Disposition of HUD-Acquired Single Family Property; Proposed Rule

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 291

[Docket No. FR-4244-P-02]

RIN 2502-AG96

Disposition of HUD-Acquired Single Family Property; Proposed Rule

AGENCY: Office of the Assistant Secretary for Housing-Federal Housing

Commissioner, HUD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend HUD's regulations for the

disposition of HUD-acquired single family properties. Through this

proposed rule, HUD is seeking comments on an efficient, innovative, and

cost-effective alternative for selling HUD's inventory of single family

properties. This alternative would allow HUD to enter into a property

acquisition agreement or agreements with an individual, partnership,

corporation or other legal entity. The agreement would provide for the

right and obligation of the entity to acquire designated properties,

including properties that are currently in HUD's inventory, but

primarily those that are or will be ``in the pipeline.'' HUD's goals

are to reduce the inventory of single family properties while

continuing to expand homeownership opportunities for American families

and to ensure the stability of the Federal Housing Administration (FHA)

Mortgage Insurance Fund.

DATES: Comment due date: June 29, 1998.

ADDRESSES: Interested persons are invited to submit comments regarding

this proposed rule to the Rules Docket Clerk, Office of General

Counsel, Room 10276, Department of Housing and Urban Development, 451

Seventh Street, SW, Washington, DC 20410. Communications should refer

to the above docket number and title. Facsimile (FAX) comments are not

acceptable. A copy of each communication submitted will be available

for public inspection and copying between 7:30 a.m. and 5:30 p.m.

weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: Joseph McCloskey, Director, Single

Family Asset Management Division, Office of Insured Single Family

Housing, Department of Housing and Urban Development, Room 9184, 451

Seventh Street, SW, Washington, DC 20410; telephone number (202) 708-

1672 (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 1-800-877-8399.

SUPPLEMENTARY INFORMATION:

I. Background--Program of Sales of Single Family Properties

Section 204 of the National Housing Act (Act) (12 U.S.C. 1710)

governs the Federal Housing Administration (FHA) insurance claim

process and property disposition. Specifically, section 204(g) of the

Act pertains to the management and disposition of HUD-acquired single

family properties. HUD's implementing regulations are contained in 24

CFR part 291.

These statutory and regulatory authorities for the acquisition,

handling, and disposing of HUD-acquired property make up HUD's Single

Family Property Disposition program. Essentially, HUD is charged with

implementing a program of sales of HUD-acquired properties along with

appropriate credit terms and standards to be used in carrying out the

program. Currently, HUD's principal method of selling properties is

through competitive sales of individual properties to individual

purchasers.

The competitive sales of individual properties is a time consuming

process that does not result in efficient and prompt delivery of the

single family properties to the sales market. HUD has the largest real

estate-owned (REO) operation in the nation, selling in excess of 50,000

properties each year. While this volume of property sales represents

only a small percentage of the total number of home sales nationwide

(see the ``Regulatory Flexibility Act'' section of this preamble for

further discussion), it represents a significant administrative

responsibility for HUD. Both HUD and potential homeowners are

disadvantaged by the processing time required involved in competitive

sales of individual properties. It is critical for HUD to find more

timely and less costly methods to dispose of its REO inventory in order

to further its mission of providing homeownership opportunities for

American families. In addition, HUD must dispose of these properties

efficiently in order to minimize any losses to the insurance fund and

to keep the costs of insurance low.

On June 13, 1997 (62 FR 32251), HUD published in the Federal

Register an advance notice of proposed rulemaking (ANPR) to solicit

public comments on better methods of disposing of HUD-owned single

family properties. The ANPR suggested that such methods could include

bulk sales of current inventory or future acquisitions on a regional or

national basis, or arrangements similar to joint ventures, profit-

sharing arrangements, or private-public partnerships. In addition to

soliciting comments through the ANPR published in the Federal Register,

HUD requested public input through a notice published in the following

newspapers: The Washington Post, The New York Times, The Wall Street

Journal, Barron's, and U.S.A. Today.

II. HUD's New Innovative Sales Method

After considering all the comments received on the ANPR, which are

discussed below, HUD is proposing that competitive sales of individual

properties to individuals will no longer be HUD's principal method of

sale, as the regulations in 24 CFR part 291 currently provide. The

proposed rule provides that HUD may, in its discretion, on a case-by-

case basis or as a regular course of its business, choose from a

variety of sales methods. The proposed rule also would add a new

innovative and cost-effective sales method.

