39502 Federal Register / Vol. 65, No. 123 / Monday, June 26, 2000 / Proposed Rules

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Part 30

[Docket No. FR–4399–P–01]

RIN 2501–AC56

Amendments to HUD’s Civil Money

Penalty Regulations

AGENCY: Office of the Secretary, HUD.

ACTION: Proposed rule.

SUMMARY: This proposed rule would

implement sections 561 and 562 of the

Multifamily Assisted Housing Reform

and Affordability Act of 1997. These

sections concern HUD’s ability to

impose civil money penalties. Section

561 expands the list of parties and

violations subject to civil money

penalties related to multifamily

properties. Section 562 authorizes HUD

to impose civil money penalties for

violations of Section 8 project-based

housing assistance payments contracts.

This proposed rule would implement

these sections by revising HUD’s civil

money penalty regulations.

DATES: Comments Due Date: August 25,

2000.

ADDRESSES: Address all comments

concerning this proposed rule to the

Rules Docket Clerk, Office of the

General Counsel, U.S. Department of

Housing and Urban Development, 451

Seventh Street, SW, Room 10276,

Washington, DC 20410–0500.

Comments should refer to the docket

number and title listed above. A copy of

each comment submitted will be

available for public inspection and

copying weekdays between 7:30 a.m.

and 5:30 p.m. at the above address.

Comments submitted by facsimile (FAX)

will not be accepted.

FOR FURTHER INFORMATION CONTACT:

Dane M. Narode, Deputy Chief Counsel

for Administrative Proceedings,

Departmental Enforcement Center, U.S.

Department of Housing and Urban

Development, 1250 Maryland Avenue,

Suite 200, Washington, DC 20024;

telephone (202) 708–2350 (this is not a

toll-free number). Hearing-or speechimpaired persons may access this

number via TTY by calling the toll-free

Federal Information Relay Service at

(800) 877–8339.

SUPPLEMENTARY INFORMATION:

I. The Multifamily Assisted Housing

Reform and Affordability Act of 1997

On October 27, 1997, President

Clinton signed into law the Multifamily

Assisted Housing Reform and

Affordability Act of 1997 (Public Law

105–65, title V, 111 Stat. 1384–1424)

(the Multifamily Reform Act). One of

the stated purposes of the Multifamily

Reform Act was ‘‘to grant additional

enforcement tools to use against those

who violate agreements and program

requirements, in order to ensure that the

public interest is safeguarded and that

Federal multifamily housing programs

serve their intended purposes’’ (section

511(b)(9)).

In line with this purpose, the

Multifamily Reform Act amended the

National Housing Act (12 U.S.C. 1702 et

seq.) and the United States Housing Act

of 1937 (42 U.S.C. 1437 et seq.) (the

1937 Act) to expand HUD’s enforcement

authority. Specifically, section 561

amended section 537 of the National

Housing Act (captioned ‘‘Civil money

penalties against multifamily

mortgagors’’) (12 U.S.C. 1735f–15), and

section 562 added a new section 29 to

the 1937 Act (captioned ‘‘Civil Money

Penalties Against Section 8 Owners’’)

(42 U.S.C. 1437z–1).

This proposed rule would revise

HUD’s regulations at 24 CFR part 30

(captioned ‘‘Civil Money Penalties:

Certain Prohibited Conduct’’) to

implement sections 561 and 562. The

regulatory revisions that would be made

by this proposed rule are described

below.

II. Section 561 of the Multifamily

Reform Act of 1997

Section 561 of the Multifamily Reform

Act amended section 537 of the

National Housing Act, which authorizes

HUD to impose a civil money penalty

on a multifamily mortgagor for certain

listed violations. Section 561 amended

section 537 by expanding the list of

parties and violations that may be

subject to a civil money penalty, among

other changes.

