[Federal Register Volume 64, Number 26 (Tuesday, February 9, 1999)]
[Rules and Regulations]
[Pages 6470-6483]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3046]
[[Page 6469]]
_______________________________________________________________________
Part III
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Part 291
Disposition of HUD-Acquired Single Family Property; Final Rule
Federal Register / Vol. 64, No. 26 / Tuesday, February 9, 1999 /
Rules and Regulations
[[Page 6470]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 291
[Docket No. FR-4244-F-03]
RIN 2502-AG96
Disposition of HUD-Acquired Single Family Property; Final Rule
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: On May 29, 1998, HUD published for public comment a proposed
rule that would amend HUD's regulations for the disposition of HUD-
acquired single family properties. Among other amendments, the proposed
rule would provide HUD with the necessary flexibility to use a variety
of innovative, efficient, and cost-effective methods for selling its
inventory of single family properties. 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. This final rule makes effective the amendments in the
May 29, 1998 proposed rule and takes into consideration the public
comments submitted on the proposed rule.
EFFECTIVE DATE: March 11, 1999.
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. HUD's Single Family Property Disposition Program
Section 204 of the National Housing Act (12 U.S.C. 1710) governs
the Federal Housing Administration (FHA) insurance claim process and
property disposition. Section 204(g) of the National Housing Act
addresses the management and disposition of HUD-acquired single family
properties. HUD's implementing regulations are found in 24 CFR part 291
(entitled ``Disposition of HUD-Acquired Single Family Property'').
Under these statutory and regulatory authorities, 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. Before issuance of this final rule, HUD's principal method of
selling properties was through HUD-administered competitive sales of
individual properties to individual purchasers.
As previously structured, the competitive sales process was found
to be time consuming and did not always result in the 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, it represents a significant administrative
responsibility for HUD. HUD determined that both HUD and potential
homeowners were disadvantaged by the processing time involved in the
competitive sales process. 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.
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 more effective and efficient methods of disposing of
HUD-owned single family properties. The ANPR suggested that proposed
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. The May 29, 1998 Proposed Rule
On May 29, 1998 (63 FR 29496), after consideration of the public
comments received on the June 13, 1997 ANPR, HUD published for public
comment a proposed rule to amend its regulations at 24 CFR part 291.
(The preamble to the May 29, 1998 proposed rule contained a detailed
summary of the public comments received on the ANPR, and HUD's
responses to these comments (see 63 FR 29496, 29497-29498)).
The May 29, 1998 proposed rule provided as its primary proposal
that HUD would no longer limit itself to a primary method for the
disposition of its single family properties. The proposed rule provided
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.
These methods may include competitive sales to individuals, direct
sales, bulk sales, and other sales as determined necessary by the
Secretary.
The May 29, 1998 proposed rule also amended 24 CFR part 291 to
introduce for public comment an innovative and cost-effective sales
method, known as the REO acquisition method. Under this 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. These designated properties would consist primarily
of properties that would otherwise come into HUD's inventory in the
future (``pipeline'' properties), but 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. The
preamble to the May 29, 1998 proposed rule provided additional details
regarding the REO acquisition method.
III. This Final Rule
This final rule makes effective the amendments contained in the May
29, 1998 proposed rule, and takes into consideration the public
comments on the proposed rule. In response to public comment, this
final rule also amends 24 CFR part 291 to refine the already codified
policies and procedures governing another innovative sales method,
disposition of single family properties through management and
marketing services. The management and marketing service process was
designed to address the deficiencies of HUD-administered competitive
sales of individual properties. Under this process, HUD contracts the
management and sales function of HUD real estate-owned properties to
experienced companies located in areas that correspond to HUD's
Homeownership Centers.
Under this method, management and marketing contractors are
selected by HUD to successfully manage single family properties owned
by or in the custody of HUD, to successfully market those single family
properties, and to successfully oversee the sales closing
[[Page 6471]]
activity, including proper accounting for HUD's sales proceeds.
Following the selection of the management and marketing contractors,
the individual acquired single family properties will continue to be
sold to individuals, including nonprofit organizations and government
entities. HUD will continue to retain closing agents who will have
primary responsibility for carrying out all closing activities. The
management and marketing contractors will be responsible, however, for
providing appropriate materials to the closing agent and reconciling
any discrepancies resulting from closing activities.
HUD is refining the codified procedures governing management and
marketing services in its regulations because it has determined that it
is an effective and efficient sales method. HUD has conducted a
successful management and marketing pilot program in the cities of
Baltimore, New Orleans and Sacramento. As noted in the preamble to the
May 29, 1998 proposed rule, HUD has been considering expanding its use
of management and marketing contracting as a result of this successful
pilot program (see 63 FR 29496, 29497). Additionally, many commenters
on the May 29, 1998 proposed rule praised the pilot program and urged
that HUD increase its use of management and marketing contracts (see
section IV of this preamble). As one of the public commenters wrote,
the management and marketing sales method is ``a public/private
partnership that works.''
As noted previously, the May 29, 1998 proposed rule was designed to
provide HUD with the flexibility to choose from a variety of sales
methods. Section 291.90 of the proposed rule, which is made effective
by this final rule, identifies the various sales methods available to
HUD, and includes disposition of properties through management and
marketing service contracts. Section 291.90(e) provides that ``HUD may
select any other method [of sale], as determined by the Secretary.''
HUD retains the right to use a sales method not listed in this section
that it determines is appropriate, efficient, and effective given the
circumstances involved. If, under Sec. 291.90(e), HUD determines that a
particular sales method may be used more frequently than originally
anticipated, HUD will amend Sec. 291.90 to include this sales method.
In any given disposition of single family properties, the public will
be notified of the sales methods to be used through appropriate
methods, which may include bid materials, the internet, and other
methods.
In also keeping with HUD's stated goal of increased flexibility,
HUD has determined that several additional amendments to the proposed
rule are necessary for purposes of clarity and the successful
implementation of this sales method. HUD also has made several other
changes in response to public comment to the procedures governing
competitive sales of individual properties. The revisions were
necessary to make the program more efficient and cost effective.
Additionally, HUD has made other non-substantive amendments for
purposes of clarity. The following summarizes the principal differences
between the May 29, 1998 proposed rule and this final rule. As
described below, none of these changes substantively alter the policies
and procedures described in the proposed rule.
1. Purpose and General Requirements (Sec. 291.1)
This rule amends Sec. 291.1, to clarify the purpose of 24 CFR part
291. As amended, Sec. 291.1(a)(1) provides that part 291 governs the
disposition of one-to-four family properties acquired by the Federal
Housing Administration (FHA) through foreclosure of an insured or
Secretary-held mortgage or loan under the National Housing Act, or
acquired by HUD under section 312 of the Housing Act of 1964.