Under the new sales method, HUD will invite interested entities to

participate in a competitive selection process for the right and

obligation to acquire properties designated by HUD. (For purposes of

this rule, HUD refers to this sales method as the ``future REO

acquisition method.'') HUD intends that these designated properties

would consist primarily of ``pipeline'' properties. Pipeline properties

are those that would otherwise come into HUD's inventory in the future.

These designated properties could also include properties that are

currently in HUD's inventory. HUD and the selected entity/transferor

would enter into a property acquisition agreement, which would provide

for the right and obligation of the transferor to acquire the

designated properties as the properties become available. Under this

method, HUD would have the right to negotiate the specific terms of

such an agreement with the selected transferor. HUD is considering

defining the entity's obligation to acquire the properties in terms of

a specific geographic region or regions over a specific period of time,

as well as utilizing the capacity of such entity to support HUD's loss

mitigation efforts. The selected transferor would generally be

responsible for managing and selling the individual REO properties.

With respect to this method of disposition, HUD encourages qualified

entities that currently are engaged in the process of management and

disposition of HUD's REO inventory to consider participation in the

future REO acquisition method by partnering

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with other qualified entities, if they themselves lack the resources to

participate individually. Furthermore, HUD will make available to the

selected transferor(s) a list of all entities (by service and

geography) who currently participate in HUD's REO disposition process

for its use in performing the future acquisition method.

As noted earlier, HUD has the discretion to use other methods of

sale, in addition to this future REO acquisition method, including

competitive sales of individual properties to individuals, direct

sales, bulk sales, and other sales as determined necessary by the

Secretary. HUD anticipates, however, that the new future REO

acquisition method or other similar arrangements would allow HUD to

transfer most of the properties it acquires (or would otherwise

acquire), quickly and efficiently and in a manner that allows HUD to

better achieve its national housing goals.

The ability to move the properties out of HUD's inventory quickly

and efficiently is crucial. The longer the properties remain in HUD's

inventory, the more HUD's holding costs increase, and the longer they

remain unavailable as homeownership opportunities for potential

purchasers. Using disposition methods such as the future REO

acquisition method would be more efficient and expedient than HUD's

current sales methods, since HUD anticipates that the entities

interested in such arrangements will be experienced in high-volume

property sales. HUD anticipates that competition among interested

entities would enhance this benefit and result in maximum efficiency

and return. Therefore, using innovative property disposal methods such

as the future REO acquisition method should not only ensure the maximum

possible return to the mortgage insurance fund; it should also help to

strengthen neighborhoods and communities and help to expand

homeownership opportunities in order to help provide decent, safe, and

affordable housing.

HUD anticipates, however, that the future REO acquisition method

could result in fewer properties available for direct sales to

nonprofit organizations and units of government. HUD understands that

there are entities that rely upon HUD-acquired properties as a resource

for their housing programs, and HUD is committed to continuing its

partnership with these groups. Therefore, in order to minimize the

anticipated effects of any decreased availability of properties, HUD

intends to make available a portion of the properties acquired in HUD-

designated revitalization areas to nonprofit organizations (including

homeless providers and nonprofit organizations representing persons

with disabilities or other classes of persons protected by the Fair

Housing Act) and units of government for use in HUD and local housing

or homeless programs (see Sec. 291.90(c)(1) of this proposed rule).

III. Discussion of Public Comments on ANPR

HUD received 52 comments in response to the June 13, 1997 ANPR and

simultaneous newspaper publications. The following discussion provides

a summary of the issues and recommendations raised by the commenters.

New Methods of Sale

A few commenters offered suggestions for new methods of sale for

HUD's inventory. For example, one commenter proposed that HUD enter

into a contract with that commenter, which proposed to provide

electronic marketing of HUD-owned single family properties. While HUD

currently lists properties available for sale in large circulation

newspapers, and some offices list properties on the World Wide Web, HUD

is looking for a new means to reduce substantially the on-hand

inventory, now and into the future, rather than a new means to market

that inventory.

Another commenter suggested that HUD outsource the REO management

and liquidation function to experienced companies located in areas that

correspond to HUD's Homeownership Centers. HUD is considering expanding

the use of the management and marketing-type contracting that is being

tested in New Orleans, Baltimore, and Sacramento, which would rely upon

local real estate brokers, appraisers, and closing agents for the

inventory not sold through the future REO acquisition method.

