Disposition of HUD-Acquired Single Family Property; Good Neighbor Next Door Sales Program, 64422-64428 [E6-18456]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 71, Number 211 (Wednesday, November 1, 2006)]
[Rules and Regulations]
[Pages 64422-64428]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-18456]



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Part V





Department of Housing and Urban Development





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24 CFR Part 291



 Disposition of HUD-Acquired Single Family Property; Good Neighbor Next 
Door Sales Program; Final Rule

Federal Register / Vol. 71, No. 211 / Wednesday, November 1, 2006 / 
Rules and Regulations

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 291

[Docket No. FR-4712-F-03]
RIN 2502-AH72


Disposition of HUD-Acquired Single Family Property; Good Neighbor 
Next Door Sales Program

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: This final rule establishes regulations for HUD's new Good 
Neighbor Next Door (GNND) Sales Program. The requirements for the new 
program are closely modeled on those for HUD's Officer Next Door (OND) 
and Teacher Next Door (TND) Sales Programs. The GNND Sales Program 
replaces and builds upon the success of these two existing sales 
programs. The purpose of the GNND Sales Program is to improve the 
quality of life in distressed urban communities by encouraging law 
enforcement officers, teachers, and firefighters/emergency medical 
technicians, whose daily responsibilities represent a nexus to the 
needs of the community, to purchase and live in homes in these 
communities. This final rule follows publication of a September 8, 
2005, proposed rule and takes into consideration the public comments 
received on the proposed rule.

DATES: Effective Date: December 1, 2006.

FOR FURTHER INFORMATION CONTACT: Laurie A. Maggiano, Acting Director, 
Office of Single Family Asset Management, Department of Housing and 
Urban Development, 451 Seventh Street, SW., Room 9172, Washington, DC 
20410-8000; telephone (202) 708-1672 (this is not a toll-free number). 
Hearing- or speech-impaired individuals may access this number through 
TTY by calling the toll-free Federal Information Relay Service at (800) 
877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    A vital part of HUD's mission is to promote homeownership and the 
revitalization of cities. In support of these goals, HUD permanently 
established the OND Sales Program on July 2, 1999 (64 FR 36210). The 
OND Sales Program enables full-time law enforcement officers to 
purchase HUD-acquired homes located in revitalization areas at a 50 
percent discount from list prices. The success of the OND Sales Program 
led to the establishment of the TND Sales Program on December 7, 1999, 
which encourages eligible teachers to purchase HUD-acquired homes 
located in HUD-designated revitalization areas at a 50 percent discount 
from list prices.
    In June 2004, HUD completed an evaluation of the success of the OND 
and TND Sales Programs. The evaluation supported the view that an 
influx of police officers as homeowners results in a decrease in crime 
in a target neighborhood. HUD's evaluation of the OND/TND Sales 
Programs is available for download at www.huduser.org.

II. The September 8, 2005, Proposed Rule and Federal Register Notice

    On September 8, 2005, HUD published a proposed rule to establish 
regulations for a new GNND Sales Program to replace and build upon the 
success of the OND and TND Sales Programs (70 FR 53479). While many of 
the requirements in the GNND Sales Program are similar, HUD proposed 
various modifications and improvements to the OND and TND requirements. 
The objective of the GNND program is to improve the quality of life in 
distressed urban communities by encouraging law enforcement officers, 
teachers, and firefighters/emergency medical technicians, whose daily 
responsibilities reflect a high level of public service commitment and 
represent a nexus to the needs of the community, to purchase and live 
in homes in these communities. An overview of the GNND Sales Program 
and HUD's proposed regulatory changes can be found in the preamble to 
the September 8, 2005, proposed rule.
    Also on September 8, 2005, in addition to the publication of the 
proposed rule, HUD also published a notice announcing the eligibility 
of firefighters and emergency medical technicians to immediately 
participate in the OND Sales Program (70 FR 53488). This expansion of 
the OND Sales Program was designed to help more firefighters and 
emergency medical technicians become homeowners and to advance the 
goals of the program to accelerate the revitalization of America's 
cities by promoting the integration of dedicated role models and 
mentors into the community. The September 8, 2005, notice authorized 
firefighters and emergency medical technicians to participate under, 
and be subject to, the regulations for the OND Sales Program.

