[Federal Register Volume 71, Number 215 (Tuesday, November 7, 2006)]
[Rules and Regulations]
[Pages 65322-65325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-18698]



[[Page 65321]]

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

Part IV





Department of Housing and Urban Development





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



24 CFR Part 291



 Disposition of HUD-Acquired Single Family Property; Disciplinary 
Actions Against HUD-Qualified Real Estate Brokers; Final Rule

  Federal Register / Vol. 71, No. 215 / Tuesday, November 7, 2006 / 
Rules and Regulations  

[[Page 65322]]


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

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 291

[Docket No. FR-4871-F-02]
RIN 2502-AI08


Disposition of HUD-Acquired Single Family Property; Disciplinary 
Actions Against HUD-Qualified Real Estate Brokers

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

ACTION: Final rule.

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

SUMMARY: This final rule establishes the basis and procedures for 
removing real estate brokers from HUD's qualified selling broker list 
and for prohibiting removed brokers from using HUD's systems to 
participate in the sale of HUD-owned, single family properties. This 
rule is similar to existing removal rules for Federal Housing 
Administration (FHA) appraisers, consultants, and nonprofit 
organizations, and provides HUD a more expeditious disciplinary 
procedure for real estate brokers than the suspension and debarment 
procedures that would otherwise be applicable. This final rule follows 
publication of a September 17, 2004, proposed rule, and takes into 
consideration the public comments received on the proposed rule.

DATES: Effective Date: December 7, 2006.

FOR FURTHER INFORMATION CONTACT: Ivery W. Himes, Division Director, 
Asset Management and Disposition Division, Office of Housing, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Room 9176, Washington, DC 20410-8000; telephone (202) 708-1672 (this is 
not a toll-free number). Individuals with speech or hearing impairments 
may access this number through TTY by calling the toll-free Federal 
Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background--The September 17, 2004, Proposed Rule

    HUD published the proposed rule on September 17, 2004 (68 FR 
56118), to add a new paragraph (i) to Sec.  291.100 for the purpose of 
addressing real estate broker participation in predatory lending 
practices, such as property ``flipping,'' inflated appraisals, 
falsified loan documents, and/or fraudulent underwriting targeted at 
FHA borrowers, and violating the terms of the Selling Broker 
Certification (form SAMS-1111-A). The proposed rule provided for the 
removal by HUD, for good cause, of a real estate broker from HUD's 
qualified selling broker list and the deactivation of the broker's name 
and address identifier (NAID). A NAID provides a broker with access to 
HUD systems and enables a broker to participate in the sale of HUD-
owned property and be compensated for services rendered. The proposed 
rule provided several examples of activities that would constitute good 
cause, such as fraudulent activities, the use of false and misleading 
statements, the loss of a state license, or acting in concert with an 
appraiser to arrive at an artificial appraised value, and laid out the 
procedure that would be followed in removing a broker from the list and 
deactivating the broker's NAID.

II. Discussion of the Public Comments Received on the September 17, 
2004, Proposed Rule

    The public comment period for the September 17, 2004, proposed rule 
closed on November 16, 2004. HUD received eight comments: three from 
businesses, two from local associations, one from a national 
association, one from an individual, and one from a state agency. The 
issues and questions raised by the commenters on the September 17, 
2004, proposed rule, along with HUD's responses, are grouped below 
according to the relevant section or subject of the proposed rule.

