Office of the Assistant Secretary for Housing-Federal Housing Commissioner; Sale of HUD-Held Multifamily Mortgages

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 tenant-based 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 speech-impaired 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 Sec. 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 Sec. 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 Sec. 290.39) provided that

owners of subsidized projects and partially-assisted 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

Sec. 290.110(b) (now Sec. 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 Sec. 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

Sec. 290.37(b)(1) (Sec. 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 Sec. 290.39. Section 290.39 (Sec. 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

Sec. 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 Sec. 290.39 to

state explicitly that the nondiscrimination requirement

[[Page 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).

Sec. 290.30 [Amended]

3. In Sec. 290.30, paragraph (a) is amended by removing the

reference to ``Sec. 290.32(a)(2)'' and adding in its place

``Sec. 290.31(a)(2)''.

4. In Sec. 290.37, paragraph (b) is revised to read as follows:

Sec. 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 Sec. 290.39, paragraph (c)(2) is revised to read as follows:

Sec. 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