[Federal Register Volume 63, Number 103 (Friday, May 29, 1998)]
[Proposed Rules]
[Pages 29496-29503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14014]
[[Page 29495]]
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Part IV
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Part 291
Disposition of HUD-Acquired Single Family Property; Proposed Rule
Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Proposed
Rules
[[Page 29496]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 291
[Docket No. FR-4244-P-02]
RIN 2502-AG96
Disposition of HUD-Acquired Single Family Property; Proposed Rule
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would amend HUD's regulations for the
disposition of HUD-acquired single family properties. Through this
proposed rule, HUD is seeking comments on an efficient, innovative, and
cost-effective alternative for selling HUD's inventory of single family
properties. This alternative would allow HUD to enter into a property
acquisition agreement or agreements with an individual, partnership,
corporation or other legal entity. The agreement would provide for the
right and obligation of the entity to acquire designated properties,
including properties that are currently in HUD's inventory, but
primarily those that are or will be ``in the pipeline.'' HUD's goals
are to reduce the inventory of single family properties while
continuing to expand homeownership opportunities for American families
and to ensure the stability of the Federal Housing Administration (FHA)
Mortgage Insurance Fund.
DATES: Comment due date: June 29, 1998.
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule to the Rules Docket Clerk, Office of General
Counsel, Room 10276, Department of Housing and Urban Development, 451
Seventh Street, SW, Washington, DC 20410. Communications should refer
to the above docket number and title. Facsimile (FAX) comments are not
acceptable. A copy of each communication submitted will be available
for public inspection and copying between 7:30 a.m. and 5:30 p.m.
weekdays at the above address.
FOR FURTHER INFORMATION CONTACT: Joseph McCloskey, Director, Single
Family Asset Management Division, Office of Insured Single Family
Housing, Department of Housing and Urban Development, Room 9184, 451
Seventh Street, SW, Washington, DC 20410; telephone number (202) 708-
1672 (this is not a toll-free number). For hearing- and speech-impaired
persons, this number may be accessed via TTY by calling the Federal
Information Relay Service at 1-800-877-8399.
SUPPLEMENTARY INFORMATION:
I. Background--Program of Sales of Single Family Properties
Section 204 of the National Housing Act (Act) (12 U.S.C. 1710)
governs the Federal Housing Administration (FHA) insurance claim
process and property disposition. Specifically, section 204(g) of the
Act pertains to the management and disposition of HUD-acquired single
family properties. HUD's implementing regulations are contained in 24
CFR part 291.
These statutory and regulatory authorities for the acquisition,
handling, and disposing of HUD-acquired property make up HUD's Single
Family Property Disposition program. Essentially, HUD is charged with
implementing a program of sales of HUD-acquired properties along with
appropriate credit terms and standards to be used in carrying out the
program. Currently, HUD's principal method of selling properties is
through competitive sales of individual properties to individual
purchasers.
The competitive sales of individual properties is a time consuming
process that does not result in efficient and prompt delivery of the
single family properties to the sales market. HUD has the largest real
estate-owned (REO) operation in the nation, selling in excess of 50,000
properties each year. While this volume of property sales represents
only a small percentage of the total number of home sales nationwide
(see the ``Regulatory Flexibility Act'' section of this preamble for
further discussion), it represents a significant administrative
responsibility for HUD. Both HUD and potential homeowners are
disadvantaged by the processing time required involved in competitive
sales of individual properties. It is critical for HUD to find more
timely and less costly methods to dispose of its REO inventory in order
to further its mission of providing homeownership opportunities for
American families. In addition, HUD must dispose of these properties
efficiently in order to minimize any losses to the insurance fund and
to keep the costs of insurance low.
On June 13, 1997 (62 FR 32251), HUD published in the Federal
Register an advance notice of proposed rulemaking (ANPR) to solicit
public comments on better methods of disposing of HUD-owned single
family properties. The ANPR suggested that such methods could include
bulk sales of current inventory or future acquisitions on a regional or
national basis, or arrangements similar to joint ventures, profit-
sharing arrangements, or private-public partnerships. In addition to
soliciting comments through the ANPR published in the Federal Register,
HUD requested public input through a notice published in the following
newspapers: The Washington Post, The New York Times, The Wall Street
Journal, Barron's, and U.S.A. Today.
II. HUD's New Innovative Sales Method
After considering all the comments received on the ANPR, which are
discussed below, HUD is proposing that competitive sales of individual
properties to individuals will no longer be HUD's principal method of
sale, as the regulations in 24 CFR part 291 currently provide. The
proposed rule provides that HUD may, in its discretion, on a case-by-
case basis or as a regular course of its business, choose from a
variety of sales methods. The proposed rule also would add a new
innovative and cost-effective sales method.
Under the new sales method, HUD will invite interested entities to
participate in a competitive selection process for the right and
obligation to acquire properties designated by HUD. (For purposes of
this rule, HUD refers to this sales method as the ``future REO
acquisition method.'') HUD intends that these designated properties
would consist primarily of ``pipeline'' properties. Pipeline properties
are those that would otherwise come into HUD's inventory in the future.