Section 291.100(i)(1)--In General

    Comment: HUD already has procedures in place to remove participants 
such as appraisers and nonprofit entities from its programs, and those 
procedures should apply to brokers as well. These procedures entail HUD 
initiating an internal inquiry based on its own observations, based on 
program controls that indicate a problem, or in response to an external 
complaint. Before HUD arrives at a decision, the results of the inquiry 
are reviewed by senior area office personnel. If it is deemed 
appropriate, the case is referred to the Inspector General's office.
    HUD response: It is HUD's goal with this rule to establish a 
procedure that is tailored to instances where removal from the roster 
is sufficient protection of HUD's interests, and to provide the 
affected brokers with an expeditious process for contesting removal. 
Consistent with HUD's goal, this rule gives a broker the opportunity to 
respond fully, both in writing and by requesting a conference, to HUD's 
initial findings before any disciplinary action is taken. In addition, 
the time frames within which a broker and HUD must act under the rule 
are intended to quickly resolve issues or remove a broker from 
participation in the sale of HUD-owned, single family properties 
without undue delay. A fair and expeditious disciplinary procedure will 
serve to promote the integrity of, and the public's confidence in, the 
process for disposition of HUD-owned single family properties.

Section 291.100(i)(2)(ii)(F)--Violation of Section 8(a)

    Comment: With regard to using a violation of section 8(a) of the 
Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. 2607(a)) as a 
basis for removal, the Federal circuit courts have split as to what 
constitutes a violation under section 8 of RESPA. This provision should 
be eliminated as a ground for removal until there is national 
uniformity in the interpretation of section 8.
    HUD response: HUD has determined that it is not appropriate to 
exclude entirely any basis for disciplinary action that is intended to 
protect the public interest and maintain the integrity of HUD's single 
family disposition program. HUD will consider aggravating and 
mitigating factors, including those relating to RESPA, when deciding 
whether to initiate an action and when disposing of an action. However, 
HUD is also revising Sec.  291.100(i)(2)(ii)(F) to replace the narrow 
focus on section 8(a) with a statement more broadly referring to 
``Violating the Real Estate Settlement Procedures Act'' as a basis for 
removal.

Section 291.100(i)(2)(ii)(G)--Any Other Offense

    Comment: The rule does not specify sufficiently what ``any other 
offense that reflects on the broker's character and integrity'' means 
as a basis for removal. The phrase is overly broad, can be open to 
misinterpretation, and may include inconsequential or minor offenses 
that HUD does not intend to address. The phrase should be clarified or 
it should be deleted. Several examples of suggested clarifying language 
were submitted.
    HUD response: The proposed rule stated at Sec.  
291.100(i)(2)(ii)(G) that good cause for removal includes, but is not 
limited to, committing any other offense that reflects on the broker's 
character and integrity, including non-compliance with civil rights 
requirements regarding the sale of HUD-owned single family properties. 
In general, the rule makes clear that the list at Sec.  
291.100(i)(2)(ii) is not exhaustive, but only provides examples of 
broker acts or omissions that constitute good cause for purposes of 
proceeding with a disciplinary action. However, following consideration 
of

[[Page 65323]]

these comments and suggested revisions, HUD will clarify the proposed 
language of Sec.  291.100(i)(2)(ii)(G) in this final rule by listing 
``non-compliance with civil rights requirements regarding the sale of 
HUD-owned single family properties'' as an individual example of good 
cause in paragraph (G), and by adding a separate paragraph (I), which 
is more focused on factors that are housing-related than the language 
that was in the proposed rule. Paragraph (I) reads, ``Any other actions 
or omissions that evidence a lack of business integrity or non-
compliance with the laws, regulations, and rules applicable to housing, 
lending, or real estate sales.'' To provide more guidance as to what 
constitutes ``good cause,'' an additional example is added as paragraph 
(H) to read, ``Involvement in, or knowledge of, any fraudulent activity 
by any person involved in the REO sales transaction.''
    Comment: While convictions under 18 U.S.C. 1010 should serve as 
grounds for disciplinary action, so should state criminal convictions, 
state or federal civil judgments, or state regulatory actions taken as 
a result of conduct described in Sec.  291.100(i)(2)(ii)(A)-(E).
    HUD response: The change by this rule discussed in the previous 
response, which describes additional examples of good cause for removal 
provided in Sec. Sec.  291.100(i)(2)(ii)(H) and (I), will permit HUD to 
take action as described in the comment. To provide additional clarity, 
HUD is including a specific reference to a conviction under 18 U.S.C. 
371, which would apply to conspiring to defraud a federal agency, along 
with the existing reference 18 U.S.C. 1010.

