[Federal Register Volume 73, Number 246 (Monday, December 22, 2008)]
[Proposed Rules]
[Pages 78554-78567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-30291]



[[Page 78553]]

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Part VI





Department of Housing and Urban Development





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24 CFR Part 291



Disposition of HUD-Owned Single Family Assets in Revitalization Areas; 
Proposed Rule

  Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / 
Proposed Rules  

[[Page 78554]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 291

[Docket No. FR-4988-P-01]
RIN 2502-AH40


Disposition of HUD-Owned Single Family Assets in Revitalization 
Areas

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement a statutorily established 
program to make HUD-held single family homes and mortgage assets 
available for sale to units of general local government, states, Indian 
tribes, nonprofit organizations, and for-profit entities (collectively, 
purchasers) to provide homeownership opportunities and to promote 
neighborhood revitalization. Revitalization areas would be identified 
through application of specified economic and housing criteria. The 
purchasers would then make available the assets in accordance with a 
HUD-approved plan to encourage homeownership and revitalize the area.

DATES: Comment Due Date: February 20, 2008.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Regulations Division, Office of General 
Counsel, Department of Housing and Urban Development, 451 Seventh 
Street, SW., Room 10276, Washington, DC 20410-0500. Communications must 
refer to the above docket number and title. There are two methods for 
submitting public comments. All submissions must refer to the above 
docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 Seventh Street, SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov Web site can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
rule.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an appointment to review the public comments must be 
scheduled in advance by calling the Regulations Division at 202-708-
3055 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number via TTY by calling the 
Federal Information Relay Service at 800-877-8339. Copies of all 
comments submitted are available for inspection and downloading at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Vance T. Morris, Director, Office of 
Single Family Asset Management, Office of Housing, Department of 
Housing and Urban Development, 451 Seventh Street, SW., Room 9172, 
Washington, DC 20410-8000, at 202-708-1672 (this is not a toll-free 
number). Persons with hearing or speech impairments may access these 
numbers through TTY by calling the Federal Information Relay Service at 
800-877-8339 (this is a toll-free number).

SUPPLEMENTARY INFORMATION: 

I. Background

A. Section 204(h) of the National Housing Act--Disposition of Assets in 
Revitalization Areas

    Section 602 of the Department of Veterans Affairs and Housing and 
Urban Development and Independent Agencies Appropriations Act, 1999 
(Pub. L. 105-276, approved October 21, 1998) amended section 204 of the 
National Housing Act (12 U.S.C. 1710) (NHA or the statute), by adding a 
new subsection (h), which provides the statutory framework for a new 
program for the disposition of HUD-owned single family assets in 
revitalization areas (see 12 U.S.C. 1710(h)). In 2004, section 204(h) 
was further amended by the Consolidated Appropriations Act, 2005 (Pub. 
L. 108-447, approved December 8, 2004).
    Under section 204(h) of the NHA, HUD makes HUD-held single family 
homes and formerly insured mortgages on single family properties, 
referred to as ``eligible assets,'' ``available for sale in a manner 
that promotes the revitalization, through expanded homeownership 
opportunities, of revitalization areas'' (12 U.S.C. 1710(h)(1).) All 
properties involved are HUD-held properties; that is, they are 
properties that were subject to a mortgage insured by HUD and are now 
owned by HUD pursuant to the payment of insurance benefits under the 
NHA and the implementing regulations for the NHA programs that are 
codified in Chapter II of Title 24 of the Code of Federal Regulations 
(CFR). HUD-held mortgages may also be sold.
    Key to the statutory scheme for this program is the concept of a 
``revitalization area,'' (Revitalization Area). In accordance with 
section 204(h)(3) of the NHA (12 U.S.C. 1710(h)(3)), HUD is required to 
designate Revitalization Areas, which must meet one of the statutory 
criteria for designation (i.e., having very low median household 
income, a high concentration of eligible assets, or a low homeownership 
rate).

B. Eligible Purchasers

    Under the statute, an eligible purchaser is a unit of general local 
government, state, Indian tribe, or a nonprofit organization, as stated 
in section 204(h)(4)(A) of the NHA (12 U.S.C. 1710(h)(4)(A)), or a for-
profit entity, as stated in section 204(h)(5)(B) of the NHA (12 U.S.C. 
1710(h)(5)(B)). The statute contemplates two categories of eligible 
purchasers--preferred purchasers and non-preferred purchasers.
    Preferred purchasers are units of general local government, states, 
and Indian tribes having jurisdiction of the area where the assets are 
to be sold, as well as nonprofit organizations that make a commitment 
to purchase categories of single family assets in a specific area, 
known as an asset control area (ACA), where there is a need for 
increased homeownership opportunities. The statute requires that such 
purchasers be provided a preference in the sale of eligible assets. All 
other eligible purchasers are non-preferred purchasers under the 
statute. For-profit entities may not be preferred purchasers.
    In accordance with section 204(h)(4) of the NHA (12 U.S.C. 
1710(h)(4)), preferred purchasers must establish ACAs within 
Revitalization Areas.

[[Page 78555]]

During a period of time to be established by agreement, preferred 
purchasers must purchase all of the assets HUD owns in particular 
identified categories at the time the sale agreement is entered into 
and those that become available during the time period (see section 
204(h)(4)(B)(ii) of the NHA (12 U.S.C. 1710(h)(4)(B)(ii)). Section 
204(h)(4)(C) of the NHA (12 U.S.C. 1710(h)(4)(C)) directs that the 
preferred purchasers, in order to be eligible, must have the capacity 
to make the purchases.
    In order to encourage the purchase of assets to use for HUD housing 
and revitalization purposes, section 204(h)(6)(B) of the NHA (12 U.S.C. 
1701(h)(6)(B)) provides for discounts from the appraised value for 
preferred purchasers. Appraised value must be based on the market value 
of the property in ``as-is'' physical condition, taking into account: 
(1) The age and condition of major mechanical and structural systems, 
and (2) the value of the property appraised for homeownership. Section 
204(h)(6) of the NHA also provides, in subsection (C), that ``the 
Secretary of HUD, in the sole discretion of the Secretary, shall 
establish the discount * * * for an eligible asset'' (see 12 U.S.C. 
1701(h)(6)(C)). In establishing the discount, the Secretary may 
consider any factor deemed appropriate, including the condition of the 
property, the extent of the preferred purchaser's resources, the 
homeownership plan undertaken by the purchaser (see section I.C. 
below), and the financial safety and soundness of the Mutual Mortgage 
Insurance Fund. Non-preferred purchasers cannot receive discounts.
    Preferred purchasers are recipients of federal financial assistance 
subject to section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 
794) (section 504) and Title VI of the Civil Rights Act of 1964 (42 
U.S.C. 2000d et seq.), because they obtain HUD properties at a 
discount. Preferred purchasers are, therefore, required to comply with 
the section 504 regulations in 24 CFR part 8, including accessibility 
requirements. Since non-preferred purchasers do not receive discounts 
and provide their own financing, they are not recipients of federal 
financial assistance.

C. Sale Agreement

    Section 204(h)(7) of the NHA provides that sales of eligible assets 
may only be made pursuant to a sale agreement (Sale Agreement). The 
requirement for a Sale Agreement applies to both preferred purchasers 
and non-preferred purchasers. The Sale Agreement must: (1) Identify the 
category or categories of assets to be purchased; (2) identify the 
boundaries of the Revitalization Area and, for a Preferred Purchaser, 
also the boundaries of the ACA; and (3) identify the source of 
financing that the purchaser will be using. For preferred purchasers, 
the Sale Agreement must also include a homeownership plan.
    Section 204(h)(5)(A) of the NHA (12 U.S.C. 1710(h)(5)(A)) provides 
that the homeownership plan must have as its primary purpose the 
expansion of homeownership in, and the revitalization of, the ACA. 
Section 204(h)(5)(A) also provides that the homeownership plan must 
contain specific performance goals for increasing the rate of 
homeownership, and must also establish rehabilitation standards for 
real property that meet or exceed minimum standards for housing 
quality. For non-preferred purchasers, section 204(h)(5)(B) of the NHA 
(12 U.S.C. 1710(h)(5)(B)) requires that the Sale Agreement include a 
binding agreement that the purchaser meet certain performance goals for 
homeownership. However, by agreement, HUD may permit a lower rate of 
homeownership in ``exceptional circumstances.'' Both preferred and non-
preferred purchasers must certify compliance with the performance goals 
contained in the Sale Agreement (section 204(h)(7)(G) of the NHA; 12 
U.S.C. 1710(h)(7)(G)).