These designated properties could also include properties that are
currently in HUD's inventory. HUD and the selected entity/transferor
would enter into a property acquisition agreement, which would provide
for the right and obligation of the transferor to acquire the
designated properties as the properties become available. Under this
method, HUD would have the right to negotiate the specific terms of
such an agreement with the selected transferor. HUD is considering
defining the entity's obligation to acquire the properties in terms of
a specific geographic region or regions over a specific period of time,
as well as utilizing the capacity of such entity to support HUD's loss
mitigation efforts. The selected transferor would generally be
responsible for managing and selling the individual REO properties.
With respect to this method of disposition, HUD encourages qualified
entities that currently are engaged in the process of management and
disposition of HUD's REO inventory to consider participation in the
future REO acquisition method by partnering
[[Page 29497]]
with other qualified entities, if they themselves lack the resources to
participate individually. Furthermore, HUD will make available to the
selected transferor(s) a list of all entities (by service and
geography) who currently participate in HUD's REO disposition process
for its use in performing the future acquisition method.
As noted earlier, HUD has the discretion to use other methods of
sale, in addition to this future REO acquisition method, including
competitive sales of individual properties to individuals, direct
sales, bulk sales, and other sales as determined necessary by the
Secretary. HUD anticipates, however, that the new future REO
acquisition method or other similar arrangements would allow HUD to
transfer most of the properties it acquires (or would otherwise
acquire), quickly and efficiently and in a manner that allows HUD to
better achieve its national housing goals.
The ability to move the properties out of HUD's inventory quickly
and efficiently is crucial. The longer the properties remain in HUD's
inventory, the more HUD's holding costs increase, and the longer they
remain unavailable as homeownership opportunities for potential
purchasers. Using disposition methods such as the future REO
acquisition method would be more efficient and expedient than HUD's
current sales methods, since HUD anticipates that the entities
interested in such arrangements will be experienced in high-volume
property sales. HUD anticipates that competition among interested
entities would enhance this benefit and result in maximum efficiency
and return. Therefore, using innovative property disposal methods such
as the future REO acquisition method should not only ensure the maximum
possible return to the mortgage insurance fund; it should also help to
strengthen neighborhoods and communities and help to expand
homeownership opportunities in order to help provide decent, safe, and
affordable housing.
HUD anticipates, however, that the future REO acquisition method
could result in fewer properties available for direct sales to
nonprofit organizations and units of government. HUD understands that
there are entities that rely upon HUD-acquired properties as a resource
for their housing programs, and HUD is committed to continuing its
partnership with these groups. Therefore, in order to minimize the
anticipated effects of any decreased availability of properties, HUD
intends to make available a portion of the properties acquired in HUD-
designated revitalization areas to nonprofit organizations (including
homeless providers and nonprofit organizations representing persons
with disabilities or other classes of persons protected by the Fair
Housing Act) and units of government for use in HUD and local housing
or homeless programs (see Sec. 291.90(c)(1) of this proposed rule).
III. Discussion of Public Comments on ANPR
HUD received 52 comments in response to the June 13, 1997 ANPR and
simultaneous newspaper publications. The following discussion provides
a summary of the issues and recommendations raised by the commenters.
New Methods of Sale
A few commenters offered suggestions for new methods of sale for
HUD's inventory. For example, one commenter proposed that HUD enter
into a contract with that commenter, which proposed to provide
electronic marketing of HUD-owned single family properties. While HUD
currently lists properties available for sale in large circulation
newspapers, and some offices list properties on the World Wide Web, HUD
is looking for a new means to reduce substantially the on-hand
inventory, now and into the future, rather than a new means to market
that inventory.
Another commenter suggested that HUD outsource the REO management
and liquidation function to experienced companies located in areas that
correspond to HUD's Homeownership Centers. HUD is considering expanding
the use of the management and marketing-type contracting that is being
tested in New Orleans, Baltimore, and Sacramento, which would rely upon
local real estate brokers, appraisers, and closing agents for the
inventory not sold through the future REO acquisition method.
Therefore, HUD will continue to consider the suggestions of these
commenters. At this time, however, HUD is proposing to rely upon the
future REO acquisition process described above to transfer most of the
properties.
One commenter suggested that HUD form joint venture arrangements
with selected nonprofit real estate development organizations to reduce
the inventory. Another commenter suggested that HUD sell properties in
identified neighborhoods in bulk to a State agency that would then
enter into a joint venture with a nonprofit. Several other commenters
suggested that HUD give greater priority to nonprofits and/or
government agencies. HUD intends to continue to offer a certain
percentage of properties to nonprofit organizations and local
government entities. In addition, this proposed rule would not preclude
States and nonprofits from participating in the sales process described
in this rule through partnering arrangements with each other or with
the successful transferor. HUD believes, however, that reducing the
inventory through the future REO acquisition method would be more cost-
effective.
One commenter recommended that Federal agencies combine their
resources and sell properties via auctions under the Government Owned
Real Estate (G.O.R.E.) project. HUD has participated in G.O.R.E.
auctions in the past and anticipates doing so in the future. However,
since HUD has a much higher volume of properties in its inventory and a
greater need for frequent sales than other Federal agencies, the
G.O.R.E. auctions have a limited utility for HUD. HUD anticipates that
the effort described in this proposed rule would be a more efficient
method of selling the bulk of its inventory, because transferors could
be available to acquire properties on a continual basis in many
regions.
Opposition to Bulk Sales
Several commenters opposed selling HUD's single family acquired
properties through bulk sales. Two commenters warned that bulk sales
will negatively affect real estate values and could cause a local
depression of the real estate market. Three commenters (real estate
brokers/managers) claimed that bulk sales would put them out of
business.