Section 291.100(i)(4)--Response and Conference

    Comment: HUD should provide a longer period, such as 30 days, 
rather than the proposed 20 days for a broker to respond or request a 
conference. HUD should consider granting extensions to the response 
times for reasonable cause. The 15-day deadline for the conference 
should be extended to 30 days to provide more time for the broker to 
prepare.
    HUD response: As noted in the proposed rule and above in this 
preamble, the rule is intended to provide a more expeditious 
disciplinary procedure for real estate brokers, and the time periods 
stated in the rule are consistent with this intent. The rule does 
permit the written notice from HUD to provide a longer period of time 
to submit a written response and/or request a conference, such as when 
the complexity of the issues involved requires additional time. 
Following consideration of the public comments, HUD has decided that it 
would be appropriate for the rule to also allow HUD to extend the 15-
day period, upon notification to the broker, and to request additional 
information at or following a conference, and to provide a broker 
additional time to submit such information. These changes accommodate 
the concern that complex issues be given the consideration they 
deserve, while still preserving the more expeditious nature of the 
procedure. HUD has also changed the rule to reflect that the conference 
is not considered closed until the broker has had an opportunity to 
submit additional information requested by HUD and until HUD has 
reviewed the additional information. As discussed below, Sec.  
291.100(i)(4) is redesignated as Sec.  291.100(i)(5).

Section 291.100(i)(5)(ii)--Disposition/HUD Response

    Comment: The various time limits imposed on HUD seem burdensome. 
HUD should provide itself additional time before it must hold a 
conference with the real estate broker or before it must respond to a 
broker's response.
    HUD response: As noted above in the response to the comments on 
Sec.  291.100(i)(4), this final rule permits HUD to request additional 
information following a conference and to provide a broker additional 
time to submit such information. This change should also adequately 
address the concern in this comment on Sec.  291.100(i)(5)(ii). As 
discussed below, Sec.  291.100(i)(5) is redesignated as Sec.  
291.100(i)(6).
    Comment: Brokers should not be suspended until they have exhausted 
their due process rights to a hearing before an Administrative Law 
Judge (ALJ). At the least, brokers should be allowed to request that 
the ALJ issue an order requiring HUD to allow them to continue to 
participate in the program until the case is finally resolved. Because 
so many small brokers rely on their participation in SAMS for their 
livelihood, deactivation from that system should take place only upon a 
finding of wrongdoing by a neutral third party.
    HUD response: HUD has adopted this rule to provide an expeditious 
disciplinary procedure while still providing a broker a fair 
opportunity to present for consideration any exculpatory or mitigating 
information. A finding by HUD in these circumstances is significant 
enough to properly require action to protect the interests of the 
public and HUD, and those interests must be HUD's paramount, though not 
sole, consideration.

Additional Sanctions

    Comment: For violations of Sec.  291.100(i), HUD may also wish to 
sanction real estate agents who work with HUD-qualified brokers. While 
such agents may not be on a HUD list, HUD may wish to prevent the 
future addition of such agents to the qualified broker list unless they 
can provide just cause for qualifying at that time. HUD needs to take 
legal action against all who create or aid and abet mortgage fraud.
    HUD response: The suggested actions are beyond the scope of this 
rule, which focuses on HUD-qualified brokers; however, this comment, as 
other comments also did, recognized the connection between an agent's 
actions and a broker's responsibility. Although agents are not 
themselves listed individually, agents must work through a listed 
broker, who is the point of contact and enforcement with HUD. As 
discussed below in HUD's response under the heading ``Individual agent 
NAIDS,'' Sec. Sec.  291.100(i)(2)(i) and 291.100(i)(2)(ii) are revised 
in this final rule to clarify this point and refer specifically to 
actions by a broker or an agent.
    Comment: The names and license numbers of brokers removed from 
HUD's qualified selling broker list should be referred to the 
appropriate state licensing authority. This will assist the public, and 
state agencies may be permitted by their statutes to assess more 
stringent penalties.
    HUD response: This is HUD's current practice following disciplinary 
action, and this practice will continue.

