32264 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Rules and Regulations

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Part 290

[Docket No. FR–3970–F–02]

RIN 2502–AG59

Office of the Assistant Secretary for

Housing-Federal Housing

Commissioner; Sale of HUD-Held

Multifamily Mortgages

AGENCY: Office of the Assistant

Secretary for Housing-Federal Housing

Commissioner, HUD.

ACTION: Final rule.

SUMMARY: This rule amends the

Department’s regulations governing the

sale of multifamily mortgages. It adds a

provision protecting leases of residential

tenants in the event of foreclosure of

certain mortgages after they have been

sold by HUD. This rule continues the

protections already provided to tenants

that are receiving project-based federal

rental assistance or Section 8 tenantbased rental assistance. This rule also

clarifies a requirement added by the

earlier interim rule which continued,

after the mortgage was sold by HUD, the

prohibition on project owners against

discrimination in admitting tenants

based on their holding Section 8

certificates or vouchers. This rule

clarifies that this requirement continues

until the mortgage debt is satisfied.

These amendments are intended to

further the Department’s efforts to

return its inventory of HUD-held

multifamily mortgages to the private

sector in a manner that is beneficial to

HUD and the residents of these projects.

EFFECTIVE DATE: July 22, 1996.

FOR FURTHER INFORMATION CONTACT:

Audrey Hinton, Associate Director for

Program Operations, Office of

Multifamily Asset Management and

Disposition, Office of Housing, Room

6160, Department of Housing and Urban

Development, 451 Seventh Street, S.W.,

Washington, D.C. 20410, telephone

(202) 708–3730, Ext. 2691. (This is not

a toll-free number.) Hearing or speechimpaired individuals may call 1–800–

877–8399 (Federal Information Relay

Service TTY).

SUPPLEMENTARY INFORMATION:

Background

On February 6, 1996, the Department

published an interim rule (61 FR 4850)

which added two sections to 24 CFR

part 290 that provided certain tenant

protections when HUD sold multifamily

mortgages. On March 21, 1996, as part

of its effort to reinvent and streamline

all of its regulations, the Department

published a final rule that contained a

complete revision of 24 CFR part 290.

That final rule contained the pertinent

sections and indicated that HUD would

republish the sections in a final rule

after considering public comment.

Section 290.112 of the interim rule

(now § 290.37) provided that, in the sale

of delinquent mortgages on subsidized

projects and partially-assisted

unsubsidized, HUD will require project

purchasers, including foreclosure

purchasers, to assume federal rental

subsidy contracts. In addition, mortgage

purchasers may not foreclose in a

manner that would terminate such

assisted tenants’ leases.

The interim rule preamble discussion

of the then § 290.112 also sought

comment on adding a requirement that

existing leases of unassisted tenants in

such projects must be maintained after

foreclosure for a period equal to the

remaining term of the lease or one year,

whichever period is shorter, if the leases

could otherwise be extinguished under

state foreclosure law. The Department

did not actually effectuate this provision

in the interim rule because it did not

believe it had a basis to forego prior

public comment.

Section 290.114 of the interim rule

(now § 290.39) provided that owners of

subsidized projects and partiallyassisted unsubsidized projects will

continue to be subject to a prohibition

against discriminating against certificate

and voucher holders after a mortgage

sale without insurance. In addition, for

all mortgages that are delinquent when

sold by HUD, owners both of subsidized

projects and unsubsidized projects must

agree to record a covenant running with

the land to continue this obligation

through the maturity date of the

mortgage as part of the consideration of

a loan restructuring or compromise of

the mortgage indebtedness with the

mortgage purchaser. Alternatively, if the

mortgage purchaser forecloses, this

nondiscrimination obligation would

apply to the project purchaser at

foreclosure.

The preamble to the interim rule (61

FR 4581) also provided additional

guidance on how HUD intends to

implement the then § 290.110(b) (now

§ 290.35(b)).

The Department received one public

comment on the interim rule, which

supported the changes made by the

interim rule. The commenter did not

directly respond to the issue, raised in

the preamble, of safeguarding the

possessory rights of unassisted tenants

after foreclosure.

Changes Effected by This Final Rule

This final rule amends § 290.37(b) to

adopt the change proposed in the

preamble to the interim rule. Namely, it

requires a mortgagee (and its successors

and assigns) that purchases from HUD a

delinquent mortgage on a subsidized

project or a partially-assisted

unsubsidized project and subsequently

forecloses the mortgage to ensure that

the purchaser at foreclosure takes

possession subject to the rights of

residential tenants who are not

receiving federal project-based or

Section 8 tenant-based rental assistance.

This tenant protection lasts for the

remaining term of the lease or for one

year, whichever period is shorter.

The scope and duration of this tenant

protection is similar to that which

would apply under section 369E of the

Multifamily Mortgage Foreclosure Act

of 1981, as amended, (12 U.S.C. 3713(c),

see also 24 CFR 27.45(b)) when HUD

forecloses on a mortgage that it holds.

