[Federal Register Volume 59, Number 183 (Thursday, September 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23412]
[[Page Unknown]]
[Federal Register: September 22, 1994]
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Part III
Department of Housing and Urban Development
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Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
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24 CFR Parts 203 and 291
Single Family Property Disposition Program; Final Rule
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
24 CFR Parts 203 and 291
[Docket No. R-94-1670; FR-3253-F-02]
RIN 2502-AF75
Single Family Property Disposition Program
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This rule makes final, with changes, the amendments to
regulations at 24 CFR parts 203 and 291 announced in an interim rule
published on October 20, 1993 (58 FR 54244), with an effective date of
November 19, 1993. The regulations govern the disposition of HUD-
acquired single family properties (part 291) and the circumstances
under which HUD will accept such properties when they are occupied
(part 203). The preamble to this final rule responds to the comments
received from the public on the interim rule.
EFFECTIVE DATE: October 24, 1994.
FOR FURTHER INFORMATION CONTACT: David H. Patton, Acting Director,
Single Family Property Disposition, room 9172, Department of Housing
and Urban Development, 451 Seventh Street SW, Washington, DC 20410-
0500; telephone (202) 708-0740; TDD for hearing- and speech-impaired
(202) 708-4594. (These are not toll-free numbers.)
SUPPLEMENTARY INFORMATION: The amendments made in this rule do not
affect the information collection requirements for the Single Family
Property Disposition program, which were previously approved by the
Office of Management and Budget (OMB) under the Paperwork Reduction Act
and assigned OMB control numbers 2502-0306.
I. Background
Title II of the National Housing Act (the Act) authorizes HUD to
insure mortgages for single family residences through the Federal
Housing Administration (FHA) single family mortgage insurance program.
The disposition program for single family properties, acquired by HUD
in exchange for payment of insurance claims, is authorized by section
204(g) of the Act. The regulations governing the disposition program
are codified at 24 CFR part 291.
On October 20, 1993, the Department published an interim rule,
which subsequently became effective on November 19, 1993, amending
certain provisions of part 291 to allow for greater flexibility in
fluctuating market situations and to provide greater opportunities for
affordable housing to families and to State and local governments or
nonprofit organizations serving low- and moderate-income families. The
purpose of the amendments was to implement the policy of President
Clinton and Secretary Cisneros to expand access to affordable
homeownership and help revitalize neighborhoods.
II. Amendments Made by Interim Rule
Single Family Property Disposition (24 CFR Part 291)
1. The purpose of the disposition program was changed to place
greater emphasis on homeownership and improvement of neighborhoods, by
providing that the primary objective of the 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. (24 CFR 291.1(a).)
2. A definition of ``revitalization areas'' was added, which
defined the term as urban neighborhoods that are targeted by a city for
coordinating affordable housing programs and enhanced supportive
services, and where a significant number of HUD-owned properties have
been in inventory at least six months. (24 CFR 291.5.)
3. Purchase money mortgages (PMMs) in revitalization areas were
made available for 85 percent of the purchase price, at current market
interest rates, for a period not to exceed five years for direct sale
purchasers (i.e., governmental entities and private nonprofit
organizations) meeting FHA mortgage credit standards and purchasing
properties for ultimate resale to owner-occupant purchasers at or below
115 percent of median income. (24 CFR 291.100(d).)
4. The definition of owner-occupant purchaser was amended to limit
it to purchasers who intend to occupy the property as their primary
residence. (The rule had previously included governmental entities and
private nonprofit organizations as owner-occupant purchasers.) (24 CFR
291.5.)
5. Owner-occupant purchasers were given a priority in the
competitive bid sales method. In revitalization areas, the priority was
made available for up to 30 days and only for properties offered with
FHA mortgage insurance. In all other areas, the priority was made
available for all properties for a period of time to be set by the
field office, depending on local circumstances. (24 CFR 291.105(a).)
6. The limitation on the amount of financing and closing costs that
HUD pays was removed, and the rule was amended to provide that HUD will
determine the maximum limit appropriate for the area. (24 CFR
291.105(b).)