II. This Proposed Rule

    This proposed rule would create a new subpart G in 24 CFR part 291 
to establish the regulations governing the sale of single family assets 
in Revitalization Areas. Part 291 contains HUD's regulations that 
address the disposition of HUD-held single family properties. This 
proposed rule would contain the administrative requirements to 
implement the program found in section 204(h) of the NHA (12 U.S.C. 
1710(h)).
    The proposed regulatory language tracks, as much as possible, the 
language of section 204(h) of the NHA where the statutory language is 
specific on how the program is to be implemented. This section of the 
preamble describes the most significant provisions of the proposed rule 
that build upon the statutory requirements described in Section I of 
this preamble.
    1. Definition of Eligible Buyer. Under the proposed rule, an 
``eligible buyer,'' which refers to a family (which can consist of a 
single person) that ultimately buys the property from the preferred or 
non-preferred purchaser, would have to meet eligibility requirements. 
Buyers must either: (1) Have income of no more than 115 percent of the 
area median income and promise to reside in the property as owners for 
3 years; or (2) have a member who is a ``teacher,'' ``police officer,'' 
or ``firefighter/emergency medical technician,'' as those terms are 
defined under HUD's regulations codifying the Good Neighbor Next Door 
(GNND) Sales Program at 24 CFR part 291, subpart F.
    As noted above in this preamble, the objective of the statute is to 
promote neighborhood revitalization, with an emphasis on increasing 
affordable housing opportunities. HUD believes that the income 
limitation on subsequent buyers helps to ensure both statutory 
objectives of revitalization and increased homeownership. The threshold 
of 115 percent of area median income reflects the cross section of 
income levels that HUD believes is a critical element of neighborhood 
revitalization. For example, the proposed income limitation is greater 
than the 80 percent of area median income that HUD uses to define a 
``low-income family'' under its public and assisted housing programs 
authorized under the United States Housing Act of 1937 (42 U.S.C. 1437 
et seq.) (see 24 CFR 5.603). At the same time, the income limitation 
focuses on increasing homeownership opportunities for those families 
for whom good quality homeownership opportunities have been more 
limited than for higher-income families.
    The inclusion of police officers, teachers, and firefighters/
emergency medical technicians is consistent with the goals of section 
204(h) of the NHA and the GNND Sales Program, which seek to improve the 
quality of life in distressed communities by encouraging professionals, 
whose daily responsibilities represent a nexus to the needs of the 
community, to purchase and live in homes in these communities.
    2. Nonprofit Preferred Purchasers. The definition of ``preferred 
purchaser'' at proposed Sec.  291.605 would track the language in 
section 204(h)(4) of the NHA (12 U.S.C. 1710(h)(4)), which refers to a 
nonprofit organization, state, Indian tribe, or unit of general local 
government. The proposed rule further provides that preferred 
purchasers that are nonprofit organizations would also have to be on 
the Federal Housing Administration (FHA) Nonprofit Organization Roster 
under 24 CFR 200.194, and also will be required to have status as a 
tax-exempt organization under section 501(c) of the Internal Revenue 
Code, 26 U.S.C. 501(c). These requirements will help to ensure that 
participating nonprofit organizations are qualified to participate in 
FHA activities and meet the eligibility criteria

[[Page 78556]]

established by the Internal Revenue Service for qualification as a 
nonprofit entity.
    3. Partnerships of Preferred Purchasers. Preferred purchasers, such 
as a local government and a nonprofit organization, can form 
partnerships as defined in the rule. Each member of a partnership is 
separately responsible for meeting all program requirements, including 
application requirements and obligations under the Sale Agreement and 
Homeownership Plan.
    4. Revitalization Areas. Section 291.610 of the proposed rule would 
address the meaning of Revitalization Areas and provide the details of 
the criteria for determining Revitalization Areas. This section would 
track the statutory requirements for a Revitalization Area stated in 
section 204(h)(3) of the NHA (12 U.S.C. 1710(h)(3)).
    The proposed rule defines a Revitalization Area as an area 
designated by HUD as such and that meets the following criteria: (1) 
The area is a very low-income area, with a median income of less than 
60 percent of the median income for the metropolitan area, or, if the 
area is not within a metropolitan area, a median income of less than 60 
percent of the state median income; (2) there is a disproportionately 
high concentration of eligible HUD-held assets in the area resulting 
from a high rate of foreclosure of FHA-insured mortgages in the area, 
or the area is detrimentally impacted by eligible assets in the 
vicinity; or (3) the rate for homeownership is substantially below the 
rate for homeownership in the metropolitan area or, if the area is not 
within a metropolitan area, below that of the state in which the area 
is located.
    Proposed Sec.  291.610 further provides that HUD will review 
Revitalization Areas annually, and remove the designation of 
``Revitalization Area'' from any geographical area that no longer meets 
the definition. This removal will occur at the earliest opportunity, 
such as upon the expiration of the term of the then-current Sale 
Agreement. However, the proposed rule specifies that such removal of 
designation shall not modify the terms of a Sale Agreement in effect at 
the time such designation is removed. A geographic area designated as a 
Revitalization Area shall continue to be considered as such for 
purposes of the agreement until its expiration.
    5. Application Requirements. Section 291.620 of the proposed rule 
would establish application submission requirements for entities 
wishing to participate as purchasers under the program. The proposed 
rule would establish submission requirements that apply solely to each 
category of preferred purchasers (units of general local government and 
nonprofit organizations) and non-preferred purchasers, as well as 
submission requirements applicable to all categories of purchasers. For 
example, the proposed rule provides that entities that seek to be 
preferred purchasers would be required to submit an application and 
that the application reflect no conflicts of interest, as provided in 
proposed Sec.  291.670. Other documentation that would be required 
under the proposed rule includes organizational and financial 
information about the purchaser; an operating plan, including the 
acquisition schedule; and valid delegations of necessary authority to 
execute the required contracts and documents.
    Section 291.625 of the proposed rule would establish the criteria 
for review and approval of applications. This section provides that 
application consideration would be based on the time and date of 
receipt of a complete application that meets the threshold 
requirements. The decision on whether or not an application is complete 
would be solely within HUD's discretion, and if HUD determines that an 
application is incomplete, HUD would notify the applicant in writing. 
In such a case, the application will be considered complete once HUD 
receives the additional materials and determines that they are 
adequate.
    6. Preference for Preferred Purchasers. As noted, section 204(h)(4) 
(12 U.S.C. 1701(h)(4)) of the NHA requires that preferred purchasers be 
provided a preference in the sale of eligible assets. The proposed rule 
would implement the statutory preference in two ways. First, proposed 
Sec.  291.625 provides that if an application from a preferred and a 
non-preferred purchaser for the same geographic area arrive on the same 
date, the application from the preferred purchaser will be deemed to 
have arrived first. Further, under Sec.  291.655 of the proposed rule, 
HUD would offer financing assistance to preferred purchasers.
    7. Minimum Standards for Housing Quality. Section 204(h)(5)(B)(iii) 
of the NHA (12 U.S.C. 1710(h)(5)(B)(iii)) provides that all purchasers 
are responsible for rehabilitating each asset property purchased to 
comply with HUD-established minimum standards for housing quality. The 
proposed rule, at Sec.  291.635, would implement this statutory 
requirement by providing that all properties purchased under the rule 
must meet, or be rehabilitated to meet, local building code standards. 
Any required rehabilitation would be at the purchaser's expense.
    8. Discounts for Preferred Purchasers. As noted, section 
204(h)(6)(B) of the NHA (12 U.S.C. 1701(h)(6)(B)) provides for 
discounts for preferred purchasers based on the appraised value of the 
asset as HUD, in its discretion, may determine. There are no discounts 
for non-preferred purchasers. Section 291.640 would implement three 
discount classes: (1) A 50 percent discount of the appraised value for 
assets with a value equal to or greater than $50,000; (2) a discount of 
$24,900 for properties with an appraised value greater than $25,000 but 
less than $50,000; and (3) properties with an appraised value of 
$25,000 or less would have a purchase price of $100.
    The proposed discount structure reflects HUD's experience in 
administering Sale Agreements entered into on a case-by-case basis 
under the statutory authority of section 204(h) of the NHA. Under those 
agreements, preferred purchasers receive a discount of: (1) A 50 
percent discount for properties with an appraised value equal to or 
greater than $50,000; (2) a $25,000 discount for properties with an 
appraised value greater than $25,000 but less than $50,000; and (3) a 
purchase price of one dollar for properties with an appraised value of 
$25,000 or less. Table One and Table Two, below, compare the average 
appraised values, the average discounts, and the average costs of 
rehabilitating properties purchased in Fiscal Year (FY) 2006 and FY2007 
under current Sale Agreements. The final column, which is captioned 
``Return to Community,'' provides the percentage by which the average 
cost of repairs exceeds the average dollar amount of the discount.

[[Page 78557]]



                                 Table One--FY2007 Discount and Cost Comparisons
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                                                      Average
                                                     appraisal
                                                     value of                                        Return to
                                                    properties      Average HUD   Average repair     community
               Appraisal category                   acquired by      discount          cost        (repair over
                                                     preferred                                       discount)
                                                   purchasers in                                     (percent)
                                                      FY 2007
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Equal to or Greater than $50,000................      $85,390.07      $42,695.04      $60,594.12             142
Greater than $25,000 but less than $50,000......       36,155.80       25,000.00       67,416.06             270
$25,000 or less.................................       19,028.26       19,027.26       57,537.41             302
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                                 Table Two--FY2006 Discount and Cost Comparisons
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                                                      Average
                                                     appraisal
                                                     value of                                        Return to
                                                    properties      Average HUD   Average repair     community
               Appraisal category                   acquired by      discount          cost        (repair over
                                                     preferred                                       discount)
                                                   purchasers in                                     (percent)
                                                      FY 2006
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Equal to or Greater than $50,000................      $95,249.15      $47,624.58      $56,180.97             118
Greater than $25,000 but less than $50,000......       35,738.28       25,000.00       62,525.17             250
$25,000 or less.................................       15,308.04       15,307.04       55,919.25             365
----------------------------------------------------------------------------------------------------------------

