§ 1735f-15. — Civil money penalties against multifamily mortgagors.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC1735f-15]
TITLE 12--BANKS AND BANKING
CHAPTER 13--NATIONAL HOUSING
SUBCHAPTER V--MISCELLANEOUS
Sec. 1735f-15. Civil money penalties against multifamily
mortgagors
(a) In general
The penalties set forth in this section shall be in addition to any
other available civil remedy or any available criminal penalty, and may
be imposed whether or not the Secretary imposes other administrative
sanctions. The Secretary may not impose penalties under this section for
violations a material cause of which are the failure of the Department,
an agent of the Department, or a public housing agency to comply with
existing agreements.
(b) Penalty for violation of agreement as condition of transfer of
physical assets, flexible subsidy loan, capital improvement
loan, modification of mortgage terms, or workout agreement
(1) Authority
Whenever a mortgagor of property that includes 5 or more living
units and that has a mortgage insured, co-insured, or held pursuant
to this chapter, who has agreed in writing, as a condition of a
transfer of physical assets, a flexible subsidy loan, a capital
improvement loan, a modification of the mortgage terms, or a workout
agreement, to use nonproject income to make cash contributions for
payments due under the note and mortgage, for payments to the
reserve for replacements, to restore the project to good physical
condition, or to pay other project liabilities, knowingly and
materially fails to comply with any of these commitments, the
Secretary may impose a civil money penalty on that mortgagor, on a
general partner of a partnership mortgagor, or on any officer or
director of a corporate mortgagor in accordance with the provisions
of this section.
(2) Amount of penalty
The amount of the penalty, as determined by the Secretary, for a
violation of this subsection may not exceed the amount of the loss
the Secretary would experience at a foreclosure sale, or a sale
after foreclosure, of the property involved.
(c) Other violations
(1)(A) Liable parties
The Secretary may also impose a civil money penalty under this
section on--
(i) any mortgagor of a property that includes 5 or more
living units and that has a mortgage insured, coinsured, or held
pursuant to this chapter;
(ii) any general partner of a partnership mortgagor of such
property;
(iii) any officer or director of a corporate mortgagor;
(iv) any agent employed to manage the property that has an
identity of interest with the mortgagor, with the general
partner of a partnership mortgagor, or with any officer or
director of a corporate mortgagor of such property; or
(v) any member of a limited liability company that is the
mortgagor of such property or is the general partner of a
limited partnership mortgagor or is a partner of a general
partnership mortgagor.
(B) Violations
A penalty may be imposed under this section upon any liable
party under subparagraph (A) that knowingly and materially takes any
of the following actions:
(i) Conveyance, transfer, or encumbrance of any of the
mortgaged property, or permitting the conveyance, transfer, or
encumbrance of such property, without the prior written approval
of the Secretary.
(ii) Assignment, transfer, disposition, or encumbrance of
any personal property of the project, including rents, or paying
out any funds, except for reasonable operating expenses and
necessary repairs, without the prior written approval of the
Secretary.
(iii) Conveyance, assignment, or transfer of any beneficial
interest in any trust holding title to the property, or the
interest of any general partner in a partnership owning the
property, or any right to manage or receive the rents and
profits from the mortgaged property, without the prior written
approval of the Secretary.
(iv) Remodeling, adding to, reconstructing, or demolishing
any part of the mortgaged property or subtracting from any real
or personal property of the project, without the prior written
approval of the Secretary.
(v) Requiring, as a condition of the occupancy or leasing of
any unit in the project, any consideration or deposit other than
the prepayment of the first month's rent, plus a security
deposit in an amount not in excess of 1 month's rent, to
guarantee the performance of the covenants of the lease.
(vi) Not holding any funds collected as security deposits
separate and apart from all other funds of the project in a
trust account, the amount of which at all times equals or
exceeds the aggregate of all outstanding obligations under the
account.
(vii) Payment for services, supplies, or materials which
exceeds $500 and substantially exceeds the amount ordinarily
paid for such services, supplies, or materials in the area where
the services are rendered or the supplies or materials
furnished.
