Implementation of Section 129 of the Housing and Community Development Act of 1992

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 792 and 892

[Docket No. R-94-1708; FR-3487-F-01]

RIN 2501-AB65

Implementation of Section 129 of the Housing and Community

Development Act of 1992

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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SUMMARY: This final rule establishes procedures for public housing

agencies and Indian housing authorities (HAs) to follow to permit HAs

to retain a portion of certain section 8 fraud recoveries from tenants

and owners for use in section 8 programs. Section 129 of the Housing

and Community Development Act of 1992 expands HA retention of section 8

fraud recoveries to include recoveries obtained through administrative

repayment agreements, as well as litigation (including settlement of a

lawsuit) or a court-ordered restitution. This rule applies to the

section 8 rental certificate, rental voucher, moderate rehabilitation

programs, and private owner/HA new construction and substantial

rehabilitation projects subject to an Annual Contributions Contract.

EFFECTIVE DATE: March 30, 1994.

FOR FURTHER INFORMATION CONTACT: For the Section 8 Rental Certificate,

Rental Voucher and Moderate Rehabilitation Programs: Madeline Hastings,

Director, Rental Assistance Division, Office of Assisted Housing, room

4226, Department of Housing and Urban Development, 451 Seventh Street,

SW., Washington, DC 20410, (202) 708-1842. Hearing or speech-impaired

individuals may call HUD's TDD number (202) 708-0850.

For issues concerning computer matching/tenant income verification

matters: David L. Decker, Director, Computer Matching Activities

Division, room 4122, Department of Housing and Urban Development, 451

Seventh Street, SW., Washington, DC 20410, (202) 708-0099. Hearing or

speech-impaired individuals may call HUD's TDD number (202) 708-0850.

For Section 8 private owner/HA new construction and substantial

rehabilitation projects subject to an ACC between HUD and an HA: James

Tahash, Director, Planning and Procedures Division, Office of Insured

Multifamily Housing Development, room 6182, Department of Housing and

Urban Development, 451 Seventh Street, SW., Washington, DC 20410, (202)

708-3944. Hearing or speech-impaired individuals may call HUD's TDD

number (202) 708-4594.

(The telephone numbers cited above are not toll free numbers.)

SUPPLEMENTARY INFORMATION:

I. Background:

Some tenants receiving section 8 assistance submit false statements

which underreport income to obtain excessive housing assistance.

Similarly, some owners also commit fraud in order to receive section 8

rental assistance payments to which they are not entitled. Examples of

owner fraud include billing for vacant dwelling units, charging more

rent for assisted units than unassisted units in the same building,

receiving sidepayments from assisted tenants, and knowingly admitting

ineligible tenants into section 8 substantial rehabilitation and new

construction projects. Through various methods, such as direct

observation, informants, investigative action and computer matches, HAs

discover that tenants and owners have committed fraud in order to

receive either benefits or payments for which they were not entitled.

In 1981, Congress enacted legislation aimed at stemming this fraud

and abuse. Section 326(d)(1) of the Housing and Community Development

Amendments of 1981 (Pub. L. 97-35; hereafter referred to as ``1981 HCD

Act'') allowed HAs to retain ``out of judgments obtained by them in

recovering amounts wrongfully paid as a result of fraud and abuse'' a

portion of the fraud recoveries to encourage HAs to recover amounts

overpaid as a result of such fraud and abuse. On August 20, 1986 (51 FR

29633), the Department published a final rule implementing section

326(d)(1) of the 1981 HCD Amendments. In the final rule, HUD construed

the term ``judgments'' to allow HAs to retain amounts recovered by

means of litigation, including a settlement of litigation.

However, most section 8 fraud recoveries result from administrative

repayment agreements between the HA and the families, or between the HA

and the owner. As such, nearly all tenant and owner fraud recoveries

have gone to HUD, and HAs have had little monetary incentive to

identify tenant and owner fraud and pursue repayment.

Section 129 of the Housing and Community Development Act of 1992,

(Pub. L. 102-550, approved October 28, 1992; hereafter referred to as

``1992 HCD Act''), allows HAs to retain a portion of rental assistance

fraud recoveries obtained through litigation, court-ordered

restitutions, and administrative repayment agreements pursuant to an

administrative grievance procedure except in cases where HUD is the

principal party initiating or sustaining the recovery action. By

allowing HAs to retain a portion of the monies recovered under

administrative repayment agreements, the Act provides an additional

incentive for HAs to aggressively pursue cases of suspected fraud.

