[Federal Register Volume 65, Number 123 (Monday, June 26, 2000)]
[Proposed Rules]
[Pages 39502-39505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16024]



[[Page 39501]]

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Part V





Department of Housing and Urban Development





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24 CFR Part 30



Amendments to HUD's Civil Money Penalty Regulations; Proposed Rule

  Federal Register / Vol. 65, No. 123 / Monday, June 26, 2000 / 
Proposed Rules  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 30

[Docket No. FR-4399-P-01]
RIN 2501-AC56


Amendments to HUD's Civil Money Penalty Regulations

AGENCY: Office of the Secretary, HUD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement sections 561 and 562 of the 
Multifamily Assisted Housing Reform and Affordability Act of 1997. 
These sections concern HUD's ability to impose civil money penalties. 
Section 561 expands the list of parties and violations subject to civil 
money penalties related to multifamily properties. Section 562 
authorizes HUD to impose civil money penalties for violations of 
Section 8 project-based housing assistance payments contracts. This 
proposed rule would implement these sections by revising HUD's civil 
money penalty regulations.

DATES: Comments Due Date: August 25, 2000.

ADDRESSES: Address all comments concerning this proposed rule to the 
Rules Docket Clerk, Office of the General Counsel, U.S. Department of 
Housing and Urban Development, 451 Seventh Street, SW, Room 10276, 
Washington, DC 20410-0500. Comments should refer to the docket number 
and title listed above. A copy of each comment submitted will be 
available for public inspection and copying weekdays between 7:30 a.m. 
and 5:30 p.m. at the above address. Comments submitted by facsimile 
(FAX) will not be accepted.

FOR FURTHER INFORMATION CONTACT: Dane M. Narode, Deputy Chief Counsel 
for Administrative Proceedings, Departmental Enforcement Center, U.S. 
Department of Housing and Urban Development, 1250 Maryland Avenue, 
Suite 200, Washington, DC 20024; telephone (202) 708-2350 (this is not 
a toll-free number). Hearing-or speech-impaired persons may access this 
number via TTY by calling the toll-free Federal Information Relay 
Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. The Multifamily Assisted Housing Reform and Affordability Act of 
1997

    On October 27, 1997, President Clinton signed into law the 
Multifamily Assisted Housing Reform and Affordability Act of 1997 
(Public Law 105-65, title V, 111 Stat. 1384-1424) (the Multifamily 
Reform Act). One of the stated purposes of the Multifamily Reform Act 
was ``to grant additional enforcement tools to use against those who 
violate agreements and program requirements, in order to ensure that 
the public interest is safeguarded and that Federal multifamily housing 
programs serve their intended purposes'' (section 511(b)(9)).
    In line with this purpose, the Multifamily Reform Act amended the 
National Housing Act (12 U.S.C. 1702 et seq.) and the United States 
Housing Act of 1937 (42 U.S.C. 1437 et seq.) (the 1937 Act) to expand 
HUD's enforcement authority. Specifically, section 561 amended section 
537 of the National Housing Act (captioned ``Civil money penalties 
against multifamily mortgagors'') (12 U.S.C. 1735f-15), and section 562 
added a new section 29 to the 1937 Act (captioned ``Civil Money 
Penalties Against Section 8 Owners'') (42 U.S.C. 1437z-1).
    This proposed rule would revise HUD's regulations at 24 CFR part 30 
(captioned ``Civil Money Penalties: Certain Prohibited Conduct'') to 
implement sections 561 and 562. The regulatory revisions that would be 
made by this proposed rule are described below.

II. Section 561 of the Multifamily Reform Act of 1997

    Section 561 of the Multifamily Reform Act amended section 537 of 
the National Housing Act, which authorizes HUD to impose a civil money 
penalty on a multifamily mortgagor for certain listed violations. 
Section 561 amended section 537 by expanding the list of parties and 
violations that may be subject to a civil money penalty, among other 
changes.
    Prior to the passage of the Multifamily Reform Act, section 537 
only permitted HUD to impose a civil money penalty on a mortgagor of a 
multifamily property (defined in section 537 as a property that 
includes 5 or more units and has a mortgage insured, coinsured, or held 
under the National Housing Act). Section 561 expanded this list to 
allow HUD to impose a civil money penalty on a general partner of a 
partnership mortgagor and an officer or director of a corporate 
mortgagor. For certain violations, section 561 expanded this list 
further to allow HUD to impose a civil money penalty on certain agents 
of mortgagors and certain members of a limited liability company.
    Section 561 also expanded the list of violations that are subject 
to a civil money penalty. These additional violations include the 
failure to maintain the premises, to provide acceptable management, and 
to provide access to the accounting records of a property.
    Currently, section 537 is implemented in HUD's regulations at 24 
CFR 30.45. This proposed rule would amend Sec. 30.45 to incorporate the 
amendments made by section 561. Section 30.45 also implements section 
202a of the Housing Act of 1959 (captioned ``Civil Money Penalties 
Against Section 202 Mortgagors'') (12 U.S.C. 1701q-1). Though this 
proposed rule would significantly revise the structure of Sec. 30.45 to 
accommodate the amendments made by section 561, it would not make any 
substantive changes to the implementation of section 202a other than as 
described in sections V. (clarifying the coverage of Section 811 
properties) and VI. (adjusting the amount of the civil money penalty) 
of this preamble. These changes are not related to the amendments made 
by the Multifamily Reform Act and are included in this rulemaking for 
convenience only.