Therefore, HUD will continue to consider the suggestions of these

commenters. At this time, however, HUD is proposing to rely upon the

future REO acquisition process described above to transfer most of the

properties.

One commenter suggested that HUD form joint venture arrangements

with selected nonprofit real estate development organizations to reduce

the inventory. Another commenter suggested that HUD sell properties in

identified neighborhoods in bulk to a State agency that would then

enter into a joint venture with a nonprofit. Several other commenters

suggested that HUD give greater priority to nonprofits and/or

government agencies. HUD intends to continue to offer a certain

percentage of properties to nonprofit organizations and local

government entities. In addition, this proposed rule would not preclude

States and nonprofits from participating in the sales process described

in this rule through partnering arrangements with each other or with

the successful transferor. HUD believes, however, that reducing the

inventory through the future REO acquisition method would be more cost-

effective.

One commenter recommended that Federal agencies combine their

resources and sell properties via auctions under the Government Owned

Real Estate (G.O.R.E.) project. HUD has participated in G.O.R.E.

auctions in the past and anticipates doing so in the future. However,

since HUD has a much higher volume of properties in its inventory and a

greater need for frequent sales than other Federal agencies, the

G.O.R.E. auctions have a limited utility for HUD. HUD anticipates that

the effort described in this proposed rule would be a more efficient

method of selling the bulk of its inventory, because transferors could

be available to acquire properties on a continual basis in many

regions.

Opposition to Bulk Sales

Several commenters opposed selling HUD's single family acquired

properties through bulk sales. Two commenters warned that bulk sales

will negatively affect real estate values and could cause a local

depression of the real estate market. Three commenters (real estate

brokers/managers) claimed that bulk sales would put them out of

business.

Contrary to these commenters' objections, however, HUD is primarily

considering selling a pipeline of properties to transferors chosen

through a competitive process, rather than selling acquired properties

through bulk sales. HUD does not believe that the sales arrangement

described in this proposed rule would adversely affect real estate

values or cause a depression of local real estate markets, since HUD

anticipates that the ultimate sales of the individual properties by the

chosen transferors will result in fair market pricing. Although HUD may

sell properties that are currently in inventory through a bulk sale

arrangement, any such sales will be structured to take into account the

impact on local communities.

HUD has performed an analysis on the impact the future REO

acquisition method would have on small businesses that do business with

HUD, such as real estate brokers. This analysis is described below

under the heading ``Regulatory Flexibility Act.'' This new sales method

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should not significantly affect small businesses, especially if the

transferors use a process of selling the properties that is similar to

HUD's. In an effort to mitigate any such impact, however, HUD would

encourage its transferors to use local firms to assist in their

disposal of the single family acquired properties.

IV. Changes to Regulations in 24 CFR Part 291

Specifically, this proposed rule would amend the regulations in 24

CFR part 291 to:

1. Add a new section (see Sec. 291.200 of this proposed rule) to

describe basic procedures for the future REO acquisition sales method.

The proposed Sec. 291.200 contains general information regarding the

process by which HUD anticipates conducting the new sales method. HUD

plans to advertise the availability of acquisition opportunities to the

public, and to provide detailed information to interested eligible

entities.

2. Reorganize the property disposition regulations to allow for and

to recognize the use of innovative sales procedures such as the future

REO acquisition method, by:

a. Revising Sec. 291.5 (Definitions), primarily by moving relevant

definitions to subpart E;

b. Creating a new Sec. 291.90 in subpart B to describe all the

sales methods that will be available to the Secretary;

c. Moving the flood insurance requirements from Sec. 291.100(f) to

Sec. 291.100(c)(1) regarding individual properties that are sold with

FHA mortgage insurance; HUD's requirements for flood insurance apply

only to FHA-insured mortgages in these circumstances.

d. Redesignating Sec. 291.200 of the current regulations, regarding

HUD's policy for the rental of acquired property, as Sec. 291.10 in

subpart A of part 291.

e. Revising the heading of existing subpart C to read ``Sales

Procedures.'' This rule would move the provisions of Secs. 291.105 and

291.110 into subpart C (see Secs. 291.205 and 291.210 of this proposed

rule), to follow the new Sec. 291.200 regarding the future REO

acquisition method (described above).