III. This Final Rule; Significant Changes to the September 8, 2005, 
Proposed Rule

    This final rule follows publication of the September 8, 2005, 
proposed rule, and takes into consideration the public comments 
received on the proposed rule. The regulations for the GNND Sales 
Program would be codified at 24 CFR part 291, subpart F, which 
currently contains the regulations for the OND Sales Program. After 
careful review of the public comments, HUD has made the following 
changes to the proposed rule:
    1. Financing of 203(k) rehabilitation costs. The final rule has 
been revised to provide for the inclusion of rehabilitation costs in 
the mortgage used to purchase the home, where such purchase is being 
financed with an FHA-insured 203(k) mortgage.
    2. Providing for two backup bids in the event that the original 
purchaser fails to reach closing. The final rule has been revised to 
provide for two backup purchasers, if sufficient bids are received, as 
alternatives should the first purchaser fail to complete the home 
purchase.
    3. Clarification of eligible teachers under the GNND Sales Program. 
The final rule has been revised to clarify that only full-time teachers 
employed at state-accredited public and private schools serving 
students from the area where the home is located qualify as eligible 
participants under the GNND Sales Program. Other persons employed by an 
accredited public or private school are not eligible to participate in 
the GNND Sales Program.
    4. Properties Available for Sale under the GNND Sales Program. The 
final rule clarifies that the properties available for sale under the 
GNND Sales Program will be the same types of properties eligible for 
purchase under the OND and TND programs. Specifically, the final rule 
clarifies that occupied properties, properties located in Asset Control 
Areas, and properties that HUD determines will be sold through an 
alternative sales method will not be made available for purchase under 
the GNND Sales Program. The new regulatory language does not revise 
existing policies, but rather codifies existing practices of the OND 
and TND programs. Regulatory codification of the types of properties 
made available for sale will help provide the public with greater 
understanding and clarity of the process followed by HUD in the 
administration of the GNND Sales Program.
    5. Clarification of the terms ``closing costs,'' ``selling broker 
commissions,''

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and ``downpayment.'' This final rule continues to provide that HUD will 
not pay a buyer's closing costs on the purchase of a property through 
the GNND Sales Program. Further, HUD has revised the rule to specify 
that in no event will HUD pay selling broker commissions. The addition 
of this phrase clarifies that the purchaser is wholly responsible for 
paying closing costs and selling broker commissions in a transaction 
under this program. The closing costs are expenses borne by the 
purchaser to complete the sale. The selling broker's commission is one 
component of the closing costs owed by the purchaser.
    The revision also serves to clarify that closing costs and selling 
broker commissions are not properly considered to be part of a required 
downpayment. The downpayment is a financial outlay made by the 
purchaser to acquire equity in the property and does not include 
closing or other costs that do not represent an investment in equity.

IV. Discussion of Public Comments Received on the September 8, 2005, 
Proposed Rule

    The public comment period on the proposed rule closed on November 
7, 2005. HUD received 16 public comments in response to the proposed 
rule. Comments were received from a realtor's association, a state home 
program, a mortgage corporation, a law enforcement labor organization, 
a non-profit organization, teachers, a firefighter, realtors, and 
individual citizens. This section of the preamble presents a summary of 
the significant issues raised by the public commenters on the September 
8, 2005, proposed rule, and HUD's responses to those issues.
    Comment: A statement clarifying how real estate broker commissions 
are to be applied at closing to the purchase price is needed so that 
closing procedures will be uniformly interpreted and implemented. Two 
commenters wrote that given the number of different players involved in 
the disposition of the HUD single-family properties, written procedures 
for contracts and settlement statements are necessary to avoid 
confusion. The commenters asked for clarification as to how commissions 
and closing costs apply at closing to the purchase price, and 
specifically whether the seller or the buyer (OND/TND) is responsible 
for paying the broker's commission and closing costs.
    HUD Response. HUD is revising the rule in response to these 
comments. Specifically, HUD has revised Sec.  291.545(c) to specify 
that in no event will HUD pay selling broker commissions. The addition 
of this phrase clarifies that the purchaser is wholly responsible for 
paying closing costs and selling broker commissions in a transaction 
under this program. The final rule continues to provide that in no 
event will HUD pay a buyer's closing costs on the purchase of a 
property through the GNND Sales Program. However, a purchaser using a 
mortgage insured by the Federal Housing Administration (FHA) to finance 
the purchase of a home through the GNND Sales Program may include 
reasonable and customary closing costs within the amount borrowed with 
the FHA-insured mortgage. The revision also serves to clarify that 
closing costs and selling broker commissions are not properly 
considered to be part of a required downpayment. The downpayment is a 
financial outlay made by the purchaser to acquire equity in the 
property and does not include closing or other costs that do not 
represent an investment in equity.
    Comment: The requirement that purchasers submit bids on GNND homes 
through a participating real estate broker unnecessarily imposes the 
additional cost of a commission and should be eliminated. One commenter 
wrote that since the regulations do not specify that brokers must waive 
their normal commission, participants would incur an additional cost 
they may not be able to afford. The commenter wrote that brokers are 
unnecessary because HUD is governing the disposition of these homes. 
The commenter also wrote that this requirement could result in a 
special pool of brokers that would unfairly funnel GNND business to 
this select group.
    HUD Response. HUD has not revised the rule in response to this 
comment. The use of brokers benefits participants because they have 
specialized knowledge and can facilitate the home buying process. HUD 
disagrees that the requirement would result in the establishment of a 
select group of brokers. Any real estate broker who has agreed to 
comply with HUD requirements may participate in the GNND Sales Program. 
Due to continued competition among brokers, the commission charged by 
brokers will have to be responsive to purchasers' ability and 
willingness to pay, and be commensurate with the services provided.
    Comment: Support for GNND Sales Program. Several commenters wrote 
in support of the GNND Sales Program. In particular, the commenters 
expressed strong support for expanding eligibility to include 
firefighters and emergency medical technicians. The commenters wrote 
that the rule would make buying a home for GNND Sales Program 
participants feasible by significantly reducing the cost of housing.
    HUD Response. HUD appreciates the support expressed by the 
commenters for the GNND Sales Program. The final rule will benefit 
participating law enforcement officers, teachers, firefighters, and 
emergency medical technicians, as well as the communities that they 
serve. The regulatory requirements established by this final rule will 
help to ensure that the inventory of available homes is distributed to 
most effectively realize the goals of the program.
    Comment: As formulated, the success of the GNND Sales Program is in 
jeopardy because the universe of eligible participants has been 
expanded while the number of properties available for purchase has been 
reduced. One commenter objected to the regulatory cap on sales of HUD-
acquired homes under the GNND Sales Program to no greater than 5 
percent of the number of ``Part A'' mortgage insurance conveyance 
claims paid by HUD in the immediately preceding fiscal year. The 
commenter wrote that the cap would force law enforcement officers, 
teachers, and firefighters/emergency medical technicians to compete 
against each other. The commenter wrote that this will make it much 
more difficult to achieve the desired goal of improving the quality of 
life in distressed urban communities. The commenter also wrote that 
relying on a lottery system to award properties on which there are 
multiple bids shows an indifference to the success of the OND Sales 
Program. The commenter recommended that the OND Sales Program remain a 
program separate from the GNND Sales Program.
    HUD Response. HUD has not revised the rule in response to this 
comment. HUD continues to believe that expanding eligibility to include 
firefighters and emergency medical technicians will bring justifiable 
added benefit to the communities to be served by the GNND Sales 
Program. Neither the increased number of eligible participants nor the 
cap on the volume of properties available will result in a diminished 
supply of homes available for sale through the program. The purpose of 
the cap is to provide control over properties in the event there is an 
unanticipated surge in the number of foreclosures in revitalization 
areas, which in turn would result in a surge in payments of FHA 
insurance. HUD does not anticipate the cap as having any practical 
effect on the supply of homes available because the volume of