2. Definitions (Sec. 291.5)
The definitions of the terms ``Closing agent,'' ``HUD-acquired
properties,'' and ``Single family property'' have been removed. Due to
other revisions made to the regulatory text of the May 29, 1998
proposed rule, these terms are not used in the final rule. Accordingly,
the definitions of these terms are unnecessary and have been removed.
The definition of the term ``Preapproved'' has also been removed from
Sec. 291.5. This term is commonly used and understood by individuals
involved in the sale of HUD-acquired single family properties. Further,
the term ``Preapproved'' is used only once in the part 291 regulations
(at Sec. 291.210(a)(1)), and not in the sense provided by the former
regulatory definition. It is therefore unnecessary to include a
definition of this term in 24 CFR part 291.
The definition of the term ``HUD'' has been clarified to provide
that, as used in 24 CFR part 291, it means the Department of Housing
and Urban Development or its contractor, as appropriate.
For purposes of clarity, the definition of the term ``Purchase
money mortgage (PMM)'' has been removed from Sec. 291.5 and relocated
to Sec. 291.100(d)(3). This term is only used in this section of the
regulation, and is therefore more appropriately located in the section
of the final rule where the term is referenced, rather than in the
general definitions section. The substance of the definition of
``Purchase money mortgage (PMM)'' has not been revised.
This rule also relocates the definition of the term ``Lessee'' from
Sec. 291.5 to Sec. 291.405. Section 291.405 sets forth the definitions
of terms that are used exclusively in 24 CFR part 291, subpart E
(entitled ``Lease and Sale of HUD-Acquired Single Family Properties for
the Homeless''). The term ``lessee'' is only used in subpart E of 24
CFR part 291, and is therefore more appropriately defined in
Sec. 291.405 than in Sec. 291.5. The substance of the definition of the
term ``lessee'' has not been revised.
3. Reference to Management and Marketing Service Contracts
(Secs. 291.90 and 291.205)
As noted above, the final rule has been amended to reference
management and marketing service contracts. Specifically, Secs. 291.90
(entitled ``Sales methods'') and 291.205 (entitled ``Competitive sales
of individual properties'') have been revised explicitly to provide
that HUD may conduct competitive sales of individual properties either
directly or through management and marketing service contracts.
4. Minimum Property Standards (MPS) (Secs. 291.100(c)(1) and (c)(2))
Section 291.100 describes certain general policies applicable to
most sales methods used by HUD in its single family property
disposition program. Paragraph (c)(1) of proposed Sec. 291.100 provided
that ``[a] property that HUD believes meets the intent of the Minimum
Property Standards (MPS) for existing dwellings * * * will be offered
for sale * * * with FHA mortgage insurance available.'' Several public
commenters recommended methods that HUD might use to improve its
competitive sales process, including suggestions for enhancing
appraisal standards (see comment captioned ``Improve Upon Current
Disposition Process'' in section IV.E. of this preamble). In response
to these commenters, HUD is strengthening the regulatory language of
Sec. 291.100(c)(1) to require that a property offered for an insured
sale must meet the MPS, as determined by the Secretary. A conforming
change has also been made to proposed Sec. 291.100(c)(2), which
formerly also referred to the ``intent of the MPS.''
[[Page 6472]]
5. ``As Is'' Condition for Section 203(k) Properties
(Sec. 291.100(c)(3))
This final rule also amends Sec. 291.100(c)(3) of the May 29, 1998
proposed rule for technical clarity. Proposed Sec. 291.100(c)(3) stated
that uninsured single family properties would be ``offered for sale
either in `as is' condition without mortgage insurance, or under
section 203(k) of the National Housing Act (12 U.S.C. 1709(k)).'' The
quoted language might erroneously imply that properties offered for
sale under the section 203(k) program will not be offered for sale in
``as is'' condition. However, as is made clear from the rest of the
rule, all properties are offered on an ``as is'' basis. In addition,
HUD's sales contracts in all cases provide that the properties are sold
in ``as is'' condition. Accordingly, the phrase ``as is'' has been
added following the reference to the section 203(k) program in
Sec. 291.100(c)(3).
6. Listings (Sec. 291.100(h))
For purposes of clarity, the substance of proposed Sec. 291.100(h)
and (i) have been consolidated in Sec. 291.100(h), which sets forth the
listing requirements for HUD's single family property disposition
program. The substance of proposed Sec. 291.100(h), has been
reorganized and redesignated as paragraph (h)(1) of Sec. 291.100. The
substance of proposed Sec. 291.100(i), which concerns asset management
and listing contracts, has been redesignated as new paragraph
Sec. 291.100(h)(2). With the exception of these clarifying changes, the
substance of these provisions has not been revised.
7. Repair Escrow Amounts (Sec. 291.205(b)(2))
Section 291.205(b) describes the procedures relating to the
calculation of net offers under the competitive sale program. This
final rule removes proposed Sec. 291.205(b)(2), which provided that
``[i]n 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.'' HUD has determined that this change is
necessary for two reasons. First, in response to public comment, HUD
intends to expand its use of multiple listing services (MLS).
Specifically, HUD is considering use of the MLS for sales governed by
management and marketing sales contracts. (See the public comment
captioned ``HUD Should Require Transferors to Use MLS'' in section IV.B
of this preamble.) The identification of two list prices (one for
repair escrow purchasers and one for other buyers) is cumbersome under
the MLS. Further, the deduction of the repair escrow amount from the
bid amounts submitted by repair escrow purchasers may inadvertently
penalize these purchasers during the bid selection process.
8. Bid Period for Competitive Sales (Sec. 291.205(d))
Section 291.205(d) describes the bid procedures for competitive
sales of individual properties. The proposed rule (which reflected the
procedures in the existing part 291 regulations) would have established
fixed time frames for the submission and HUD review of bids. It is not
necessary to codify this information in HUD's regulations, since the
information may more appropriately be included in the bid materials
accompanying a particular sale. Further, HUD is refining and updating
its procedures governing management and marketing service contracts in
response to public comment. These public comments praised HUD's
management and marketing pilot program in the cities of Baltimore, New
Orleans, and Sacramento. The commenters urged HUD to revise the May 29,
1998 proposed rule to incorporate the procedures used in the successful
pilot program.