7. The discount available on direct sale purchases was changed from
10 percent to an amount to be determined appropriate by HUD, but not
less than 10 percent, depending on the location of the property or the
number of properties purchased in a single transaction. (24 CFR 291.110
(a) and (b).)
8. The procedure by which potential purchasers under the direct
sales program are notified of eligible properties was amended. (24 CFR
291.110(a).)
9. A provision was added to allow for a direct sale to an
individual or other entity not otherwise specified in the rule where a
finding is made, in writing, that such a sale would further the goals
of the National Housing Act and would be in the best interests of the
Secretary. (24 CFR 291.110(g).)
10. The rule was amended to permit initial 15-day extensions for
closing at no cost to owner-occupant purchasers where documentation
indicates that (1) proper and timely loan application was made, (2) the
delay is not the fault of the buyer, and (3) mortgage approval is
imminent. A further amendment allowed extensions at no cost, at any
time and to any purchaser, where the delay is the fault of HUD or a
direct endorsement lender. (24 CFR 291.130(b).)
11. An amendment was made to provide that, in the case of an
uninsured sale, 100 percent of an earnest money deposit made by an
owner-occupant purchaser will be returned where the purchaser is pre-
approved for mortgage financing in an appropriate amount by a
recognized mortgage lender and, despite good faith efforts, is unable
to obtain mortgage financing; and, where an owner-occupant purchaser
has not been preapproved and despite good faith efforts cannot obtain
mortgage financing, 50 percent of the earnest money deposit will be
returned. (24 CFR 291.135.) A definition of ``pre-approved'' was added
to mean that a commitment has been obtained from a recognized mortgage
lender for mortgage financing in a specified dollar amount sufficient
to purchase the property. (24 CFR 291.5.)
Occupied Conveyance (24 CFR Part 203)
The occupied conveyance rule at 24 CFR 203.670 and 203.671 was
amended to provide that HUD may accept occupied properties to avoid the
payment of excessive eviction or relocation expenses required by a
local government. A technical correction was also being made to
Secs. 203.675(b)(4) and 203.676 to conform with an earlier amendment to
the rule published on September 16, 1991 (56 FR 46964) regarding the
conveyance of properties occupied by persons who suffer a long-term or
permanent illness.
III. Public Comments
The Department received 40 public comments during the 60-day
comment period that ended on December 20, 1993. The comments were from
governmental entities, private nonprofit organizations, and three
members of Congress. The comments are discussed below. Numbers in
parentheses following the comment refer to the number of commenters
raising the issue.
Comment: HUD should continue to give a priority to purchase (and
lease, in the case of homeless providers) to nonprofits and government
agencies, particularly grantees under HOPE for Homeownership of Single
Family Homes (HOPE 3). (36)
Response: The Department agrees that changes to its procedures for
offering properties to governmental entities and nonprofit
organizations are appropriate. The final rule has been changed to
include governmental entities and nonprofit organizations in the
definition of owner-occupant purchasers, thereby giving them a
simultaneous opportunity to purchase properties eligible for FHA
mortgage insurance during the competitive bidding period. If a
nonprofit or government agency submits the highest net offer, without
any discount being considered, and that offer is otherwise acceptable,
it will be accepted and a discount of 10 percent (15 percent if five or
more properties are purchased and closed simultaneously), regardless of
the property's location, will be applied at closing. For properties not
eligible for FHA mortgage insurance, nonprofits and government agencies
will have first opportunity to purchase at HUD's determination of fair
market value. Offers accepted will reflect the appropriate discount.
For properties offered without FHA mortgage insurance, the discount
will be 30 percent in revitalization areas, and 10 percent in all other
areas (or 15 percent, as appropriate).
Comment: In establishing revitalization areas, the number of FHA
foreclosures in process should be taken into consideration rather than
the number of properties currently on hand. (7)
Response: Due to the several uncertainties surrounding foreclosures
(payoff by mortgagor, purchase by third parties, bankruptcy, redemption
periods, the varying length of time in which foreclosure occurs, etc.),
the Department believes that the use of foreclosures in process is not
practical in establishing revitalization areas. The Department
continues to believe it is appropriate to establish revitalization
areas based on experience with its property disposition program and
based on areas designated by localities for expanding affordable
housing opportunities.