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recorded sales in recent years has consistently been substantially 
below the proposed cap. Additionally, the rule provides HUD with the 
authority to adjust the percentage of the cap for any fiscal year 
should adjustment be warranted.
    Comment: The revision to the definition of law enforcement officer 
would exclude federal law enforcement and other officers, thereby 
reducing the number of law enforcement officers who are eligible to 
participate in the program. One commenter wrote that the narrowing of 
the definition of ``law enforcement officer'' would exclude federal law 
enforcement officers employed in a law enforcement capacity by 
governmental agencies that are not separate, specific law enforcement 
agencies. The commenter recommended revising the rule so that such 
federal law enforcement officers can participate. The commenter also 
wrote that the definition should continue to include law enforcement 
officers employed by public and private universities and colleges. The 
commenter, relying on the evaluation report of the OND Sales Program, 
wrote that it is the presence of officers in distressed communities 
that has a positive impact and not whether or not they have authority 
to make arrests.
    HUD Response. HUD has not revised the rule in response to this 
comment. One of the purposes of the OND Sales Program was to revitalize 
distressed communities by deterring the commission of crimes with the 
presence of law enforcement officers in these areas. The GNND Sales 
Program continues to focus on traditional law enforcement officers with 
general arrest authority, because their work and presence in the 
community most closely relates to this policy.
    Comment: First responders employed by nongovernmental entities 
should be eligible for the GNND Program. One commenter wrote that since 
first responders have to be employed by a governmental agency in order 
to be eligible to participate in the GNND Sales Program, responders 
providing the same services through a private entity are being excluded 
unfairly. The commenter wrote that all emergency medical technicians 
and paramedics should be included since they save lives in all 
communities.
    HUD Response. HUD has not revised the rule in response to this 
comment. HUD recognizes that firefighters and emergency medical 
technicians employed by private entities sometimes perform similar 
services as those employed by governmental entities. However, the 
inclusion of privately employed firefighters and emergency medical 
technicians would create ambiguity in assessing an individual's 
eligibility to participate. This broader, more ambiguous approach would 
also result in a costly administrative burden for HUD to determine 
eligibility and increase the risk of awarding properties to ineligible 
individuals. To assure that the purposes of the GNND Sales Program can 
be fulfilled in a cost-effective and efficient manner, HUD has not 
revised the rule in response to this comment.
    Comment: The eligibility requirements of not having previously 
owned any residential real property for one year prior to the date of 
submitting a bid and not having previously purchased a home under the 
GNND Sales Program should not apply to law enforcement officers. The 
commenter wrote that this new restriction fails to consider that law 
enforcement officers choosing to participate in the program may move 
from their current home to a distressed community to become more 
involved in the community they serve, or may participate or have 
participated in the OND Sales Program and then transfer or have since 
been transferred to another jurisdiction that has GNND properties 
available.
    HUD Response. HUD has not revised the rule in response to this 
comment. The eligibility requirements referred to by the commenter 
support increasing the overall number of participants who can benefit 
from the program while avoiding opportunistic behavior by repeat 
participants. Further, in the past, allowing current homeowners to 
submit bids has been a source of problems in reaching closing with 
those purchasers. This new requirement better aligns with the 
Department's interest in increasing the number of homeowners and 
opening up homeownership to new families.
    Comment: The amount a purchaser can borrow to finance the purchase 
of a home using an FHA-insured mortgage should depend on the type of 
FHA-insured mortgage issued. Two commenters wrote that Sec.  291.545(b) 
of the rule, which establishes the maximum amount of an FHA-insured 
mortgage used to purchase a GNND home, should be revised to reflect 
203(k) rehabilitation loans. Under the proposed rule, the amount of the 
FHA-insured mortgage may not exceed the discounted sales price of the 
home plus the closing costs and pre-paid items. However, under the 
203(k) program, a borrower may also finance the costs of rehabilitation 
of the property along with the purchase cost of the home. The commenter 
suggested that Sec.  291.545(b) be revised to permit the financing of 
rehabilitation costs where the purchase of the home is being financed 
with an FHA-insured 203(k) mortgage.
    HUD Response. HUD agrees that the amount of financing available to 
the participant should depend on the type of FHA-insured mortgage being 
utilized. Participants utilizing an FHA-insured mortgage may finance 
the discounted sales price plus reasonable closing costs. Additionally, 
rehabilitation expenses may be incorporated into the FHA-insured 
mortgage if the purchase of the home is being financed with an FHA-
insured 203(k) mortgage. The Section 203(k) program is HUD's primary 
program for the rehabilitation and repair of single family properties. 
As such, it is an important tool for community and neighborhood 
revitalization and for expanding homeownership opportunities, which HUD 
agrees should be available to GNND Sales Program participants. 
Accordingly, HUD has modified Sec.  291.545(b) to explicitly provide 
for the inclusion of rehabilitation costs financed with an FHA-insured 
203(k) loan.
    Comment: Creating a distinction as to closing costs between 
conventional and FHA-insured mortgages unfairly penalizes participants 
who choose not to use an FHA-insured mortgage. One commenter wrote that 
participants choosing conventional mortgages will have to pay closing 
costs out-of-pocket while those with an FHA-insured mortgage may be 
able to finance reasonable and customary closing costs.
HUD Response. HUD is not altering the final rule in response to this 
comment.
    The scope of HUD's regulatory authority extends to FHA-insured 
mortgages. HUD is empowered to set the terms and conditions of FHA-
insured mortgages. Since conventional mortgages are not subjected to 
HUD's regulatory authority, such mortgages pose additional risk. 
Regardless of the type of financing used by a purchaser, HUD will not 
pay any closing costs. With regard to the downpayment, purchasers using 
an FHA-insured mortgage may make a downpayment of $100.
    Comment: Forfeiture of an earnest money deposit upon the failure of 
the participant to close, without regard to the underlying 
circumstances, is overly burdensome. One commenter recommended that a 
provision be included to ensure that earnest money deposits be returned 
if extenuating circumstances occur that keep a sale from closing.
    HUD Response. HUD has not revised the rule in response to these 
comments. The requirement that a potential purchaser make a minimal 
earnest