Among other revised features, HUD may provide for the electronic
submission of bids. The use of automated procedures and other
streamlined bid submission methods may call for a shortened bid period
or for the modification of HUD's bid review procedures. Accordingly,
this final rule revises Sec. 291.205(d) to provide HUD with the
necessary flexibility to successfully implement a variety of bid
submission and review procedures in the competitive sale of individual
properties. Specifically, the final rule removes the references to
fixed time periods and specific bid review procedures contained in the
May 29, 1998 proposed rule.
As revised by this final rule, Sec. 291.205(d) provides that HUD
will establish a bid period for properties available for competitive
sale. Generally, this bid period will be 10 days, but may be lengthened
or shortened by HUD. In the case of properties offered with mortgage
insurance, HUD may establish procedures that give priority to owner-
occupant purchasers for a period of up to 30-days (see
Sec. 291.205(a)(2)). HUD may treat all bids received during a specified
period of time as having been received simultaneously. HUD may also
choose to review bids on a daily basis, with all bids submitted during
each day considered to have been received simultaneously. HUD may use
either (or both) of these methods during the bid period, as specified
in the bid materials accompanying a particular competitive sale.
9. Extended Listing period (Sec. 291.205(f))
This section provides that properties not sold at the bid opening
of a competitive sale will remain available for an extended listing
period. Proposed Sec. 291.205(f) provided that properties that ``fail
to sell within 30-days after being offered for competitive bidding will
be reanalyzed and relisted.'' Proposed Sec. 291.205(f) also stated that
``[i]f a property's price or terms are changed, it will be subject to
another competitive bidding process * * *'' (emphasis added).
This final rule makes three changes to Sec. 291.205(f). First, this
final rule lengthens the extended listing period from 30 days to 45
days. This change extends the availability of a property being offered
for sale, and thus provides potential buyers with additional time to
purchase the property. In keeping with the stated goal of this rule to
provide HUD with the necessary flexibility to successfully implement a
variety of sales methods, this final rule also provides that a property
may be subject to another competitive bidding process if the property's
price or terms are changed (the language of the proposed rule would
have mandated another competitive bid process). Finally, this final
rule makes a clarifying change to Sec. 291.205(f) by replacing the term
``relisted'' with the phrase ``made available for sale.''
10. Bid Format (Sec. 291.205(g) and (k))
These two regulatory provisions have been updated to incorporate
the use of automated bid submission procedures. As set forth in the May
29, 1998 proposed rule, these provisions reflected outdated bid format
requirements. For example, Sec. 291.205(g)(2) provided that ``bids must
be placed in sealed envelopes marked with the property number, address,
and return address of the broker.'' This final rule revises
Sec. 291.205(g) and (k) to remove these references to outdated bid
format requirements, and to reflect modern electronic bid submission
procedures.
11. Multiple Bids (Sec. 291.205(i))
This final rule revises Sec. 291.205(i) for purposes of technical
clarity. Proposed Sec. 291.205(i) provided that ``[i]f a prospective
owner-occupant purchaser submits a bid on more than one
[[Page 6473]]
property, the first of those bids that produces the greatest return to
HUD will be accepted * * * .'' The quoted language might be
misinterpreted to mean that HUD will accept the first such bid
submitted by an owner-occupant purchaser, rather than the bid that
overall produces the greatest net return to HUD. Accordingly, this
final rule clarifies the language of Sec. 291.205(i).
12. Owner-Occupant Priority During Competitive Sales Process
(Sec. 291.205(j))
This final rule adds a new Sec. 291.205(j), which provides that
owner-occupant purchasers will be given priority in those cases where
an owner-occupant and an investor purchaser submit identical bids
during a competitive sale. Several public commenters recommended that
HUD ensure that the transferor will sell the properties to owner-
occupants (see the comment captioned ``HUD Should Ensure That
Properties Are Sold to Owner-Occupants'' in section IV.B. of this
preamble). HUD agrees with the commenters that the sale of single
family properties to owner-occupant purchasers is an effective method
of promoting affordable homeownership opportunities. In response to
these public comments, this final rule provides that if identical bids
are submitted by an owner-occupant purchaser and an investor purchaser
during a competitive sale, HUD will select the bid submitted by the
owner-occupant purchaser. As a result of the addition of new
Sec. 291.205(j), proposed Secs. 291.205(j) and (k) of the May 29, 1998
proposed rule have been redesignated as Secs. 291.205(k) and (l),
respectively.
13. Direct Sales to Government Entities and Nonprofit Organizations
(Sec. 291.210(a)(1))
Section 291.210(a) describes the procedures governing the direct
sale of properties to governmental entities and private nonprofit
organizations. Section 291.210(a)(1) of the May 29, 1998 proposed rule
would have changed the existing part 291 regulations by providing for
the direct sale of properties to government entities and private
nonprofit organizations of all properties located in HUD-designated
revitalization areas. However, section 602 of the Departments of
Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Act, 1999 (Pub.L. 105-276, 112 Stat. 2461,
approved October 21, 1998) (the ``FY 1999 HUD Appropriations Act'')
directs HUD to carry out a sales program to local governments and
interested private nonprofit organizations in designated revitalization
areas. HUD will implement section 602 of the FY 1999 HUD Appropriations
Act through a separate rulemaking. Therefore, this final rule does not
adopt the language of proposed Sec. 291.210(a)(1). Rather, this final
rule uses the language of the existing part 291 regulations, which
provides for direct sales of properties without insured mortgages to
government entities and private nonprofit organizations, without regard
to their location. (For additional discussion regarding section 602 of
the FY 1999 HUD Appropriations Act and its relationship to this final
rule, please see the discussion of the public comment captioned ``HUD
Should Foster Cooperation with Nonprofit, Community Organizations, and
Local Governments'' in section IV.B of this preamble.)
As a result of the revision to Sec. 291.210(a)(1), a conforming
change has been made to Sec. 291.90, which identifies the various sales
methods available to HUD. Specifically, this final rule revises
proposed Sec. 291.90(c)(1), which lists direct sales to governmental
entities and nonprofit organizations, to specify that such sales will
be without mortgage insurance, and to remove the reference to ``HUD
designated revitalization areas.''
14. Tiebreakers for Direct Sales to Governments and Nonprofit
(Sec. 291.210(a)(2)(i))
In addition to the change discussed above, this final rule makes
another change to the procedures concerning direct sales to government
entities and private nonprofit organizations. Specifically, this final
rule amends Sec. 291.210(a)(2) to codify existing practice regarding
award selection in the case of identical bids submitted by two or more
bidders. Section 291.210(a)(2)(i) of this final rule provides that:
``All bids received on the same business day will be considered to have
been received simultaneously. In the case of identical bids submitted
on the same business day, award will be determined by drawing lots.''