(viii) Failure to maintain at any time the mortgaged
property, equipment, buildings, plans, offices, apparatus,
devices, books, contracts, records, documents, and other related
papers (including failure to keep copies of all written
contracts or other instruments which affect the mortgaged
property) in reasonable condition for proper audit and for
examination and inspection at any reasonable time by the
Secretary or any duly authorized agents of the Secretary.
(ix) Failure to maintain the books and accounts of the
operations of the mortgaged property and of the project in
accordance with requirements prescribed by the Secretary.
(x) Failure to furnish the Secretary, by the expiration of
the 60-day period beginning on the 1st day after the completion
of each fiscal year, with a complete annual financial report
based upon an examination of the books and records of the
mortgagor prepared and certified to by an independent public
accountant or a certified public accountant and certified to by
an officer of the mortgagor, unless the Secretary has approved
an extension of the 60-day period in writing. The Secretary
shall approve an extension where the mortgagor demonstrates that
failure to comply with this subparagraph is due to events beyond
the control of the mortgagor.
(xi) At the request of the Secretary, the agents of the
Secretary, the employees of the Secretary, or the attorneys of
the Secretary, failure to furnish monthly occupancy reports or
failure to provide specific answers to questions upon which
information is sought relative to income, assets, liabilities,
contracts, the operation and condition of the property, or the
status of the mortgage.
(xii) Failure to make promptly all payments due under the
note and mortgage, including mortgage insurance premiums, tax
and insurance escrow payments, and payments to the reserve for
replacements when there is adequate project income available to
make such payments.
(xiii) Failure to maintain the premises, accommodations, any
living unit in the project, and the grounds and equipment
appurtenant thereto in good repair and condition in accordance
with regulations and requirements of the Secretary, except that
nothing in this clause shall have the effect of altering the
provisions of an existing regulatory agreement or federally
insured mortgage on the property.
(xiv) Failure, by a mortgagor, a general partner of a
partnership mortgagor, or an officer or director of a corporate
mortgagor, to provide management for the project that is
acceptable to the Secretary pursuant to regulations and
requirements of the Secretary.
(xv) Failure to provide access to the books, records, and
accounts related to the operations of the mortgaged property and
of the project.
The pay out of surplus cash, as defined by and provided for in the
regulatory agreement, shall not constitute a violation of this
subsection.
(2) Amount of penalty
A penalty imposed for a violation under this subsection, as
determined by the Secretary, may not exceed $25,000.
(d) Agency procedures
(1) Establishment
The Secretary shall establish standards and procedures governing
the imposition of civil money penalties under subsections (b) and
(c) of this section. These standards and procedures--
(A) shall provide for the Secretary or other department
official (such as the Assistant Secretary for Housing) to make
the determination to impose a penalty;
(B) shall provide for the imposition of a penalty only after
the mortgagor, general partner of a partnership mortgagor,
officer or director of a corporate mortgagor, or identity of
interest agent employed to manage the property has been given an
opportunity for a hearing on the record; and
(C) may provide for review by the Secretary of any
determination or order, or interlocutory ruling, arising from a
hearing.
(2) Final orders
If no hearing is requested within 15 days of receipt of the
notice of opportunity for hearing, the imposition of the penalty
shall constitute a final and unappealable determination. If the
Secretary reviews the determination or order, the Secretary may
affirm, modify, or reverse that determination or order. If the
Secretary does not review the determination or order within 90 days
of the issuance of the determination or order, the determination or
order shall be final.
(3) Factors in determining amount of penalty
In determining the amount of a penalty under subsection (b) or
(c) of this section, consideration shall be given to such factors as
the gravity of the offense, any history of prior offenses (including
offenses occurring before December 15, 1989), ability to pay the
penalty, injury to the tenants, injury to the public, benefits
received, deterrence of future violations, and such other factors as
the Secretary may determine in regulations to be appropriate.
