Disposition of HUD-Acquired Single Family Property; Streamlining Final Rule

SUMMARY: This final rule amends HUD's regulations for the disposition

of HUD-acquired single family property. In an effort to comply with the

President's regulatory reform initiatives, this rule will streamline

these regulations by eliminating provisions that are redundant or are

otherwise unnecessary. This final rule will make the single family

property disposition program regulations clearer and more concise.

EFFECTIVE DATE: November 27, 1996.

FOR FURTHER INFORMATION CONTACT: Ann M. Sudduth, Director, Department

of Housing and Urban Development, Room 9170, 451 Seventh Street, SW,

Washington, DC 20410; telephone number (202) 708-0740 (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 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Regulatory Reinvention

On March 4, 1995, President Clinton issued a memorandum to all

Federal departments and agencies regarding regulatory reinvention. In

response to this memorandum, the Department of Housing and Urban

Development conducted a page-by-page review of its regulations to

determine which can be eliminated, consolidated, or otherwise improved.

HUD has determined that the regulations for the disposition of HUD-

acquired single family properties in 24 CFR part 291 can be improved

and streamlined by eliminating unnecessary provisions.

According to the President's regulatory reinvention initiatives,

the Code of Federal Regulations (CFR) should contain only binding

regulatory requirements. However, several sections in the single family

property disposition regulations contain nonbinding guidance,

information, or explanations. HUD will more appropriately provide this

information through handbook guidance or other materials. By removing

provisions from the CFR that are not binding regulatory requirements,

HUD will clarify to the reader which provisions are actually binding

requirements. Furthermore, HUD has determined that some of the binding

requirements in these regulations are no longer necessary. Therefore,

through this final rule, HUD's regulations for the disposition of

single family property will contain only those regulatory requirements

that are necessary for the proper administration of the disposition

program.

Specifically, this rule accomplishes the following:

1. This rule streamlines Sec. 291.1 by revising paragraph (b)

regarding nondiscrimination requirements. The nondiscrimination

requirements in paragraph (b) are already contained in 24 CFR part 5,

which was established by a final rule published on February 9, 1996 (61

FR 5198). This rule also eliminates paragraph (c), which was

informational and nonbinding.

2. This rule consolidates most of the definitions throughout part

291 into Sec. 291.5 to make them easier to find. This rule removes the

definition for the term ``revitalization area.'' This definition is

unnecessary because, due to the other streamlining efforts in this

rule, this term no longer appears in part 291. This rule also

streamlines the definition of ``tribe'' by removing language that

simply repeats a statutory provision.

3. This rule streamlines Sec. 291.100 regarding HUD's general

disposition policies by removing unnecessary cross-references and

nonbinding information. It also revises paragraph (d)(2) to provide

that when HUD decides to take back a purchase money mortgage (PMM) on a

property, the mortgage will be available in an amount determined by the

Secretary. This revision will give HUD more flexibility to offer the

mortgage at a fair price.

4. This rule streamlines Sec. 291.105 regarding the competitive

sales procedure by removing language that is unnecessary or redundant.

This rule also revises paragraph (f) by clarifying HUD's procedures

regarding properties subject to an extended listing period. This

clarification will assist the public by eliminating confusion regarding

the procedures.

5. This rule streamlines Sec. 291.110 regarding other sales

procedures. This rule removes some of the specific information

regarding other sales procedures that is nonbinding and that HUD could

more appropriately provide through other means. This rule also revises

this section slightly to clarify that a property will be sold to the

first eligible purchaser submitting an acceptable contract. (See

Sec. 291.110(a)(2)(i) of this final rule. The regulations previously

provided that properties will be sold on a ``first come-first served

basis.'')

6. This rule removes Secs. 291.115 through 291.145. HUD has

determined that the information and requirements in these sections no

longer need to appear in the CFR.

7. This rule streamlines subpart C of part 291 regarding the rental

of acquired property. This rule will provide HUD's general policy in

Sec. 291.200, but it will remove the information and requirements that

no longer need to appear in the CFR.