15. Consideration and Inspection Period (Sec. 291.210(a)(2)(ii))
This final rule also revises Sec. 291.210(a)(2)(ii), which
describes the consideration and inspection period for governmental and
nonprofit purchasers. Proposed Sec. 291.210(a)(2)(ii) established a
fixed 10 day consideration and inspection period. It is not necessary
to codify this information in HUD's regulations, since the information
is more appropriately included in the bid materials accompanying a
particular sale. Further, removal of the fixed time period conforms to
the stated goal of this final rule to provide HUD with the necessary
flexibility to successfully use a variety of sales methods.
Accordingly, this final rule amends Sec. 291.210(a)(2)(ii) to remove
the reference to the fixed 10 day period. As revised by this final
rule, Sec. 291.210(a)(2)(ii) states that the consideration and
inspection period will usually be for ten days from the date of
notification of interest, but may be lengthened or shortened by HUD.
IV. Discussion of Public Comments on the May 29, 1998 Proposed Rule
The public comment period for the proposed rule expired on June 29,
1998. HUD received 201 comments, including comments from real estate
brokers, agencies, and related associations; vendors in the real estate
industry (contractors, title companies, appraisers, etc.); mortgage
lending institutions and related institutions and associations; local
governments and government agencies; nonprofit organizations; members
of Congress; and other commenters. This section of the preamble
presents a summary of the significant issues raised by the public
commenters on the May 29, 1998 proposed rule, and HUD's responses to
these comments.
A. Support for the REO Acquisition Method
Several commenters offered support for the REO acquisition method
described in the proposed rule. One commenter asserted that the
management of foreclosed homes has been identified by many lenders as a
task best contracted to specialists. Some of these commenters wrote
that this approach would bring higher prices for the properties and
move the properties more quickly. One commenter argued that the REO
acquisition method would likely bring HUD's properties to the open
market in better condition than through HUD's current sales process,
and some commenters expressed confidence that local real estate markets
would not be negatively affected, since the transferors would have
profit incentives to achieve market prices. Several commenters
expressed interest in participating in the future REO acquisition
process.
HUD Response. HUD agrees with these commenters that the REO
acquisition method is an efficient, and cost-effective process for the
disposition of single family properties. The purpose of this final rule
is to provide HUD with the flexibility to use a variety of innovative
methods in the sale of single
[[Page 6474]]
family properties. As already noted in this preamble, HUD agrees that
the management and marketing of foreclosed properties also presents an
efficient and effective sales method. HUD is amending Sec. 291.90 to
refine the policies and procedures governing management and marketing
service contracts. Through the use of management and marketing service
contracts, the REO acquisition method, or other similar arrangements,
HUD believes it will be able to transfer properties it acquires quickly
and efficiently and in a manner that allows HUD to achieve its national
housing goals.
B. Recommendations for Implementing the REO Acquisition Method
Applicable to Other Sales Methods
Many commenters offered suggestions for the successful
implementation of the REO acquisition method. Many of the suggestions
made by these commenters are not limited to the REO sales method, but
are applicable to a variety of disposition methods, including
management and marketing contracts. The following presents a summary of
the cross-cutting issues raised by these commenters, and HUD's
responses to these issues.
Comment: HUD Should Ensure Involvement of Local Brokers. Several
commenters recommended that if HUD uses the REO acquisition method, HUD
should ensure that the transferor engages in partnerships and otherwise
cooperates with local real estate brokers to ensure their continued
participation and business viability. Several commenters argued that
the involvement of local real estate professionals is the most cost-
efficient means of selling properties, because these professionals
provide knowledge of the local housing market. Several commenters
argued further that the competition among multiple brokers will provide
for fair market pricing.
HUD Response. HUD agrees that local real estate professionals can
be important contributors to the success of its single family property
disposition program. As the commenters note, the expertise provided by
these professionals can enhance the efficiency and timeliness of the
sales process. HUD has relied on the services of local real estate
professionals in the implementation of management and marketing service
contracts, and will seek to involve such professionals in the various
other sales methods available to HUD, to the extent practicable.
Comment: HUD Should Require Transferors to Use MLS. Several
commenters recommended that HUD require the transferors to list all
properties on the local multiple listing service (MLS) in order to
assure wide access to the properties by the general public. (However,
one commenter argued that HUD properties are in such bad condition that
they would not be suitable for placement on the MLS.)
HUD Response. HUD agrees that the MLS can be an effective method
for informing the public of single family properties that are available
for sale. HUD will determine on a case-by-case basis, depending on the
specific sales method, whether the use of the MLS is appropriate. HUD
intends to use the MLS for sales governed by management and marketing
service contracts. HUD believes that the use of the MLS by management
and marketing service contractors will ensure the widest possible
access to the properties by the general public.
HUD will consider the use of the MLS for other disposition methods,
such as the REO acquisition method. HUD may also use other methods to
publicize properties available for sale, including the internet,
newspapers, and other media determined appropriate by the Secretary.
Comment: HUD Should Foster Cooperation with Nonprofit, Community
Organizations, and Local Governments. Several commenters recommended
that HUD develop requirements or incentives (such as performance
measures) for the REO transferors to work with nonprofit organizations
and local governments in the disposition of the properties. Other
commenters suggested that local governments and/or nonprofit
organizations should be given the right of first refusal for properties
located in their areas, or those in revitalization areas, before these
properties are acquired by the transferors.
Four commenters recommended that HUD exempt all properties in
revitalization areas from the future REO acquisition process. In those
areas, the commenters suggested that HUD should sell all properties
directly to nonprofit and local governments at discounted prices, so
that those entities can then engage in community-based activities such
as rehabilitation and homebuyer counseling.
Three commenters suggested that through the disposition of Mission
Properties, HUD can implement its missions as an organization, which
include neighborhood revitalization, homeownership, and a continuum of
care for homeless persons, as well as other efforts such as the Officer
Next Door program. The commenters explained that Mission Properties
consist primarily of properties in areas of high FHA default and
foreclosure rates, or in other areas as designated by the community and
HUD. These commenters suggested that HUD should exempt such properties
from the future REO acquisition process and sell them directly to
nonprofit organizations and local governments at discounted prices.
HUD Response. HUD understands that there are nonprofit
organizations, local governments, and other community groups that rely
upon HUD-acquired properties as a resource for their housing programs.
HUD is committed to continuing its partnership with these groups. As
already noted in this preamble, HUD intends to continue to make
available a portion of its acquired properties 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.