HUD anticipates that it would rely heavily upon the future REO

acquisition method or similar arrangements to sell its inventory of

single family properties (so long as such arrangements are found to be

economically viable and in furtherance of the national housing goals),

rather than the sales methods described in Secs. 291.205 and 291.210 of

this rule. However, this rule would preserve the procedures for those

sales methods and retain them as viable sales options. If HUD seeks to

use direct sales to other individuals or entities that do not meet any

of the other categories of sales, this rule would continue to require

the Assistant Secretary for Housing-Federal Housing Commissioner to

make a finding that disposing of properties in such a manner would be

in the best interest of the Secretary (see Sec. 291.210(c) of this

rule.)

V. Nondiscrimination Requirements

HUD's responsibilities and priorities include ensuring compliance

with applicable nondiscrimination requirements, such as the Americans

with Disabilities Act, section 504 of the Rehabilitation Act of 1973,

and the Fair Housing Act. With regard to the disposition of single

family properties in HUD's inventory, all resales by public entities

are subject to compliance with Title II of the Americans with

Disabilities Act. All resales by both public and private entities are

subject to compliance with the Fair Housing Act.

In addition, HUD must comply with section 504 of the Rehabilitation

Act of 1973, which requires nondiscrimination based on disability in

programs or activities conducted by any executive agency. HUD

regulations implementing this requirement are in 24 CFR part 9. Under

Sec. 9.155(a) of those regulations, HUD must ensure that its Property

Disposition Program policies and practices do not discriminate on the

basis of disability, against a qualified individual with disabilities.

HUD will take appropriate steps to ensure effective communication with

applicants, participants, personnel of other Federal entities, and

members of the public. HUD will provide appropriate auxiliary aids as

necessary to afford an individual with disabilities an equal

opportunity to participate in this program.

VI. Justification for Shortened Comment Period

In general, it is HUD's policy that notices of proposed rulemaking

are to afford the public not less than 60 days for submission of

comments, in accordance with its regulations on rulemaking in 24 CFR

part 10. However, HUD has determined that there is good cause to reduce

the public comment period for this proposed rule to 30 days. As

discussed earlier in this preamble, HUD anticipates that this future

REO acquisition method of disposing of single family properties would

be more efficient and expedient than HUD's current method of

competitive individual property sales, thereby increasing homeownership

opportunities and helping to build strong neighborhoods and

communities. The completion of this rulemaking would be necessary in

order for HUD to begin the process of selecting and negotiating with

the transferor(s). (However, nothing in this rule prevents HUD from

conducting a bulk sale of property in its inventory.)

HUD has provided the public with notice and an opportunity to

comment on innovative sales procedures in the advanced notice of

proposed rulemaking published in the Federal Register on June 13, 1997

(62 FR 32251). HUD also sought public input by publishing a notice in

several prominent newspapers and business journals. Therefore, HUD has

determined that the 30-day comment period for this proposed rule should

provide sufficient notice and opportunity for interested entities to

comment. In order to provide the fullest and most expedient access to

the provisions of this proposed rule, HUD will make it available on the

HUD Home Page on the World Wide Web at http://www.hud.gov, on the date

of publication in the Federal Register. HUD will also directly notify

entities that have expressed a significant interest to HUD by sending

such entities a copy of this proposed rule.

VII. Findings and Certifications

Executive Order 12866

The Office of Management and Budget (OMB) reviewed this proposed

rule under Executive Order 12866, Regulatory Planning and Review. OMB

determined that this rule is a ``significant regulatory action,'' as

defined in section 3(f) of the Order. Any changes made to this rule as

a result of that review are clearly identified in the docket file. The

docket file and the Economic Analysis prepared for this rule are

available for public inspection between 7:30 a.m. and 5:30 p.m. in the

Office of the Rules Docket Clerk, Department of Housing and Urban

Development, Room 10276, 451 Seventh Street, S.W., Washington, DC.

Environmental Impact

A Finding of No Significant Impact with respect to the environment

was made in accordance with HUD regulations in 24 CFR part 50 that

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

1969 (42 U.S.C. 4223). The Finding 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 General Counsel, Room 10276, Department of

Housing and Urban

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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 this proposed rule before publication and

by approving it certifies that this rule would not have a significant

economic impact on a substantial number of small entities.