(4) Reviewability of imposition of penalty
The Secretary's determination or order imposing a penalty under
subsection (b) or (c) of this section shall not be subject to
review, except as provided in subsection (e) of this section.
(5) Payment of penalty
No payment of a civil money penalty levied under this section
shall be payable out of project income.
(e) Judicial review of agency determination
(1) In general
After exhausting all administrative remedies established by the
Secretary under subsection (d)(1) of this section, an entity or
person against whom the Secretary has imposed a civil money penalty
under subsection (b) or (c) of this section may obtain a review of
the penalty and such ancillary issues as may be addressed in the
notice of determination to impose a penalty under subsection
(d)(1)(A) of this section in the appropriate court of appeals of the
United States, by filing in such court, within 20 days after the
entry of such order or determination, a written petition praying
that the Secretary's order or determination be modified or be set
aside in whole or in part.
(2) Objections not raised in hearing
The court shall not consider any objection that was not raised
in the hearing conducted pursuant to subsection (d)(1) of this
section unless a demonstration is made of extraordinary
circumstances causing the failure to raise the objection. If any
party demonstrates to the satisfaction of the court that additional
evidence not presented at such hearing is material and that there
were reasonable grounds for the failure to present such evidence at
the hearing, the court shall remand the matter to the Secretary for
consideration of such additional evidence.
(3) Scope of review
The decisions, findings, and determinations of the Secretary
shall be reviewed pursuant to section 706 of title 5.
(4) Order to pay penalty
Notwithstanding any other provision of law, in any such review,
the court shall have the power to order payment of the penalty
imposed by the Secretary.
(f) Civil money penalties against multifamily mortgagors, general
partners of partnership mortgagors, officers and directors of
corporate mortgagors, and certain managing agents
If a mortgagor, general partner of a partnership mortgagor, officer
or director of a corporate mortgagor, or identity of interest agent
employed to manage the property fails to comply with the Secretary's
determination or order imposing a civil money penalty under subsection
(b) or (c) of this section, after the determination or order is no
longer subject to review as provided by subsections (d)(1) and (e) of
this section, the Secretary may request the Attorney General of the
United States to bring an action in an appropriate United States
district court to obtain a monetary judgment against the mortgagor,
general partner of a partnership mortgagor, officer or director of a
corporate mortgagor, or identity of interest agent employed to manage
the property and such other relief as may be available. The monetary
judgment may, in the court's discretion, include the attorneys fees and
other expenses incurred by the United States in connection with the
action. In an action under this subsection, the validity and
appropriateness of the Secretary's determination or order imposing the
penalty shall not be subject to review.
(g) Settlement by Secretary
The Secretary may compromise, modify, or remit any civil money
penalty which may be, or has been, imposed under this section.
(h) ``Knowingly'' defined
The term ``knowingly'' means having actual knowledge of or acting
with deliberate ignorance of or reckless disregard for the prohibitions
under this section.
(i) Regulations
The Secretary shall issue such regulations as the Secretary deems
appropriate to implement this section.
(j) Deposit of penalties in insurance funds
Notwithstanding any other provision of law, all civil money
penalties collected under this section shall be deposited in the fund
established under section 1715z-1a(j) of this title.
(k) Identity of interest managing agent
In this section, the terms ``agent employed to manage the property
that has an identity of interest'' and ``identity of interest agent''
mean an entity--
(1) that has management responsibility for a project;
(2) in which the ownership entity, including its general partner
or partners (if applicable) and its officers or directors (if
applicable), has an ownership interest; and
(3) over which the ownership entity exerts effective control.
(June 27, 1934, ch. 847, title V, Sec. 537, as added Pub. L. 101-235,
title I, Sec. 108(a), Dec. 15, 1989, 103 Stat. 2003; amended Pub. L.
105-65, title V, Sec. 561(a), Oct. 27, 1997, 111 Stat. 1414.)