Additionally, section 602 of the FY 1999 HUD Appropriations Act
requires that HUD carry out a program under which HUD-owned homes and
mortgages are made available in a manner that promotes expanded
homeownership opportunities in designated revitalization areas. Under
section 602, the Secretary will designate revitalization areas, in
consultation with affected units of general local government and
interested nonprofit organizations. Section 602 provides that the
Secretary shall provide a preference in the sale of HUD-owned homes and
mortgages to nonprofit organizations or to the unit of general local
government having jurisdiction in the revitalization area. HUD will
implement section 602 of the FY 1999 HUD Appropriations Act through a
future rulemaking.
Comment: HUD Should Ensure That Properties Are Sold to Owner-
Occupants. Several commenters recommended that HUD ensure that the
transferor will sell the properties to owner-occupants (or to
nonprofit/local governments that will, in turn, sell to owner-
occupants), and not to investors to use as rental properties. Two
commenters suggested that this could be accomplished through the
assignment of a preference or right of first refusal to owner-occupant
purchasers, as well as through particular marketing guidelines. These
commenters argued that the REO acquisition method should not undermine
HUD's homeownership goals by resulting in a net decrease in
homeownership. The commenters argued that HUD must ensure that its
sales methods operate consistently with
[[Page 6475]]
and in support of HUD's national housing goals.
HUD Response. HUD agrees with the commenters that the sale of
single family properties to owner-occupant purchasers is an effective
method of promoting affordable homeownership opportunities. For
example, this final rule retains the provision found in the existing
part 291 regulations that permits HUD to give priority to owner-
occupant purchasers in the competitive sales of individual properties
(see Sec. 291.205(a)(2)). In response to these public comments, this
final rule also provides that HUD will give priority to bids submitted
by owner-occupant purchasers during the competitive sales process.
Specifically, the rule provides that if identical bids are submitted by
an owner-occupant purchaser and an investor purchaser, HUD will select
the bid submitted by the owner-occupant purchaser. (See
Sec. 291.205(j)). HUD also wishes to note that under the bid procedures
established for management and marketing service contracts, priority
will be given to owner-occupant purchasers during the initial bid
opening period.
C. Specific Recommendations for Implementing the REO Acquisition Method
Many commenters made recommendations specifically applicable to the
implementation of the REO acquisition method. HUD appreciates the very
helpful and detailed suggestions regarding the implementation of this
innovative sales method. At this time, HUD has decided not to amend the
May 29, 1998 proposed rule to adopt by regulation the recommendations
made by these commenters. HUD does not want to limit its ability to
conduct an efficient and effective REO acquisition method by
prescribing too much detail through regulation. Instead, HUD prefers to
describe its sales methods broadly in order to retain the flexibility
granted to HUD by statute, and to leave the details for any sales
method to the bid materials.
A summary of the significant issues raised by these commenters is
set forth below.
Comment: HUD Should Enter Agreements with More Than One Transferor
Per Geographic Region. Several commenters recommended that HUD should
enter into agreements with more than one transferor in each geographic
region, in order to promote competition and increase access to the
properties.
Comment: HUD Should Develop Guidelines to Ensure Affordability.
Several commenters recommended that HUD develop a broad set of
guidelines to ensure that the transferors controlling the properties
continue to make them affordable to homeowners (e.g., through
downpayment or closing cost assistance).
Comment: HUD Should Test Future REO Acquisition Method First. Two
commenters recommended that HUD test the future REO acquisition method,
perhaps in certain test areas, for a limited period of time. If the
proposed method works without harming small businesses, homebuyers, or
communities, then HUD should phase the proposed method in slowly.
Comment: Structuring the REO Acquisition Process. One commenter
stressed that HUD must retain an interest in the properties and a share
of the risks and gains in order for the future REO acquisition method
to succeed. The commenter noted that a transferor under the future REO
acquisition method would be acquiring the pipeline properties ``in a
blind manner,'' which represents a potential risk. If HUD retains an
interest, and therefore a share of the risk, in the transaction, the
commenter asserted that HUD would receive higher bids from the
prospective transferors and higher ultimate proceeds. The commenter
also noted that the transferor must also have a significant interest in
the success of and the goals of the disposition process, to ensure that
properties are not ``dumped'' on the market.
One commenter suggested that in implementing the future REO
acquisition process, and in determining criteria for choosing the
transferors, HUD should emphasize the following factors: (1) The
transferors should be well capitalized and have the financial
capability to fund their obligations to HUD; (2) the transferors should
have well developed systems, policies, procedures, and vendor networks
in order to market and sell the properties promptly upon acquisition;
(3) the transferors should have plans to maximize the involvement of
small and/or disadvantaged businesses; and (4) the transferors should
develop a program to screen properties for appropriate referrals to
nonprofit and government sponsored housing development agencies.
One commenter offered very specific suggestions for establishing
the basis upon which prospective transferors would submit their bids.
This commenter expressed a concern that the transferors' profits will
depend more upon the speed of sales than the actual selling prices.
Therefore, this commenter argued that the transferor may have an
incentive to forsake negotiating efforts with the ultimate purchaser.
In order to counter that incentive, the commenter suggested that the
bids should be based upon a percentage of the selling price.
Comment: Requests for Additional Information. Several commenters
sought additional information about how the future REO acquisition
method would work. For example, one commenter asked many specific
questions, such as how HUD would decide which properties within a
geographic region would be included in the acquisition agreement (if
not all properties). Another commenter asked how the future REO
acquisition method would affect servicers' responsibilities and
contractors' duties and authorities.
Again, HUD appreciates all these suggestions and will consider
these comments when it determines property should be disposed through
the REO acquisition method.
D. Opposition to the REO Acquisition Method
Many of the commenters objected to the future REO acquisition
method described in the proposed rule. Most of these commenters equated
the proposed process with traditional bulk sales, which they claimed
helps only the large wealthy investors, while eliminating homeownership
opportunities for low-income and first-time buyers. They also claimed
that such bulk ``fire'' sales depress neighborhood property values and
otherwise harm neighborhoods.
Comment: HUD Should Continue Using Current Primary Method of Sale.
Many commenters urged HUD to continue using its current primary method
of selling its inventory of properties--competitive sales of individual
properties to individuals. These commenters argued that the current
method of sale is better than the proposed future REO acquisition
method for several reasons, as described below.
