HUD “First Look” program asks buyers to overlook PTAF

Earlier this month HUD announced a “first look” initiative which would give participants in HUD’s Neighborhood Stabilization Program (NSP) preference to acquire homes from HUD’s inventory of foreclosed properties. The initiative was announced by HUD Secretary Shaun Donovan at the National Council of La Raza annual conference in San Antonio.

Unfortunately, while it sounds great, this initiative is unlikely to help with the NSP troubles here in Texas, because HUD still refuses to certify that it followed the Protecting Tenants and Foreclosure Act (PTAF).  We’ve discussed this issue here before, but to recap, tenants in foreclosed properties have the right to keep their leases, and, if they don’t have a lease, receive at least a 90 day notice to vacate.

NSP funds may only be used to purchase foreclosed properties for which PTAF was complied with during the foreclosure.  This is important, as reports have shown that PTAF is widely ignored by lenders.

Given this requirement, Texas (rightly) requires that lenders certify that they followed PTAF.  (Other states have been willing to look the other way on lender PTAF compliance.  This ignores the intent of PTAF and NSP rules.)

HUD continues to refuse to certify that they follow the law.

As a result, the agencies are at a standoff.

TxLIHIS recently obtained, through a Public Information Act request, a copy of the letter from HUD declining to certify their homes as having been foreclosed upon in a manner compliant with PTAF.  You can download that letter here.

Here’s the money quote: “Although some ISIIs [Initial Successor In Interest, i.e. foreclosing lenders] may be willing to certify to compliance with the Act, HUD suggests that it is more appropriate to provide grantees with the necessary information for grantees to make their own compliance determination.

Translation: Buyers of the property can tell if we followed the law as well as we can, so why should we certify?

This is obnoxious because IT IS NOT TRUE.  HUD (or its agents) did the foreclosure.  They were actually there.  They can attest to whether or not they followed the law.  All the buyer can do is pick through whatever records the agents left and speculate about what happened behind the documents.

In this letter is HUD admitting that they lack the internal controls to determine if they are following the law.  Rather than take responsibility for that failure, they have decided to try to pass the buck onto the next buyer.  If HUD certified PTAF compliance falsely, they’d take on additional liability; rather than risk this, they set up the buyer to take the risk of a false certification due to HUD’s failure to follow PTAF.

Who loses here?  Well, for one, the tenants of HUD properties, because no one knows if they got their rights under PTAF.  Second the participants in the NSP program, because they can’t buy the property without aiding and abetting HUD’s possible violation of PTAF.  And third, HUD,  because they lose a prospective buyer of the property.

So in short, everyone.

We call on Secretary Donovan to

1)    Follow the law on PTAF;

2)    Create the internal controls they need to know they are following the law, and

3)    Certify that they are following the law.

Passing the buck on PTAF to local NSP recipients ignores the intent of the law.  HUD should do better.


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