Contrary to these commenters' objections, however, HUD is primarily
considering selling a pipeline of properties to transferors chosen
through a competitive process, rather than selling acquired properties
through bulk sales. HUD does not believe that the sales arrangement
described in this proposed rule would adversely affect real estate
values or cause a depression of local real estate markets, since HUD
anticipates that the ultimate sales of the individual properties by the
chosen transferors will result in fair market pricing. Although HUD may
sell properties that are currently in inventory through a bulk sale
arrangement, any such sales will be structured to take into account the
impact on local communities.
HUD has performed an analysis on the impact the future REO
acquisition method would have on small businesses that do business with
HUD, such as real estate brokers. This analysis is described below
under the heading ``Regulatory Flexibility Act.'' This new sales method
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should not significantly affect small businesses, especially if the
transferors use a process of selling the properties that is similar to
HUD's. In an effort to mitigate any such impact, however, HUD would
encourage its transferors to use local firms to assist in their
disposal of the single family acquired properties.
IV. Changes to Regulations in 24 CFR Part 291
Specifically, this proposed rule would amend the regulations in 24
CFR part 291 to:
1. Add a new section (see Sec. 291.200 of this proposed rule) to
describe basic procedures for the future REO acquisition sales method.
The proposed Sec. 291.200 contains general information regarding the
process by which HUD anticipates conducting the new sales method. HUD
plans to advertise the availability of acquisition opportunities to the
public, and to provide detailed information to interested eligible
entities.
2. Reorganize the property disposition regulations to allow for and
to recognize the use of innovative sales procedures such as the future
REO acquisition method, by:
a. Revising Sec. 291.5 (Definitions), primarily by moving relevant
definitions to subpart E;
b. Creating a new Sec. 291.90 in subpart B to describe all the
sales methods that will be available to the Secretary;
c. Moving the flood insurance requirements from Sec. 291.100(f) to
Sec. 291.100(c)(1) regarding individual properties that are sold with
FHA mortgage insurance; HUD's requirements for flood insurance apply
only to FHA-insured mortgages in these circumstances.
d. Redesignating Sec. 291.200 of the current regulations, regarding
HUD's policy for the rental of acquired property, as Sec. 291.10 in
subpart A of part 291.
e. Revising the heading of existing subpart C to read ``Sales
Procedures.'' This rule would move the provisions of Secs. 291.105 and
291.110 into subpart C (see Secs. 291.205 and 291.210 of this proposed
rule), to follow the new Sec. 291.200 regarding the future REO
acquisition method (described above).
HUD anticipates that it would rely heavily upon the future REO
acquisition method or similar arrangements to sell its inventory of
single family properties (so long as such arrangements are found to be
economically viable and in furtherance of the national housing goals),
rather than the sales methods described in Secs. 291.205 and 291.210 of
this rule. However, this rule would preserve the procedures for those
sales methods and retain them as viable sales options. If HUD seeks to
use direct sales to other individuals or entities that do not meet any
of the other categories of sales, this rule would continue to require
the Assistant Secretary for Housing-Federal Housing Commissioner to
make a finding that disposing of properties in such a manner would be
in the best interest of the Secretary (see Sec. 291.210(c) of this
rule.)
V. Nondiscrimination Requirements
HUD's responsibilities and priorities include ensuring compliance
with applicable nondiscrimination requirements, such as the Americans
with Disabilities Act, section 504 of the Rehabilitation Act of 1973,
and the Fair Housing Act. With regard to the disposition of single
family properties in HUD's inventory, all resales by public entities
are subject to compliance with Title II of the Americans with
Disabilities Act. All resales by both public and private entities are
subject to compliance with the Fair Housing Act.
In addition, HUD must comply with section 504 of the Rehabilitation
Act of 1973, which requires nondiscrimination based on disability in
programs or activities conducted by any executive agency. HUD
regulations implementing this requirement are in 24 CFR part 9. Under
Sec. 9.155(a) of those regulations, HUD must ensure that its Property
Disposition Program policies and practices do not discriminate on the
basis of disability, against a qualified individual with disabilities.
HUD will take appropriate steps to ensure effective communication with
applicants, participants, personnel of other Federal entities, and
members of the public. HUD will provide appropriate auxiliary aids as
necessary to afford an individual with disabilities an equal
opportunity to participate in this program.
VI. Justification for Shortened Comment Period
In general, it is HUD's policy that notices of proposed rulemaking
are to afford the public not less than 60 days for submission of
comments, in accordance with its regulations on rulemaking in 24 CFR
part 10. However, HUD has determined that there is good cause to reduce
the public comment period for this proposed rule to 30 days. As
discussed earlier in this preamble, HUD anticipates that this future
REO acquisition method of disposing of single family properties would
be more efficient and expedient than HUD's current method of
competitive individual property sales, thereby increasing homeownership
opportunities and helping to build strong neighborhoods and
communities. The completion of this rulemaking would be necessary in
order for HUD to begin the process of selecting and negotiating with
the transferor(s). (However, nothing in this rule prevents HUD from
conducting a bulk sale of property in its inventory.)