Individual Agent NAIDS

    Comment: Even though brokers are responsible for monitoring the 
activities of their agents, HUD should consider assigning NAIDS to 
individual agents as well. When HUD suspends a broker from the program, 
it affects all the agents in a firm even if a single agent caused the 
problem.
    HUD response: Approved brokers act as gatekeepers for the 
competitive sales Real Estate-Owned (REO) program. HUD regulations at 
24 CFR 291.100(h) and 291.205(a)(1) require that all bids placed in the 
competitive sales program go through approved brokers, unless the bid 
is submitted by a government or nonprofit entity. Individual agents 
must work through an approved broker in the competitive sales REO 
program. As such, brokers are the logical enforcement point for HUD.
    To make explicit the connection between the actions of an agent and 
the responsibilities of a broker that was recognized in this and in 
other

[[Page 65324]]

comments, Sec. Sec.  291.100(i)(2)(i) and 291.100(i)(2)(ii) are revised 
in this final rule to refer to actions by a broker or an agent 
supervised by that broker and acting within the scope of the agent's 
duties.
    Comment: If HUD cannot assign NAIDS to individual agents, and a 
problem is the result of an individual agent whom the broker 
subsequently fired and the broker has implemented management controls 
to prevent a reoccurrence, HUD's remedy should not entail removal from 
the program.
    HUD response: HUD will consider the sufficiency of corrective 
actions taken by a broker in reaching its decision under Sec.  
291.100(i)(6)(ii), which has been revised to specifically provide for 
HUD's consideration of such corrective action.

III. Changes to the Proposed Rule in This Final Rule

    The following changes to the September 17, 2004, proposed rule are 
made by this final rule, consistent with the discussion of public 
comments in this preamble, and as further explained below:
    1. Section 291.100(i)(2)(i) is revised to read, ``Conviction under 
18 U.S.C. 371 or 1010 of a broker or an agent supervised by that broker 
and acting within the scope of the agent's duties.''
    2. Section 291.100(i)(2)(ii) is revised to read, ``Any of the 
following actions by a broker or an agent supervised by that broker and 
acting within the scope of the agent's duties.''
    3. Because form numbers are subject to change, the reference to 
form SAMS-1111-A in Sec.  291.100(i)(2)(ii)(D) is removed and is 
replaced with language cross-referencing HUD's earnest money deposit 
requirements found elsewhere in part 291.
    4. Section 291.100(i)(2)(ii)(F) is revised to read, ``Violating the 
Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. 2601 et 
seq.).''
    5. The proposed language of Sec.  291.100(i)(2)(ii)(G) is divided 
into two separate paragraphs in this final rule by listing, ``Non-
compliance with civil rights requirements regarding the sale of HUD-
owned single family properties'' as an individual example of good cause 
in paragraph (G), and by clarifying the remaining language originally 
in paragraph (G) by adding a separate paragraph (I) to read, ``Any 
other actions or omissions that evidence a lack of business integrity 
or non-compliance with the laws, regulations, and rules applicable to 
housing, lending, or real estate sales.'' To provide more guidance as 
to what constitutes ``good cause,'' an additional example is added at 
paragraph (H) to read, ``Involvement in, or knowledge of, any 
fraudulent activity by any person involved in the REO sales 
transaction.''
    6. To better organize the final rule and improve its internal 
consistency, paragraphs (A) and (B) of Sec.  291.100(i)(3)(iv) in the 
proposed rule are redesignated as Sec.  291.100(i)(4)(i) and (ii), and 
the clause ``unless the broker submits a written response or requests a 
conference in accordance with paragraph (i)(5) of this section'' is 
added to redesignated Sec.  291.100(i)(4)(i). The succeeding paragraphs 
of Sec.  291.100(i) are renumbered accordingly.
    7. Provisions are added to the proposed language of Sec.  
291.100(i)(4) (redesignated in this final rule as Sec.  291.100(i)(5)) 
to allow HUD to extend the 15-day period for holding a conference by 
providing written notice to the broker and to allow HUD to request 
additional information and to provide a broker additional time to 
submit the information. Also added is clarification that the conference 
is not considered completed until the date set for submission if the 
information requested by HUD is not submitted, or until after HUD 
considers the information that was timely submitted.
    8. To resolve an inconsistency that appeared in Sec.  
291.100(i)(5)(ii) of the proposed rule, which stated, ``Participation 
in the appeal process before the ALJ is not a prerequisite to filing an 
action for judicial review under the Administrative Procedure Act,'' 
the final rule removes the references to a hearing before an ALJ and 
provides (in redesignated Sec.  291.100(i)(6)(ii)) that, ``The written 
decision by HUD shall constitute final agency action.'' Final agency 
action is a prerequisite to filing an action for judicial review, and 
the language of the proposed rule left the point of final agency action 
open to question.