    The discount structure being proposed by HUD for regulatory 
codification largely conforms to the discounts already being provided 
under current Sale Agreements entered into on a case-by-case basis. As 
Table One and Table Two demonstrate, the current discount structure 
reflects the economic realities faced by preferred purchasers. The data 
indicate that the ``Return to Community'' (the average cost of 
rehabilitation as a percentage of the dollar discount value) increases 
as average appraised value decreases. Accordingly, as an offset to 
these higher rehabilitation costs, a greater percentage discount is 
provided for the purchase of properties with lower appraised values. 
For example, in FY2007, the average discount for properties with 
appraised values of greater than $50,000 was 50 percent of the average 
appraised value. The ``Return to Community'' of these properties was 
142 percent. That same fiscal year, the ``Return to Community'' for 
properties with an appraised value of $25,000 or less was 302 percent. 
The average discount for these properties was 99.99 percent of the 
average appraised value.
    The proposed discount structure differs in some minor respects from 
that currently used. Most importantly, the proposed rule would increase 
from one to one hundred dollars the purchase price of properties with 
appraised values of less than $25,000. This increase differentiates the 
ACA program from the ``Dollar Home'' program authorized under the NHA 
(see 12 U.S.C. 1715z-11a(b)), and which HUD anticipates to implement 
through regulation in the near future.
    The proposed discount structure, therefore, reflects current 
discounts that: (1) Are familiar to preferred purchasers, (2) have 
proven successful as an incentive to participation in the program, and 
(3) have succeeded in promoting the statutory goals of revitalization 
with an emphasis on homeownership.
    9. Appraisals of Asset Properties. As noted, section 204(h)(6)(B) 
of the NHA (12 U.S.C. 1701(h)(6)(B)) provides that discounts for 
preferred purchasers be based on the appraised value of the property in 
``as is'' physical condition. Section 291.645 of the proposed rule 
would implement this requirement. Under the proposed rule, HUD will 
order an appraisal by an appraiser on the FHA appraiser roster under 24 
CFR part 200, subpart G, for each property in the ACA to be sold. 
However, an appraisal would not be required if the property was 
appraised by an appraiser from the FHA appraiser roster within the 
previous calendar year.
    The purchaser may request an individual new appraisal if the 
request is made prior to sale and the purchaser demonstrates, in HUD's 
sole discretion, a reasonable likelihood that a second appraisal would 
indicate a value that differs by 20 percent or more, higher or lower, 
from the original appraisal. Additional costs for any new appraisals 
would be borne by the purchaser, unless the new appraisal indicates a 
value that differs by 20 percent or more, higher or lower, from the 
original appraisal.
    10. Conveyance of Eligible Assets. Section 291.650 of the proposed 
rule would provide for conveyance of eligible assets. Under this 
proposed rule, HUD would identify the categories of eligible assets 
along with the eligible assets available in those categories. The 
purchaser would respond by presenting an acquisition schedule for HUD 
review. HUD would consider the schedule along with the purchaser's 
capacity, and either approve it or suggest modifications. HUD would 
provide notification of additional assets, as they become available 
according to a time schedule stated in the regulation.
    To ensure compliance with the Sale Agreement, HUD will secure the 
sale of asset properties with a subordinate mortgage in the amount of 
the difference between the appraised value of the property and the 
sales price. HUD shall release the subordination upon compliance of the 
provisions of the Sale Agreement and sale of the asset property to an 
eligible buyer.
    11. Sales Price to Eligible Buyers. The purchaser may elect to 
establish the sales price of asset properties to eligible buyers using 
either an individual transaction method or a portfolio-wide method.
    Under the transaction method, the sales price of an asset property 
to an eligible buyer may not exceed the lesser of: (1) The as-
rehabilitated appraised value of the asset property; or (2) the HUD-
established percentage of the ``net development cost'' (the sum of the 
acquisition costs of the asset property to the purchaser plus any 
closing costs, holding costs, or rehabilitation costs

[[Page 78558]]

required under Sec.  291.635). The proposed rule provides that HUD 
initially establishes this percentage at 115 percent. Table Three below 
illustrates the transaction method in operation:

                               Table Three--Sales by Purchaser--Transaction Method
----------------------------------------------------------------------------------------------------------------
                                                                           As-rehabilitated
                      Property                        115 percent of net       appraised        Maximum resale
                                                       development cost     property value       price allowed
----------------------------------------------------------------------------------------------------------------
A...................................................           95,000.00          120,000.00           95,000.00
B...................................................          150,000.00          135,000.00          135,000.00
C...................................................           75,000.00          100,000.00           75,000.00
D...................................................           85,000.00          100,000.00           85,000.00
E...................................................           95,000.00           85,000.00           85,000.00
                                                              500,000.00          540,000.00          475,000.00
----------------------------------------------------------------------------------------------------------------
Estimated Gross Profit/Loss: {1-[$475,000/((100%/115%) * $500,000]{time}  = 9%.

    In order to address possible concerns regarding the recovery of 
losses where the total net development costs exceed the fair market 
value of the asset properties in the purchaser's inventory, the 
proposed rule would permit purchasers to calculate allowable sales 
price on a portfolio-wide basis. Under this portfolio method, the 
cumulative sales prices of asset properties sold to eligible buyers 
during the purchaser's portfolio reporting period may not exceed the 
lesser of: (1) The total as-rehabilitated appraised value of the asset 
properties; or (2) the HUD-established allowable of total net 
development cost for those properties (which, as discussed above, HUD 
initially proposes to establish at 115 percent). The portfolio 
reporting period is a 12-month period covered by the Sale Agreement, 
generally commencing on the date of the Sale Agreement's execution or 
the anniversary thereof. The portfolio option would permit purchasers 
to more readily recoup net development costs by selling asset 
properties at fair market value.
    Use of the portfolio method is optional. During each portfolio 
reporting period, a purchaser may elect either the portfolio method or 
the transaction method; however, the purchaser may not use both methods 
concurrently and may not change methods during a portfolio reporting 
period.
    A purchaser electing the portfolio option must deposit into an 
escrow account the difference between the actual sales price and 115 
percent of the net development cost for each transaction. The purchaser 
must remit principal on each mortgage used to finance purchase of a 
property when cumulative actual sales are more than 115 percent of the 
total net development costs of the properties sold during the portfolio 
reporting period. The amount of principal remittance would be 
calculated by subtracting 115 percent of total net development costs 
from actual cumulative sales for the portfolio reporting period, and 
prorating the result as a percentage of actual sales. The purchaser 
must remit a payment to the homebuyer's mortgage account for credit to 
the unpaid principal balance of the loan for the property. If the 
prorated reduction is less than $500, the purchaser may elect to make a 
cash payment directly to the eligible buyer. The balance in the escrow 
account after principal reductions on mortgages, if any, would be 
allocable to the purchaser. Distributions from the escrow account must 
be made by the purchaser no later than 90 days after its fiscal year 
end.
    Table Four below illustrates the portfolio method in operation:

                                                    Table Four--Sales by Purchaser--Portfolio Method
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Total as-
                                                        115 percent of       rehabilitated      Maximum resale      Escrow account         Principal
                      Property                             total net      appraised value of    price allowed *    deposit required   reduction required
                                                       development cost       properties                                  **             by purchaser
--------------------------------------------------------------------------------------------------------------------------------------------------------
A...................................................           95,000.00          120,000.00          120,000.00           25,000.00            8,888.89
B...................................................          150,000.00          135,000.00          135,000.00                0.00           10,000.00
C...................................................           75,000.00          100,000.00          100,000.00           25,000.00            7,407.41
D...................................................           85,000.00          100,000.00          100,000.00           15,000.00            7,407.41
E...................................................           95,000.00           85,000.00           85,000.00                0.00            6,296.30
                                                              500,000.00          540,000.00          540,000.00           65,000.00          40,000.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
Escrow Account Balance Distributed to Purchasers of Rehabilitated Properties: $540,000-$500,000 = $40,000.
Escrow Account Balance Distributed to Purchaser: $65,000-$40,000 = $25,000.
Estimated Gross Profit/Loss: {1-[$500,000/(100%/115%) * $500,000]{time}  = 15%.
* Actual resale price may be less than maximum resale price.
** The difference between actual sales price and 115% of net development cost for each transaction must be deposited in an escrow account. A principal
  reduction on applicable mortgages is required when cumulative actual sales are more than 115% of total net development costs of property sales for the
  program during the purchaser's fiscal year. The balance in the escrow account after required principal reductions on mortgages is allocable to the
  purchaser.

    To better reflect market conditions, HUD may periodically propose 
to adjust the allowable percentage of net development cost and/or the 
portfolio reporting period. Such proposed adjustments shall be 
announced through publication of a notice in the Federal Register that 
will provide the public with the opportunity to comment for a period of 
at least 30 days. After the comments have been considered, HUD will 
publish a final notice announcing the adjustment and its effective 
date.
    12. Owner-Occupancy Term for Eligible Buyers. An eligible buyer who 
purchases an asset property at below its appraised value would be 
required to own, and live in as his/her sole residence, the asset 
property for 36 months commencing upon the date of