Prior to the passage of the Multifamily

Reform Act, section 537 only permitted

HUD to impose a civil money penalty

on a mortgagor of a multifamily

property (defined in section 537 as a

property that includes 5 or more units

and has a mortgage insured, coinsured,

or held under the National Housing

Act). Section 561 expanded this list to

allow HUD to impose a civil money

penalty on a general partner of a

partnership mortgagor and an officer or

director of a corporate mortgagor. For

certain violations, section 561 expanded

this list further to allow HUD to impose

a civil money penalty on certain agents

of mortgagors and certain members of a

limited liability company.

Section 561 also expanded the list of

violations that are subject to a civil

money penalty. These additional

violations include the failure to

maintain the premises, to provide

acceptable management, and to provide

access to the accounting records of a

property.

Currently, section 537 is implemented

in HUD’s regulations at 24 CFR 30.45.

This proposed rule would amend

§ 30.45 to incorporate the amendments

made by section 561. Section 30.45 also

implements section 202a of the Housing

Act of 1959 (captioned ‘‘Civil Money

Penalties Against Section 202

Mortgagors’’) (12 U.S.C. 1701q–1).

Though this proposed rule would

significantly revise the structure of

§ 30.45 to accommodate the

amendments made by section 561, it

would not make any substantive

changes to the implementation of

section 202a other than as described in

sections V. (clarifying the coverage of

Section 811 properties) and VI.

(adjusting the amount of the civil money

penalty) of this preamble. These

changes are not related to the

amendments made by the Multifamily

Reform Act and are included in this

rulemaking for convenience only.

III. Section 562 of the Multifamily

Reform Act

Section 562 of the Multifamily Reform

Act added a new section 29 to the 1937

Act. New section 29 of the 1937 Act

authorizes HUD to impose a civil money

penalty on an owner, general partner,

and certain agents of an owner of a

property receiving project-based Section

8 assistance.

Section 29 authorizes a civil money

penalty against these parties for a

‘‘knowing and material breach of a

housing assistance payments contract

* * *’’, which under new section 29

includes the:

(a) Failure to provide decent, safe, and

sanitary housing; and

(b) Knowing or wilful submission of

false, fictitious, or fraudulent statements

or requests for housing assistance.

New section 29 also directs HUD to

issue regulations that establish

standards and procedures governing the

imposition of civil money penalties

under the new section. This proposed

rule would implement section 29 in a

new § 30.68. This new section would be

incorporated into HUD’s current

structure of standards and procedures

for civil money penalties in part 30,

including the provisions for hearing

procedures in part 26, subpart B. HUD’s

current regulations in part 30 and part

26, subpart B satisfy the requirement of

new section 29 to establish standards

and procedures governing the

imposition of civil money penalties.

Federal Register / Vol. 65, No. 123 / Monday, June 26, 2000 / Proposed Rules 39503

IV. Definitions of ‘‘Ownership Interest

in,’’ ‘‘Effective Control,’’ and ‘‘Entity’’

Both sections 561 and 562 of the

Multifamily Reform Act direct HUD to

specifically seek public comment on the

definitions of the terms ‘‘ownership

interest in’’ and ‘‘effective control’’ as

those terms are used in the definition of

the terms ‘‘agent employed to manage

the property that has an identity of

interest’’ and ‘‘identity of interest

agent’’. These terms are defined in

§§ 30.45(a) and 30.68(a) of the

regulations contained in this proposed

rule. In addition, in order to clarify the

definition of ‘‘identity of interest agent,

the rule defines ‘‘entity,’’ a term used in

the definition, in §§ 30.45(a) and

30.68(a).

While HUD encourages public

comment on all aspects of this proposed

rule, HUD is asking members of the

public who wish to comment on this

proposed rule to pay particular attention

to the definition of these terms as they

are used in the proposed regulations.

V. Clarification Regarding Section 811

Properties

In addition to implementing sections

561 and 562 of the Multifamily Reform

Act, this proposed rule would clarify

one aspect of the section of HUD’s

regulations that concern civil money

penalties for Section 202 properties.