III. Section 562 of the Multifamily Reform Act

    Section 562 of the Multifamily Reform Act added a new section 29 to 
the 1937 Act. New section 29 of the 1937 Act authorizes HUD to impose a 
civil money penalty on an owner, general partner, and certain agents of 
an owner of a property receiving project-based Section 8 assistance.
    Section 29 authorizes a civil money penalty against these parties 
for a ``knowing and material breach of a housing assistance payments 
contract * * *'', which under new section 29 includes the:
    (a) Failure to provide decent, safe, and sanitary housing; and
    (b) Knowing or wilful submission of false, fictitious, or 
fraudulent statements or requests for housing assistance.
    New section 29 also directs HUD to issue regulations that establish 
standards and procedures governing the imposition of civil money 
penalties under the new section. This proposed rule would implement 
section 29 in a new Sec. 30.68. This new section would be incorporated 
into HUD's current structure of standards and procedures for civil 
money penalties in part 30, including the provisions for hearing 
procedures in part 26, subpart B. HUD's current regulations in part 30 
and part 26, subpart B satisfy the requirement of new section 29 to 
establish standards and procedures governing the imposition of civil 
money penalties.

[[Page 39503]]

IV. Definitions of ``Ownership Interest in,'' ``Effective 
Control,'' and ``Entity''

    Both sections 561 and 562 of the Multifamily Reform Act direct HUD 
to specifically seek public comment on the definitions of the terms 
``ownership interest in'' and ``effective control'' as those terms are 
used in the definition of the terms ``agent employed to manage the 
property that has an identity of interest'' and ``identity of interest 
agent''. These terms are defined in Secs. 30.45(a) and 30.68(a) of the 
regulations contained in this proposed rule. In addition, in order to 
clarify the definition of ``identity of interest agent, the rule 
defines ``entity,'' a term used in the definition, in Secs. 30.45(a) 
and 30.68(a).
    While HUD encourages public comment on all aspects of this proposed 
rule, HUD is asking members of the public who wish to comment on this 
proposed rule to pay particular attention to the definition of these 
terms as they are used in the proposed regulations.

V. Clarification Regarding Section 811 Properties

    In addition to implementing sections 561 and 562 of the Multifamily 
Reform Act, this proposed rule would clarify one aspect of the section 
of HUD's regulations that concern civil money penalties for Section 202 
properties. This provision is currently implemented in the same section 
in HUD's regulations as the civil money penalty provision for 
multifamily properties (Sec. 30.45).
    The proposed rule would clarify that Sec. 30.45 applies to section 
811 and section 202 capital advance projects as well as section 202 
direct loan projects. The proposed rule would accomplish this by 
changing all references to section 202 to include section 811 and by 
defining the term ``Section 202 or 811 property'' to mean a property 
with a mortgage held pursuant to either a direct loan or a capital 
advance under section 202 of the Housing Act of 1959 (12 U.S.C. 1701q) 
or a property with a mortgage held pursuant to section 811 of the 
Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 8013).
    This clarification is necessary because section 202 of the Housing 
Act of 1959 was amended in 1990 by the Cranston-Gonzalez National 
Affordable Housing Act (Public Law 101-625, 104 Stat. 4079)(Affordable 
Housing Act). Prior to the passage of this Act, the Section 202 direct 
loan program concerned housing for the elderly and persons with 
disabilities. After the amendment, section 202 continued to concern 
housing for the elderly, but housing for persons with disabilities was 
separated from section 202 and moved to section 811 of the Affordable 
Housing Act.
    The civil money penalty provision relating to section 202 
properties, implemented by Sec. 30.45, was authorized by section 109 of 
the Department of Housing and Urban Development Reform Act of 1989 
(Public Law 101-235, 103 Stat. 1987) (HUD Reform Act). The HUD Reform 
Act was passed prior to the revision of the Section 202 program and the 
creation of the Section 811 program. As a result, prior to the passage 
of the Affordable Housing Act, section 109 of the HUD Reform Act 
applied to both housing for the elderly and housing for persons with 
disabilities.
    After the passage of the Affordable Housing Act, it appeared that 
section 109 would not apply to section 811 properties. We do not 
believe, however, that Congress intended to remove section 811 
properties from the coverage of section 109 when it passed the 
Affordable Housing Act. Therefore, this proposed rule would clarify 
that Sec. 30.45 applies to both section 811 properties and section 202 
properties.