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money deposit (which will never exceed $2,000) helps to ensure that 
prospective purchasers are acting in good faith and are willing and 
able to proceed to closing on the purchase of the home.
    Comment: Disqualifying a potential participant on the basis that 
his/her spouse previously owned residential property or participated in 
the GNND Program could result in unintended consequences. One commenter 
wrote that participant eligibility should be determined on an 
individual basis. The commenter wrote that evaluating eligibility as 
proposed will entice people to divorce in order to take advantage of 
this program, resulting in weaker families and communities.
    HUD Response. HUD has not revised the rule in response to this 
comment. The spousal eligibility requirement is consistent with the 
policy of permitting one-time participation in the GNND Sales Program 
and supports HUD's interest in promoting homeownership opportunities to 
first-time homebuyers.
    Comment: GNND participants should not be required to make an 
earnest money deposit. One commenter wrote that the GNND Sales Program 
should operate like the existing OND and TND Sales Programs and not 
require a downpayment. Another commenter questioned having to put up 
any money when the quality of the homes is substandard and would only 
agree to make such a deposit if it would ensure better quality homes 
and locations. A third commenter also wrote that the GNND Sales Program 
should not require an earnest money deposit of up to $2,000 so that the 
Program continues to make purchasing a home affordable for teachers and 
officers serving their communities.
    HUD Response. HUD has not revised the rule in response to these 
comments. The amount of the required earnest money deposit will not 
impose an undue financial burden on potential home purchasers. The 
required deposit is equal to one percent of the list price, but no more 
than $2,000. This minimal earnest money deposit helps to ensure that 
purchasers are acting in good faith and are willing and able to proceed 
to closing on the purchase of the home.
    Comment: Nonprofit organizations should continue to be allowed to 
purchase properties through the GNND Sales Program. One commenter wrote 
that nonprofit entities should continue to be allowed to purchase 
properties under the GNND Sales Program so that they can rehabilitate 
the properties and then sell them to eligible participants at the 
discounted rate. The commenter wrote that participating nonprofit 
organizations could enable more GNND transactions to reach closing, 
thereby reducing the number of homes that go to open bidding.
    HUD Response. HUD has not adopted the change suggested by the 
commenter. The inclusion of nonprofit organizations unnecessarily 
inserts a third party between the ultimate program beneficiary and HUD. 
The Department believes that limiting participation in the GNND Sales 
Program to the ultimate purchasers--law enforcement officers, teachers, 
and firefighters/emergency medical technicians--will better focus the 
program and help to ensure that the GNND Sales Program accomplishes its 
goals.
    Comment: The rule should provide for additional backup bids. One 
commenter wrote that HUD should select more than one backup bid in the 
event that the winning bidder is unable to close on the purchase of the 
property. Specifically, the commenter recommended that HUD select up to 
seven backup bids.
    HUD Response. HUD has modified the final rule in response to this 
comment. Recognizing the programmatic goal of bringing community-minded 
service professionals into distressed communities, HUD acknowledges 
that it may be necessary to allow for multiple backup bids from 
eligible officers, teachers, firefighters, or emergency medical 
technicians in the event that a winning bidder is unable to proceed to 
closing. Two backup purchasers will be given the opportunity to proceed 
to closing. If these purchasers fail to complete the closing on the 
property, it will then be made available for sale to other purchasers. 
While the commenter suggested that seven backup bids be considered, HUD 
believes that doing so is unnecessarily administratively burdensome and 
could delay the availability of HUD acquired homes for purchase. In 
settling on two backup bids, HUD believes that it has struck an 
equitable balance between providing eligible participants with the 
maximum opportunity to purchase inventoried properties and enabling 
efficient management to effectively move unsold properties to the open 
market.