This provision is currently implemented

in the same section in HUD’s

regulations as the civil money penalty

provision for multifamily properties

(§ 30.45).

The proposed rule would clarify that

§ 30.45 applies to section 811 and

section 202 capital advance projects as

well as section 202 direct loan projects.

The proposed rule would accomplish

this by changing all references to section

202 to include section 811 and by

defining the term ‘‘Section 202 or 811

property’’ to mean a property with a

mortgage held pursuant to either a

direct loan or a capital advance under

section 202 of the Housing Act of 1959

(12 U.S.C. 1701q) or a property with a

mortgage held pursuant to section 811

of the Cranston-Gonzalez National

Affordable Housing Act (42 U.S.C.

8013).

This clarification is necessary because

section 202 of the Housing Act of 1959

was amended in 1990 by the CranstonGonzalez National Affordable Housing

Act (Public Law 101–625, 104 Stat.

4079)(Affordable Housing Act). Prior to

the passage of this Act, the Section 202

direct loan program concerned housing

for the elderly and persons with

disabilities. After the amendment,

section 202 continued to concern

housing for the elderly, but housing for

persons with disabilities was separated

from section 202 and moved to section

811 of the Affordable Housing Act.

The civil money penalty provision

relating to section 202 properties,

implemented by § 30.45, was authorized

by section 109 of the Department of

Housing and Urban Development

Reform Act of 1989 (Public Law 101–

235, 103 Stat. 1987) (HUD Reform Act).

The HUD Reform Act was passed prior

to the revision of the Section 202

program and the creation of the Section

811 program. As a result, prior to the

passage of the Affordable Housing Act,

section 109 of the HUD Reform Act

applied to both housing for the elderly

and housing for persons with

disabilities.

After the passage of the Affordable

Housing Act, it appeared that section

109 would not apply to section 811

properties. We do not believe, however,

that Congress intended to remove

section 811 properties from the coverage

of section 109 when it passed the

Affordable Housing Act. Therefore, this

proposed rule would clarify that § 30.45

applies to both section 811 properties

and section 202 properties.

VI. Increase in Amount of Penalty

Under the Federal Civil Penalties

Inflation Adjustment Act of 1990

(Public Law 101–410, 104 Stat. 890, as

amended by Public Law 104–134, title

III, Sec. 31001(s)(1), 110 Stat. 1321–373,

codified at 28 U.S.C. 2461 note) (the

Inflation Adjustment Act), HUD is

required to adjust for inflation the

maximum amounts of its civil money

penalties at least once every four years.

This adjustment, as described in section

5 of the Inflation Adjustment Act,

requires HUD to increase maximum

civil money penalty amounts by the

percentage change in the Consumer

Price Index for all-urban consumers

published by the Department of Labor.

The Inflation Adjustment Act requires

that any increase in the maximum civil

money penalty amount for penalties in

the range of $10,000 to $100,000 be

rounded to the nearest multiple of

$5,000.

Accordingly, this proposed rule

would increase the maximum amount of

civil money penalties for multifamily

and section 202 or 811 properties from

$27,500 to $30,000. The maximum

amount of civil money penalties for

Section 8 properties would not be

changed because the current increase is

not large enough to cause the amount to

be rounded up.

VII. Small Entities and HUD

Enforcement Actions

The Small Business Regulatory

Enforcement Fairness Act of 1996

(Pub.L. 104–121, 110 Stat. 847,

approved March 29, 1996) (SBREFA)

provides, among other things, for

agencies to establish specific policies or

programs to assist small entities. Small

entities include small businesses,

nonprofit organizations, and small

governmental jurisdictions. On May 21,

1998 (63 FR 28214), HUD published a

Federal Register notice describing

HUD’s actions on implementation of

SBREFA.