8. This rule revises Sec. 291.400 regarding the lease and sale of

HUD-acquired property for the homeless. This rule removes language that

is unnecessary or redundant. This rule also adds a new paragraph

regarding applicant preapproval, which was previously located in

Sec. 291.410. It is necessary to retain this requirement to inform the

public of the initial procedures for acquiring properties for the

homeless.

9. This rule removes Sec. 291.405. The definitions in this section

will now appear in Sec. 291.5.

10. This rule also removes Sec. 291.410. HUD has determined that,

with the exception of the requirement for applicant preapproval, which

was moved to Sec. 291.400, the information and requirements in

Sec. 291.410 no longer need to appear in the CFR.

11. This rule streamlines Sec. 291.415 by removing paragraph (d)

regarding property operating costs and insurance. The important

requirements in that paragraph are disclosed in and enforceable through

the terms of the lease, and it is unnecessary to retain them in the

CFR.

12. This rule removes Secs. 291.420 and 291.425. HUD has determined

that the information and requirements in these sections no longer need

to appear in the CFR.

13. This rule does not amend Sec. 291.430 regarding the elimination

of lead-based paint hazards.

14. This rule revises Sec. 291.435 by removing paragraph (c), which

provided that the requirements for intergovernmental review ``are not

applicable to applications under this subpart.'' It is unnecessary to

maintain this information in the CFR.

This rule will result in the elimination of approximately nine

pages of unnecessary regulations.

Justification for Final Rulemaking

HUD generally publishes a rule for public comment before issuing a

rule for

[[Page 55711]]

effect, in accordance with its own regulations on rulemaking in 24 CFR

part 10. However, part 10 provides for exceptions to the general rule

if 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). HUD finds that good cause exists to

publish this rule for effect without first soliciting public comment.

This rule merely removes unnecessary regulatory provisions and

clarifies existing procedures; it does not establish or affect

substantive policy. Therefore, prior public comment is unnecessary.

Findings and Certifications

Environmental Impact

This rule does not have an environmental impact. This rule simply

amends existing regulations by consolidating and streamlining

provisions; it does not alter the environmental effect of the

regulations being amended. As HUD developed the regulations in part

291, Findings of No Significant Impact with respect to the environment

were made in accordance with regulations in 24 CFR part 50 that

implement section 102(2)(C) of the National Environmental Policy Act of

1969 (42 U.S.C. 4332). Those findings remain applicable to this rule,

and are 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 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 and approved this final rule, thereby

certifying that this rule will not have a significant economic impact

on a substantial number of small entities. This rule merely streamlines

regulations. It will have no adverse or disproportionate economic

impact on small entities.

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

will 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. No programmatic or policy changes

will result from this rule that would affect the relationship between

the 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 will not have

the potential for significant impact on family formation, maintenance,

or 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.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Pub.

L. 104-4; approved March 22, 1995) establishes requirements for Federal

agencies to assess the effects of their regulatory actions on State,

local, and tribal governments, and on 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, subparts A, B, C, and E are revised as set forth below:

PART 291--DISPOSITION OF HUD-ACQUIRED 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. Subparts A, B, and C are revised to read as follows:

Subpart A--General Provisions

Sec.

291.1 Purpose and scope.

291.5 Definitions.

Subpart B--Disposition by Sale

291.100 General policy.

291.105 Competitive sales procedures.

291.110 Other sales procedures.

291.150 Sanctions against fradulent purchase.

Subpart C--Rental of Acquired Property

291.200 General policy.

* * * * *

Subpart A--General Provisions

Sec. 291.1 Purpose and scope.

(a) Purpose. (1) This part governs the disposition of one-to-four

family properties that are acquired by HUD or are otherwise in HUD's

custody. Detailed policies and procedures that must be followed in

specific areas are issued by each HUD field office.

(2) The purpose of the property disposition program is to reduce

the inventory of acquired 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.