Comment: The discount in revitalization areas should be greater.
(4)
Response: The available discount is based on anticipated savings to
the Department, both in terms of selling on a direct basis and in
selling properties more quickly that may otherwise require extended
periods of marketing. The amount is supported by an evaluation
performed on the Single Family Property Disposition Demonstration
Program conducted by the Department on sales of properties in
economically distressed areas. The Department believes that the current
discount level is appropriate, but retains flexibility in making future
determinations based on changing housing market conditions.
Comment: There should be a requirement for owner-occupant buyers to
repair to code. (3)
Response: The Department believes that such a requirement, and its
enforcement, properly rests with the local government.
Comment: The program should be monitored and reports provided to
the public. (3)
Response: The Department does not believe there is an urgent need
to devote already scarce resources to large scale monitoring of this
unsubsidized program. To the extent the Department learns of
falsification of the Sales Contract, or other abuses in the program,
corrective measures will be taken at that time. In this regard, steps
have been taken to determine the appropriateness of having the
Department's computer system perform limited checking on owner-
occupants purchasing more than one principal residence. Also, the Sales
Contract now includes a warning to purchasers about the possible
consequences of falsifying that document. The Department has recently
authorized Field Offices to include resale restrictions on certain
properties to prevent windfall profits and require that the properties
be used for affordable housing goals. A provision has been added to the
final rule at Sec. 291.110(a)(3) to authorize the Department to request
information when considered appropriate on the disposition of
properties sold to governmental entities and nonprofits. Consideration
is also being given to other administrative procedures to prevent abuse
from all categories of buyers.
Comment: Minimum residency requirements for owner-occupant buyers
should be established. (2)
Response: The Department does not agree that such requirements
should be established. Unnecessary hardships could be placed on owner-
occupants in some cases where job relocations or other circumstances
may necessitate moving. As discussed above, the Department has taken
some measures already, and is considering others, to prevent possible
abuses.
Comment: The number of properties nonprofits may purchase should be
limited and based on the number they have completed successfully. (2)
Response: Nonprofit organizations are currently eligible to
purchase discounted properties based on differing pre-qualification
standards. While the Department believes it would not be in its best
interests to require a second approval, nonprofits not previously
approved under another HUD program will generally be subject to
requirements much like those used in the HOPE 3 program as a condition
to purchasing properties at discounted prices. (See the HOPE 3
regulations at 24 CFR part 572.) In addition, the Department may
specify a required minimum number of properties to be completed
successfully, before the purchase of additional properties.
Comment: In pricing HUD properties, appraisers should use
distressed properties as comparables. (2)
Response: HUD believes its procedure for pricing properties,
regardless of their location, is a fair one. Appraisers utilize recent
sales of comparable properties in similar condition, and HUD's listing
price is reflective of the needed level of repairs.
Comment: HUD should continue to provide lists of available
properties. (2)
Response: HUD's Field Offices are required by Sec. 291.110(a) to
provide lists of properties available for direct purchase upon request.
Where Field Offices have provided lists routinely, they have not been
instructed to discontinue the practice, and some are continuing that
practice. To eliminate unnecessary and duplicative work, however, some
offices may elect to have the newspaper advertisement, where such
advertising is used, also serve as official notification to the
nonprofits and government agencies. In areas where newspapers are not
used to advertise properties, other means must be used to notify
nonprofits and government agencies of available properties in a timely
manner. In those instances where properties being offered without FHA
mortgage insurance are first made available to nonprofits and
government agencies, Field Offices will continue to provide lists
directly to those potential purchasers. The Department does not believe
this practice creates a hardship on program participants.
Comment: A process should be established for nonprofits to appeal
Field Office decisions. (1)
Response: The Department does not believe such a process is
necessary and, in fact, could serve to undermine the authority vested
in HUD's Field Offices. HUD headquarters will continue to oversee the
program and to discuss issues with both the buyer community and its
Field Offices in order to reach fair and appropriate decisions. The
Department does not see the necessity of a formal appeal process to
accomplish this.