HUD has provided the public with notice and an opportunity to
comment on innovative sales procedures in the advanced notice of
proposed rulemaking published in the Federal Register on June 13, 1997
(62 FR 32251). HUD also sought public input by publishing a notice in
several prominent newspapers and business journals. Therefore, HUD has
determined that the 30-day comment period for this proposed rule should
provide sufficient notice and opportunity for interested entities to
comment. In order to provide the fullest and most expedient access to
the provisions of this proposed rule, HUD will make it available on the
HUD Home Page on the World Wide Web at http://www.hud.gov, on the date
of publication in the Federal Register. HUD will also directly notify
entities that have expressed a significant interest to HUD by sending
such entities a copy of this proposed rule.
VII. Findings and Certifications
Executive Order 12866
The Office of Management and Budget (OMB) reviewed this proposed
rule under Executive Order 12866, Regulatory Planning and Review. OMB
determined that this rule is a ``significant regulatory action,'' as
defined in section 3(f) of the Order. Any changes made to this rule as
a result of that review are clearly identified in the docket file. The
docket file and the Economic Analysis prepared for this rule are
available for public inspection between 7:30 a.m. and 5:30 p.m. in the
Office of the Rules Docket Clerk, Department of Housing and Urban
Development, Room 10276, 451 Seventh Street, S.W., Washington, DC.
Environmental Impact
A Finding of No Significant Impact with respect to the environment
was made in accordance with HUD regulations in 24 CFR part 50 that
implement section 102(2)(C) of the National Environmental Policy Act of
1969 (42 U.S.C. 4223). The Finding is available for public inspection
between 7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules
Docket Clerk, Office of General Counsel, Room 10276, Department of
Housing and Urban
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Development, 451 Seventh Street, SW, Washington, DC.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this proposed rule before publication and
by approving it certifies that this rule would not have a significant
economic impact on a substantial number of small entities.
(1) No Significant Economic Impact. The future REO acquisition
method would not result in a significant economic impact on a
substantial number of small entities. During fiscal year 1997, the sale
of HUD homes represented only 1.2 percent of total home sales, using
only 1.6 percent of the active selling brokers. Since HUD's home sales
are a very small portion of the overall home sales business, the
economic impact of this rule would not be significant, and it would not
affect a substantial number of small entities.
(2) A Substantial Number of Small Entities Will Not be Affected.
HUD has determined that there are approximately 18,000 small entities
that could be affected by this rule, including nonprofit organizations,
State and local governments, Real Estate Asset Managers (REAMs), real
estate brokers, selling agents, closing agents, and repair contractors.
The number of entities potentially affected by this rule is not
substantial, and any potential economic impact would not be
significant. A transferor under this new arrangement may use a sales
process similar to HUD's previous sales process, in which case a number
of the entities that would continue to be involved in the ultimate
sales of the properties would be small entities. In an effort to
mitigate any potential impact on small entities, HUD would encourage
the transferor(s) to use small local firms to assist in their disposal
of single family acquired properties.
Notwithstanding HUD's determination that this rule would not have a
significant economic effect on a substantial number of small entities,
HUD specifically invites comments regarding any less burdensome
alternatives to this rule that will meet HUD's objectives as described
in this preamble.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that the policies
contained in this rule would not have substantial direct effects on
States or their political subdivisions, on the relationship between the
Federal Government and the States, or on the distribution of power and
responsibilities among the various levels of government. This rule
simply allows HUD to use innovative methods of selling its inventory of
single family homes. As a result, this rule is not subject to review
under the Order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) establishes requirements for Federal
agencies to assess the effects of their regulatory actions on State,
local, and tribal governments, and the private sector. This rule does
not impose any Federal mandates on any State, local, or tribal
governments, or on the private sector, within the meaning of the UMRA.
List of Subjects in 24 CFR Part 291
Community facilities, Conflict of interests, Homeless, Lead
poisoning, Low and moderate income housing, Mortgages, Reporting and
recordkeeping requirements, Surplus government property.
Accordingly, for the reasons stated in the preamble, 24 CFR part
291 is proposed to be amended as follows:
PART 291--DISPOSITION OF HUD-ACQUIRED SINGLE FAMILY PROPERTY
1. The authority citation for 24 CFR part 291 continues to read as
follows:
Authority: 12 U.S.C. 1709 and 1715b; 42 U.S.C. 1441, 1441a,
1551a, and 3535(d).
2. In part 291, subparts A, B, and C are revised to read as
follows:
Subpart A--General Provisions
Sec.
291.1 Purpose and general requirements.
291.5 Definitions.
291.10 General policy regarding rental of acquired property.
Subpart B--Disposition by Sale
291.90 Sales methods.
291.100 General policy.
Subpart C--Sales Procedures
291.200 Future REO acquisition method.
291.205 Competitive sales of individual properties.
291.210 Direct sales procedures.
Subpart A--General Provisions
Sec. 291.1 Purpose and general requirements.
(a) Purpose. (1) This part governs the disposition of one-to-four
family properties. HUD will issue detailed policies and procedures that
must be followed in specific areas.
(2) The purpose of the property disposition program is to dispose
of properties in a manner that expands homeownership opportunities,
strengthens neighborhoods and communities, and ensures a maximum return
to the mortgage insurance fund.
(b) Nondiscrimination policy. The requirements set forth in 24 CFR
parts 5 and 110 apply to the administration of any activity under this
part. In addition, in accordance with 24 CFR 9.155(a), HUD must ensure
that its policies and practices in conducting the single family
property disposition program do not discriminate on the basis of
disability.