[[Page 78559]]

closing on the purchase of the home. The owner-occupancy requirement is 
consistent with the statutory goal of promoting homeownership, and is 
being required in consideration of the discounted sales price to the 
eligible buyer. An eligible buyer who pays the full appraised market 
value for an asset property would therefore not be subject to the 
owner-occupancy requirements.
    HUD may, at its sole discretion, allow interruptions to the 36-
month owner-occupancy term if it determines that the interruption is 
necessary to prevent hardship, but only if the eligible buyer submits a 
written and signed request to HUD containing the reasons why the 
interruption is necessary, the date of the intended interruption, and a 
certification from the eligible buyer affirming that the buyer will 
resume occupancy of the home upon the conclusion of the interruption 
and complete the remainder of the 36-month owner-occupancy term.
    The written request for approval of an interruption to the owner-
occupancy term must be submitted to HUD at least 30 calendar days 
before the anticipated interruption. Military service members protected 
by the Servicemembers Civil Relief Act need not submit their written 
request to HUD 30 days in advance of an anticipated interruption, but 
should submit their written request as soon as practicable upon 
learning of a potential interruption, in order to ensure timely 
processing and approval of the request.
    To ensure compliance with owner occupancy requirements, the sale of 
asset properties to eligible buyers shall be secured with a subordinate 
mortgage in the amount of the difference between the appraised value of 
the Asset Property and the sales price. The term of the subordinate 
mortgage is equal to the owner-occupancy term (36 months). The amount 
of the subordinate mortgage will be reduced by \1/36\th on the last day 
of each month of occupancy following the occupancy start date. At the 
end of the 36th month of occupancy, the amount of the subordinate 
mortgage will be zero. If the eligible buyer sells the asset property 
or stops living in the home as his/her sole residence prior to the 
expiration of the owner-occupancy term, he/she will owe HUD the amount 
due on the second mortgage as of the date the property is either sold 
or vacated.
    13. Reporting Requirements and Compliance Reviews. Section 291.665 
of the proposed rule contains reporting requirements that purchasers 
under the program must fulfill. In addition to financial reports, 
purchasers that sell asset properties to eligible buyers must obtain 
and retain a certification that the buyer, in fact, meets the 
requirements of this regulation for eligible buyers. Proposed Sec.  
291.683 would provide for annual HUD compliance reviews. The section 
would require all purchasers and their partners and agents to cooperate 
with HUD's requests for information.
    14. Sanctions for Failure To Comply. Section 291.675 of the 
proposed rule contains sanctions that HUD may take against purchasers 
or eligible buyers that commit an act of default as defined in the 
section, along with administrative appeal procedures. In addition to 
the listed sanctions, HUD has the right to take any other enforcement 
action permitted by law, including, but not limited to, suspension, 
debarment, and actions under the Program Fraud Civil Remedies Act.

III. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this proposed 
rule have been submitted to the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). In 
accordance with the Paperwork Reduction Act, an agency may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information unless the collection displays a currently valid OMB 
control number.
    The burden of the information collections in this proposed rule is 
estimated as follows:

                                       Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                     Response
     Information collection          Number of       frequency     Total annual    Burden hours    Total annual
                                    respondents      (average)       responses     per response        hours
----------------------------------------------------------------------------------------------------------------
Agreement Process:
    Initial Application.........               3               1               3              80             240
    Modification of Sale                       6               1               6              10              60
     Agreement..................
Reporting:
    Monthly Report..............              15              12             180               3             540
    Repair Report...............              15              25             375               3           1,125
    Financial Statements........              15               1              15               3              45
Performance Assessment:
    AUP Compliance Review.......              15               1              15               3              45
    Maintenance Reports.........               3              12              36               1              36
                                 -------------------------------------------------------------------------------
        Total...................              72  ..............  ..............  ..............           2,091
----------------------------------------------------------------------------------------------------------------

    Total estimated burden hours: 2,091.
    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning this 
collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this rule. Comments must refer 
to the proposal by name and docket number (FR-4988) and must be sent 
to:

HUD Desk Officer, Office of Management and Budget, New Executive Office 
Building,

[[Page 78560]]

Washington, DC 20503, Fax: (202) 395-6947; and
Reports Liaison Officer, Office of the Assistant Secretary for 
Housing--Federal Housing Commissioner, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Room 9116, Washington, DC 20410.

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this proposed 
rule under Executive Order 12866 (entitled ``Regulatory Planning and 
Review''). OMB determined that this proposed 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). The docket file 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. Due to security measures at the HUD Headquarters 
building, please schedule an appointment to review the docket file by 
calling the Regulations Division at (202) 402-3055 (this is not a toll-
free number). Individuals with speech or hearing impairments may access 
this number via TTY by calling the Federal Information Relay Service at 
(800) 877-8339.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) generally 
requires an agency to conduct a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements, unless the 
agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities. As noted above in 
this preamble, the proposed rule would codify a statutorily established 
program to make HUD-held single family homes and mortgage assets 
available for sale to units of general local government and nonprofit 
entities. The goal of the program is to help revitalize certain 
distressed areas, with primary focus on the expansion of homeownership 
opportunities. Participation in the program is voluntary and, 
therefore, the proposed regulatory amendments would not impose any 
mandatory burdens on units of general local governments and nonprofit 
organizations. Rather, to the extent that the rule would impose any 
burden, it would be as a result of the jurisdiction or nonprofit 
organization making a determination that its participation in the 
program makes administrative and economic sense and aligns with its 
operational goals.
    HUD has taken several steps to minimize burdens associated with 
voluntary participation in the program. For example, the proposed rule 
provides for financing assistance to homebuyers through the provision 
of FHA mortgage insurance, which will facilitate the sale of homes 
acquired under the program. Further, to the extent possible, the 
language of the proposed rule closely tracks the statutory program 
requirements. Where HUD has been compelled by statute or deemed it 
advisable to elaborate upon the statutory language, it has built upon 
the best practices observed in administration of the dozen ACA 
agreements that are successfully being implemented throughout the 
country.
    These agreements have been entered into on a case-by-case basis 
under statutory authority. The participants reflect a broad geographic 
diversity (participants are located in the Northeast, Midwest, 
Southwest, and West) and size distribution (including large and small 
units of general local government and nonprofit community 
organizations). Accordingly, the best practices that would be codified 
by the proposed rule are reflective of market realities throughout the 
country and address the potential administrative issues that might be 
faced by a cross section of participants. For example, in response to 
situations where a preferred purchaser may be unable to recoup losses 
as a result of the acquisition and rehabilitation costs exceeding the 
fair market value of properties, the proposed rule permits program 
participants to calculate allowable sales prices on a portfolio-wide 
basis. Allowing differing calculations of sales price accommodates 
operational differences between program participants, including 
differences based on the size of the entities participating in the 
program. (For a more detailed discussion of sales price calculation 
under the proposed rule, please see Section II.11 of this preamble.)
    Another example of the regulatory amendments conforming to best 
practices is the proposed discount structure for preferred purchasers. 
The proposed rule provides for discounts to preferred purchasers based 
on the appraised value of the asset. As discussed in detail in Section 
II.8 of this preamble, the discount structure HUD proposes to codify is 
largely based on the discounts currently being provided to program 
participants. The discounts are therefore based on data accumulated in 
administration of the current sale agreements, are familiar to program 
participants, and reflect the economic realities faced by preferred 
purchasers. Further, as noted, the discounts are based on the appraised 
value of properties in the locality, regardless of size, and therefore 
accommodate both large and small jurisdictions proportionate to local 
conditions.
    For the above reasons, the undersigned has determined that the 
proposed rule would not have a significant economic impact on a 
substantial number of small entities. Notwithstanding HUD's 
determination that this rule does not have a significant economic 
impact on a substantial number of small entities, HUD specifically 
invites comment regarding any less burdensome alternatives to this rule 
that will meet HUD's objectives as described in the preamble.

Environmental Impact

    A Finding of No Significant Impact (FONSI) with respect to the 
environment has been made in accordance with HUD regulations at 24 CFR 
part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The Finding of 
No Significant Impact is available for public inspection between the 
hours of 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office 
of General Counsel, Room 10276, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410. Due to 
security measures at the HUD Headquarters building, please schedule an 
appointment to review the FONSI by calling the Regulations Division at 
202-708-3055 (this is not a toll-free number). Individuals with speech 
or hearing impairments may access this number via TTY by calling the 
Federal Information Relay Service at (800) 877-8339.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on state and local 
governments and is not required by statute, or the rule preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This proposed rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on state and local governments nor preempt state law 
within the meaning of the Executive Order.

[[Page 78561]]

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 on the private sector. This proposed rule does 
not impose any federal mandates on any State, local, or tribal 
governments, or on the private sector, within the meaning of UMRA.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number applicable to the 
program affected by this rule is 14.311.

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.

    For the reasons stated in the preamble, HUD proposes to amend 24 
CFR part 291 as follows:

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

    1. The authority citation for part 291 is revised to read as 
follows:

    Authority: 12 U.S.C. 1701 et seq., 1710(h); Pub. L. 106-554; 42 
U.S.C. 1441, 1441a, and 3535(d).

    2. Add a new subpart G to read as follows:

Subpart G--Sale of Single Family Assets in Revitalization Areas

Sec.
291.600 Purpose.
291.605 Definitions.
291.610 Revitalization Areas.
291.615 Purchaser categories.
291.620 Application requirements.
291.625 HUD review and approval of application.
291.630 Sale Agreement requirements for Purchasers.
291.635 Asset Property condition requirements.
291.640 Discount classes for Preferred Purchasers.
291.645 Appraisal and pricing of Asset Properties that are real 
properties.
291.650 Conveyance of Eligible Assets.
291.655 HUD financing and assistance to Preferred Purchasers and 
their Partnerships.
291.660 Resale of assets to Eligible Buyers.
291.665 Reporting and disclosures.
291.670 Conflicts of interest.
291.675 Sanctions for failure to comply.
291.681 Termination for convenience of the government.
291.683 Audits and reviews.


Sec.  291.600  Purpose.

    This subpart provides the regulations that govern a program under 
which sales of categories of eligible single family assets are carried 
out in a manner that promotes revitalization through the expansion of 
homeownership opportunities.


Sec.  291.605  Definitions.