Sec. 291.5 Definitions.

The terms ``HUD'' and ``Secretary'' are defined in 24 CFR part 5.

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

subpart E of this part. 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.

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 means a sale 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.

Disposition means the sale, or lease with option to purchase, of

eligible properties for use by the homeless.

Eligible properties means all vacant single family properties

acquired by HUD 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.

[[Page 55712]]

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) Handicapped persons 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.

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.

Occupant, for purposes of the lease and sale of HUD-acquired single

family properties for the homeless, means a homeless individual or

family that occupies an eligible property after that property has been

leased to an applicant.

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 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 Sec. 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).

Subpart B--Disposition by Sale

Sec. 291.100 General policy.

(a) Qualified purchaser. (1) Anyone, 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) HUD will not 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 rent-paying 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) Method of sale. (1) HUD sells properties on an ``as-is'' basis,

without repairs or warranties. The principal method of sale is the

competitive sales procedure. Where appropriate, the Secretary may use

another sales procedure, as described in Sec. 291.110.

(2) Properties may be sold under the following programs:

(i) 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) will be offered for sale in ``as-is'' condition with FHA

mortgage insurance available.

(ii) 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 ``as-is'' condition with FHA

mortgage insurance available, provided the mortgagor establishes a cash

escrow to ensure the completion of the required repairs.

(iii) Uninsured. A property that fails to qualify under either

paragraph (c)(2)(i) or (ii) 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.

[[Page 55713]]

(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

owner-occupant 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 five 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) Flood insurance requirements. Flood insurance must be obtained

and maintained as provided in 24 CFR 203.16a.

(g) Lead-based paint poisoning prevention. Properties constructed

before 1978 are subject to the lead-based paint poisoning prevention

requirements 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.

Sec. 291.105 Competitive sales procedure.

(a) General. (1) Properties are sold to the general public on a

competitive bid basis through local real estate brokers, except as

provided in Sec. 291.100(h).

(2) For properties being offered with mortgage insurance, priority

will be given to owner-occupant purchasers, as defined in Sec. 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 owner-

occupant 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 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

[[Page 55714]]

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.

(Approved by the Office of Management and Budget under OMB control

numbers 2502-0306, 2502-0059, and 2502-0429)

Sec. 291.110 Other sales procedures.

(a) Direct sales of properties without mortgage insurance 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

properties directly from HUD 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, to appropriate

HUD field offices. Upon request, for those properties not eligible for

mortgage insurance, and before they are publicly listed, field offices

will notify governmental entities and nonprofit organizations in

writing when eligible properties become available in the areas

designated by them. Field offices 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 five days of

the notification of available properties (if notification is by mail,

the five days will begin to run five 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) Sales to other individuals or entities. HUD may also seek to

dispose of properties through other methods, such as direct sales to

displaced persons, sales of razed lots, bulk sales, auctions, or direct

sales to other individuals or entities that do not meet any of the

categories specified in this section, if a finding is made by the

Assistant Secretary for Housing-Federal Housing Commissioner or his or

her designee 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.

(Approved by the Office of Management and Budget under OMB control

number 2502-0306)

Sec. 291.150 Sanctions against fraudulent purchase.

False certification by a purchaser concerning occupancy of single

family properties financed by an insured mortgage is a violation of 18

U.S.C. 1001, which may result in the required prepayment of the

mortgage in the amount of the difference between the downpayment made

and the downpayment required if the loan had been processed as an

investor purchaser loan, or in criminal prosecution.

Subpart C--Rental of Acquired Property

Sec. 291.200 General policy.

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.

* * * * *

3. Subpart E is amended by revising Secs. 291.400, 291.415,

291.435, and 291.440 and by removing Secs. 291.405, 291.410, 291.420,

and 291.425 to read as follows:

Subpart E--Lease and Sale of HUD-Acquired Single Family Properties

for the Homeless

Sec. 291.400 Purpose and scope.

