29496 Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Proposed Rules

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.

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 HUDowned 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 privatepublic 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
Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Proposed Rules 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

§ 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 HUDowned 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 costeffective.

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
29498 Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Proposed Rules

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 § 291.200 of

this proposed rule) to describe basic

procedures for the future REO

acquisition sales method. The proposed

§ 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 § 291.5 (Definitions),

primarily by moving relevant

definitions to subpart E;

b. Creating a new § 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 § 291.100(f) to

§ 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 § 291.200 of the

current regulations, regarding HUD’s

policy for the rental of acquired

property, as § 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

§§ 291.105 and 291.110 into subpart C

(see §§ 291.205 and 291.210 of this

proposed rule), to follow the new

§ 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 §§ 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

§ 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 § 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
Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Proposed Rules 29499

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 HUDACQUIRED 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

§ 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.

§ 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 HUDacquired 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
29500 Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Proposed Rules

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

§ 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).

§ 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

§ 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 § 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

§ 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 § 291.210(a);

(2) Direct sales to displaced persons,

sales of razed lots, or auctions, the

procedures for which are described in

§ 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 § 291.210(c);

(d) Bulk sales, the procedures for

which are described in § 291.210(d); or

(e) Other sales methods. HUD may

select any other methods of sale, as

determined by the Secretary.

§ 291.100 General policy.

For all sales, except as otherwise

specifically indicated, those sales

conducted in accordance with

§§ 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 §§ 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 §§ 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 rentpaying 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 ‘‘asis’’ condition with FHA mortgage

insurance available, provided the

mortgagor establishes a cash escrow to

ensure the completion of the required

repairs.
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(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 owneroccupant 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

§ 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.

§ 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

§ 291.100(h).

(2) For properties being offered with

mortgage insurance, priority will be

given to owner-occupant purchasers, as

defined in § 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 owneroccupant 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
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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.

§ 291.210 Direct sales procedures.

When HUD conducts the sales listed

in § 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.
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(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 § 291.405 is added to

subpart E, to read as follows:

§ 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