    Asset Control Area (ACA) means an area established by a Preferred 
Purchaser pursuant to Sec.  291.615(b)(2).
    Asset Property means:
    (1) With respect to an eligible asset that is real property, such 
real property; and
    (2) With respect to an eligible asset that is a mortgage, the 
property that is subject to the mortgage.
    Eligible Asset means:
    (1) In the case of real property, any property that:
    (i) Is designed as a dwelling for occupancy by 1-to-4 families;
    (ii) Is located in a Revitalization Area;
    (iii) Was previously subject to a mortgage insured under the 
provisions of the National Housing Act (12 U.S.C. 1701 et seq.); and
    (iv) Is owned by HUD pursuant to the payment of insurance benefits 
under the National Housing Act.
    (2) In the case of mortgages, any mortgage that:
    (i) Is an interest in a property that meets the requirements of 
paragraphs (1)(i) and (1)(ii) of this definition;
    (ii) Was previously insured under Title II of the National Housing 
Act (12 U.S.C. 1707 et seq.) except for mortgages insured under or made 
pursuant to sections 235, 247, or 255 of the National Housing Act (12 
U.S.C. 1715z, 1715z-12, or 1715z-20, respectively); and
    (iii) Is held by HUD pursuant to the payment of insurance benefits.
    (3) Notwithstanding paragraphs (1) and (2) of this definition, the 
term ``Eligible Asset'' does not include any real property (including 
real property securing a mortgage under paragraph (2) of this 
definition) where HUD has determined that it is economically or 
otherwise infeasible to rehabilitate the property or that the best use 
of the property is as open space, including as park land.
    Eligible Buyer means a family (which can include a single person) 
that meets the following eligibility requirements to purchase 
properties made available under this subpart by the Preferred Purchaser 
or Non-Preferred Purchaser:
    (1) Has an annual income of no more than 115 percent of area median 
income and agrees to reside in the property as the owner for three 
years from the date of closing of the sale; or
    (2) Is or has a resident member who is a ``teacher,'' ``police 
officer,'' or ``firefighter/emergency medical technician,'' as defined 
under the Good Neighbor Next Door Sales Program codified in subpart F 
of this part.
    Homeownership Plan means a plan, incorporated into the Sale 
Agreement, to which a Preferred Purchaser must agree under this 
subpart. A Homeownership Plan has as its primary purpose the expansion 
of homeownership in, and the revitalization of, the ACA in which the 
eligible asset is located, and must meet the requirements of this 
subpart and section 204 of the National Housing Act (12 U.S.C. 
1710(h)).
    Indian tribe means any Indian or Alaska Native tribe, band, nation, 
or other organized group or community of Indians or Alaska Natives 
recognized as eligible for the services provided to Indians or Alaska 
Natives by the Secretary of the Interior because of its status as such 
an entity, or that was an eligible recipient under chapter 67 of title 
31, United States Code, prior to the repeal of such chapter.
    Net Development Cost means the sum of the acquisition costs of an 
Asset Property to the Purchaser, plus any rehabilitation costs required 
under Sec.  291.635, closing, or holding costs.
    Non-Preferred Purchaser means any Purchaser that is not a Preferred 
Purchaser, but which meets the requirements of Sec.  291.615(c).
    Partnership means, for the purpose of this subpart, joint 
participation under this subpart by two or more Preferred Purchasers; 
for example, by a nonprofit organization and a Unit of General Local 
Government.
    Preferred Purchaser means a Unit of General Local Government, 
state, or Indian tribe having jurisdiction with respect to the area in 
which are located the Eligible Assets to be sold, or a nonprofit 
organization which:
    (1) In the case of a nonprofit organization, is currently included 
on the nonprofit organization roster under 24 CFR 200.194 and has tax-
exempt status as an organization under section 501(c) of the Internal 
Revenue Code, 26 U.S.C. 501(c);
    (2) Establishes an ACA; and
    (3) Has the capacity to perform the duties required in Sec.  
291.615(b).
    Purchaser means either a Preferred or Non-Preferred Purchaser, as 
defined in this section, but does not include Eligible Buyer(s), as 
defined in this section.
    Revitalization Area means a geographic area designated by HUD under 
Sec.  291.610.
    Sale Agreement means a contract between HUD and a Preferred or Non-

[[Page 78562]]

Preferred Purchaser that contains the information required under Sec.  
291.630.
    State means any state of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, Guam, American Samoa, the 
Virgin Islands, the Northern Mariana Islands, or any agency or 
instrumentality thereof that is established pursuant to legislation and 
designated by the chief executive officer to act on behalf of the state 
with regard to the provisions of this subpart.
    Unit of General Local Government means any city, town, township, 
county, parish, village, or other general purpose political subdivision 
of a state, and any agency or instrumentality thereof that is 
established pursuant to legislation and designated by the chief 
executive officer to act on behalf of the jurisdiction with regard to 
the provisions of this subpart.


Sec.  291.610  Revitalization Areas.

    (a) HUD shall designate areas as Revitalization Areas within which 
an ACA may be defined, in accordance with the terms and conditions 
provided in this subpart. Prior to designating an area as a 
Revitalization Area, HUD shall consult with affected Units of General 
Local Government, states, Indian tribes, and interested nonprofit 
organizations.
    (b) The chief executive officer of a county or the government of 
appropriate jurisdiction may request that HUD designate as a 
Revitalization Area any or all portions within a jurisdiction that meet 
the criteria under paragraph (c) of this section. Such requests shall 
be submitted in a manner and form prescribed by HUD. Within 60 calendar 
days of receiving such a request, HUD will notify the requestor of its 
decision.
    (c) HUD shall, in its discretion, designate as a Revitalization 
Area an area that meets at least one of the following requirements:
    (1) Very low-income area. The median household income for the area 
is less than 60 percent of the median household income for:
    (i) The metropolitan area in which the proposed Revitalization Area 
is located; or
    (ii) The state in which the proposed area is located (if the 
proposed Revitalization Area is not located within a metropolitan 
area);
    (2) Disproportionately high concentration of Eligible Assets. A 
high rate of default or foreclosure for single family mortgages insured 
under the National Housing Act has resulted, or may result in the area:
    (i) Having a disproportionately high concentration of Eligible 
Assets, in comparison with the concentration in surrounding areas; or
    (ii) Being detrimentally impacted by Eligible Assets in the 
vicinity of the area.
    (3) Low homeownership rate. The rate for homeownership of single 
family homes in the proposed Revitalization Area, as measured by the 
proportion of owner-occupied housing units to occupied housing units, 
is substantially below the rate for homeownership in:
    (i) The metropolitan area in which the Proposed Revitalization Area 
is located; or
    (ii) The state in which the proposed area is located (if the 
Proposed Revitalization Area is not located within a metropolitan 
area);
    (d)(1) HUD will review Revitalization Areas annually, and remove 
the designation of ``Revitalization Area'' from any geographical area 
that no longer meets the definition of a Revitalization Area. This 
removal will occur at the earliest opportunity, such as upon the 
expiration of the term of the then-current Sale Agreement.
    (2) The removal of the designation of a Revitalization Area shall 
not modify the terms of a Sale Agreement in effect at the time such 
designation is removed. A geographic area designated as a 
Revitalization Area shall continue to be considered as such for 
purposes of the agreement until the expiration of the Sale Agreement.


Sec.  291.615  Purchaser categories.

    (a) Eligibility. HUD may sell assets to Purchasers in accordance 
with the procedures provided in this subpart, so long as the Purchasers 
and any officers, directors, or principals participating with them are 
not debarred, suspended, subject to a limited denial of participation, 
or otherwise disqualified from participating in HUD programs.
    (b) Preferred Purchasers. HUD shall sell Eligible Assets at a 
discount to Preferred Purchasers (including Partnerships thereof). A 
Preferred Purchaser must:
    (1) Have the capacity to carry out the purchase of the category or 
categories of Eligible Assets stated in the Sale Agreement;
    (2) Establish an ACA consisting of all or part of a Revitalization 
Area;
    (3) Purchase all Eligible Assets in the category or categories 
identified in the Sale Agreement, up to the maximum number specified in 
the Sale Agreement or until the term of the Sale Agreement expires, 
whichever occurs first;
    (4) Agree to specific performance goals as stated in the Sale 
Agreement under Sec.  291.
    (c) Non-Preferred Purchasers. Non-Preferred Purchasers are not 
eligible for discounts. Non-Preferred Purchasers must:
    (1) Enter into a binding agreement in which the Purchaser agrees to 
meet specific performance goals established by HUD for homeownership of 
the asset properties for the Eligible Assets purchased by the 
Purchaser, except that HUD may, by including a provision in the Sale 
Agreement, provide for a lower rate of homeownership in sales involving 
exceptional circumstances. The Purchaser must also agree to 
rehabilitate each Asset Property purchased to comply with local 
building code standards; and
    (2) Have the capacity to carry out the purchase of Eligible Assets 
under this subpart, as stated in the binding agreement under paragraph 
(c)(1) of this section.
    (d) Partnerships. Preferred Purchasers, such as a Unit of General 
Local Government and a nonprofit organization, may form a Partnership 
to purchase Eligible Assets under this subpart. In such cases, each 
Preferred Purchaser must comply with all application requirements in 
Sec.  291.620 and each shall be fully obligated under the Sale 
Agreement and Homeownership Plan.


Sec.  291.620  Application requirements.