V. Findings and Certifications

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866 (entitled ``Regulatory Planning and Review''). 
OMB determined that this rule is a significant regulatory action as 
defined in section 3(f) of the Order (although not economically 
significant, as provided in section 3(f)(1) of the Order). The docket 
file is available for public inspection in the Regulations Division, 
Office of General Counsel, Department of Housing and Urban Development, 
451 Seventh Street, SW., Room 10276, Washington, DC 20410-0500. Due to 
security measures at the HUD Headquarters building, please schedule an 
appointment to review the docket file by calling the Regulations 
Division at (202) 708-3055 (this is not a toll-free number). Hearing- 
and speech-impaired persons may access the telephone number listed 
above via TTY by calling the Federal Information Relay Service at (800) 
877-8339.

Information Collection Requirements

    The information collection requirements contained in this final 
rule have been approved by OMB under the Paperwork Reduction Act of 
1995 (44 U.S.C. 3501-3520) and assigned OMB Control Number 2502-0306. 
In accordance with the Paperwork Reduction Act, HUD may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless the collection displays a currently valid OMB 
control number.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (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 the 
private sector within the meaning of UMRA.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on state and local 
governments and is not required by statute, or the rule preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Order. This final rule does not have federalism 
implications and does not impose substantial direct compliance costs on 
state and local governments or preempt state law within the meaning of 
the Order.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made at the proposed rule stage in accordance with HUD regulations 
at 24 CFR part 50, which implement section

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102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 
4332(2)(C)). The Finding of No Significant Impact remains applicable to 
this final rule and is available for public inspection between the 
hours of 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office 
of General Counsel, Department of Housing and Urban Development, 451 
Seventh Street, SW., Room 10276, Washington, DC 20410-0500. Due to 
security measures at the HUD Headquarters building, please schedule an 
appointment to review the finding by calling the Regulations Division 
at (202) 708-3055 (this is not a toll-free number). Hearing- and 
speech-impaired persons may access the telephone number listed above 
via TTY by calling the Federal Information Relay Service at (800) 877-
8339.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) generally 
requires an agency to conduct a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements, unless the 
agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities. This final rule 
promotes safe neighborhoods by enabling law enforcement officers, 
teachers, and firefighters/emergency medical technicians to purchase 
HUD-acquired single-family homes at a significant discount. The final 
rule places restrictions on the use of a home purchased through the 
GNND Sales Program, which affects the individual purchasing the home. 
This rule, however, does not place restrictions on any small entities 
involved in any transactions related to the GNND Sales Program. 
Accordingly, the undersigned certifies that this final rule would not 
have a significant economic impact on a substantial number of small 
entities.