Under the Act and this regulation, an HA can retain the greater of:

(1) 50 percent of the amount collected or (2) the actual, reasonable,

and necessary expenses related to the collection, including the cost of

investigation, legal fees and collection fees. The recoveries may be

obtained through litigation (including settlement of a lawsuit), a

court-ordered restitution, or an administrative repayment agreement

pursuant to an administrative grievance procedure. The rule applies to

the Section 8 Rental Certificate, Rental Voucher, Moderate

Rehabilitation Programs and private owner/HA new construction and

substantial rehabilitation projects subject to an Annual Contributions

Contract (ACC) between HUD and an HA.

Finally, in August of 1986, the Department added a final rule

implementing section 326(d)(1) of the 1981 HCD Amendments as a new part

892. This final rule transfers the requirements of 892 to a new part

792, and removes part 892. The rule also changes the reference from

public housing agency (PHA) to housing agency (HA) to recognize

definitional changes resulting from the Indian Housing Act of 1988

(Pub. L. 100-358).

II. Other Matters

A. 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.

B. 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 the relationship between the

Federal government and the states, or on the distribution of power and

responsibilities among the various levels of government. Specifically,

the rule increases the amount a housing agency may recover in fraud and

abuse cases. As such, the rule will not impinge on the relationship

between the Federal and state and local governments, and the rule is

not subject to review under the order.

C. 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.

D. Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)) has reviewed and approved this rule, and in so doing

certifies that this rule will not have a significant economic impact on

a substantial number of small entities, because the number of

recoveries by housing agencies is expected to be small and so the

number of small public housing agencies affected will be small. In any

event, the effect on small entities is expected to be positive rather

than negative.

E. Paperwork

The changes made by this final rule to the regulatory text in 24

CFR part 892, which now appears as 24 CFR part 792, will not add any

additional information collection burden than that already approved by

the Office of Management and Burden under the Paperwork Reduction Act

and assigned OMB approval number 2577-0053.

F. Regulatory Agenda

This rule was listed as item no. 1655 in the Department's

Semiannual Agenda of Regulations published on October 25, 1993 (58 FR

56402, 56453) in accordance with Executive Order 12991 and the

Regulatory Flexibility Act.

G. Justification for Final Rulemaking

In general, the Department publishes rules for public comment

before their issuance for effect, in accordance with its own

regulations on rulemaking, 24 CFR part 10. However, part 10 provides

exceptions from that general rule where the agency finds good cause to

omit advance notice and public participation. The good cause

requirement is satisfied when prior public procedure is

``impracticable, unnecessary, or contrary to the public interest'' (24

CFR 10.1). The Department finds that good cause exists to publish this

rule for effect without first soliciting public comment, in that prior

public procedure is unnecessary because the changes being made to part

892, which now appears as part 792, merely implement statutory

amendments that do not involve the exercise of any discretion by the

Department.

H. The Catalog of Federal Domestic Assistance program number(s) are

14.156, Lower Income Housing Assistance Programs.

List of Subjects in 24 CFR Parts 792 and 892

Fraud, Grant programs--housing and community development, Rent

subsidies, Reporting and recordkeeping requirements.

Accordingly, for the reasons set forth in the preamble, title 24 of

the Code of Federal Regulations is amended by redesignating part 892 as

part 792 and by revising the newly designated part 792 to read as

follows:

PART 792--HOUSING AGENCY SECTION 8 FRAUD RECOVERIES

Subpart A--General Provisions

Sec.

792.101 Purpose.

792.102 Applicability.

792.103 Definitions.

Subpart B--Recovery of Section 8 Funds

792.201 Conduct of litigation.

792.202 HA retention of proceeds.

792.203 Application of amounts recovered.

792.204 Recordkeeping and reporting.

Authority: 42 U.S.C. 1437f note; 42 U.S.C. 3535(d).

Subpart A--General Provisions

Sec. 792.101 Purpose.

The purpose of this part is to encourage public housing agencies

and Indian housing authorities (HAs) to investigate and pursue

instances of tenant and owner fraud and abuse in the operation of the

section 8 housing assistance payments programs.

Sec. 792.102 Applicability.

(a) This part applies to an HA acting as a contract administrator

under an annual contributions contract with HUD in any section 8

housing assistance payments program. To be eligible to retain section 8

tenant or owner fraud recoveries, the HA must be the principal party

initiating or sustaining an action to recover amounts from families.