VI. Increase in Amount of Penalty

    Under the Federal Civil Penalties Inflation Adjustment Act of 1990 
(Public Law 101-410, 104 Stat. 890, as amended by Public Law 104-134, 
title III, Sec. 31001(s)(1), 110 Stat. 1321-373, codified at 28 U.S.C. 
2461 note) (the Inflation Adjustment Act), HUD is required to adjust 
for inflation the maximum amounts of its civil money penalties at least 
once every four years. This adjustment, as described in section 5 of 
the Inflation Adjustment Act, requires HUD to increase maximum civil 
money penalty amounts by the percentage change in the Consumer Price 
Index for all-urban consumers published by the Department of Labor. The 
Inflation Adjustment Act requires that any increase in the maximum 
civil money penalty amount for penalties in the range of $10,000 to 
$100,000 be rounded to the nearest multiple of $5,000.
    Accordingly, this proposed rule would increase the maximum amount 
of civil money penalties for multifamily and section 202 or 811 
properties from $27,500 to $30,000. The maximum amount of civil money 
penalties for Section 8 properties would not be changed because the 
current increase is not large enough to cause the amount to be rounded 
up.

VII. Small Entities and HUD Enforcement Actions

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub.L. 104-121, 110 Stat. 847, approved March 29, 1996) (SBREFA) 
provides, among other things, for agencies to establish specific 
policies or programs to assist small entities. Small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. On May 21, 1998 (63 FR 28214), HUD published a Federal 
Register notice describing HUD's actions on implementation of SBREFA.
    Section 223 of SBREFA requires agencies that regulate the 
activities of small entities to establish a policy or program to reduce 
or, under appropriate circumstances, waive civil penalties when a small 
entity violates a statute or regulation. Where penalties are determined 
appropriate, HUD's policy is to consider: (1) The nature of the 
violation (the violation must not be one that is repeated or multiple, 
willful, criminal or poses health or safety risks), (2) whether the 
entity has shown a good faith effort to comply with the regulations; 
and (3) the resources of the regulated entity.
    With respect to the imposition of civil money penalties, HUD is 
cognizant that section 222 of the SBREFA requires the Small Business 
and Agriculture Regulatory Enforcement Ombudsman to ``work with each 
agency with regulatory authority over small businesses to ensure that 
small business concerns that receive or are subject to an audit, on-
site inspection, compliance assistance effort or other enforcement 
related communication or contact by agency personnel are provided with 
a means to comment on the enforcement activity conducted by this 
personnel.'' To implement this statutory provision, the Small Business 
Administration has requested that agencies include the following 
language on agency publications and notices which are provided to small 
businesses concerns at the time the enforcement action is undertaken. 
The language is as follows:

Your Comments Are Important

    The Small Business and Agriculture Regulatory Enforcement 
Ombudsman and 10 Regional Fairness Boards were established to 
receive comments from small businesses about federal agency 
enforcement actions. The Ombudsman will annually evaluate the 
enforcement activities and rate each agency's responsiveness to 
small business. If you wish to comment on the enforcement actions of 
[insert agency name], call 1-888-REG-FAIR (1-888-734-3247).

    As HUD stated in its May 21, 1998 Federal Register notice, HUD 
intends to

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work with the Small Business Administration to provide small entities 
with information on the Fairness Boards and National Ombudsman program, 
at the time enforcement actions are taken, to ensure that small 
entities have the full means to comment on the enforcement activity 
conducted by HUD.

VIII. Findings and Certifications

Environmental Impact

    In accordance with 40 CFR 1508.4 of the Council on Environmental 
Quality regulations and 24 CFR 50.19(c)(1) of the HUD regulations, the 
policies and procedures contained in this proposed rule are determined 
not to have the potential of having a significant impact on the human 
environment and are therefore exempt from further environmental review 
under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Federalism Impact

    This proposed rule does not have federalism implications and does 
not impose substantial direct compliance costs on State and local 
governments or preempt State law within the meaning of Executive Order 
13132 (entitled ``Federalism'').

