[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]



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Part III





Department of Housing and Urban Development





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24 CFR Part 291



Disposition of HUD-Acquired Single Family Property; Final Rule

  Federal Register / Vol. 64, No. 26 / Tuesday, February 9, 1999 / 
Rules and Regulations  

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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.

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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

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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.''

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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

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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