    (a) Units of General Local Government. Every Unit of General Local 
Government or Tribal Government that applies to participate under this 
subpart must submit to the appropriate Home Ownership Center (HOC) 
having jurisdiction over the assets to be sold:
    (1) An official resolution of the Unit of General Local or Tribal 
Government, signed and dated by persons with actual authority as 
required by state, tribal, or local law, adopting the completed Sale 
Agreement and agreeing to perform all duties and obligations under the 
Sale Agreement and to not take actions that would interfere with its 
implementation; and
    (2) The Name and Address Identifier (NAID) issued by HUD, if 
available, and Federal Employer Identification Number (EIN) for the 
applicant and any participating entities.
    (b) Nonprofit organizations. Every nonprofit Purchaser that applies 
to participate under this subpart must be on the nonprofit roster under 
24 CFR 200.194 and must submit:
    (1) The Federal Employer Identification Number (EIN) for the 
applicant and any participating entities that will be involved in the 
applicant's program under this subpart and the Social Security Numbers 
(SSNs) of the principal staff of the applicant and its participating 
entities;

[[Page 78563]]

    (2) A letter of endorsement from a Unit of General Local Government 
with jurisdiction over the entire proposed ACA signed by an authorizing 
official stating that the official has reviewed the Sale Agreement of 
the nonprofit organization and supports the nonprofit organization's 
role in carrying out the activities described in the Sale Agreement;
    (3) An official resolution of the nonprofit organization, signed 
and dated by persons with actual authority as required by state, 
tribal, or local law and the organization's governing documents, 
adopting the completed Sale Agreement and agreeing to perform all 
duties and obligations under the Sale Agreement; and
    (4) Evidence of tax-exempt status granted by the Internal Revenue 
Service under the tax-exempt organization provisions of section 501 of 
the Internal Revenue Code (26 U.S.C. 501 et seq.).
    (c) Application requirements applicable to both Units of General 
Local Government and nonprofit organizations. In addition to the 
applicable application requirements identified in paragraphs (a) and 
(b) of this section, a Unit of General Local Government and nonprofit 
organization must also submit as part of its application:
    (1) The Homeownership Plan to be incorporated into the Sale 
Agreement. The Homeownership Plan must contain, at a minimum, a map and 
description of the geographical boundaries of the ACA, a statement of 
the categories of assets to be sold, and a statement of the 
homeownership and neighborhood revitalization goals to be achieved by 
the plan.
    (2) A certification that neither the Preferred Purchaser nor its 
officers, directors, or principals are suspended, debarred, subject to 
a limited denial of participation, or otherwise prohibited from 
participating in a federal program, subject to applicable penalties for 
false statements and perjury.
    (d) Non-Preferred Purchasers. Every Non-Preferred Purchaser that 
applies under this subpart must submit required information to the 
appropriate HOC having jurisdiction over the assets to be sold. The 
information to be submitted is as follows:
    (1) The Non-Preferred Purchaser's taxpayer identification number, 
which may be an SSN or an EIN;
    (2) A statement indicating how the Non-Preferred Purchaser is 
organized (e.g., as a corporation, sole proprietorship, limited 
partnership, etc.);
    (3) The Non-Preferred Purchaser's Data Universal Numbering System 
(DUNS) number;
    (4) Articles of incorporation, by-laws, partnership agreements, or 
such other organizational and governing documents;
    (5) A certificate of good standing from the jurisdiction in which 
the Non-Preferred Purchaser is incorporated or organized;
    (6) A copy of the Non-Preferred Purchaser's valid business license 
and any professional licenses issued to the entity;
    (7) A letter of endorsement from the Unit of General Local 
Government stating that it has reviewed the Non-Preferred Purchaser's 
proposed binding agreement under Sec.  291.615(c) and supports the Non-
Preferred Purchaser's role in carrying out the activities described in 
these documents, along with an organizational resolution from the 
entity evidencing: Authority to enter into the binding agreement, and 
that the entity has taken whatever steps are necessary to officially 
adopt, execute, and endorse these items;
    (8) A listing of the names and addresses of members of the Board of 
Directors, chief officers (or other governing body), and principal 
staff of the Non-Preferred Purchaser;
    (9) A certification that neither the Preferred Purchaser nor its 
officers, directors, or principals are suspended, debarred, subject to 
a limited denial of participation, or otherwise prohibited from 
participating in a federal program. Such certification is subject to 
applicable penalties for false statements and perjury; and
    (10) A certification of the completeness and accuracy of all 
information contained in all documents under this section. Such 
certification is subject to applicable penalties for false claims, 
false statements, and perjury.
    (e) Preferred and Non-Preferred Purchasers. In addition to the 
applicable application submission requirements described in paragraphs 
(a) through (d) of this section, all Purchasers must include the 
following information in their application submissions to the 
appropriate HOC:
    (1) A description of the Purchaser's staff and organization, 
including:
    (i) A list of all principal staff of the Purchaser, its officers, 
directors, and principals, including their position titles, and the 
resumes or biographies documenting each staff person's relevant housing 
development experience;
    (ii) A description of contracts and partnership agreements into 
which the Purchaser has entered or plans to enter for the purpose of 
conducting activities under this subpart;
    (iii) A statement identifying any participating entities that will 
assist with or be involved in a Purchaser's program under this subpart, 
including, but not limited to, down payment assistance providers, 
housing counseling agencies, contracting firms, marketing or sales 
agents, and entities offering special financing arrangements for 
buyers; and
    (iv) A certification that the Purchaser's relationship with 
partners, contractors, and participating entities does not create any 
conflict-of-interest issues as provided in Sec.  291.670;
    (2) A statement of financial condition demonstrating the capacity 
of the Purchaser to carry out the proposed program under this subpart, 
including:
    (i) A capitalization plan showing the amount of capitalization and 
the sources of available funds;
    (ii) Liabilities, including all debts, liens, and judgments;
    (iii) The Purchaser's current and last two year-end audited 
financial statements, if available; and
    (iv) The Purchaser's current and last two year-end profit and loss 
statements and balance sheets, if available.
    (3) Valid resolutions delegating signature authority as necessary 
to provide for the execution of any sales contracts or other documents 
on behalf of the Purchaser. These resolutions must be signed and dated 
by the appropriate persons under applicable state, tribal, or local 
law; and
    (4) A certification, on official letterhead of the Purchaser, of 
the completeness and accuracy of all information contained in the 
application, subject to applicable penalties for false claims, false 
statements, and perjury.


Sec.  291.625  HUD review and approval of application.

    (a) Initial stage processing. Each application will be reviewed by 
HUD. If the application is complete, the application will be reviewed 
under the procedures established by this subpart. If the application is 
incomplete, HUD will inform the applicant in writing and provide an 
opportunity to submit any missing material within 30 days of the date 
of the written communication informing the applicant of the 
incompleteness.
    (b) Review of application. (1) Each application will be reviewed on 
a first-come, first-served basis by the date and time of HUD's receipt 
of the application, if the application complies with the requirements 
of this subpart, except that if HUD receives an application from a

[[Page 78564]]

Preferred Purchaser and from a Non-Preferred Purchaser for the same 
geographic area on the same date, HUD will consider the application 
from the Preferred Purchaser to be the prior received application. The 
decision regarding when an application was received is solely within 
HUD's discretion.
    (2) HUD's threshold criteria will include, at a minimum, the 
following:
    (i) If the application submitted is incomplete and HUD notifies the 
applicant in writing as provided in paragraph (a) of this section, the 
application will be considered submitted on the date and time that HUD 
receives the materials necessary to complete the application. All 
members of a Partnership must each submit all required application 
materials. HUD's decision as to whether or not an application is 
complete is solely within HUD's discretion;
    (ii) Status as a Preferred Purchaser or Partnership if the 
applicant or applicants is seeking the preference and discounts 
available to Preferred Purchasers;
    (iii) No employee, officer, or agent of the applicant has engaged 
in activities that involve a real or apparent conflict of interest 
under Sec.  291.670;
    (iv) Eligibility of the personnel to participate in HUD programs;
    (v) A methodology to provide homeownership opportunities to 
underserved populations, including persons with disabilities; and
    (vi) Demonstrated legal, administrative, and financial capacity to 
successfully fulfill the requirements of the Sale Agreement and, in the 
case of a Preferred Purchaser, the requirements of the Homeownership 
Plan.
    (c) Application approval. (1) HUD will enter into a Sale Agreement 
(which, for a Preferred Purchaser, must incorporate the Homeownership 
Plan) with each applicant or with each member of a Partnership as 
provided in Sec.  291.630, once HUD approves, in its discretion, the 
first complete application it receives that meets the threshold 
requirements under paragraph (b) of this section. If no applications 
meet the threshold requirements or HUD approves no application, HUD 
will not enter into a Sale Agreement.
    (2) If an approved ACA includes less than the total Revitalization 
Area, or if the category of Eligible Assets to be sold includes less 
than all HUD-held assets in an ACA or Revitalization Area, or if an 
approved application from a Non-Preferred Purchaser includes fewer than 
all the assets in a Revitalization Area, the remaining assets (i.e., 
those not covered in the application) in a Revitalization Area may be 
sold as provided elsewhere in this part.


Sec.  291.630  Sale Agreement requirements for Purchasers.