The amendment does not affect

residential tenants who receive rental

assistance. They are protected by

existing requirements now in

§ 290.37(b)(1) (§ 290.112(b) in the

interim rule). Under that section, the

mortgage purchaser and its successors

and assigns, if they foreclose, must

foreclose in a manner that does not

interfere with any lease related to

federal project-based assistance or any

lease related to tenant-based, Section 8

housing assistance payments.

This final rule makes one additional

change to clarify the duration of the

nondiscrimination against certificate

and voucher holders requirement in

current § 290.39. Section 290.39

(§ 290.114 of the interim rule) prohibits

a project owner from unreasonably

refusing to lease a unit because the

tenant is a certificate or voucher holder.

The prohibition applies to owners of

subsidized projects or partially-assisted

unsubsidized projects. Section

290.39(c)(2) of the current rule provides

that ‘‘This requirement shall continue

until the mortgage is paid in full,

including by a mortgage prepayment,

except as provided in paragraph (d) of

this section.’’ The intent of this

provision was to continue the

nondiscrimination requirement for as

long as the project was subject to the

mortgage debt. (See the preamble

discussion of § 290.114 in the interim

rule at 61 FR 4583.) The above-quoted

rule text, however, is unclear as to the

effect of a satisfaction of the mortgage

with less than a full payment. This rule

amends § 290.39 to state explicitly that

the nondiscrimination requirement
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Rules and Regulations 32265

continues in effect until the mortgage

debt is satisfied.

Other Matters

Environmental Impact

In accordance with 40 CFR 1508.4 of

the regulations of the Council on

Environmental Quality and 24 CFR

50.20(k) of the HUD regulations, the

policies and procedures contained in

this rule relate only to HUD

administrative procedures and,

therefore, are categorically excluded

from the requirements of the National

Environmental Policy Act.

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 will not have substantial

direct effects on States or their political

subdivisions, or on the relationship

between the federal government and the

States, or on the distribution of power

and responsibilities among the various

levels of government. As a result, the

rule is not subject to review under the

Order. Specifically, the requirements of

this rule are directed to HUD

administrative procedures, and do not

impinge upon the relationship between

Federal government and State and local

governments.

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 for significant impact on

family formation, maintenance, and

general well-being, and, thus, is not

subject to review under the order. No

significant change in existing HUD

policies or programs will result from

promulgation of this rule, as those

policies and programs relate to family

concerns.

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. This rule will

not affect the ability of small entities,

relative to larger entities, to bid for and

acquire HUD-held mortgages that HUD

decides to sell.

List of Subjects in 24 CFR Part 290

Low and moderate income housing,

Mortgage insurance.

Accordingly part 290 of Title 24 of the

Code of Federal Regulations is amended

as follows:

PART 290—MANAGEMENT AND

DISPOSITION OF HUD-OWNED

MULTIFAMILY PROJECTS AND

CERTAIN MULTIFAMILY PROJECTS

SUBJECT TO HUD-HELD MORTGAGES

1. The part heading for part 290 is

revised as set forth above.

2. The authority citation for part 290

is revised to read as follows:

Authority: 12 U.S.C. 1701z-11, 1701z-12,

1713, 1715b, 1715z-1b; 42 U.S.C. 3535(d) and

3535(i).

§ 290.30 [Amended]

3. In § 290.30, paragraph (a) is

amended by removing the reference to

‘‘§ 290.32(a)(2)’’ and adding in its place

‘‘§ 290.31(a)(2)’’.

4. In § 290.37, paragraph (b) is revised

to read as follows:

§ 290.37 Requirements for continuing

federal rental subsidy contracts.

* * * * *

(b) In the event of foreclosure of the

mortgage sold by HUD, the mortgage

purchaser and its successors and

assigns:

(1) Shall foreclose in a manner that

does not interfere with any lease related

to federal project-based assistance or

any lease related to tenant-based,

Section 8 housing assistance payments;

and

(2) Shall foreclose in manner that

ensures that the right of possession of

the purchaser at a foreclosure sale shall

be subject to the terms of any residential

lease not subject to paragraph (b)(1) of

this section for the remaining term of

the lease or for one year, whichever

period is shorter.

* * * * *

3. In § 290.39, paragraph (c)(2) is

revised to read as follows:

§ 290.39 Nondiscrimination in admitting

certificate and voucher holders.

* * * * *

(c) * * *

(2) This requirement shall continue in

effect until the mortgage debt is

satisfied.

* * * * *

Dated: June 11, 1996.

Nicolas P. Retsinas,

Assistant Secretary for Housing-Federal

Housing Commissioner.

[FR Doc. 96–15735 Filed 6–20–96; 8:45 am]

BILLING CODE 4210–27–P