21936 Federal Register / Vol. 60, No. 85 / Wednesday, May 3, 1995 / Rules and Regulations

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

Office of the Assistant Secretary for

Housing-Federal Housing

Commissioner

24 CFR Parts 200 and 203

[Docket No. R–95–1749; FR–2682–F–02]

RIN 2502–AE72

Nationwide Pre-Foreclosure Sale

Procedure

AGENCY: Office of the Assistant

Secretary for Housing-Federal Housing

Commissioner, HUD.

ACTION: Final rule.

SUMMARY: This rule adopts as final the

interim rule that set forth the

requirements and procedures that

govern the Department’s Pre-foreclosure

Sale (PFS) Procedure. The interim rule

was published in the Federal Register

on September 30, 1994, at 59 FR 50136.

The requirements and procedures

contained in the interim rule are based

on the Pre-foreclosure Sale

Demonstration Program established by a

notice published in the Federal Register

on May 29, 1991, at 56 FR 24324.

EFFECTIVE DATE: June 2, 1995.

FOR FURTHER INFORMATION CONTACT:

Joseph Bates, Director, Single Family

Servicing Division, Office of Insured

Single Family Housing, Department of

Housing and Urban Development, 451

Seventh Street, S.W., Washington, D.C.

20410. Telephone (202) 708–3680. A

telecommunications device for deaf

persons (TDD) is available at (202) 708–

1112. (These are not toll-free telephone

numbers.)

SUPPLEMENTARY INFORMATION: The

information collection requirements

contained in this rule have been

submitted to the Office of Management

and Budget for review under the

provisions of the Paperwork Reduction

Act of 1980 (44 U.S.C. 3501–3520) and

have been assigned approval number

2502–0464.

Background

Sometimes, a mortgagor must

confront the twin realities of not being

able to meet his or her mortgage

obligation and static or declining

property values. Such a situation makes

it virtually impossible for a financially

distressed mortgagor to sell the home

and, using the proceeds, to fully

discharge the mortgage debt.

Foreclosure of the mortgage is often the

method by which these difficulties are

resolved.

Over the past few years, much interest

has been expressed by mortgagors and

real estate agents in a transaction known

as the ‘‘pre-foreclosure sale.’’ This loss

mitigation technique has grown

significantly in use by the private sector

and is also now commonly used by

Government-sponsored enterprises,

such as Fannie Mae (Federal National

Mortgage Association), to ameliorate

their losses from defaulted loans. In a

successful pre-foreclosure sale involving

a property subject to an FHA-insured

mortgage loan, neither foreclosure nor

conveyance of the property to the

Department occur. A third party buys

the home from a defaulting mortgagor at

its approximate fair market value (with

certain adjustments, as approved by the

Secretary), which is less than the

owner’s outstanding indebtedness at the

time of sale.

Section 1064 of the McKinney

Homeless Assistance Amendments Act

of 1988 (Pub. L. 100–628) amended

section 204(a) of the National Housing

Act (12 U.S.C. 1710(a)) to authorize

HUD to pay a claim to a lender equal to

the difference between the fair market

sale price and the outstanding

indebtedness (with certain adjustments).

A successfully completed preforeclosure sale benefits the mortgagor,

who avoids the stigma of foreclosure on

his or her credit record, and also

benefits HUD, which can expect to save

by not paying foreclosure-related costs.

HUD also saves on maintenance costs

and marketing expenses for properties

which would otherwise be conveyed to

the Department following foreclosure.

Finally, mortgagees also benefit through

incorporating this loss-mitigation

technique into their overall loan

servicing, by frequently being able to

file their claim for insurance benefits

sooner, following a successful preforeclosure sale, than they would

following a post-foreclosure conveyance

claim.

On May 29, 1991, the Department

published in the Federal Register, at 56

FR 24324, a notice which announced a

limited demonstration program to gauge

the demand for, and the efficacy of, preforeclosure sales as a means of assisting

qualified mortgagors in avoiding

foreclosure of their FHA-insured

mortgages and of saving the Department

money.