Comment: A means should be developed for low-income buyers to
compete better with higher income owner-occupant purchasers. (1)
Response: The Department believes that restricting sales only to
buyers under a specific income limit could be viewed as discriminatory,
unfair to other owner-occupant buyers, and not in the best interests of
the Department or the FHA insurance fund, in its efforts to dispose of
the inventory in a timely manner and at the maximum return to the
insurance funds. Changes made in this final rule to give a priority
purchase period to governmental agencies and nonprofits on certain
properties will enhance the opportunity of low-income purchasers to
acquire properties through programs sponsored by those agencies and
organizations.
Comment: Investors should not be allowed to purchase properties.
(1)
Response: The Department has significantly restricted the
opportunity for investors to purchase. In the case of properties
eligible for FHA mortgage insurance (those generally in better
condition), owner-occupants (which includes nonprofits and government
agencies) have first opportunity to purchase. For properties not
eligible for FHA mortgage insurance, the nonprofits and government
agencies have first opportunity to purchase, followed by other owner-
occupant buyers, before being offered to all purchasers. It should be
kept in mind that there will be certain properties, due to their
physical condition, that will not be purchased by any owner-occupant
purchaser, so it would not be in the best interests of the Department
to eliminate totally the investor buyer from this program.
Comment: A discount in the sales price should be given to owner-
occupants who have received certificates for completing homebuyer
education seminars. (1)
Response: Although the Department recognizes the value of
homeownership counseling programs, it does not believe the suggestion
would be in its best interests. It is unlikely that there would be any
``standard'' by which certificates would be issued to potential buyers
by the many different organizations providing such counseling. Further,
the discount offered by HUD is justified primarily by the savings to
the Department on direct sales to nonprofits and government agencies.
These same savings (sales commission, closing/financing costs, and
expected holding costs) would not be realized in sales to other than
direct sale buyers. Although the Department will not sell to owner-
occupant buyers that are not government agencies or nonprofits at
discounted prices, properties purchased at the deep discount by those
organizations are primarily intended to be resold to persons who are at
or below 115 percent of median income for their area, when adjusted for
family size, or used to shelter the homeless. Therefore, the program
will enhance affordable homeownership opportunities.
Comment: Consideration should be given to accepting purchase offers
from direct sale buyers that are below asking price. (1)
Response: This action clearly would not be in the Department's best
interests. At the time properties are available for direct purchase,
the asking prices are based on very recent appraisals and the
Department has no reason to believe those prices are not reflective of
true market value. To accept offers below those prices would
effectively increase the discount the Department is willing to provide
and undermine the return to the mortgage insurance funds. If properties
remain available at the time of offering to the general public, those
buyers who previously could purchase direct then have the opportunity
to bid competitively and may, in fact, submit offers below the asking
price at that time.
Comment: Homeless providers should be permitted to purchase only in
nonrevitalization areas. (1)
Response: An agency that is a homeless provider (and may have
leased properties from the Department for that purpose) often may be
the same nonprofit or government agency that can purchase on a direct
basis. Such an agency has the right to purchase properties it has
leased, regardless of their location. Further, the Department does not
see a legitimate reason to restrict homeless providers only to
nonrevitalization areas and believes that such action would be
detrimental to the goal of expanding homeownership opportunities.
IV. Other Amendments
As a result of an agreement with nonprofit organizations to place
certain limits on the amount of required earnest money deposits, thus
alleviating possible hardships on owner-occupant purchasers, the
Department has determined that the amount of such a deposit on a
property with a sales price of $50,000 or less shall be $500, except
that for vacant lots the amount shall be 50 percent of the list price.
For a property with a sales price greater than $50,000, the deposit
shall be set by the Field Office in an amount not less than $500 or
more than $2,000. This amendment is made in this final rule at
Sec. 291.105(h)(1).