Section 223 of SBREFA requires

agencies that regulate the activities of

small entities to establish a policy or

program to reduce or, under appropriate

circumstances, waive civil penalties

when a small entity violates a statute or

regulation. Where penalties are

determined appropriate, HUD’s policy is

to consider: (1) The nature of the

violation (the violation must not be one

that is repeated or multiple, willful,

criminal or poses health or safety risks),

(2) whether the entity has shown a good

faith effort to comply with the

regulations; and (3) the resources of the

regulated entity.

With respect to the imposition of civil

money penalties, HUD is cognizant that

section 222 of the SBREFA requires the

Small Business and Agriculture

Regulatory Enforcement Ombudsman to

‘‘work with each agency with regulatory

authority over small businesses to

ensure that small business concerns that

receive or are subject to an audit, on-site

inspection, compliance assistance effort

or other enforcement related

communication or contact by agency

personnel are provided with a means to

comment on the enforcement activity

conducted by this personnel.’’ To

implement this statutory provision, the

Small Business Administration has

requested that agencies include the

following language on agency

publications and notices which are

provided to small businesses concerns

at the time the enforcement action is

undertaken. The language is as follows:

Your Comments Are Important

The Small Business and Agriculture

Regulatory Enforcement Ombudsman and 10

Regional Fairness Boards were established to

receive comments from small businesses

about federal agency enforcement actions.

The Ombudsman will annually evaluate the

enforcement activities and rate each agency’s

responsiveness to small business. If you wish

to comment on the enforcement actions of

[insert agency name], call 1–888–REG–FAIR

(1–888–734–3247).

As HUD stated in its May 21, 1998

Federal Register notice, HUD intends to

39504 Federal Register / Vol. 65, No. 123 / Monday, June 26, 2000 / Proposed Rules

work with the Small Business

Administration to provide small entities

with information on the Fairness Boards

and National Ombudsman program, at

the time enforcement actions are taken,

to ensure that small entities have the

full means to comment on the

enforcement activity conducted by

HUD.

VIII. Findings and Certifications

Environmental Impact

In accordance with 40 CFR 1508.4 of

the Council on Environmental Quality

regulations and 24 CFR 50.19(c)(1) of

the HUD regulations, the policies and

procedures contained in this proposed

rule are determined not to have the

potential of having a significant impact

on the human environment and are

therefore exempt from further

environmental review under the

National Environmental Policy Act of

1969 (42 U.S.C. 4321).

Federalism Impact

This proposed rule does not have

federalism implications and does not

impose substantial direct compliance

costs on State and local governments or

preempt State law within the meaning

of Executive Order 13132 (entitled

‘‘Federalism’’).

Regulatory Flexibility Act

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)), has reviewed and approved this

proposed rule. In so doing, the Secretary

certifies that this proposed rule would

not have a significant economic impact

on a substantial number of small

entities. This proposed rule implements

sections 561 and 562 of the Multifamily

Reform Act. The rule makes conforming

changes to HUD’s regulations at 24 CFR

part 30 to reflect statutory changes made

to the National Housing Act and the

United States Housing Act of 1937.

These changes were mandated by the

Multifamily Reform Act and are not

discretionary on the part of HUD.

The purpose of these amendments is

to grant HUD additional enforcement

tools to use against those who violate

agreements and program requirements.

The Multifamily Reform Act expanded

the list of persons and the types of

violations subject to civil money

penalties under HUD’s insured housing

and Section 8 programs. To the extent

that these statutory changes impact

small entities, it will be as a result of

actions taken by the small entities

themselves—that is, by violating

multifamily and Section 8 program

regulations and requirements.

Notwithstanding HUD’s

determination that this rule will not

have a significant economic impact on

a substantial number of small entities,

HUD specifically invites comments

regarding any less burdensome

alternatives to this rule that will meet

HUD’s objectives as described in this

preamble.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates

Reform Act of 1995 (2 U.S.C. 1531–

1538) (UMRA) requires Federal agencies

to assess the effects of their regulatory

actions on State, local, and tribal

governments and on the private sector.