(b) This part applies only to those instances when a tenant or

owner committed fraud, and the fraud recoveries are obtained through

litigation brought by the HA (including settlement of the lawsuit), a

court-ordered restitution pursuant to a criminal proceeding, or an

administrative repayment agreement with the family or owner as a result

of an HA administrative grievance procedure pursuant to, or

incorporating the requirements of, Sec. 882.216 or 887.405. This part

does not apply to cases of owner fraud in HA-owned or controlled units,

or where incorrect payments were made or benefits received because of

calculation errors instead of willful fraudulent activities.

(c) This part applies to all tenant and owner fraud recoveries

resulting from litigation brought by the HA (including settlement of

the lawsuit), or a court-ordered restitution pursuant to a criminal

proceeding obtained on or after October 8, 1986, and to all tenant and

owner fraud recoveries obtained through administrative repayment

agreements signed on or after October 28, 1992.

Sec. 792.103 Definitions.

Fraud and abuse. Fraud and abuse means a single act or pattern of

actions:

(1) That constitutes false statement, omission, or concealment of a

substantive fact, made with intent to deceive or mislead; and

(2) That results in payment of section 8 program funds in violation

of section 8 program requirements.

HA (Housing Agency). HA (Housing Agency) means any State, county,

municipality, or other governmental entity or public body, including

any Indian Housing Authority, acting as a section 8 contract

administrator under an annual contributions contract with HUD.

Judgment. Judgment means a provision for recovery of section 8

program funds obtained through fraud and abuse, by order of a court in

litigation or by a settlement of a claim in litigation, whether or not

stated in a court order.

Litigation. A lawsuit brought by a HA to recover section 8 program

funds obtained as a result of fraud and abuse.

Principal party in initiating or sustaining an action to recover.

Principal party in initiating or sustaining an action to recover means

the party that incurs more than half the costs incurred in:

(1) Recertifying tenants who fraudulently obtained section 8 rental

assistance;

(2) Recomputing the correct amounts owed by tenants; and

(3) Taking needed actions to recoup the excess benefits received,

such as initiating litigation.

Costs incurred to detect potential excessive benefits in the

routine day-to-day operations of the program are excluded in

determining the principal party in initiating or sustaining an action

to recover. For example, the cost of income verification during an

annual recertification would not be counted in determining the

principal party in initiating or sustaining an action to recover.

Repayment agreement. Repayment agreement means a formal document

signed by a tenant or owner and provided to an HA in which a tenant or

owner acknowledges a debt, in a specific amount, and agrees to repay

the amount due at specific time period(s).

Subpart B--Recovery of Section 8 Funds

Sec. 792.201 Conduct of litigation.

The HA must obtain HUD approval before initiating litigation in

which the HA is requesting HUD assistance or participation.

Sec. 792.202 HA retention of proceeds.

(a) Where the HA is the principal party initiating or sustaining an

action to recover amounts from tenants that are due as a result of

fraud and abuse, the HA may retain, the greater of:

(1) Fifty percent of the amount it actually collects from a

judgment, litigation (including settlement of lawsuit) or an

administrative repayment agreement pursuant to, or incorporating the

requirements of, Sec. 882.216 or Sec. 887.405; or

(2) Reasonable and necessary costs that the HA incurs related to

the collection from a judgment, litigation (including settlement of

lawsuit) or an administrative repayment agreement pursuant to, or

incorporating the requirements of, Sec. 882.216 or Sec. 887.405.

Reasonable and necessary costs include the costs of the investigation,

legal fees and collection agency fees.

(b) If HUD incurs costs on behalf of the HA in obtaining the

judgment, these costs must be deducted from the amount to be retained

by the HA.

Sec. 792.203 Application of amounts recovered.

(a) The HA may only use the amount of the recovery it is authorized

to retain in support of the section 8 program in which the fraud

occurred.

(b) The remaining balance of the recovery proceeds (i.e., the

portion of recovery the HA is not authorized to retain) must be applied

as directed by HUD.

Sec. 792.204 Recordkeeping and reporting.

To permit HUD to audit amounts retained under this part, an HA must

maintain all records required by HUD, including:

(a) Amounts recovered on any judgment or repayment agreement;

(b) The nature of the judgment or repayment agreement; and

(c) The amount of the legal fees and expenses incurred in obtaining

the judgment or repayment agreement and recovery.

(Approved by the Office of Management and Budget under Control

Number 2577-0053)

Dated: February 17, 1994.

Henry G. Cisneros,

Secretary of Housing and Urban Development.

[FR Doc. 94-4484 Filed 2-25-94; 8:45 am]

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