    Every Purchaser, and each member of a Partnership that applies to 
participate under this subpart, as a condition of participation, enters 
into a Sale Agreement, which must contain:
    (a) In the case of Preferred Purchasers:
    (1) The goals of the Homeownership Plan for the Eligible Assets 
purchased and for the ACA subject to the Homeownership Plan;
    (2) The Revitalization Areas (or portions thereof) and ACAs in 
which the Homeownership Plan is operating or will operate, including 
geographic descriptions and maps;
    (3) The specific use or disposition of the Eligible Assets under 
the Homeownership Plan;
    (4) Any activities to be conducted and services to be provided 
under the Homeownership Plan; and
    (5) Goals for the acquisition, management, and resale of the 
respective HUD-owned assets already in HUD's inventory or to be 
acquired during the time frame of the Sale Agreement.
    (b) In the case of both Preferred and Non-Preferred Purchasers:
    (1) A home buyer selection process that includes the requirements 
for Eligible Buyers and methods to fairly and equitably provide 
opportunities for Eligible Buyers, in accordance with the Fair Housing 
Act (42 U.S.C. 3601 et seq.), and nondiscrimination requirements of 24 
CFR 5.105;
    (2) A description of the housing counseling opportunities that will 
be available to Eligible Buyers;
    (3) A description of the Purchaser's accounting systems that will 
clearly enable the Purchaser to ensure that funds associated with 
activities under this subpart are not commingled with other funds for 
programs administered by the Purchaser;
    (4) An operating plan that includes:
    (i) The acquisition schedule that describes an agreed timeline for 
concluding individual asset sales to the Purchaser; and
    (ii) The rehabilitation standard for the asset properties, which 
must comply with local building code standards under Sec.  291.635;
    (5) A certification from the Purchaser that it will comply with the 
performance goals contained in the Sale Agreement; and
    (6) A certification that the Purchaser, its officers, directors, 
and principals are not subject to suspension, debarment, limited denial 
of participation, and are not otherwise prohibited from participating 
in a federal program, subject to applicable penalties for false 
statements and perjury.


Sec.  291.635  Asset Property condition requirements.

    All Asset Properties purchased under this subpart must meet, or be 
rehabilitated to meet, local building code standards.


Sec.  291.640  Discount classes for Preferred Purchasers.

    (a) Three discount classes. Eligible Assets will be priced 
according to one of three discounts, based on the relationship of the 
appraised value to the dollar cost of the eligible repairs, as follows:
    (b) Fifty percent discount. Eligible Assets with an appraised value 
of $50,000 or greater shall receive a discount of 50 percent of the 
appraised value of the property.
    (c) $24,900 discount. Eligible Assets with an appraised value of 
greater than $25,000, but less than $50,000, shall receive a discount 
of $24,900 from the appraised value of the property.
    (d) Maximum Discount. Eligible Assets with an appraised value of 
$25,000 or less will have a purchase price of $100.


Sec.  291.645  Appraisal and pricing of Asset Properties that are real 
properties.

    (a) Appraisal of Asset Properties. HUD will order an appraisal by 
an appraiser on the Federal Housing Administration (FHA) appraiser 
roster under 24 CFR part 200, subpart G, for each Asset Property in the 
ACA to be sold. The property will be appraised based on the market 
value of the property in ``as-is'' physical condition. If the property 
was appraised by an appraiser from the FHA appraiser roster within the 
previous calendar year, the property need not be reappraised, unless 
the Purchaser requests a reappraisal or disputes the appraised value 
under paragraph (b) of this section.
    (b) Resolving disputes about appraised value. If the Purchaser 
disputes the initial appraisal, it may request a second appraisal from 
HUD. In such cases, the second appraisal will be used to determine the 
current appraised value. The Purchaser may request an individual new 
appraisal if the request is made prior to sale and the Purchaser 
demonstrates, in HUD's sole discretion, a reasonable likelihood that a 
second appraisal would indicate a value that differs by 20 percent or 
more, higher or lower, from the original appraisal. HUD will retain 
services of one of the appraisers on the FHA appraiser roster to review 
the original appraisal and

[[Page 78565]]

perform a new appraisal. Additional costs for any new appraisals will 
be borne by the Purchaser, unless the new appraisal indicates a value 
that differs by 20 percent or more, higher or lower, from the original 
appraisal.
    (c) Pricing Eligible Assets. If there is one appraisal, the price 
to the Purchaser will be calculated by applying the appropriate 
discount under Sec.  291.640 to the appraised value. If HUD approves 
additional appraisals under paragraph (b) of this section and such 
appraisals result in a change in value, the price will be calculated by 
applying the appropriate discount under Sec.  291.640 to the final 
approved appraised value.


Sec.  291.650  Conveyance of Eligible Assets.

    (a) Eligible Assets initially available in the ACA or 
Revitalization Area. Prior to entering into the Sale Agreement, HUD 
will identify all the categories of Eligible Assets along with the 
Eligible Assets available in those categories within the proposed ACA 
(in the case of a Preferred Purchaser) or Revitalization Area (in the 
case of a Non-Preferred Purchaser) and provide this information in a 
``designation notice'' to the Purchaser. The Purchaser or Partnership, 
after reviewing the designation notice, will present an acquisition 
schedule to HUD for review. HUD will review the acquisition schedule 
along with the Purchaser or Partnership's capacity and the units to 
determine whether to approve the acquisition schedule as is, or to 
approve it with modifications.
    (b) Assets acquired during the life of the Sale Agreement. (1) As 
HUD acquires and makes available new Eligible Assets in the ACA during 
the life of the Sale Agreement, HUD will provide official notification 
of availability of these assets to the Preferred Purchaser or 
Partnership.
    (2) As HUD acquires and makes available new Eligible Assets in the 
Revitalization Area during the life of the Sale Agreement, HUD will 
provide official notification of availability of the assets to the Non-
Preferred Purchaser.
    (3) Within 5 days after receiving the official notification from 
HUD, the Preferred Purchaser or Partnership shall complete and submit a 
report to HUD stating the repairs required for each Asset Property in 
the ACA to meet the property condition standards in Sec.  291.635.
    (4) HUD will apply the appropriate level of discount pursuant to 
Sec.  291.640 and, within 15 days of the date of initial notification 
from HUD, notify the Preferred Purchaser or Partnership of the sale 
price and provide the Preferred Purchaser with a copy of the appraisal 
report.
    (c) Closing of sales. Sales will be closed according to the terms 
of the Sale Agreement under this section and specific closing 
procedures specified by HUD.
    (d) Subordinate lien. HUD shall secure the sale of Asset Properties 
(including HUD-financed sales under Sec.  291.655) with a subordinate 
mortgage in the amount of the difference between the appraised value of 
the Asset Property and the sales price. HUD shall release the 
subordination upon compliance of the provisions of the Sale Agreement 
and sale of the Asset Property to an Eligible Buyer pursuant to Sec.  
291.660.


Sec.  291.655  HUD financing and assistance to Preferred Purchasers and 
their Partnerships.

    (a) HUD may offer 100 percent financing to Units of General Local 
Government, states, Indian tribes, and nonprofit organizations on the 
purchase of Eligible Assets for up to 180 days from the date of 
closing, subject to the availability of appropriations. Such financing 
will be interest-free for the first 89 days from the date of closing, 
and at market rate commencing with the 90th day until the end of the 
loan or the 180th day from the date of closing, whichever occurs first.
    (b) Payment date. When using the methods in paragraph (a) of this 
section, the Purchaser must pay the full amount for the asset and any 
accrued interest on the earlier of two dates:
    (1) The date after the resale of the asset to the ultimate buyer; 
or
    (2) The expiration date of the loan.
    (c) $5,000 threshold. Notwithstanding paragraphs (a) and (b) of 
this section, the Purchaser must pay the full amount at closing for 
Eligible Assets sold for less than $5,000.
    (d) Delinquent loans. In the case of delinquent HUD-financed loans 
under this section, HUD has the right to take legal action to recover 
the property or enforce the borrower's payment obligations.
    (e) Non-Preferred Purchasers. HUD will not offer financing to Non-
Preferred Purchasers.


Sec.  291.660  Resale of assets to Eligible Buyers.

    (a) General. Resale of Asset Properties by Purchasers to Eligible 
Buyers as defined in Sec.  291.605 must take place in accordance with 
the goals and timetables submitted to HUD as part of the Homeownership 
Plan and the Sale Agreement. Resale of mortgages under this subpart 
must promote homeownership opportunities.
    (b) Sales price--(1) Two methods for determining sales price. The 
Purchaser may elect to establish the sales price of Asset Properties to 
Eligible Buyers using either an individual transaction method or a 
portfolio-wide method.
    (2) Transaction method for determining sales price. Under the 
transaction method, the sales price of an Asset Property to an Eligible 
Buyer may not exceed the lesser of:
    (i) The as-rehabilitated appraised value of the Asset Property; or
    (ii) The HUD-established percentage of the Net Development Cost 
(see paragraph (b)(4) of this section).
    (3) Portfolio method for determining sales price. Under the 
portfolio method, the cumulative sales prices of Asset Properties sold 
to Eligible Buyers during the Purchaser's ``portfolio reporting 
period'' (see paragraph (b)(4) of this section) may not exceed the 
lesser of:
    (i) The total as-rehabilitated appraised value of the asset 
properties; or
    (ii) The HUD-established percentage of the total Net Development 
Cost for those properties (see paragraph (b)(4) of this section).
    (4) HUD-established percentage of Net Development Cost and 
portfolio reporting period. (i) Initially, HUD establishes the 
allowable percentage of Net Development Cost under paragraphs (b)(2) 
and (b)(3) of this section at 115 percent. The portfolio reporting 
period described in paragraph (b)(3) of this section is a 12-month 
period covered by the Sale Agreement, generally commencing on the date 
of the Sale Agreement's execution or anniversary thereof.
    (ii) To better reflect market conditions, HUD may periodically 
propose to adjust the allowable percentage of Net Development Cost and/
or the portfolio reporting period. Such proposed adjustments shall be 
announced through publication of a notice in the Federal Register that 
will provide the public with the opportunity to comment for a period of 
at least 30 days. After the comments have been considered, HUD will 
publish a final notice announcing the adjustment and its effective 
date.
    (5) Sale method election. Use of the portfolio method is optional. 
During each portfolio reporting period, a Purchaser may elect either 
the portfolio method or the transaction method; however, the Purchaser 
may not use both methods concurrently and may not change methods during 
a portfolio reporting period.
    (c) Escrow and principal reduction requirements for Purchasers 
using portfolio method.

