and a transferor (or transferors), which 
shall provide for the right and obligation of the transferor(s) to 
acquire a future quantity of properties designated by HUD as they 
become available. HUD will select such transferor(s) through a 
competitive process, in accordance with all applicable laws and 
regulations, including the requirements in Sec. 291.200. The 
transferor(s) shall have the right and obligation to manage and dispose 
of the properties upon such terms and conditions as are approved by the 
Secretary;
    (b) Competitive sales of individual properties. This method 
consists of competitive sales of individual properties to individual 
buyers, the procedures for which are described in Sec. 291.205;
    (c) Direct sales methods. There are three types of direct sales 
methods:
    (1) Direct sales of properties located in HUD-designated 
revitalization areas to governmental entities and private nonprofit 
organizations, the procedures for which are described in 
Sec. 291.210(a);
    (2) Direct sales to displaced persons, sales of razed lots, or 
auctions, the procedures for which are described in Sec. 291.210(b);
    (3) Direct sales to other individuals or entities that do not meet 
any of the categories specified in paragraphs (a) through (d) of this 
section, under the circumstances and procedures described in 
Sec. 291.210(c);
    (d) Bulk sales, the procedures for which are described in 
Sec. 291.210(d); or
    (e) Other sales methods. HUD may select any other methods of sale, 
as determined by the Secretary.


Sec. 291.100  General policy.

    For all sales, except as otherwise specifically indicated, those 
sales conducted in accordance with Secs. 291.90(a) and 291.200 or with 
subpart D of this part, the following general policies apply:
    (a) Qualified purchaser. (1) Anyone, including a purchaser from a 
transferor of a property pursuant to Secs. 291.90(a) and 291.200, 
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) Neither HUD nor any transferor pursuant to Secs. 291.90(a) or 
291.200 will 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) Insurance. Properties may be sold under the following programs:
    (1) 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, which is available at the Department of Housing and Urban 
Development, HUD Customer Service Center, 451 7th Street, SW, Room B-
100, Washington, DC 20410; by calling (202) 708-3151; or via the 
Internet at www.hud.gov) will be offered for sale in ``as-is'' 
condition with FHA mortgage insurance available. Flood insurance must 
be obtained and maintained as provided in 24 CFR 203.16a.
    (2) 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.

[[Page 29501]]

    (3) Uninsured. A property that fails to qualify under either 
paragraph (c)(1) or (c)(2) 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.
    (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 5 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) [Reserved]
    (g) Lead-based paint poisoning prevention. Properties constructed 
before 1978 are subject to the requirements for the evaluation and 
reduction of lead-based paint hazards 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.

Subpart C--Sales Procedures


Sec. 291.200  Future REO acquisition method.

    (a) Under this method of property disposition, HUD will enter into 
a property acquisition agreement (or agreements) with a transferor (or 
transferors), which shall provide for the right and obligation of the 
transferor(s) to acquire a future quantity of properties designated by 
HUD as they become available. The transferor(s) will be selected 
through a competitive process, conducted in accordance with applicable 
laws. HUD will negotiate the specific terms of the property acquisition 
agreement(s) with the selected transferor(s). The properties will be 
available on an ``as-is'' basis only, without repairs or warranties.
    (b) Eligible entities. An individual, partnership, corporation, or 
other legal entity will not be eligible to participate if at the time 
of the sale, that individual or entity is debarred, suspended, or 
otherwise precluded from doing business with HUD under 24 CFR part 24.


Sec. 291.205  Competitive sales of individual properties.

    When HUD conducts competitive sales of individual properties to 
individual buyers, it will sell the properties on an ``as-is'' basis, 
without repairs or warranties, and it will follow the sales procedures 
provided in this section.
    (a) General. (1) Properties that are sold on an individual 
competitive bid basis are sold 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

[[Page 29502]]

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 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.


Sec. 291.210  Direct sales procedures.

    When HUD conducts the sales listed in Sec. 291.90(c), it will sell 
the properties on an ``as-is'' basis, without repairs or warranties, 
and it will follow the applicable sales procedures provided in this 
section.
    (a) Direct sales of properties located in HUD-designated 
revitalization areas 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 HUD properties 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. Upon request, 
before those properties are publicly listed, HUD will assure that 
governmental entities and nonprofit organizations are notified in 
writing when eligible properties become available in the areas 
designated by them. HUD 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 5 days of the 
notification of available properties (if notification is by mail, the 5 
days will begin to run 5 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) Direct sales to displaced persons; razed lots; auctions. HUD 
may seek to dispose of individual properties to individual buyers 
through methods such as direct sales to displaced persons, sales of 
razed lots, or auctions. These sales will be upon such terms and 
conditions as the Secretary may prescribe.
    (c) Direct sales to individuals or entities. HUD may also seek to 
dispose of properties through direct sales to other individuals or 
entities that do not meet any of the categories specified in this 
section, if the Assistant Secretary for Housing-Federal Housing 
Commissioner (or his or her designee) finds 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.

[[Page 29503]]

    (d) Bulk sales. HUD may seek to dispose of properties through bulk 
sales. Such sales will be upon such terms and conditions as the 
Secretary may prescribe.
    3. A new Sec. 291.405 is added to subpart E, to read as follows:


Sec. 291.405  Definitions.

    For purposes of this subpart E:
    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 
this subpart E. 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.
    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) Persons with disabilities 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.

    Dated: March 19, 1998.
Art Agnos,
Acting General Deputy Assistant Secretary for Housing-Deputy Federal 
Housing Commissioner.
[FR Doc. 98-14014 Filed 5-28-98; 8:45 am]
BILLING CODE 4210-27-P