1. Future REO Acquisition Method Would Eliminate Homeownership
Opportunities
Many commenters argued that the future REO acquisition method would
eliminate homeownership opportunities for low-income families, which is
an important part of HUD's mission. Many of these commenters asserted
that through altering FHA guidelines in the sale of HUD properties, HUD
can provide homeownership assistance through reduced downpayments and
closing costs. These commenters argued that under the future REO
acquisition method, title to the properties would be
[[Page 6476]]
passed to a separate entity, and HUD would not be able to change the
FHA guidelines to provide such assistance. These commenters argued that
the future REO acquisition method would provide huge profits to large
investors, but would eliminate homeownership opportunities for low-
income families.
2. Future REO Acquisition Method Would Result in Lower Returns
Several commenters argued that the future REO acquisition method
would result in deeply discounted wholesale prices to investment
companies, reducing the return to HUD, and therefore to the taxpayers.
Some commenters argued that the competitive bidding process under the
current sales method results in the highest possible return to HUD.
Several commenters asserted that the future REO acquisition method
would also result in lower ultimate sales prices that would contribute
to the depreciation of the property values in the surrounding
neighborhoods. Alternatively, other commenters argued that the ultimate
sales prices would increase due to the profit motivations of the
transferors, making homeownership more difficult for lower income
buyers.
3. HUD Staff Can Sell Properties Faster and at Lower Cost Than
Contractors
Several commenters argued that, as compared to outside contractors,
HUD Single Family staff in its local offices can facilitate the sale of
properties faster and at lower cost than outside contractors. These
commenters argued, therefore, that HUD should not shift property
disposition functions to such contractors.
HUD Response. In response to all three groups of commenters, HUD
continues to believe that the REO acquisition method described in the
May 29, 1998 proposed rule is an effective, timely, and cost-efficient
method for the disposition of HUD-acquired single family properties,
and therefore retains this sales method in the part 291 regulations. In
addition, HUD has refined the procedures that govern management and
marketing service contracts. Again, the purpose of amending HUD's part
291 regulations is to notify the public that there is no principal or
primary sales method to which HUD must adhere.
This final rule codifies the proposal of the May 29, 1998 proposed
rule that HUD has the discretion to use other methods of sale in
addition to the REO acquisition method, including the competitive sales
to individuals preferred by the commenters, direct sales, and other
sales as determined necessary by the Secretary. At present, HUD has
decided to concentrate its efforts on competitive sales to individuals
through the use of management and marketing contracts. However, HUD
retains the option to use the REO acquisition method at any time. HUD
will consider the issues raised by these commenters during the
development of any future REO sales method.
Comment: Future REO Acquisition Process Would Result in Decreased
Rehabilitation. Two commenters argued that although the future REO
acquisition method may result in a rapid sale of properties, the large
investors that participate in the process would have an economic
disincentive to expend resources on rehabilitation. The commenters
argued that under the proposed sales method, HUD would have limited
control of the rehabilitation performed on these homes, which are often
physically distressed. The commenters argued that the transferors would
simply perform minimal cosmetic repairs that would prepare the homes as
rental properties.
HUD Response. HUD believes that the REO acquisition method is an
innovative and effective method for the sale of HUD-acquired single
family properties. At the present time, HUD is planning to rely on
management and marketing service contracts. HUD, however, has the
discretion to use the REO acquisition method or other sales methods
when it believes that a particular method(s) is appropriate given the
circumstances faced by HUD in economically and efficiently disposing of
properties and meeting its national housing goals.
Comment: Future REO Acquisition Process Would Hurt Small
Businesses. Several commenters argued that the future REO acquisition
process would hurt small businesses (particularly real estate brokers)
by eliminating them from HUD's disposition process. The commenters
argued that although a few large companies would profit, many small
real estate brokers would suffer. Some of these commenters remarked
that small investors would also be effectively prohibited from
participating in the future REO acquisition method, considering the
magnitude of the transactions.
HUD Response. Before publication of the May 29, 1998 proposed rule,
HUD 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. Based on this analysis, HUD determined that the
REO acquisition method described in the rule would not have a
significant economic impact on a substantial number of small entities
(see 63 FR 29496, 29499).
In analyzing the impact of the REO acquisition method on small
entities, HUD noted that a transferor under the REO sales arrangement
may use a sales process similar to HUD's competitive 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.
Further, 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.
The May 29, 1998 proposed rule also noted that while HUD sells in
excess of 50,000 properties each year, this volume of property sales
represents only a small percentage of the total number of home sales
nationwide. 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 the REO
acquisition method would not be significant, and it would not affect a
substantial number of small entities.
Comment: Shifting HUD Work to Contractors. Several commenters
objected to the proposed rule because it would unnecessarily shift FHA
Single Family work to contractors. One of these commenters argued that
shifting property management and disposition functions to a private
entity would clearly violate OMB Circular A-76, ``which permits
alternative methods of performing an activity only if it can be carried
out at a lower cost than in-house performance.'' One of these
commenters asserted that HUD is relying upon a centralization pilot to
support its argument that the future REO acquisition method would
result in faster processing with no loss in customer service. The
commenter asserted that most of the observed improvement was not a
result of the pilot, but rather a result of a decrease in FHA
refinancing volume and a reduction in quality reviews. One of the
commenters asserted that HUD itself is jeopardizing its property
disposition performance through downsizing.
These commenters also pointed to a comparison between HUD's Denver
staff and outside contractors, and concluded that HUD's staff
transferred properties more quickly and at lower costs than the
contractors. One commenter argued further that any savings in personnel
costs anticipated through the use of the
[[Page 6477]]
future REO acquisition method would be offset by the cost of personnel
necessary to oversee the disposition process properly and to perform
accounting functions. Another commenter argued that the disposition of
HUD properties is an optimal function for the new community builder
storefronts, since the commenter claimed that most of the public's
knowledge of HUD, and most of the traffic in the new storefronts,
consists of interest in HUD homes.
HUD Response. HUD does not agree with the assertions made by these
commenters, and believes that the REO acquisition method is an
efficient and cost-effective method for the disposition of HUD-acquired
single family properties and of meeting national housing goals. As
described in the preamble to the proposed rule, HUD anticipates that
entities interested in participating in the future REO acquisition
method will be experienced in high-volume property sales. Competition
among interested entities would enhance this benefit and result in
maximum efficiency and return. (See 63 FR 29496, 29497.)
Comment: An Invitation for Fraud and Corruption. Several commenters
asserted that since only the largest investors (or bidding teams) would
be capable of participating in the future REO acquisition method,
competition would be minimized. Some of these commenters concluded that
the magnitude of the proposed transactions would present an
overwhelming opportunity for fraud and corruption. One commenter
asserted that, due to downsizing, HUD would be even less capable of
monitoring contractor performance.