IV. Findings and Certifications

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (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 mandate on any state, local, or tribal government or the 
private sector within the meaning of UMRA.

Environmental Impact

    This rule does not direct, provide for assistance or loan and 
mortgage insurance for, or otherwise govern or regulate, real property 
acquisition, disposition, leasing, rehabilitation, alteration, 
demolition, or new construction, or establish, revise, or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(1), this 
final rule is categorically excluded from environmental review under 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Regulatory Flexibility Act

    The Secretary has reviewed this rule before publication and, by 
approving it, certifies, in accordance with the Regulatory Flexibility 
Act (5 U.S.C. 605(b)), that this rule would not have a significant 
economic impact on a substantial number of small entities. The rule 
would establish uniform and expeditious requirements and procedures to 
remove real estate brokers from HUD's qualified selling broker list. As 
such, the rule would benefit both the industry and the government in 
that it clarifies the terms of the relationship between HUD and its 
listed real estate brokers.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either: (1) Imposes substantial direct compliance costs on state and 
local governments and is not required by statute or (2) the rule 
preempts state law, unless the agency meets the consultation and 
funding requirements of section 6 of the executive order. This 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 the executive order.

Executive Order 12866, Regulatory Planning and Review

    OMB reviewed this rule under Executive Order 12866 (entitled 
``Regulatory Planning and Review''). OMB determined that this rule is a 
``significant regulatory action,'' as defined in section 3(f) of the 
executive order (although not economically significant, as provided in 
section 3(f)(1) of the executive order). Any changes made to the rule 
subsequent to its submission to OMB are identified in the docket file, 
which is available for public inspection in the Regulations Division, 
Office of General Counsel, Department of Housing and Urban Development, 
451 Seventh Street, SW., Room 10276, Washington, DC 20410-0500.

[[Page 65325]]

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.

0
Accordingly, HUD amends 24 CFR part 291 as follows:

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

0
1. The authority citation for 24 CFR part 291 continues to read as 
follows:

    Authority: 12 U.S.C. 1701 et seq.; 42 U.S.C. 1441, 1441a, and 
3535(d).


0
2. In Sec.  291.100, add paragraph (i) to read as follows:


Sec.  291.100  General policy.