Amendments
1997--Subsec. (b)(1). Pub. L. 105-65, Sec. 561(a)(1), substituted
``on that mortgagor, on a general partner of a partnership mortgagor, or
on any officer or director of a corporate mortgagor'' for ``on that
mortgagor''.
Subsec. (c). Pub. L. 105-65, Sec. 561(a)(2)(A), substituted ``Other
violations'' for ``Violations of regulatory agreement for which penalty
may be imposed'' in heading.
Subsec. (c)(1). Pub. L. 105-65, Sec. 561(a)(2)(B)(i), (iv),
substituted ``violation of this subsection'' for ``violation of such
agreement'' before period at end of closing provisions and struck out
heading and introductory provisions. Introductory provisions read as
follows: ``The Secretary may also impose a civil money penalty under
this section on any mortgagor of property that includes 5 or more living
units and that has a mortgage insured, co-insured, or held pursuant to
this chapter for any knowing and material violation of the regulatory
agreement executed by the mortgagor, as follows:''.
Subsec. (c)(1)(A). Pub. L. 105-65, Sec. 561(a)(2)(B)(i), (ii), added
subpar. (A) and redesignated former subpar. (A) as cl. (i) of subpar.
(B).
Subsec. (c)(1)(B) to (L). Pub. L. 105-65, Sec. 561(a)(2)(B)(i)-
(iii), inserted heading and introductory provisions of subpar. (B),
redesignated former subpars. (A) to (L) as cls. (i) to (xii) of subpar.
(B), respectively, and added cls. (xiii) to (xv).
Subsec. (d)(1)(B). Pub. L. 105-65, Sec. 561(a)(3)(A), inserted ``,
general partner of a partnership mortgagor, officer or director of a
corporate mortgagor, or identity of interest agent employed to manage
the property'' after ``mortgagor''.
Subsec. (d)(5). Pub. L. 105-65, Sec. 561(a)(3)(B), added par. (5).
Subsec. (e)(1). Pub. L. 105-65, Sec. 561(a)(4), substituted ``an
entity or person'' for ``a mortgagor''.
Subsec. (f). Pub. L. 105-65, Sec. 561(a)(5), (6), substituted
``Civil money penalties against multifamily mortgagors, general partners
of partnership mortgagors, officers and directors of corporate
mortgagors, and certain managing agents'' for ``Action to collect
penalty'' in heading and inserted ``, general partner of a partnership
mortgagor, officer or director of a corporate mortgagor, or identity of
interest agent employed to manage the property'' after ``mortgagor'' in
two places in text.
Subsec. (k). Pub. L. 105-65, Sec. 561(a)(7), added subsec. (k).
Effective Date of 1997 Amendment
Section 561(c) of Pub. L. 105-65 provided that: ``The amendments
made by subsection (a) [amending this section] shall apply only with
respect to--
``(1) violations that occur on or after the effective date of
the final regulations implementing the amendments made by this
section; and
``(2) in the case of a continuing violation (as determined by
the Secretary of Housing and Urban Development), any portion of a
violation that occurs on or after that date.''
Effective Date
Section 108(b) of Pub. L. 101-235 provided that: ``The amendment
made by subsection (a) [enacting this section] shall apply only with
respect to violations referred to in the amendment that occur on or
after the effective date of this section [Dec. 15, 1989].''
Implementation
Section 561(b) of Pub. L. 105-65 provided that:
``(1) Public comment.--The Secretary shall implement the amendments
made by this section [amending this section and enacting provisions set
out as a note under this section] by regulation issued after notice and
opportunity for public comment. The notice shall seek comments primarily
as to the definitions of the terms `ownership interest in' and
`effective control', as those terms are used in the definition of the
terms `agent employed to manage the property that has an identity of
interest' and `identity of interest agent'.
``(2) Timing.--A proposed rule implementing the amendments made by
this section shall be published not later than 1 year after the date of
enactment of this Act [Oct. 27, 1997].''
Section Referred to in Other Sections
This section is referred to in section 1715z-1a of this title; title
42 section 1437z-1.