Catalog of Federal Domestic Assistance Numbers

    The Catalog of Federal Domestic Assistance Number for the Officer 
Next Door Program is 14.198. The Catalog of Federal Domestic Assistance 
Number for the Teacher Next Door Initiative is 14.310.

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.


0
Accordingly, for the reasons described in the preamble, HUD amends 24 
CFR part 291 as follows:

PART 291--DISPOSITION OF HUD-ACQUIRED SINGLE FAMILY PROPERTY

0
1. The authority citation for 24 CFR part 291 continues to read as 
follows:

    Authority: 12 U.S.C. 1701 et seq.; 42 U.S.C. 1441, 1441a, 1551a, 
and 3535(d).


0
2. Subpart F is revised to read as follows:
Subpart F--Good Neighbor Next Door Sales Program
Sec.
291.500 Purpose.
291.505 Definition of ``unit of general local government.''
291.510 Overview of the GNND Sales Program.
291.515 Purchaser qualifications.
291.520 Eligible law enforcement officers.
291.525 Eligible teachers.
291.530 Eligible firefighter/emergency medical technicians.
291.535 Earnest money deposit.
291.540 Owner-occupancy term.
291.545 Financing purchase of the home.
291.550 Second mortgage.
291.555 Refinancing.
291.560 Ineligibility of multiple-unit properties.
291.565 Continuing obligations after purchase.

Subpart F--Good Neighbor Next Door Sales Program


Sec.  291.500  Purpose.

    This subpart describes the policies and procedures governing the 
Good Neighbor Next Door (GNND) Sales Program. The purpose of the GNND 
Sales Program is to improve the quality of life in distressed urban 
communities. This is to be accomplished by encouraging law enforcement 
officers, teachers, and firefighters/emergency medical technicians, 
whose daily responsibilities and duties represent a nexus to the needs 
of the community, to purchase and live in homes in these communities.


Sec.  291.505  Definition of ``unit of general local government.''

    For purposes of this subpart, the term unit of general local 
government means a county or parish, city, town, township, or other 
political subdivision of a state.


Sec.  291.510  Overview of the GNND Sales Program.

    (a) General. The GNND Sales Program enables a full-time law 
enforcement officer, teacher, or firefighter/emergency medical 
technician to purchase a specifically designated HUD-acquired home 
located in a HUD-designated revitalization area:
    (1) At a 50 percent discount from the list price; and
    (2) With a downpayment of $100, but only if the law enforcement 
officer, teacher, or firefighter/emergency medical technician finances 
the home through a Federal Housing Administration (FHA) insured 
mortgage.
    (b) Eligible properties. Under the GNND Sales Program, single-unit 
properties acquired by HUD located in HUD-designated revitalization 
areas (except occupied properties), those located in Asset Control 
Areas, or those that HUD has determined will be sold through an 
alternative sales method will be made available to interested law 
enforcement officers, teachers, and firefighters/emergency medical 
technicians prior to listing the properties for sale to other 
purchasers.
    (c) Multiple bids. In the event that several bids are received on a 
single property, HUD will randomly select a winning offer by lottery 
and will also randomly select two backup bids, to be utilized in the 
order selected, in the event the winning purchaser is unable to close 
on the property. If both of the backup purchasers are also unable to 
close on the property, the property will then be made available for 
sale to purchasers through other sales methods.
    (d) Real estate brokers. Law enforcement officers, teachers, and 
firefighters/emergency medical technicians must submit bids through a 
participating real estate broker. Any real estate broker who has agreed 
to comply with HUD requirements may participate in the GNND Sales 
Program. Real estate brokers may submit unlimited numbers of bids on an 
individual property provided each bid is from a different prospective 
purchaser.
    (e) Cap on sales. The number of HUD-acquired homes sold under the 
GNND Sales Program in a fiscal year shall not exceed 5 percent of the 
number of ``Part A'' mortgage insurance conveyance claims paid by HUD 
in the prior fiscal year. The cap shall apply on a national basis, but 
HUD reserves the right to geographically apportion the cap to address 
regional or local differences in the number of homes sold through the 
GNND Sales Program. Additionally, HUD may adjust the percentage of the 
cap for any fiscal year. Any HUD determination to geographically 
distribute the cap, change a current geographic distribution, or adjust 
the percentage of the cap will be announced by HUD through publication 
of a notice in the Federal Register at least 30 days before the 
revision takes effect.