Sec. 291.5 Definitions.
(a) The terms HUD and Secretary are defined in 24 CFR part 5.
(b) Other terms used in this part are defined as follows:
Closing agent means a qualified firm or person under contract to
HUD to administer closings involving the sale of HUD-acquired single
family properties.
Competitive sale to individual means a sale of an individual
property to an individual bidder through a sealed bid process (or other
bid process specifically authorized by the Secretary) in competition
with other bidders in which properties have been publicly advertised to
all prospective purchasers for bids.
Direct sale means a sale to a selected purchaser to the exclusion
of all others without resorting to advertising for bids. Such a sale is
available only to approved applicants.
Eligible properties means HUD-acquired properties designated by HUD
for property disposition or other housing programs.
HUD-acquired properties means all single family properties acquired
by HUD or properties that HUD is otherwise obligated to acquire under
the Mutual Mortgage Insurance Fund, the Special Risk Insurance Fund,
the General Insurance Fund, or other housing programs, except
properties committed to other HUD programs.
Insured mortgage means a mortgage insured under the National
Housing Act (12 U.S.C. 1701 et seq.).
Investor purchaser means a purchaser who does not intend to use the
property as his or her principal residence.
Lessee means the applicant, approved by HUD as financially
responsible, that executes a lease agreement with HUD for an eligible
property.
Owner-occupant purchaser means a purchaser who intends to use the
property as his or her principal residence; a State, governmental
entity, tribe, or agency thereof; or a private
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nonprofit organization as defined in this section. Governmental
entities include those with general governmental powers (e.g., a city
or county), as well as those with limited or special powers (e.g.,
public housing agencies).
Preapproved means a commitment has been obtained from a recognized
mortgage lender for mortgage financing in a specified dollar amount
sufficient to purchase the property.
Private nonprofit organization means a secular or religious
organization, no part of the net earnings of which may inure to the
benefit of any member, founder, contributor, or individual. The
organization must:
(1) Have a voluntary board;
(2)(i) Have a functioning accounting system that is operated in
accordance with generally accepted accounting principles; or
(ii) Designate an entity that will maintain a functioning
accounting system for the organization in accordance with generally
accepted accounting principles;
(3) Practice nondiscrimination in the provision of assistance in
accordance with the authorities described in Sec. 291.435(a); and
(4) Have nonprofit status as demonstrated by approval under section
501(c)(3) of the Internal Revenue Code (26 U.S.C. 501(c)(3)), or
demonstrate that an application for such status is currently pending
approval.
Purchase money mortgage, or PMM, means a note secured by a mortgage
or trust deed given by a buyer, as mortgagor, to the seller, as
mortgagee, as part of the purchase price of the real estate.
Single family property means a property designed for use by one to
four families.
State means any of the several States, the District of Columbia,
the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American
Samoa, the Northern Mariana Islands, the Trust Territory of the Pacific
Islands, and any other territory or possession of the United States.
Tribe has the meaning provided for the term ``Indian tribe'' in
section 102 of the Housing and Community Development Act of 1974 (42
U.S.C. 5302).
Sec. 291.10 General policy regarding rental of acquired property.
HUD will lease acquired property to comply with other designated
HUD programs, or when the Secretary determines that it is in the
interest of HUD. Leases may include an option to purchase in
appropriate circumstances.
Subpart B--Disposition by Sale
Sec. 291.90 Sales methods.
HUD will prescribe the terms and conditions for all methods of
sale. HUD may, in its discretion, on a case-by-case basis or as a
regular course of business, choose from among the following methods of
sale:
(a) Future REO acquisition method. The Future Real Estate-Owned
(REO) acquisition method consists of a property acquisition agreement
(or agreements) between HUD and a transferor (or transferors), which
shall provide for the right and obligation of the transferor(s) to
acquire a future quantity of properties designated by HUD as they
become available. HUD will select such transferor(s) through a
competitive process, in accordance with all applicable laws and
regulations, including the requirements in Sec. 291.200. The
transferor(s) shall have the right and obligation to manage and dispose
of the properties upon such terms and conditions as are approved by the
Secretary;
(b) Competitive sales of individual properties. This method
consists of competitive sales of individual properties to individual
buyers, the procedures for which are described in Sec. 291.205;
(c) Direct sales methods. There are three types of direct sales
methods:
(1) Direct sales of properties located in HUD-designated
revitalization areas to governmental entities and private nonprofit
organizations, the procedures for which are described in
Sec. 291.210(a);
(2) Direct sales to displaced persons, sales of razed lots, or
auctions, the procedures for which are described in Sec. 291.210(b);
(3) Direct sales to other individuals or entities that do not meet
any of the categories specified in paragraphs (a) through (d) of this
section, under the circumstances and procedures described in
Sec. 291.210(c);
(d) Bulk sales, the procedures for which are described in
Sec. 291.210(d); or
(e) Other sales methods. HUD may select any other methods of sale,
as determined by the Secretary.
Sec. 291.100 General policy.