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this proposed rule. In so 
doing, the Secretary certifies that this proposed rule would not have a 
significant economic impact on a substantial number of small entities. 
This proposed rule implements sections 561 and 562 of the Multifamily 
Reform Act. The rule makes conforming changes to HUD's regulations at 
24 CFR part 30 to reflect statutory changes made to the National 
Housing Act and the United States Housing Act of 1937. These changes 
were mandated by the Multifamily Reform Act and are not discretionary 
on the part of HUD.
    The purpose of these amendments is to grant HUD additional 
enforcement tools to use against those who violate agreements and 
program requirements. The Multifamily Reform Act expanded the list of 
persons and the types of violations subject to civil money penalties 
under HUD's insured housing and Section 8 programs. To the extent that 
these statutory changes impact small entities, it will be as a result 
of actions taken by the small entities themselves--that is, by 
violating multifamily and Section 8 program regulations and 
requirements.
    Notwithstanding HUD's determination that this rule will not have a 
significant economic impact on a substantial number of small entities, 
HUD specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) requires Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments and on 
the private sector. This proposed rule does not, within the meaning of 
the UMRA, impose any Federal mandates on any State, local, or tribal 
governments nor on the private sector.

List of Subjects in 24 CFR Part 30

    Administrative practice and procedure, Loan programs--housing and 
community development, Mortgages, Penalties.

    Accordingly, for the reasons stated in the preamble, HUD proposes 
to amend 24 CFR part 30 as follows:

PART 30--CIVIL MONEY PENALTIES: CERTAIN PROHIBITED CONDUCT

    1. The authority citation for 24 CFR part 30 is revised to read as 
follows:

    Authority: 12 U.S.C. 1701q-1, 1703, 1723i, 1735f-14, and 1735f-
15; 15 U.S.C. 1717a; 28 U.S.C. 2461 note; 42 U.S.C. 1437z-1 and 
3535(d).
    2. Add paragraph (f) to Sec. 30.5 to read as follows:


Sec. 30.5  Effective dates.

* * * * *
    (f) Under Sec. 30.68, a civil money penalty may be imposed for 
violations, or for those parts of continuing violations, occurring on 
or after [INSERT DATE 30 DAYS AFTER PUBLICATION OF FINAL RULE IN 
Federal Register].
    3. Revise Sec. 30.45 to read as follows:


Sec. 30.45  Multifamily and section 202 or 811 mortgagors.

    (a) Definitions. The following definitions apply to this section 
only:
    Agent employed to manage the property that has an identity of 
interest and identity of interest agent. An entity:
    (1) That has management responsibility for a project;
    (2) In which the ownership entity, including its general partner or 
partners (if applicable) and its officers or directors (if applicable), 
has an ownership interest; and (3) Over which the ownership entity 
exerts effective control.
    Effective control. The ability to direct, alter, supervise, or 
otherwise influence the actions, policies, decisions, duties, 
employment, or personnel of the management agent.
    Entity. An individual corporation; company; association; 
partnership; authority; firm; society; trust; state, local government 
or agency thereof; or any other organization or group of people.
    Multifamily property. Property that includes 5 or more living units 
and that has a mortgage insured, co-insured, or held pursuant to the 
National Housing Act (12 U.S.C. 1702 et seq.).
    Ownership interest. Any financial, legal, beneficial, or equitable 
interest in the management agent.
    Section 202 or 811 property. Property that includes 5 or more 
living units and that has a mortgage held pursuant to a direct loan or 
capital advances under section 202 of the Housing Act of 1959 (12 
U.S.C. 1701q) or capital advances under section 811 of the Cranston-
Gonzalez National Affordable Housing Act (42 U.S.C. 8013).
    (b) Violation of agreement. (1) General. The Assistant Secretary 
for Housing-Federal Housing Commissioner, or his or her designee, may 
initiate a civil money penalty action against a mortgagor of a section 
202 or 811 property or a mortgagor, general partner of a partnership 
mortgagor, or any officer or director of a corporate mortgagor of a 
multifamily property who:
    (i) Has agreed in writing, as a condition of a transfer of physical 
assets, a flexible subsidy loan, a capital improvement loan, a 
modification of the mortgage terms, or a workout agreement, to use 
nonproject income to make cash contributions for payments due under the 
note and mortgage, for payments to the reserve for replacements, to 
restore the project to good physical condition, or to pay other project 
liabilities; and
    (ii) Knowingly and materially fails to comply with any of the 
commitments listed in paragraph (b)(1)(i) of this section.
    (2) Maximum penalty. The maximum penalty for each violation under 
paragraph (b) of this section is the amount of loss that the Secretary 
would experience at a foreclosure sale, or a sale after foreclosure, of 
the property involved.
    (c) Other violations. (1) Multifamily projects. The Assistant 
Secretary for Housing-Federal Housing Commissioner, or his or her 
designee, may initiate a civil money penalty action against any of the 
following who knowingly and materially take any of the actions listed 
in 12 U.S.C. 1735f-15(c)(1)(B):