Sec.  291.515  Purchaser qualifications.

    To qualify to purchase a home through the GNND Sales Program:

[[Page 64427]]

    (a) The person must be employed as a law enforcement officer (as 
described in Sec.  291.520), teacher (as described in Sec.  291.525), 
or firefighter/emergency medical technician (as described in Sec.  
291.530) at the time he/she submits a bid to purchase a home through 
the program and at the time of closing on the purchase of the home;
    (b) The person must certify to his/her good faith intention to 
continue employment as a law enforcement officer (as described in Sec.  
291.520), teacher (as described in Sec.  291.525), or firefighter/
emergency medical technician (as described in Sec.  291.530) for at 
least one year following the date of closing;
    (c) The person must make an earnest money deposit at the time of 
signing the contract for purchase of the home, as described in Sec.  
291.535;
    (d) The person must agree to own, and live in as his/her sole 
residence, the home for the entire duration of the owner-occupancy 
term, as described in Sec.  291.540, and to certify to that occupancy, 
as described in Sec.  291.565;
    (e) The person must agree to execute a second mortgage and note on 
the home, as described in Sec.  291.550, for the difference between the 
list price and the discounted selling price;
    (f) Neither the person (nor his/her spouse) may have owned any 
residential real property during the year prior to the date of 
submitting a bid on the home being acquired through the GNND Sales 
Program;
    (g) Neither the person (nor his/her spouse) must ever have 
purchased another home under the GNND Sales Program or under the 
predecessor Officer Next Door Sales and Teacher Next Door Sales 
Programs; and
    (h) Although both spouses, if otherwise eligible, may submit a bid 
on a single home made available for sale under the GNND Sales Program, 
HUD will approve a bid from only one spouse.


Sec.  291.520  Eligible law enforcement officers.

    A person qualifies as a law enforcement officer for the purposes of 
the GNND Sales Program if the person is:
    (a) Employed full-time by a law enforcement agency of the federal 
government, a state, a unit of general local government, or an Indian 
tribal government; and
    (b) In carrying out such full-time employment, the person is sworn 
to uphold, and make arrests for violations of, federal, state, tribal, 
county, township, or municipal laws.


Sec.  291.525  Eligible teachers.

    A person qualifies as a teacher for the purposes of the GNND Sales 
Program if the person is:
    (a) Employed as a full-time teacher by a state-accredited public 
school or private school that provides direct services to students in 
grades pre-kindergarten through 12; and
    (b) The public or private school where the person is employed as a 
teacher serves students from the area where the home is located in the 
normal course of business.


Sec.  291.530  Eligible firefighter/emergency medical technicians.

    A person qualifies as a firefighter/emergency medical technician 
for the purposes of the GNND Sales Program if the person is employed 
full-time as a firefighter or emergency medical technician by a fire 
department or emergency medical services responder unit of the federal 
government, a state, unit of general local government, or an Indian 
tribal government serving the area where the home is located.


Sec.  291.535  Earnest money deposit.

    (a) General. The earnest money deposit is the sum of money that 
must be paid by the law enforcement officer, teacher, or firefighter/
emergency medical technician at the time of submitting a bid to 
purchase a property under the GNND Sales Program. Each bid must be 
accompanied by a certification from the real estate broker that the 
earnest money deposit has been deposited in the broker's escrow 
account.
    (b) Amount of earnest money deposit. The amount of the earnest 
money deposit required is an amount equal to one percent of the list 
price, but no less than $500 and no more than $2,000.
    (c) Acceptance or rejection of offer. If an offer is accepted, the 
earnest money deposit will be credited to the purchaser at closing. If 
the offer is rejected, the earnest money deposit will be returned. 
Earnest money deposits are subject to total forfeiture for failure of 
the participant to close a sale.


Sec.  291.540  Owner-occupancy term.

    (a) General. The owner-occupancy term is the number of months a 
participant in the GNND Sales Program must agree to own, and live in as 
his/her sole residence, a home purchased through the GNND Sales 
Program.
    (b) Start of owner-occupancy term. The owner-occupancy term is 36 
months, commencing either:
    (1) Thirty days following closing if HUD determines that the home 
requires no more than $10,000 in repairs prior to occupancy;
    (2) Ninety days following closing if HUD determines that the home 
requires more than $10,000, but not more than $20,000 in repairs prior 
to occupancy; or
    (3) One hundred and eighty days following closing if HUD determines 
that the home requires more than $20,000 in repairs prior to occupancy.
    (c) Interruptions to owner-occupancy term--(1) General. HUD may, at 
its sole discretion, allow interruptions to the 36-month owner-
occupancy term if it determines that the interruption is necessary to 
prevent hardship, but only if the law enforcement officer, teacher, or 
firefighter/emergency medical technician submits a written and signed 
request to HUD containing the following information:
    (i) The reason(s) why the interruption is necessary;
    (ii) The dates of the intended interruption; and
    (iii) A certification from the law enforcement officer, teacher, or 
firefighter/emergency medical technician that:
    (A) The law enforcement officer, teacher, or firefighter/emergency 
medical technician is not abandoning the home as his/her permanent 
residence; and
    (B) The law enforcement officer, teacher, or firefighter/emergency 
medical technician will resume occupancy of the home upon the 
conclusion of the interruption and complete the remainder of the 36-
month owner-occupancy term.
    (2) Timing of written request to HUD. The written request for 
approval of an interruption to the owner-occupancy term must be 
submitted to HUD at least 30 calendar days before the anticipated 
interruption. Military service members protected by the Servicemembers 
Civil Relief Act need not submit their written request to HUD 30 days 
in advance of an anticipated interruption, but should submit their 
written request as soon as practicable upon learning of a potential 
interruption, in order to ensure timely processing and approval of the 
request.