(a) Purpose. HUD seeks to assist individuals and families who are

homeless by providing them with transitional housing and appropriate

supportive services with the goal of helping them move to independent

living. Therefore, HUD will make available, to applicants approved by

HUD, certain HUD-acquired single family properties for use by the

homeless.

(b) Applicant preapproval. Before a field office may notify an

applicant of eligible properties, the applicant must be preapproved by

HUD, according to procedures available from the field office.

[[Page 55715]]

(c) Property available for lease with option to purchase. HUD will

make available up to 10 percent of its total inventory of properties,

before or after they are listed for sale to the public.

(d) Property available under a McKinney Act Supportive Housing

program lease-option agreement. Eligible properties will be available

under a lease-option to purchase agreement to Supportive Housing

program applicants for acquisition grants under 24 CFR part 583.

(e) Properties available for sale. Eligible properties will be

available for competitive sale or direct sale for fair market value,

less a discount determined appropriate by the Secretary but not less

than 10 percent.

(f) Concentration of properties. To the extent practicable and

possible, HUD will avoid excessive concentration in a single

neighborhood of properties leased or sold under this subpart.

(g) Failure to comply with requirements. Failure to comply with

this subpart, or a lease issued under this subpart, may result in

termination from the program.

(Approved by the Office of Management and Budget under OMB control

number 2502-0412)

Sec. 291.415 Lease with option to purchase properties for use by the

homeless.

(a) Certification. Eligible properties are available for lease to

applicants, approved by HUD, that certify that the property will be

utilized only for the purpose of providing transitional housing for the

homeless during the lease term, and that the intended use of the

property will be consistent with all local laws and regulations. The

lease agreement will be in a form prescribed by the Secretary. Lessees

must execute a sublease with occupants in a form prescribed by the

Secretary limiting an occupant's tenancy to no longer than two years.

(b) Term of lease. (1) A lease of an eligible property may be

negotiated for such time as the lessee requires, not to exceed one

year. Leases are renewable, at the option of the lessee and with the

approval of HUD, at the end of the first lease term for up to four

additional one-year terms, on a year-to-year basis, provided the lessee

has met the requirements under this program.

(2) Approvals for lease renewals will be denied if HUD determines

that the lessee has not complied with the requirements of this part of

the lease.

(3) A property will not be leased to a lessee for a period longer

than five years. At the end of the five-year period, if the lessee has

not exercised the option to purchase, HUD will notify the lessee to

vacate the property and, if necessary, will take appropriate action

under the eviction laws of the jurisdiction in which the property is

located. All property returned to HUD must be vacant, and will be

placed on the market for sale to the general public.

(4) Within 30 days of leasing a property from HUD or within 30 days

after a property is vacated, a lessee must sublease the property to the

homeless, unless a longer period is approved by HUD.

(c) Rent. (1) The lessee must pay HUD a nominal rent of $1 for each

one-year lease period.

(2) A lessee may charge rent, including utilities, to an occupant

at a rate appropriate to the financial means of the occupant. Unless

HUD approves after consideration of such factors as the cost of

operating housing in the area and the amount of the lessee's

contributions to the program, such rent may not exceed the highest of:

(i) Thirty percent of the family's monthly adjusted income

(adjustment factors include the number of people in the family, age of

family members, medical expenses, and child care expenses);

(ii) Ten percent of the family's monthly income; or

(iii) If the family is receiving payments for welfare assistance

from a public agency and a part of the payments, adjusted in accordance

with the family's actual housing costs, is specifically designated by

the agency to meet the family's housing costs, the portion of the

payments that is designated.

(3) In no event may the rent charged an occupant exceed the

occupant's pro rata share of the lessee's costs of operating the

property.

(d) Damage to leased properties. Any damage to leased property

caused by the intentional or negligent acts of the lessee or occupants

must be repaired by the lessee at its own expense. If the lessee does

not make the necessary repairs within a reasonable time after the

damage occurs, HUD may, at its option, make the repairs and charge the

cost to the lessee. Failure by the lessee to make the necessary repairs

or to reimburse HUD for the cost of repairs will constitute grounds for

termination of the lease and may result in termination from the

program.