HUD Response. HUD agrees with these commenters that should the
Department pursue any future REO sales methods, appropriate safeguards
will be put in place to minimize the opportunity for fraud and
corruption.
Comment: HUD Violated Policy Regarding 60-Day Comment Period. One
commenter argued that HUD violated its general policy in 24 CFR part 10
of providing the public 60 days to comment on proposed rules. The
commenter argued that HUD provided an insufficient basis for shortening
the comment period to 30 days.
HUD Response. HUD recognizes the value and importance of public
comment in the regulatory process. HUD has invited public comment at
every stage of the development of the amendments made effective by this
final rule. HUD provided the public with notice and an opportunity to
comment on innovative sales procedures in the advance 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. In order to provide
the fullest and most expedient access to the provisions of the May 29,
1998 proposed rule, HUD made it available on the HUD Home Page on the
World Wide Web at http://www.hud.gov, on the date of its publication in
the Federal Register. HUD also directly notified entities that had
expressed a significant interest to HUD by sending such entities a copy
of the May 29, 1998 proposed rule.
E. Other Recommendations
Comment: HUD Should Develop Sales Process Modelled on Freddie Mac/
HomeSteps. Many commenters urged HUD to work with Freddie Mac in order
to develop a property disposition process similar to Freddie Mac's
HomeSteps program. Three commenters, however, criticized disposition
programs such as Freddie Mac's, claiming that the required use of
professionals in the ``network'' stifles competition (and is in
violation of RESPA, according to two of the commenters). Two of the
commenters also argued that the properties in such programs do not sell
as quickly as HUD's.
HUD Response: As noted above, one of the purposes of this final
rule is to provide HUD with the necessary flexibility to use a variety
of sales methods for the disposition of HUD-acquired single family
properties. Under Sec. 291.90(e) of this rule, HUD has the authority to
use any sales methods as determined necessary by the Secretary. At this
time, HUD has decided not to implement a sales method modelled on the
Freddie Mac HomeSteps program.
Comment: Property Disposition Pilot Program/Golden Feather Realty.
Many commenters praised the management and marketing pilot program for
property disposition that HUD is conducting in Baltimore, New Orleans,
and Sacramento, describing it as ``a public/private partnership that
works.'' In particular, many commenters commended Golden Feather Realty
and its performance under the pilot program in Baltimore. These
commenters complimented Golden Feather on its efficiency--homes sell
quickly, with higher sales prices, saving HUD $8.6 million. One
commenter asserted that Golden Feather has increased the awareness of
and interest in the program through advertising and classes. These
commenters suggested that HUD expand this program nationwide and use it
as its primary sales method.
One commenter stressed that HUD should not, in implementing its
proposed future REO acquisition method, adversely affect the current
and pending management and marketing contracts in these pilot cities.
One commenter, however, asserted that nonprofit organizations have
not been able to participate in the acquisition of a significant number
of properties in these areas. The commenter suggested that in future
management and marketing contracts HUD should set goals to ensure
significant participation by nonprofit, along with appropriate
discounts on the properties.
HUD Response. As discussed above, HUD has decided to refine the
procedures relating to management and marketing service contracts in
the part 291 regulations, given the success of this pilot program and
the public comments praising this sales method. Under the management
and marketing process, HUD will contract the REO management and sales
function to experienced companies located in areas that correspond to
HUD's Homeownership Centers. Following the selection of the management
and marketing contractors, the individual acquired single family
properties will be sold to individuals, including nonprofit
organizations and government entities. HUD believes that the use of
such innovative methods as management and marketing contracts, the REO
acquisition method, and other sales methods will result in prompt
delivery of HUD-acquired single family properties to the sales market;
minimize losses to the FHA insurance fund; and keep the cost of
mortgage insurance low.
In response to the commenter who asserted that nonprofits have not
been able to meaningfully participate in the acquisition of properties,
HUD notes that in FY 1998 nonprofit organizations/governments played a
significant role in the management and marketing pilot program
(acquiring 102 properties in Baltimore, 75 properties in New Orleans,
and 105 properties in Sacramento).
Comment: Improve Upon Current Disposition Process. Several
commenters suggested that HUD seek to improve upon its current
disposition process, rather than abandoning it. For example, three
commenters suggested that HUD should establish routine procedures for
inspecting and appraising the properties, disclosing deficiencies,
repairing the properties, and/or providing repair escrow when
necessary. Another commenter
[[Page 6478]]
recommended that HUD should organize a broker committee with direct
input at the local level. Two commenters suggested that HUD should
develop an effective ``back-up'' process, so that if the first bid
falls through (e.g., due to lack of financing), the property can go to
the back-up bidder. One commenter wrote that HUD should establish
minimum acceptable bids for the properties. Another commenter
recommended that HUD should reduce the number of personnel in the
property disposition process.
Several of these comments focused on HUD's use of media in
informing the public of the availability of properties. For example,
several commenters wrote that HUD should rely more heavily upon the
Internet for listing the properties, and otherwise make better use of
new technology. Another commenter suggested that HUD should rely on its
employees and use all other tools available (online multiple listing
services, television, direct mail, community builders) to speed up the
property disposition process. One commenter recommended that HUD should
resume the practice of advertising HUD listings in local newspapers,
rather than just by facsimile (FAX), since small businesses do not
always have fax machines.
HUD Response. HUD agrees that changes to the current competitive
sales method for individual properties were necessary to make the
program more efficient and cost effective, and permit HUD to meet its
national housing goals. HUD has adopted several of these comments and
has modified its competitive sales procedures as described in section
III of this preamble. It is anticipated that with these modifications,
properties will be listed and returned to private homeownership more
quickly. In addition, HUD believes its expanded use of management and
marketing contracts will improve the efficiency and cost-effectiveness
of its competitive sales of individual properties.
Comment: Concentrate on Reducing Defaults/Foreclosures. Three
commenters urged HUD to concentrate on reducing the number of loans
that go into default and foreclosure. One commenter suggested that HUD
review the FHA underwriting guidelines. Two commenters asserted that
HUD should develop a comprehensive counseling and default mitigation
program. One commenter argued that the future REO acquisition method
would actually reduce the effectiveness of HUD's loss mitigation
efforts by reducing appraised market values in affected neighborhoods.
HUD Response. Over the past few years, legislation has been enacted
that provides HUD with several effective loss mitigation tools. HUD
continues to encourage lenders to mitigate losses, and to make
efficient use of available loss mitigation techniques.