This proposed rule does not, within the

meaning of the UMRA, impose any

Federal mandates on any State, local, or

tribal governments nor on the private

sector.

List of Subjects in 24 CFR Part 30

Administrative practice and

procedure, Loan programs—housing

and community development,

Mortgages, Penalties.

Accordingly, for the reasons stated in

the preamble, HUD proposes to amend

24 CFR part 30 as follows:

PART 30—CIVIL MONEY PENALTIES:

CERTAIN PROHIBITED CONDUCT

1. The authority citation for 24 CFR

part 30 is revised to read as follows:

Authority: 12 U.S.C. 1701q–1, 1703, 1723i,

1735f–14, and 1735f–15; 15 U.S.C. 1717a; 28

U.S.C. 2461 note; 42 U.S.C. 1437z–1 and

3535(d).

2. Add paragraph (f) to § 30.5 to read

as follows:

§ 30.5 Effective dates.

* * * * *

(f) Under § 30.68, a civil money

penalty may be imposed for violations,

or for those parts of continuing

violations, occurring on or after

[INSERT DATE 30 DAYS AFTER

PUBLICATION OF FINAL RULE IN

Federal Register].

3. Revise § 30.45 to read as follows:

§ 30.45 Multifamily and section 202 or 811

mortgagors.

(a) Definitions. The following

definitions apply to this section only:

Agent employed to manage the

property that has an identity of interest

and identity of interest agent. An entity:

(1) That has management

responsibility for a project;

(2) In which the ownership entity,

including its general partner or partners

(if applicable) and its officers or

directors (if applicable), has an

ownership interest; and (3) Over which

the ownership entity exerts effective

control.

Effective control. The ability to direct,

alter, supervise, or otherwise influence

the actions, policies, decisions, duties,

employment, or personnel of the

management agent.

Entity. An individual corporation;

company; association; partnership;

authority; firm; society; trust; state, local

government or agency thereof; or any

other organization or group of people.

Multifamily property. Property that

includes 5 or more living units and that

has a mortgage insured, co-insured, or

held pursuant to the National Housing

Act (12 U.S.C. 1702 et seq.).

Ownership interest. Any financial,

legal, beneficial, or equitable interest in

the management agent.

Section 202 or 811 property. Property

that includes 5 or more living units and

that has a mortgage held pursuant to a

direct loan or capital advances under

section 202 of the Housing Act of 1959

(12 U.S.C. 1701q) or capital advances

under section 811 of the CranstonGonzalez National Affordable Housing

Act (42 U.S.C. 8013).

(b) Violation of agreement. (1)

General. The Assistant Secretary for

Housing-Federal Housing

Commissioner, or his or her designee,

may initiate a civil money penalty

action against a mortgagor of a section

202 or 811 property or a mortgagor,

general partner of a partnership

mortgagor, or any officer or director of

a corporate mortgagor of a multifamily

property who:

(i) Has agreed in writing, as a

condition of a transfer of physical

assets, a flexible subsidy loan, a capital

improvement loan, a modification of the

mortgage terms, or a workout agreement,

to use nonproject income to make cash

contributions for payments due under

the note and mortgage, for payments to

the reserve for replacements, to restore

the project to good physical condition,

or to pay other project liabilities; and

(ii) Knowingly and materially fails to

comply with any of the commitments

listed in paragraph (b)(1)(i) of this

section.

(2) Maximum penalty. The maximum

penalty for each violation under

paragraph (b) of this section is the

amount of loss that the Secretary would

experience at a foreclosure sale, or a sale

after foreclosure, of the property

involved.