V. Other Matters
Findings made under the National Environmental Policy Act,
Executive Orders on Federalism and The Family, and the Regulatory
Flexibility Act that were discussed in the preamble to the interim rule
are not affected by any changes made in this final rule.
This rule was listed as sequence number 1594 in the Department's
Semiannual Agenda of Regulations published at 59 FR 20424, 20449 on
April 25, 1994, under Executive Order 12866 and the Regulatory
Flexibility Act.
List of Subjects
24 CFR Part 291
Community facilities, Homeless, Surplus government property, Low
and moderate income housing, Mortgages, Lead poisoning, Conflict of
interests, Reporting and recordkeeping requirements.
Accordingly, the interim rule amending 24 CFR parts 203 and 291
published on October 20, 1993 at 58 FR 54244 through 54248 is adopted
as final, with further amendments to part 291 to read as follows:
PART 291--DISPOSITION OF HUD-ACQUIRED SINGLE FAMILY PROPERTY
1. The authority citation for part 291 continues to read as
follows:
Authority: 12 U.S.C. 1709 and 1715(b); 42 U.S.C. 1441, 1441a,
and 3535(d).
2. Section 291.5 is amended by removing the definition for ``Direct
sale purchaser'', and revising the definitions of ``Owner-occupant
purchaser'' and ``Revitalization area'', to read as follows:
Sec. 291.5 Definitions.
* * * * *
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 Sec. 291.405 of this part. For purposes of this part, a
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.
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).
* * * * *
Revitalization area means a neighborhood that has a significant
concentration of vacant properties, including properties needing
extensive repairs that have been in HUD's inventory at least six
months, or a longer period as determined appropriate by the Secretary;
exhibits other characteristics of economic distress; and has been
targeted by the locality for establishing affordable housing and
providing adequate supportive services.
* * * * *
3. In Sec. 291.100, paragraph (d)(2) and the last sentence of
paragraph (h) are revised to read as follows:
Sec. 291.100 General policy.
(d) * * *
(2) In revitalization areas, 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,
PMMs will be available for 85 percent of the purchase price, at market
rate interest, for a period not to exceed five years. Mortgagors must
meet FHA mortgage credit standards.
* * * * *
(h) Open listings. * * * Purchasers participating in the
competitive sales program, except government entities and nonprofit
organizations, must submit bids through a participating broker.
* * * * *
4. In Sec. 291.105, paragraphs (a) and (h)(1) are revised, to read
as follows:
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). If a property fails to generate an
acceptable bid or offer during the bidding period, it will remain on
the market for an extended listing period, as described in paragraph
(f) of this section. If a property's price or terms are changed, it
will again be subject to another competitive bidding period.
(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 all other
properties (i.e., properties not offered with mortgage insurance),
priority will be given to governmental entities and nonprofit
organizations prior to other owner-occupant purchasers.
* * * * *
(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. In determining the
amount of earnest money deposits, a Field Office considers comparable
practice in the locality, area real estate market conditions, the type
of offers generally received, and the ability of the area's typical
buyers to secure financing. Information on the amount of the required
earnest money deposit is available from the Field Office or
participating real estate brokers.
* * * * *
5. Section 291.110 is amended by revising paragraph (a) and
revising the phrase ``field office manager'' to read ``Field Office''
in paragraph (b)(1), to read as follows:
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. The
amount of the discount may vary, depending on the area, the type of
sale, or the number of properties purchased and closed in a single
transaction.
(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 where 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. Properties will be sold on a first come-first served basis.
(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 (where 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 ten-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 ten-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 ten-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 ten days, as determined by
HUD, following expiration of the ten-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.
* * * * *
Sec. 291.135 [Amended]
6. Section 291.135 is amended by removing paragraph (d).
Nicolas P. Retsinas,
Assistant Secretary-Federal Housing Commissioner.
Dated: July 28, 1994.
Jeanne K. Engel,
General Deputy Assistant Secretary for Housing-Federal Housing
Commissioner.
[FR Doc. 94-23412 Filed 9-21-94; 8:45 am]
BILLING CODE 4210-27-P