For all sales, except as otherwise specifically indicated, those
sales conducted in accordance with Secs. 291.90(a) and 291.200 or with
subpart D of this part, the following general policies apply:
(a) Qualified purchaser. (1) Anyone, including a purchaser from a
transferor of a property pursuant to Secs. 291.90(a) and 291.200,
regardless of race, color, religion, sex, national origin, familial
status, age, or disability may offer to buy a HUD-owned property,
except that:
(i) No member of or delegate to Congress is eligible to buy or
benefit from a purchase of a HUD-owned property; and
(ii) No nonoccupant mortgagor (whether an original mortgagor,
assumptor, or a person who purchased ``subject to'') of an insured
mortgage who has defaulted, thereby causing HUD to pay an insurance
claim on the mortgage, is eligible to repurchase the same property.
(2) Neither HUD nor any transferor pursuant to Secs. 291.90(a) or
291.200 will offer former mortgagors in occupancy who have defaulted on
the mortgage the right of first refusal to repurchase the same
property.
(3) HUD will offer tenants accepted under the occupied conveyance
procedures outlined in 24 CFR 203.670 through 203.685 the right of
first refusal to purchase the property only if:
(i) The tenant has a recognized ability to acquire financing and a
good rent-paying history, and has made a request to HUD to be offered
the right of first refusal; or
(ii) State or local law requires that tenants be offered the right
of first refusal.
(b) List price. The list price, or ``asking price,'' assigned to
the property is based upon an appraisal conducted by an independent
real estate appraiser using nationally recognized industry standards
for the appraisal of residential property.
(c) Insurance. Properties may be sold under the following programs:
(1) Insured. A property that HUD believes meets the intent of the
Minimum Property Standards (MPS) for existing dwellings (Requirements
for Existing Housing, One to Four Family Living Units, HUD Handbook
4905.1, which is available at the Department of Housing and Urban
Development, HUD Customer Service Center, 451 7th Street, SW, Room B-
100, Washington, DC 20410; by calling (202) 708-3151; or via the
Internet at www.hud.gov) will be offered for sale in ``as-is''
condition with FHA mortgage insurance available. Flood insurance must
be obtained and maintained as provided in 24 CFR 203.16a.
(2) Insured with repair escrow. A property that requires no more
than $5,000 for repairs to meet the intent of the MPS, as determined by
the Secretary, will be offered for sale in ``as-is'' condition with FHA
mortgage insurance available, provided the mortgagor establishes a cash
escrow to ensure the completion of the required repairs.
[[Page 29501]]
(3) Uninsured. A property that fails to qualify under either
paragraph (c)(1) or (c)(2) of this section will be offered for sale
either in ``as-is'' condition without mortgage insurance available, or
under section 203(k) of the National Housing Act (12 U.S.C. 1709(k)).
(d) Financing. (1) Except as provided in paragraph (d)(2) of this
section, the purchaser is entirely responsible for obtaining financing
for purchasing a property.
(2) HUD, in its sole discretion, may take back purchase money
mortgages (PMMs) on property purchased by governmental entities or
private nonprofit organizations who buy property for ultimate resale to
owner-occupant purchasers with incomes at or below 115 percent of the
area median income. When offered by HUD, a PMM will be available in an
amount determined by the Secretary to be appropriate, at market rate
interest, for a period not to exceed 5 years. Mortgagors must meet FHA
mortgage credit standards.
(e) Environmental requirements and standards. Sales under this part
are subject to the environmental requirements and standards described
in 24 CFR part 50, as applicable.
(f) [Reserved]
(g) Lead-based paint poisoning prevention. Properties constructed
before 1978 are subject to the requirements for the evaluation and
reduction of lead-based paint hazards contained in 24 CFR part 35 and
24 CFR part 200, subpart O.
(h) Open listings. Except as provided in paragraph (i) of this
section, properties are sold on an open listing basis with
participating real estate brokers. Any real estate broker who has
agreed to comply with HUD requirements may participate in the sales
program. Purchasers participating in the competitive sales program,
except government entities and nonprofit organizations, must submit
bids through a participating broker.
(i) Asset management and listing contracts. (1) A field office may
invite firms experienced in property management to compete for
contracts that provide for an exclusive right to manage and list
specified properties in a given area.
(2) In areas where a broker has an exclusive right to list
properties, a purchaser may use a broker of his or her choice. The
purchaser's broker must submit the bid to HUD through the exclusive
broker.
Subpart C--Sales Procedures
Sec. 291.200 Future REO acquisition method.
(a) Under this method of property disposition, HUD will enter into
a property acquisition agreement (or agreements) with a transferor (or
transferors), which shall provide for the right and obligation of the
transferor(s) to acquire a future quantity of properties designated by
HUD as they become available. The transferor(s) will be selected
through a competitive process, conducted in accordance with applicable
laws. HUD will negotiate the specific terms of the property acquisition
agreement(s) with the selected transferor(s). The properties will be
available on an ``as-is'' basis only, without repairs or warranties.
(b) Eligible entities. An individual, partnership, corporation, or
other legal entity will not be eligible to participate if at the time
of the sale, that individual or entity is debarred, suspended, or
otherwise precluded from doing business with HUD under 24 CFR part 24.
Sec. 291.205 Competitive sales of individual properties.
When HUD conducts competitive sales of individual properties to
individual buyers, it will sell the properties on an ``as-is'' basis,
without repairs or warranties, and it will follow the sales procedures
provided in this section.
(a) General. (1) Properties that are sold on an individual
competitive bid basis are sold through local real estate brokers,
except as provided in Sec. 291.100(h).