(1) No Significant Economic Impact. The future REO acquisition

method would not result in a significant economic impact on a

substantial number of small entities. During fiscal year 1997, the sale

of HUD homes represented only 1.2 percent of total home sales, using

only 1.6 percent of the active selling brokers. Since HUD's home sales

are a very small portion of the overall home sales business, the

economic impact of this rule would not be significant, and it would not

affect a substantial number of small entities.

(2) A Substantial Number of Small Entities Will Not be Affected.

HUD has determined that there are approximately 18,000 small entities

that could be affected by this rule, including nonprofit organizations,

State and local governments, Real Estate Asset Managers (REAMs), real

estate brokers, selling agents, closing agents, and repair contractors.

The number of entities potentially affected by this rule is not

substantial, and any potential economic impact would not be

significant. A transferor under this new arrangement may use a sales

process similar to HUD's previous sales process, in which case a number

of the entities that would continue to be involved in the ultimate

sales of the properties would be small entities. In an effort to

mitigate any potential impact on small entities, HUD would encourage

the transferor(s) to use small local firms to assist in their disposal

of single family acquired properties.

Notwithstanding HUD's determination that this rule would not have a

significant economic effect on a substantial number of small entities,

HUD specifically invites comments regarding any less burdensome

alternatives to this rule that will meet HUD's objectives as described

in this preamble.

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 would 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. This rule

simply allows HUD to use innovative methods of selling its inventory of

single family homes. As a result, this rule is not subject to review

under the Order.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-

4; approved March 22, 1995) (UMRA) establishes requirements for Federal

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

local, and tribal governments, and 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 is proposed to be amended as follows:

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. In part 291, subparts A, B, and C are revised to read as

follows:

Subpart A--General Provisions

Sec.

291.1 Purpose and general requirements.

291.5 Definitions.

291.10 General policy regarding rental of acquired property.

Subpart B--Disposition by Sale

291.90 Sales methods.

291.100 General policy.

Subpart C--Sales Procedures

291.200 Future REO acquisition method.

291.205 Competitive sales of individual properties.

291.210 Direct sales procedures.

Subpart A--General Provisions

Sec. 291.1 Purpose and general requirements.

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

family properties. HUD will issue detailed policies and procedures that

must be followed in specific areas.

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

of 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. In addition, in accordance with 24 CFR 9.155(a), HUD must ensure

that its policies and practices in conducting the single family

property disposition program do not discriminate on the basis of

disability.

Sec. 291.5 Definitions.

(a) The terms HUD and Secretary are defined in 24 CFR part 5.

(b) Other terms used in this part are defined as follows:

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 to individual means a sale of an individual

property to an individual bidder 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.

Eligible properties means HUD-acquired properties designated by HUD

for property disposition or other housing programs.

HUD-acquired properties means all single family properties acquired

by HUD or properties that HUD is otherwise obligated to acquire 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.

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.

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

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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).

Sec. 291.10 General policy regarding rental of acquired property.

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.

Subpart B--Disposition by Sale

Sec. 291.90 Sales methods.

HUD will prescribe the terms and conditions for all methods of

sale. HUD may, in its discretion, on a case-by-case basis or as a

regular course of business, choose from among the following methods of

sale:

(a) Future REO acquisition method. The Future Real Estate-Owned

(REO) acquisition method consists of a property acquisition agreement

(or agreements) between HUD and a transferor (or transferors), which

shall provide for the right and obligation of the transferor(s) to

acquire a future quantity of properties designated by HUD as they

become available. HUD will select such transferor(s) through a

competitive process, in accordance with all applicable laws and

regulations, including the requirements in Sec. 291.200. The

transferor(s) shall have the right and obligation to manage and dispose

of the properties upon such terms and conditions as are approved by the

Secretary;

(b) Competitive sales of individual properties. This method

consists of competitive sales of individual properties to individual

buyers, the procedures for which are described in Sec. 291.205;

(c) Direct sales methods. There are three types of direct sales

methods:

(1) Direct sales of properties located in HUD-designated

revitalization areas to governmental entities and private nonprofit

organizations, the procedures for which are described in

Sec. 291.210(a);

(2) Direct sales to displaced persons, sales of razed lots, or

auctions, the procedures for which are described in Sec. 291.210(b);

(3) Direct sales to other individuals or entities that do not meet

any of the categories specified in paragraphs (a) through (d) of this

section, under the circumstances and procedures described in

Sec. 291.210(c);

(d) Bulk sales, the procedures for which are described in

Sec. 291.210(d); or

(e) Other sales methods. HUD may select any other methods of sale,

as determined by the Secretary.