[[Page 78566]]

    (1) A Purchaser electing the portfolio option must deposit into an 
escrow account the difference between the actual sales price and the 
HUD-established percentage of the Net Development Cost for each 
transaction.
    (2) The purchaser must reduce the principal on each mortgage when 
cumulative actual sales are more than 115 percent of the total Net 
Development Costs of the properties sold during the portfolio reporting 
period. The amount of principal reduction is calculated by subtracting 
the HUD-established percentage of total Net Development Costs from 
actual cumulative sales for the portfolio reporting period, and 
prorating the result as a percentage of actual sales. The balance in 
the escrow account after principal reductions on mortgages, if any, is 
allocable to the Purchaser. Distributions from the escrow account must 
be made by the Purchaser no later than 90 days after its fiscal year 
end.
    (d) Owner-occupancy term. (1) An Eligible Buyer who purchases an 
Asset Property at below its as-rehabilitated appraised value must 
comply with the owner-occupancy requirements described in this 
paragraph. An Eligible Buyer who purchases an Asset Property for the 
as-rehabilitated appraised value is not subject to the owner-occupancy 
requirements.
    (2) The owner-occupancy term is the number of months that an 
Eligible Buyer must agree to own, and live in as his/her sole 
residence, an Asset Property purchased under this part. The owner-
occupancy term is 36 months commencing on the date of closing.
    (3) HUD may, at its sole discretion, allow interruptions to the 36-
month owner-occupancy term if it determines that the interruption is 
necessary to prevent hardship, but only if the Eligible Buyer submits a 
written and signed request to HUD containing the following information:
    (i) The reason(s) why the interruption is necessary;
    (ii) The dates of the intended interruption; and
    (iii) A certification from the Eligible Buyer that the Eligible 
Buyer is not abandoning the Asset Property as his/her permanent 
residence and will resume occupancy of the home upon the conclusion of 
the interruption and complete the remainder of the 36-month owner-
occupancy term.
    (4) The written request for approval of an interruption to the 
owner-occupancy term must be submitted to HUD at least 30 calendar days 
before the anticipated interruption. Military service members protected 
by the Servicemembers Civil Relief Act need not submit their written 
request to HUD 30 days in advance of an anticipated interruption, but 
should submit their written request as soon as practicable upon 
learning of a potential interruption, in order to ensure timely 
processing and approval of the request.
    (e) Subordinate mortgage. (1) For purposes of ensuring compliance 
with owner occupancy requirements, HUD shall secure the sale of Asset 
Properties (including HUD-financed sales under Sec.  291.655) to 
Eligible Buyers with a subordinate mortgage in the amount of the 
difference between the appraised value of the Asset Property and the 
sales price.
    (2) The term of the subordinate mortgage is equal to the owner-
occupancy term (36 months). The amount of the subordinate mortgage will 
be reduced by \1/36\th on the last day of each month of occupancy 
following the occupancy start date. At the end of the 36th month of 
occupancy, the amount of the subordinate mortgage will be zero.
    (3) If the Eligible Buyer sells his/her home or stops living in the 
home as his/her sole residence prior to the expiration of the owner-
occupancy term, he/she will owe HUD the amount due on the second 
mortgage as of the date the property is either sold or vacated.


Sec.  291.665  Reporting and disclosures.

    (a) Reporting to HUD. Purchasers must complete a repair report with 
the initial cost estimate for each Asset Property repaired, along with 
the actual expenditures for repair and supporting documentation for 
those expenditures. Purchasers must retain this report for the term of 
the Sale Agreement plus 24 months, and make such reports available for 
inspection by HUD.
    (b) Disclosure to Eligible Buyer on resale. Upon the resale of each 
Asset Property, the Purchaser must provide to the Eligible Buyer a 
disclosure notice containing an itemized list of all rehabilitation 
work that the Purchaser has performed or contracted out to be performed 
on each Asset Property being sold. At closing, the Purchaser must also 
provide the Eligible Buyer with a one-year homeowner's warranty, 
covering and warranting the rehabilitation work for one year.
    (c) Obligation to ensure eligibility. The Eligible Buyer must 
certify to the Purchaser that he or she is eligible under this subpart. 
The Eligible Buyer must certify that he or she has an annual income of 
no more than 115 percent of area median income and agrees to reside in 
the property as the owner for 3 years from the date of closing of the 
sale; or that he or she has a resident member who is a teacher, police 
officer, firefighter, or emergency medical technician. The Purchaser 
must retain this certification as long as the Purchaser participates in 
the program under this subpart and provide it to HUD upon request.
    (d) Financial statements. Purchasers must submit annual audited 
financial statements to HUD or HUD's designee. All Preferred Purchasers 
shall comply with the Single Audit Act Amendments of 1996 and, as 
applicable, OMB Circular A-133, ``Audits of States, Local Governments, 
and Non-Profit Organizations.''
    (e) Other reports. Purchasers under this subpart must comply with 
any other annual, quarterly, and monthly reporting requirements as HUD 
may establish from time to time.


Sec.  291.670  Conflicts of interest.

    (a) No employee, officer, or agent of a Preferred Purchaser under 
this subpart shall engage in activities that would involve a real or 
apparent conflict of interest. Such a conflict would arise when the 
employee, officer, agent, any member of his or her immediate family, 
his or her partner, or an organization which employs or is about to 
employ any of the parties indicated herein has a financial or other 
interest in any contractor, firm, or other persons or entities selected 
to rehabilitate, sell, purchase, act as a real estate agent, or 
otherwise participate in the acquisition, financing, rehabilitation, 
management, marketing, and sale of Eligible Assets under this subpart. 
This section does not apply when the Preferred Purchaser itself engages 
in any of these activities. Preferred Purchasers that receive discounts 
in the purchase price of assets under this subpart (as well as other 
federal assistance, such as financing) must comply with the conflict-
of-interest provisions of this paragraph and 24 CFR parts 84 and 85, as 
applicable.
    (b) The officers, agents, and employees of Preferred Purchasers 
under this subpart shall neither solicit nor accept gratuities, favors, 
or anything of monetary value from contractors or parties to sub-
agreements, absent an exception for unsolicited items of nominal value 
granted by HUD.
    (c) A Preferred Purchaser may not sell an Asset Property to an 
Eligible Buyer with whom the Purchaser has a business or close familial 
relationship, unless HUD provides a specific exception. HUD may provide 
such an exception under the following conditions:
    (1) The Preferred Purchaser has disclosed the nature of the 
conflict to HUD, accompanied by an assurance that there was a public 
disclosure of the

[[Page 78567]]

conflict and a description of how the disclosure was made;
    (2) The Preferred Purchaser's attorney has provided a signed 
opinion that the conflict for which the exception is sought would not 
violate state, tribal, or local law;
    (3) The Preferred Purchaser makes a written showing that the 
conflict will not result in any influence on the discount, amount of 
rehabilitation, or price of an asset to the Eligible Buyer; and
    (4) The proposed buyer meets the definition of Eligible Buyer in 
Sec.  291.605 of this subpart.


Sec.  291.675  Sanctions for failure to comply.

    (a) HUD may impose sanctions against a Purchaser or Eligible Buyer 
who commits an act of default as defined herein. An act of default is:
    (1) A material violation of this subpart;
    (2) A material violation of the Sale Agreement or the Homeownership 
Plan; or
    (3) Any act of fraud or any false statements committed by a party 
during its participation in the activities described in this subpart.
    (b) Sanctions may include:
    (1) Termination of the Purchasers' rights under the Sale Agreement, 
including, without limitation, HUD's obligation to sell any asset 
properties to Purchaser; and
    (2) Termination of approval of a Preferred Purchaser or Non-
Preferred Purchaser to participate under this subpart.
    (c) HUD has the right to take any other enforcement action 
permitted by law, including, but not limited to, suspension, debarment, 
and actions under the Program Fraud Civil Remedies Act.
    (d)(1) HUD shall provide a program participant with written notice 
of its intent to pursue a sanction under paragraph (b) of this section. 
The notice will include the reasons for the proposed sanction.
    (2) The program participant will have 20 days from the date of the 
notice to submit a written response appealing the proposed sanction and 
to request a conference. A request for a conference must be in writing 
and must be submitted along with the written response.
    (3) Within 30 days of receiving the written response or, if the 
program participant has requested a conference, within 30 days after 
completion of the conference, a HUD official designated by the 
Secretary will review the appeal and provide the program participant 
with a written final decision either affirming, modifying, or 
cancelling the proposed sanction. HUD may extend this time by providing 
the program participant with notice. The HUD official designated by the 
Secretary to review the appeal will not be someone involved in the 
original decision or someone who reports to a person involved in that 
initial decision. In all such cases, the decision on such appeal is a 
final agency action.


Sec.  291.681  Termination for convenience of the government.

    In addition to termination under Sec.  291.675, the Sale Agreement 
may be terminated at any time for the convenience of the government.


Sec.  291.683  Audits and reviews.

    HUD will conduct compliance reviews of each Purchaser under this 
subpart on an annual basis or such other time as HUD determines. 
Purchasers and their partners and agents shall comply with all requests 
for information regarding their activities under this subpart.

    Dated: November 6, 2008.
Brian D. Montgomery,
Assistant Secretary for Housing--Federal Housing Commissioner.
 [FR Doc. E8-30291 Filed 12-19-08; 8:45 am]
BILLING CODE 4210-67-P