(2) For properties being offered with mortgage insurance, priority
will be given to owner-occupant purchasers, as defined in Sec. 291.5,
for a period of up to 30 days, as determined by HUD. For properties
offered without mortgage insurance, priority will be given to
governmental entities and nonprofit organizations prior to other owner-
occupant purchasers.
(b) Net offer. The net offer is calculated by subtracting from the
bid price the dollar amounts for the following:
(1) If requested by the purchaser in the bid, HUD will pay all or a
portion of the financing and loan closing costs and the broker's sales
commission, not to exceed the percentage of the purchase price
determined appropriate by the Secretary for the area. In no event will
the amount for broker's sales commission exceed 6 percent of the
purchase price, except for cash bonuses offered to brokers by HUD for
the sale of hard-to-sell properties.
(2) In the case of properties sold under the insured sales with
repair escrow program, the repair escrow amount is also deducted from
the bid to determine the net offer.
(c) Acceptable bid. HUD will accept the bid producing the greatest
net return to HUD and otherwise meeting the terms of HUD's offering of
the property, with priority given to owner-occupant purchasers as
described in paragraph (a)(2) of this section. The greatest net return
is calculated based on the net offer, as described in paragraph (b) of
this section.
(d) Bid period. After properties are initially advertised, bids are
accepted for a 10-day period, with all offers received during the 10
days considered to have been received simultaneously, except as
described in paragraph (e) of this section. Offers received on a
property before the 10-day bidding period begins will be returned.
Offers received after the 10-day period will not be considered at the
bid opening, but will be considered during the extended listing period
if no acceptable bid was received during the 10-day period.
(e) Full price offers. HUD field offices that operate under a
``full price offer'' program open offers at specified times during the
10-day bidding period. If an offer for the full list price and
otherwise meeting the terms of the offering is received, it will be
accepted at the time of the opening and the 10-day bid period
cancelled.
(f) Extended listing period. Properties not sold at the bid opening
will remain available for an extended listing period. All bids received
on each day of the extended listing period will be considered as being
received simultaneously, and will be opened together at the next
scheduled daily bid opening. Properties that fail to sell within 30
days after being offered for competitive bidding will be reanalyzed and
relisted. If a property's price or terms are changed, it will be
subject to another competitive bidding period as described in paragraph
(d) of this section.
(g) Bid requirements. (1) All bids submitted, whether during the
10-day bid period or the extended listing period, must be in the form
of a fully completed sales contract, in a form prescribed by HUD,
signed by both the submitting real estate broker and the prospective
purchaser. If the purchase is to be an insured sale, a field office may
also require that supporting exhibits for mortgage credit analysis
accompany the initial submission of the bid.
(2) Unless the Secretary specifically authorizes another bid
process, bids must be placed in sealed envelopes
[[Page 29502]]
marked with the property number, address, and return address of the
broker. All bids not indicating that the purchaser will occupy the
property will be considered as investor offers.
(3) Noncomplying bids will be returned to the broker with an
explanation for the noncompliance decision and information about
whether the property is still available.
(h) Earnest money deposits. (1) The amount of earnest money deposit
required for a property with a sales price of $50,000 or less is $500,
except that for vacant lots the amount is 50 percent of the list price.
For a property with a sales price greater than $50,000, the amount of
earnest money deposit required in the area is set by the field office,
in an amount not less than $500 or more than $2,000. Information on the
amount of the required earnest money deposit is available from the
field office or participating real estate brokers.
(2) All bids must be accompanied by earnest money deposits in the
form of a cash equivalent as prescribed by the Secretary, or a
certification from the real estate broker that the earnest money has
been deposited in the broker's escrow account. If a bid is accepted by
HUD, the earnest money deposit will be credited to the purchaser at
closing; if the bid is rejected, the earnest money deposit will be
returned. Earnest money deposits are subject to total or partial
forfeiture for failure to close a sale.
(i) Multiple bids. Real estate brokers may submit unlimited numbers
of bids on an individual property provided each bid is from a different
prospective purchaser. If a purchaser submits multiple bids on the same
property, only the bid producing the highest net return to HUD will be
considered. If a prospective owner-occupant purchaser submits a bid on
more than one property, the first of those bids that produces the
greatest net return to HUD will be accepted and all other bids from
that purchaser will be eliminated from consideration. However, if the
prospective owner-occupant purchaser has submitted the only acceptable
bid on another property, then that bid must be accepted and all other
bids from that purchaser on any other properties will be eliminated
from consideration.
(j) Opening the bids. Unless the Secretary specifically authorizes
another bid process:
(1) The bids will be opened publicly at a time and place designated
by the HUD field office.
(2) Each bid will be announced when opened, and acknowledgment made
of the offer that produces the greatest net return to HUD. Successful
bidders will be notified through their real estate brokers by mail,
telephone, or other means. Acceptance of a bid is final and effective
only upon HUD's execution of the sales contract and mailing of a copy
of the executed contract to the successful bidder or the bidder's
agent.
(k) Counteroffers. If all bids received on a property are
unacceptable, a field office may notify all bidders or their brokers
that HUD will accept an offer equalling a predetermined net acceptable
price. Bidders must submit an acceptable offer before the established
bid cut-off period, to be determined by the field office. The highest
acceptable offer received within the specified period of time,
including any offer received from a bidder who did not submit a bid
during the bid period, will be accepted, thus terminating the
counteroffer negotiations. In case of identical bids, award will be
determined by drawing lots.