(e) Purchase of leased properties. (1) Lessees that desire to

purchase leased properties during the lease term will be offered the

properties at the lower of the fair market value established at the

time of the initiation of the lease or at the time of the sale, less a

discount determined appropriate by the Secretary but not less than 10

percent, provided lessees agree to use the properties either to house

low-income tenants for a period of not less than 10 years or to resell

the properties to low-income buyers. If the lessee does not agree to

such conditions, the lessee must purchase the properties at the higher

of the fair market value at the time of the initiation of the lease or

at the time of the sale, less 10 percent. Any repairs to or

rehabilitation of a property done by a lessee during the lease term

will not be reflected in the purchase price.

(2) Sales of leased properties will be on as-is, all-cash basis.

HUD will not pay a fee for a selling broker. HUD will pay the closing

agent's fee. The purchaser must pay all other closing costs.

Sec. 291.435 Applicability of other Federal requirements.

In addition to the requirements set forth in 24 CFR part 5, the

following Federal requirements apply to lessees and purchasers under

this subpart:

(a) Nondiscrimination and equal opportunity. (1) The

nondiscrimination and equal opportunity requirements set forth in 24

CFR part 5 are modified as follows:

(i) As applicable, lessees and purchasers must also comply with the

Americans With Disabilities Act (42 U.S.C. 12131) and implementing

regulations in 28 CFR parts 35 and 36.

(ii) The requirements of section 3 of the Housing and Urban

Development Act of 1968 (12 U.S.C. 1701u), and Executive Order 11246

(30 FR 12319, 12935, 3 CFR, 1946-1965 Comp., p. 339; Executive Order

11625 (36 FR 19967, 3 CFR, 1971-1975 Comp., p. 616); Executive Order

12432 (48 FR 32551, 3 CFR, 1983 Comp., p. 198; and Executive Order

12138 (44 FR 29637, 3 CFR, 1979 Comp., p. 393) do not apply to this

subpart.

(2) Lessees or purchasers that intend to serve designated

populations of the homeless must comply, within the designated

population, with the requirements for nondiscrimination on the basis of

race, color, religion, sex, national origin, age, familial status, and

disability.

(3) If the procedures that the lessee or purchaser intends to use

to make known the availability of housing are unlikely to reach persons

of any particular race, color, religion, sex, age, national origin,

familial status, or disability who may qualify for admission to the

housing, the recipient must establish additional procedures that will

ensure that interested persons can obtain information concerning the

availability of the housing.

[[Page 55716]]

(4) The lessee or purchaser must adopt procedures to make available

information on the existence and locations of facilities and services

that are accessible to persons with a handicap and maintain evidence of

implementation of the procedures.

(b) Conflicts of interest. No person who is an employee, agent,

consultant, officer, or elected or appointed official of the lessee or

purchaser of property under this subpart, or who is in a position to

participate in a decisionmaking process or gain inside information with

regard to the lease or purchase of the property, may obtain a personal

or financial interest or benefit from the lease or purchase of the

property, or have an interest in any contract, subcontract, or

agreement with respect thereto, or the proceeds thereunder, either for

himself or herself or for those with whom he or she has family or

business ties, during his or her tenure or for one year thereafter.

Sec. 291.440 Recordkeeping requirements.

Each lessee must establish and maintain sufficient records to

enable the Secretary to determine whether the requirements of this

subpart have been met. This includes, where available, racial, ethnic,

gender, and disability status data on the applicants for, and

beneficiaries of, this homeless initiative.

(Approved by the Office of Management and Budget under OMB control

number 2502-0412)

Date: October 7, 1996.

Nicolas P. Retsinas,

Assistant Secretary for Housing--Federal Housing Commissioner.

[FR Doc. 96-27543 Filed 10-25-96; 8:45 am]

BILLING CODE 4210-27-P