* * * * *
    (i) Disciplinary actions against HUD-qualified real estate brokers.
    (1) In general. Real estate brokers that are involved in Real 
Estate Owned (REO) sales will be removed from HUD's qualified selling 
broker list and will be prohibited from using HUD systems to 
participate in the sale of HUD-owned single family properties for good 
cause in accordance with the procedures of this paragraph. Nothing in 
this section prohibits HUD from taking such other action against a 
broker as provided in 24 CFR part 24 or from seeking any other 
available remedy.
    (2) Good cause. Good cause includes, but is not limited to:
    (i) Conviction under 18 U.S.C. 371 or 1010 of a broker or an agent 
supervised by that broker and acting within the scope of the agent's 
duties;
    (ii) Any of the following actions by a broker or an agent 
supervised by that broker and acting within the scope of the agent's 
duties:
    (A) Falsifying loan documents or aiding or abetting persons in the 
use of false or misleading information including, but not limited to, 
forged or fraudulent gift letters and owner occupant certifications;
    (B) Acting in concert with an appraiser to arrive at an artificial 
appraised value;
    (C) Engaging in fraudulent activities (with or without the 
assistance of an appraiser) that have led to default and payment of an 
insurance claim;
    (D) Failing to comply with earnest money collection, management, 
and disbursement procedures as set forth in this part;
    (E) Failing to maintain a current state license;
    (F) Violating the Real Estate Settlement Procedures Act (RESPA) (12 
U.S.C. 2601 et seq.);
    (G) Non-compliance with civil rights requirements regarding the 
sale of HUD-owned single family properties;
    (H) Involvement in, or knowledge of, any fraudulent activity by any 
person involved in the REO sales transaction; and
    (I) Any other actions or omissions that evidence a lack of business 
integrity or non-compliance with the laws, regulations, and rules 
applicable to housing, lending, or real estate sales.
    (3) Written notice. Once HUD makes an initial finding that there is 
good cause to remove a broker, HUD will provide the broker with written 
notice of proposed removal from HUD's qualified selling broker list and 
deactivation of the broker's access to HUD systems to participate in 
the sale of HUD-owned properties. The notice will:
    (i) State the reasons that HUD is taking the action;
    (ii) Identify the violations or deficiencies involved;
    (iii) Provide a citation to the relevant regulation, statute, or 
policy; and
    (iv) State the effective date and duration of the removal and 
deactivation.
    (4) Effective date and duration of removal. (i) The effective date 
of the broker's removal will be the 30th day after the date of the 
notice, unless the broker submits a written response or requests a 
conference in accordance with paragraph (i)(5) of this section;
    (ii) HUD's determination of the duration of removal and 
deactivation will be based upon HUD's consideration of the number and 
seriousness of the broker's violations and deficiencies.
    (5) Response and conference. Real estate brokers will be given 20 
days after the date of the notice (or longer, if provided in the 
notice) to submit a written response to HUD opposing the proposed 
removal and to request a conference. A request for a conference must be 
in writing and must be submitted along with the written response. If a 
conference is requested, it will occur within 15 days after the date of 
receipt of the request. HUD may extend the 15-day period by providing 
written notice to the broker. HUD may request additional information at 
or following a conference and provide additional time to submit such 
information. If the information is not submitted by the time set by 
HUD, the conference is completed. If the information is timely 
submitted, the conference is not completed until HUD has considered the 
additional information.
    (6) Disposition. (i) No response from real estate broker. If the 
real estate broker does not submit a written response within the time 
provided, the removal and deactivation take effect in accordance with 
the notice.
    (ii) Response from real estate broker. If the real estate broker 
submits a written response within the time provided, the removal and 
deactivation are delayed until HUD considers the response and makes a 
final determination. HUD will consider the sufficiency of any 
corrective actions taken by a broker with respect to its procedures 
and, if relevant, its agents, in reaching its decision. Within 20 days 
after the date of receipt of the written response, or if a conference 
is requested, within 20 days after the date of completion of the 
conference, HUD will advise the real estate broker in writing of the 
decision to rescind, modify, or affirm the removal from HUD's qualified 
selling broker list and the deactivation of the broker's access to HUD 
systems to participate in the sale of HUD-owned properties. The written 
decision by HUD shall constitute final agency action.
    (7) Effect of removal proceeding on bids. All bids submitted and 
commissions earned by the real estate broker prior to removal will be 
honored, unless HUD determines they were made under fraudulent 
circumstances.

    Dated: October 27, 2006.
Brian D. Montgomery,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. E6-18698 Filed 11-6-06; 8:45 am]
BILLING CODE 4210-67-P