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    (i) Any mortgagor of a multifamily property;
    (ii) Any general partner of a partnership mortgagor of such 
property;
    (iii) Any officer or director of a corporate mortgagor;
    (iv) Any agent employed to manage the property that has an identity 
of interest with the mortgagor, with the general partner of a 
partnership mortgagor, or with any officer or director of a corporate 
mortgagor of such property; or
    (v) Any member of a limited liability company that is the mortgagor 
of such property or is the general partner of a limited partnership 
mortgagor or is a partner of a general partnership mortgagor.
    (2) Section 202 or 811 projects. The Assistant Secretary for 
Housing-Federal Housing Commissioner, or his or her designee, may 
initiate a civil money penalty action against any mortgagor of a 
section 202 or 811 property who knowingly and materially takes any of 
the actions listed in 12 U.S.C. 1701q-1(c)(1).
    (3) Maximum penalty. The maximum penalty for each violation under 
paragraph (c) of this section is $30,000.
    (d) Payment of penalty. No payment of a civil money penalty levied 
under this section shall be payable out of project income.
    4. Add Sec. 30.68 to read as follows:


Sec. 30.68  Section 8 owners.

    (a) Definitions. The following definitions apply to this section 
only:
    Agent employed to manage the property that has an identity of 
interest and identity of interest agent. An entity:
    (1) That has management responsibility for a project;
    (2) In which the ownership entity, including its general partner or 
partners (if applicable), has an ownership interest; and
    (3) Over which the ownership entity exerts effective control.
    Effective control. The ability to direct, alter, supervise, or 
otherwise influence the actions, policies, decisions, duties, 
employment, or personnel of the management agent.
    Entity. An individual corporation; company; association; 
partnership; authority; firm; society; trust; state, local government 
or agency thereof; or any other organization or group of people.
    Ownership interest. Any financial, legal, beneficial, or equitable 
interest in the management agent.
    (b) General. The Assistant Secretary for Housing-Federal Housing 
Commissioner, or his or her designee, and the Assistant Secretary for 
Public and Indian Housing, or his or her designee, may initiate a civil 
money penalty action against any owner, any general partner of a 
partnership owner, or any agent employed to manage the property that 
has an identity of interest with the owner or the general partner of a 
partnership owner of a property receiving project-based assistance 
under section 8 of the United States Housing Act of 1937 (42 U.S.C. 
1437f) for a knowing and material breach of a housing assistance 
payments contract, including the following:
    (1) Failure to provide decent, safe, and sanitary housing pursuant 
to section 8 of the United States Housing Act of 1937 and 24 CFR 5.703; 
or
    (2) Knowing or willful submission of false, fictitious, or 
fraudulent statements or requests for housing assistance payments to 
the Secretary or to any department or agency of the United States.
    (c) Maximum penalty. The maximum penalty for each violation under 
this section is $25,000.
    (d) Payment of penalty. No payment of a civil money penalty levied 
under this section shall be payable out of project income.
    (e) Exceptions. The Secretary may not impose penalties under this 
section for a violation, if a material cause of the violation is the 
failure of the Secretary, an agent of the Secretary, or a public 
housing agency to comply with an existing agreement.
    5. Revise Sec. 30.80(k) introductory text to read as follows:


Sec. 30.80  Factors in determining appropriateness and amount of civil 
money penalty.

* * * * *
    (k) In addition to the above factors, with respect to violations 
under Secs. 30.45, 30.55, 30.60, and 30.68, the Assistant Secretary for 
Housing-Federal Housing Commissioner, or his or her designee, or the 
Assistant Secretary for Public and Indian Housing, or his or her 
designee, shall also consider:
* * * * *

    Dated: May 25, 2000.
Andrew Cuomo,
Secretary.
[FR Doc. 00-16024 Filed 6-23-00; 8:45 am]
BILLING CODE 4210-32-P