V. Nondiscrimination Requirements
As noted in the May 29, 1998 proposed rule, 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. Findings and Certifications
Executive Order 12866
The Office of Management and Budget (OMB) reviewed this 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 (although not economically significant, as
provided in section 3(f)(1) of the Order). Any changes made to the
final rule subsequent to its submission to OMB are identified in the
docket file, which is available for public inspection in the office of
the Department's Rules Docket Clerk, Room 10276, 451 Seventh Street,
SW, Washington, DC 20410-0500.
Environmental Impact
A Finding of No Significant Impact with respect to the environment
was made at the proposed rule stage 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). That finding
continues to be applicable to this final rule and 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 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 final 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 amendments made by this final rule will 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.
Under many of the sales methods described in this final rule, such
as the REO acquisition method and management and marketing contracts,
it is likely that small entities would continue to be involved in the
ultimate sales of the properties. For example, a transferor under the
REO acquisition process may use a sales process similar to the process.
Management and marketing contractors will continue to conduct
competitive sales to individuals. Additionally, in an effort to
mitigate any potential impact on small entities, HUD will encourage the
use of
[[Page 6479]]
small local firms to assist in the disposal of single family acquired
properties. Under the management and marketing pilot program, 99
percent of the funds spent on subcontracting went to small businesses
providing services such as lawn cutting, debris removal, cleaning, and
repairs.
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 amended as follows:
PART 291--DISPOSITION OF HUD-ACQUIRED SINGLE FAMILY PROPERTY
1. The authority citation for 24 CFR part 291 is revised to read as
follows:
Authority: 12 U.S.C. 1701 et seq.; 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 acquired by the Federal Housing Administration (FHA)
through foreclosure of an insured or Secretary-held mortgage or loan
under the National Housing Act, or acquired by HUD under section 312 of
the Housing Act of 1964. 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 funds.
(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 term Secretary is defined in 24 CFR part 5.
(b) Other terms used in this part are defined as follows:
Competitive sale of individual property 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 means the Department of Housing and Urban Development or its
contractor, as appropriate.
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.
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).
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.
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.
[[Page 6480]]
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 without insured mortgages 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 meets the Minimum Property Standards
(MPS), as determined by the Secretary, 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 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.
(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
in ``as-is'' condition 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.
(3) Purchase money mortgage (PMM). For purposes of this section,
the term ``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.
(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) Listings. 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.
(1) Open listings. Except as provided in paragraph (h)(2) of this
section, properties are sold on an open listing basis with
participating real estate brokers.
(2) Asset management and listing contracts. (i) A local HUD 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.
[[Page 6481]]
(ii) 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 in this process
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 insured mortgages, 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 insured mortgages, priority will be given to
governmental entities and nonprofit organizations prior to other owner-
occupant purchasers.
(b) Net offer. (1) The net offer is calculated by subtracting from
the bid price the dollar amounts for the financing and loan closing
costs and the broker's sales commission, as described in paragraph
(b)(2) of this section.
(2) 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 total 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.
(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. (1) HUD will establish a bid period for properties
available for sale. Generally, the bid period will be 10 days, but may
be lengthened or shortened by HUD. After properties are initially
advertised, bids may be submitted by all potential purchasers. However,
in the case of properties offered with insured mortgages, HUD may give
priority to owner-occupant purchasers for a period of up to 30-days, as
described in paragraph (a)(2) of this section.
(2) HUD may treat all bids received during a specified period of
time during the bid period to have been received simultaneously. HUD
may also choose to review bids on a daily basis, with all bids
submitted during each day considered to have been received
simultaneously. HUD may use either (or both) of these methods during
the bid period, as described in the bid materials accompanying a
particular sale.
(3) Offers received on a property before the bid period begins will
be returned. Offers received after the bid 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
bid period (see paragraph (f) of this section).
(e) Full price offers. HUD local offices that operate under a
``full price offer'' program open offers at specified times during the
bid 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 bid period cancelled.
(f) Extended listing period. Properties not sold during the bid
period 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
45 days after being offered for competitive bidding will be reanalyzed
and made available for sale. If a property's price or terms are
changed, it may be subject to another competitive bid period as
described in paragraph (d) of this section.
(g) Bid requirements. (1) All successful bids submitted, whether
during the bid period or the extended listing period, must be in a form
prescribed by HUD, and must be submitted in accordance with procedures
established by HUD. If the purchase is to be an insured sale, a local
HUD office may also require that supporting exhibits for mortgage
credit analysis accompany the initial submission of the bid. All bids
not indicating that the purchaser will occupy the property will be
considered as offers from investor purchasers.
(2) 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 local HUD
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 local HUD 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 bid that produces the greatest net return
to HUD will be accepted and all other bids from that purchaser will be
eliminated from
[[Page 6482]]
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) Identical bids. In the case of identical bids submitted by an
owner-occupant purchaser and an investor purchaser, HUD will select the
bid submitted by the owner-occupant purchaser. If identical bids are
submitted by two or more owner-occupant purchasers, or by two or more
investor purchasers, award will be determined by drawing lots.
(k) Opening the bids. Unless the Secretary specifically authorizes
another bid process:
(1) The successful bids will be opened publicly at a time and place
designated by the local HUD office.
(2) Successful bidders will be notified through their real estate
brokers by mail, telephone, or other means. Information regarding
losing bids will also be made available either through electronic
posting or by contacting the local HUD office. Acceptance of a bid is
final and effective only upon HUD's execution of the sales contract,
signed by both the submitting real estate broker and the prospective
purchaser, and mailing of a copy of the executed contract to the
successful bidder or the bidder's agent.
(l) Counteroffers. If all bids received on a property are
unacceptable, a local HUD 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 local HUD
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.
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 without insured mortgages 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. Upon request,
before those properties without insured mortgages 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. All bids received
on the same business day will be considered to have been received
simultaneously. In the case of identical bids submitted on the same
business day, award will be determined by drawing lots.
(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). HUD will provide a
consideration and inspection period for these purchasers. The
consideration and inspection period will usually be for ten days from
the date of notification of interest, but may be lengthened or
shortened by HUD, as appropriate. Those properties in which purchasers
express an interest will be held off the market for the duration of the
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 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 consideration and inspection 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
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.
(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 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:
[[Page 6483]]
(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.
Lessee means the applicant, approved by HUD as financially
responsible, that executes a lease agreement with HUD for an eligible
property.
Dated: February 3, 1999.
William C. Apgar,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 99-3046 Filed 2-8-99; 8:45 am]
BILLING CODE 4210-27-P