Sec.  291.545  Financing purchase of the home.

    (a) Purchase using conventional financing. If the law enforcement 
officer, teacher, or firefighter/emergency medical technician uses 
conventional financing to purchase a home under the GNND Sales Program, 
the amount of the mortgage may not exceed the discounted sales price of 
the home.
    (b) Purchase with FHA-insured mortgage. (1) A law enforcement 
officer, teacher, or firefighter/emergency medical technician using an 
FHA-insured mortgage to finance purchase of

[[Page 64428]]

the home may finance reasonable and customary closing costs with the 
FHA-insured mortgage.
    (2) The amount of the FHA-insured mortgage may not exceed the 
discounted sales price of the home plus:
    (i) The closing costs; and
    (ii) The costs of rehabilitating and/or improving the home, where 
purchase of the home is being financed with an FHA-insured 203(k) 
rehabilitation loan (see 24 CFR part 203).
    (c) Closing costs and selling broker's commissions. In no event 
will HUD pay a buyer's closing costs on the purchase of a property or a 
selling broker's commission through the GNND Sales Program.


Sec.  291.550  Second mortgage.

    (a) General. The second mortgage is a mortgage and note, payable to 
HUD, on the home purchased through the GNND Sales Program in the amount 
of the difference between the list price of the home and the discounted 
selling price.
    (b) Second mortgage term. The term of the second mortgage is equal 
to the owner-occupancy term (36 months) plus 30, 90, or 180 days, as 
provided in Sec.  291.540(b). The amount of the second mortgage will be 
reduced by 1/36th on the last day of each month of occupancy following 
the occupancy start date. At the end of the 36th month of occupancy, 
the amount of the second mortgage will be zero.
    (c) Sale or vacancy of home. If the law enforcement officer, 
teacher, or firefighter/emergency medical technician sells his/her home 
or stops living in the home as his/her sole residence prior to the 
expiration of the owner-occupancy term, he/she will owe HUD the amount 
due on the second mortgage as of the date the property is either sold 
or vacated.


Sec.  291.555  Refinancing.

    (a) General. A law enforcement officer, teacher, or firefighter/
emergency medical technician may refinance the mortgage and note used 
to purchase the home. However, the total of the refinanced mortgage and 
the remaining principal balance of the second mortgage may not exceed 
95 percent of the value of the property, as appraised at the time of 
the refinancing. Unless HUD permits subordination pursuant to paragraph 
(b) of this section, the second mortgage described in Sec.  291.550 
must hold a superior lien position to the refinanced mortgage.
    (b) Subordination of second mortgage. HUD may permit subordination 
of the second mortgage to the refinanced mortgage, but only if HUD, at 
its sole discretion, determines that the refinancing will satisfy one 
of the following:
    (1) Will result in a lower annual percentage rate (APR) on the 
first mortgage;
    (2) Will be undertaken pursuant to HUD's Section 203(k) 
Rehabilitation Loan Insurance Program in order to rehabilitate or 
repair the home; or
    (3) Is necessary to prevent the law enforcement officer, teacher, 
or firefighter/emergency medical technician from defaulting on the 
first mortgage.


Sec.  291.560  Ineligibility of multiple-unit properties.

    Only single-unit properties are eligible for the GNND Sales 
Program.


Sec.  291.565  Continuing obligations after purchase.

    To remain in compliance with the GNND Sales Program, the law 
enforcement officer, teacher, or firefighter/emergency medical 
technician must, for the entire duration of the owner-occupancy term:
    (a) Continue to own, and live in as his/her sole residence, the 
home purchased through the GNND Sales Program; and
    (b) Certify initially and once annually thereafter during and at 
the conclusion of the owner-occupancy term that he/she was at all times 
fully in compliance with paragraph (a) of this section.

    Dated: October 25, 2006.
Brian D. Montgomery,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. E6-18456 Filed 10-31-06; 8:45 am]
BILLING CODE 4210-67-P