Sec. 291.100 General policy.

For all sales, except as otherwise specifically indicated, those

sales conducted in accordance with Secs. 291.90(a) and 291.200 or with

subpart D of this part, the following general policies apply:

(a) Qualified purchaser. (1) Anyone, including a purchaser from a

transferor of a property pursuant to Secs. 291.90(a) and 291.200,

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) Neither HUD nor any transferor pursuant to Secs. 291.90(a) or

291.200 will 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) Insurance. Properties may be sold under the following programs:

(1) 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, which is available at the Department of Housing and Urban

Development, HUD Customer Service Center, 451 7th Street, SW, Room B-

100, Washington, DC 20410; by calling (202) 708-3151; or via the

Internet at www.hud.gov) will be offered for sale in ``as-is''

condition with FHA mortgage insurance available. Flood insurance must

be obtained and maintained as provided in 24 CFR 203.16a.

(2) 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.

[[Page 29501]]

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

paragraph (c)(1) or (c)(2) 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.

(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 5 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) [Reserved]

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

before 1978 are subject to the requirements for the evaluation and

reduction of lead-based paint hazards 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.

Subpart C--Sales Procedures

Sec. 291.200 Future REO acquisition method.

(a) Under this method of property disposition, HUD will enter into

a property acquisition agreement (or agreements) with a transferor (or

transferors), which shall provide for the right and obligation of the

transferor(s) to acquire a future quantity of properties designated by

HUD as they become available. The transferor(s) will be selected

through a competitive process, conducted in accordance with applicable

laws. HUD will negotiate the specific terms of the property acquisition

agreement(s) with the selected transferor(s). The properties will be

available on an ``as-is'' basis only, without repairs or warranties.

(b) Eligible entities. An individual, partnership, corporation, or

other legal entity will not be eligible to participate if at the time

of the sale, that individual or entity is debarred, suspended, or

otherwise precluded from doing business with HUD under 24 CFR part 24.

Sec. 291.205 Competitive sales of individual properties.

When HUD conducts competitive sales of individual properties to

individual buyers, it will sell the properties on an ``as-is'' basis,

without repairs or warranties, and it will follow the sales procedures

provided in this section.

(a) General. (1) Properties that are sold on an individual

competitive bid basis are sold 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

[[Page 29502]]

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 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.

Sec. 291.210 Direct sales procedures.

When HUD conducts the sales listed in Sec. 291.90(c), it will sell

the properties on an ``as-is'' basis, without repairs or warranties,

and it will follow the applicable sales procedures provided in this

section.

(a) Direct sales of properties located in HUD-designated

revitalization areas 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 HUD properties 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. Upon request,

before those properties are publicly listed, HUD will assure that

governmental entities and nonprofit organizations are notified in

writing when eligible properties become available in the areas

designated by them. HUD 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 5 days of the

notification of available properties (if notification is by mail, the 5

days will begin to run 5 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) Direct sales to displaced persons; razed lots; auctions. HUD

may seek to dispose of individual properties to individual buyers

through methods such as direct sales to displaced persons, sales of

razed lots, or auctions. These sales will be upon such terms and

conditions as the Secretary may prescribe.

(c) Direct sales to individuals or entities. HUD may also seek to

dispose of properties through direct sales to other individuals or

entities that do not meet any of the categories specified in this

section, if the Assistant Secretary for Housing-Federal Housing

Commissioner (or his or her designee) finds 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.

[[Page 29503]]

(d) Bulk sales. HUD may seek to dispose of properties through bulk

sales. Such sales will be upon such terms and conditions as the

Secretary may prescribe.

3. A new Sec. 291.405 is added to subpart E, to read as follows:

Sec. 291.405 Definitions.

For purposes of this subpart E:

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

this subpart E. 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.

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) Persons with disabilities 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.

Dated: March 19, 1998.

Art Agnos,

Acting General Deputy Assistant Secretary for Housing-Deputy Federal

Housing Commissioner.

[FR Doc. 98-14014 Filed 5-28-98; 8:45 am]

BILLING CODE 4210-27-P