Sec. 291.210 Direct sales procedures.
When HUD conducts the sales listed in Sec. 291.90(c), it will sell
the properties on an ``as-is'' basis, without repairs or warranties,
and it will follow the applicable sales procedures provided in this
section.
(a) Direct sales of properties located in HUD-designated
revitalization areas to governmental entities and private nonprofit
organizations. (1) State and local governments, public agencies, and
qualified private nonprofit organizations that have been preapproved to
participate by HUD, according to standards determined by the Secretary,
may purchase HUD properties at a discount off the list price determined
by the Secretary to be appropriate, but not less than 10 percent, for
use in HUD and local housing or homeless programs.
(2)(i) Purchasers under paragraph (a)(1) of this section must
designate geographical areas of interest by ZIP code. Upon request,
before those properties are publicly listed, HUD will assure that
governmental entities and nonprofit organizations are notified in
writing when eligible properties become available in the areas
designated by them. HUD will coordinate the dissemination of the
information to ensure that if more than one purchaser designates a
specific area, those purchasers receive the list of properties at the
same time, based on intervals agreed upon between HUD and the
purchasers. A property in this section will be sold to the first
eligible purchaser submitting an acceptable contract.
(ii) Purchasers under paragraph (a)(1) of this section must notify
HUD of preliminary interest in specific properties within 5 days of the
notification of available properties (if notification is by mail, the 5
days will begin to run 5 days after mailing). Those properties in which
purchasers express an interest will be held off the market for a 10-day
consideration and inspection period. Other properties on the list will
continue to be processed for public sale. HUD may limit the number of
properties held off the market for a purchaser at any one time, based
upon the purchaser's financial capacity as determined by HUD and upon
past performance in HUD programs. At the end of the 10-day
consideration and inspection period, properties in which no
governmental entity or nonprofit organization has expressed a specific
intent to purchase will be offered for sale under the competitive bid
process. Properties in which a governmental entity or nonprofit
organization expressed an intent to purchase, during the 10-day period,
will continue to be held off the market pending receipt of the sales
contract. If a sales contract is not received within a time period of
up to 10 days, as determined by HUD, following expiration of the 10-day
consideration and inspection period, and no other governmental entity
or nonprofit organization has expressed an interest, then the property
will be offered for sale under the competitive bid process.
(3) In order to ensure that properties purchased at a discount are
being utilized for expanding affordable housing opportunities, HUD may
require, as appropriate, periodic, limited information regarding the
purchase and resale of such properties, and certain restrictions on the
resale of such properties.
(b) Direct sales to displaced persons; razed lots; auctions. HUD
may seek to dispose of individual properties to individual buyers
through methods such as direct sales to displaced persons, sales of
razed lots, or auctions. These sales will be upon such terms and
conditions as the Secretary may prescribe.
(c) Direct sales to individuals or entities. HUD may also seek to
dispose of properties through direct sales to other individuals or
entities that do not meet any of the categories specified in this
section, if the Assistant Secretary for Housing-Federal Housing
Commissioner (or his or her designee) finds in writing that such sales
would further the goals of the National Housing Act (12 U.S.C. 1701 et
seq.) and would be in the best interests of the Secretary. These sales
will be upon such terms and conditions as the Secretary may prescribe.
[[Page 29503]]
(d) Bulk sales. HUD may seek to dispose of properties through bulk
sales. Such sales will be upon such terms and conditions as the
Secretary may prescribe.
3. A new Sec. 291.405 is added to subpart E, to read as follows:
Sec. 291.405 Definitions.
For purposes of this subpart E:
Applicant means a State, metropolitan city, urban county,
governmental entity, tribe, or private nonprofit organization that
submits a written expression of interest in eligible properties under
this subpart E. Governmental entities include those that have general
governmental powers (e.g., a city or county), as well as those with
limited or special powers (e.g., public housing agencies or State
housing finance agencies). In the case of applicants leasing properties
while their applications for Supportive Housing assistance are pending,
``applicant'' is defined in 24 CFR part 583.
Homeless means:
(1) Individuals or families who lack the resources to obtain
housing, whose annual income is not in excess of 50 percent of the
median income for the area, as determined by HUD, and who:
(i) Have a primary nighttime residence that is a public or private
place not designed for, or ordinarily used as, a regular sleeping
accommodation for human beings;
(ii) Have a primary nighttime residence that is a supervised
publicly or privately operated shelter designed to provide temporary
living accommodations (including welfare hotels, congregate shelters,
and transitional housing, but excluding prisons or other detention
facilities); or
(iii) Are at imminent risk of homelessness because they face
immediate eviction and have been unable to identify a subsequent
residence, which would result in emergency shelter placement (except
that persons facing eviction on the basis of criminal conduct such as
drug trafficking and violations of handgun prohibitions shall not be
considered homeless for purposes of this definition); or
(2) Persons with disabilities who are about to be released from an
institution and are at risk of imminent homelessness because no
subsequent residences have been identified and because they lack the
resources and support networks necessary to obtain access to housing.
Dated: March 19, 1998.
Art Agnos,
Acting General Deputy Assistant Secretary for Housing-Deputy Federal
Housing Commissioner.
[FR Doc. 98-14014 Filed 5-28-98; 8:45 am]
BILLING CODE 4210-27-P