The Demonstration was successful in

that the demand for this alternative to

foreclosure was found to be very

substantial; the efficacy of the preforeclosure sale transaction was found

to be cost-beneficial to HUD; and

feedback obtained from participating

local HUD offices, program

coordinators, mortgagees, homeowners

and the general public was quite

favorable. By expanding the options

available to financially distressed

mortgagors and not adversely affecting

any mortgagor rights or interests under

existing FHA-insured loan servicing

regulations, the Department has not

only acted responsibly toward the

homeowners with FHA-insured

mortgages, but also has operated with an

eye to the cost-effectiveness of its own

policies and procedures.

The Department then decided to

implement the pre-foreclosure sale

procedure nationwide by incorporating

it into the overall approach of servicing

FHA-insured loans by FHA-approved

lender/servicers. Therefore, the

Department issued an interim rule on

September 30, 1994, at 59 FR 50136.

The September 30, 1994 interim rule

made pre-foreclosure sales an even more

efficient servicing tool by streamlining

procedures and, in some respects,

reducing the Department’s cost of

following this course of action.

Public Comments

The public was given 60 days to

comment on the requirements and

procedures set forth in the September

30, 1994 interim rule. Comments were

received from one commenter (a

national trade association), and that

comment was totally favorable to the

interim rule.

This Final Rule

This final rule adopts without change

the interim rule published on

September 30, 1994, at 59 FR 50136.

Other Matters

Environmental Finding

A Finding of No Significant Impact

with respect to the environment has

been made in accordance with HUD

regulations at 24 CFR Part 50, which

implement section 102(2)(C) of the

National Environmental Policy Act of

1969. The Finding of No Significant

Impact 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 the General

Counsel, Department of Housing and

Urban Development, Room 10276, 451

Seventh Street, S.W., Washington, D.C.

20410.

Regulatory Flexibility Act

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)), has reviewed this rule before

publication and by approving it certifies

that this rule does not have a significant

economic impact on a substantial

number of small entities because this

rule pertains to a limited number of

single-family mortgage situations. It

expands the options available to
Federal Register / Vol. 60, No. 85 / Wednesday, May 3, 1995 / Rules and Regulations 21937

financially distressed mortgagors and

does not adversely affect any mortgagor

rights or interests under existing FHAinsured loan servicing regulations.

Executive Order 12612, Federalism

The General Counsel, as the

Designated Official under section 6(a) of

Executive Order 12612, Federalism, has

determined that this rule does not have

‘‘federalism implications’’ because it

does not have substantial direct effects

on the States (including their political

subdivisions), or on the distribution of

power and responsibilities among the

various levels of government. The

purpose of this rule is to implement the

requirements and methods of preforeclosure sales as a means of assisting

qualified mortgagors in avoiding

foreclosure of their FHA-insured

mortgages and of saving the Department

money.

Executive Order 12606, the Family

The General Counsel, as the

Designated Official under Executive

Order 12606, the Family, has

determined that this rule does not have

potential significant impact on family

formation, maintenance, and general

well-being.

Semiannual Agenda

This rule was listed as item 1784 in

the Department’s Semiannual Agenda of

Regulations published on November 14,

1994 (59 FR 57632, 57652), pursuant to

Executive Order 12866 and the

Regulatory Flexibility Act.

List of Subjects

24 CFR Part 200

Administrative practice and

procedure, Claims, Equal employment

opportunity, Fair housing, Housing

standards, Incorporation by reference,

Lead poisoning, Loan programs—

housing and community development,

Minimum property standards, mortgage

insurance, Organization and functions

(Government agencies), Penalties,

Reporting and recordkeeping

requirements, Social Security,

Unemployment compensation, Wages.

24 CFR Part 203

Hawaiian Natives, Home

improvement, Indians—lands, Loan

programs—housing and community

development, Mortgage insurance,

Reporting and recordkeeping

requirements, Solar energy.

Accordingly, the Department adopts

as final without change the interim rule

amending 24 CFR parts 200 and 203

published on September 30, 1994, at 59

FR 50136.

Dated: April 26, 1995.

Nicolas P. Retsinas,

Assistant Secretary for Housing-Federal

Housing Commissioner.

[FR Doc. 95–10803 Filed 5–2–95; 8:45 am]

BILLING CODE 4210–27–P