(c) Other violations. (1) Multifamily

projects. The Assistant Secretary for

Housing-Federal Housing

Commissioner, or his or her designee,

may initiate a civil money penalty

action against any of the following who

knowingly and materially take any of

the actions listed in 12 U.S.C. 1735f–

15(c)(1)(B):

Federal Register / Vol. 65, No. 123 / Monday, June 26, 2000 / Proposed Rules 39505

(i) Any mortgagor of a multifamily

property;

(ii) Any general partner of a

partnership mortgagor of such property;

(iii) Any officer or director of a

corporate mortgagor;

(iv) Any agent employed to manage

the property that has an identity of

interest with the mortgagor, with the

general partner of a partnership

mortgagor, or with any officer or

director of a corporate mortgagor of such

property; or

(v) Any member of a limited liability

company that is the mortgagor of such

property or is the general partner of a

limited partnership mortgagor or is a

partner of a general partnership

mortgagor.

(2) Section 202 or 811 projects. The

Assistant Secretary for Housing-Federal

Housing Commissioner, or his or her

designee, may initiate a civil money

penalty action against any mortgagor of

a section 202 or 811 property who

knowingly and materially takes any of

the actions listed in 12 U.S.C. 1701q–

1(c)(1).

(3) Maximum penalty. The maximum

penalty for each violation under

paragraph (c) of this section is $30,000.

(d) Payment of penalty. No payment

of a civil money penalty levied under

this section shall be payable out of

project income.

4. Add § 30.68 to read as follows:

§ 30.68 Section 8 owners.

(a) Definitions. The following

definitions apply to this section only:

Agent employed to manage the

property that has an identity of interest

and identity of interest agent. An entity:

(1) That has management

responsibility for a project;

(2) In which the ownership entity,

including its general partner or partners

(if applicable), has an ownership

interest; and

(3) Over which the ownership entity

exerts effective control.

Effective control. The ability to direct,

alter, supervise, or otherwise influence

the actions, policies, decisions, duties,

employment, or personnel of the

management agent.

Entity. An individual corporation;

company; association; partnership;

authority; firm; society; trust; state, local

government or agency thereof; or any

other organization or group of people.

Ownership interest. Any financial,

legal, beneficial, or equitable interest in

the management agent.

(b) General. The Assistant Secretary

for Housing-Federal Housing

Commissioner, or his or her designee,

and the Assistant Secretary for Public

and Indian Housing, or his or her

designee, may initiate a civil money

penalty action against any owner, any

general partner of a partnership owner,

or any agent employed to manage the

property that has an identity of interest

with the owner or the general partner of

a partnership owner of a property

receiving project-based assistance under

section 8 of the United States Housing

Act of 1937 (42 U.S.C. 1437f) for a

knowing and material breach of a

housing assistance payments contract,

including the following:

(1) Failure to provide decent, safe,

and sanitary housing pursuant to

section 8 of the United States Housing

Act of 1937 and 24 CFR 5.703; or

(2) Knowing or willful submission of

false, fictitious, or fraudulent statements

or requests for housing assistance

payments to the Secretary or to any

department or agency of the United

States.

(c) Maximum penalty. The maximum

penalty for each violation under this

section is $25,000.

(d) Payment of penalty. No payment

of a civil money penalty levied under

this section shall be payable out of

project income.

(e) Exceptions. The Secretary may not

impose penalties under this section for

a violation, if a material cause of the

violation is the failure of the Secretary,

an agent of the Secretary, or a public

housing agency to comply with an

existing agreement.

5. Revise § 30.80(k) introductory text

to read as follows:

§ 30.80 Factors in determining

appropriateness and amount of civil money

penalty.

* * * * *

(k) In addition to the above factors,

with respect to violations under

§§ 30.45, 30.55, 30.60, and 30.68, the

Assistant Secretary for Housing-Federal

Housing Commissioner, or his or her

designee, or the Assistant Secretary for

Public and Indian Housing, or his or her

designee, shall also consider:

* * * * *

Dated: May 25, 2000.

Andrew Cuomo,

Secretary.

[FR Doc. 00–16024 Filed 6–23–00; 8:45 am]

BILLING CODE 4210–32–P