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INFORMATION: Temporary Programmatic Waiver: Waiver of 49 CFR 24.401(b)(1)--Calculation of Replacement Housing Paymen

Attachment A: Background

Background

As set forth in 42 USC 4621, the Uniform Act was passed, in part, to address the Congressional findings that "minimizing the adverse impact of displacement is essential to maintaining the economic and social well-being of communities" (42 USC 4621(a)(4)) and in order to achieve the primary purpose of ensuring "that such persons shall not suffer disproportionate injuries as a result of programs and projects designed for the benefit of the public as a whole and to minimize the hardship of displacement on such persons" (42 USC 4621(b)).

Further, the Uniform Act expressly sets forth the intent of Congress that

uniform procedures for the administration of relocation assistance shall, to the maximum extent feasible, assure that the unique circumstances of any displaced person are taken into account and that persons in essentially similar circumstances are accorded equal treatment under this chapter (42 USC 4621(c)).

Over the past several months, the Office of Real Estate Services has conducted outreach with its Division Realty Officers, and with its partners and stakeholders involved in relocation of homeowners displaced for transportation projects undertaken with federal-aid pursuant to 23 USC Title 23 (Title 23). Similar outreach has been conducted with partners at other Federal Agencies that similarly impact homeowners with Federal projects and programs that are subject to the provisions of the Uniform Act.

As a result of its outreach, the Office of Real Estate Services believes that the current and historically unique housing situation has created circumstances where a Waiver pertaining to the methodology to calculate a RHP under the regulations at 49 CFR 24.401(b)(1) is necessary. The Waiver will provide additional support to the Uniform Act's intent of making funds available to permit displaced homeowners to purchase and relocate to a comparable replacement dwelling.

This Waiver is applicable only to those situations where homeowners have negative equity in the acquired property. In such situations, typically an increase in the acquisition amount to achieve an agreement on the sale of the property reduces the RHP to zero. Further, in the circumstances to be addressed by this Waiver, the need to satisfy the mortgage balance arises as a direct result of the acquisition by the State Dot for Title 23 eligible projects. In other words, but for the displacement caused by the transportation project, the homeowners could continue to remain in the property and pay the periodic mortgage payments pending an increase in real estate values and elimination of the negative equity.

Attachment B: Other Tools

Other available tools, unaffected by this Waiver, include Administrative Settlements as authorized by 49 CFR 24.102(i) and Housing of Last Resort as authorized by 49 CFR 24.404. While extensive discussion of these other tools is beyond the scope of this Memorandum, they are addressed within the documents referenced below. However, the following comments should be considered in evaluating how best to take into account specific facts of a particular situation.

Administrative Settlement

The State Dot may, when appropriate and justified, utilize "Administrative Settlement". As indicated 49 CFR 24.102(i):

The purchase price for the property may exceed the amount offered as just compensation when reasonable efforts to negotiate an agreement at that amount have failed and an authorized Agency official approves such Administrative Settlement as being responsible, prudent and in the public interest. When Federal funds pay for or participate in acquisition costs, a written justification shall be prepared which states what available information, including trial risks, supports such a settlement.

Accordingly, the amount paid for an Administrative Settlement must be documented and justified, and based upon the value of the acquired property, taking into account such factors as valuation information, trial risks, and litigation costs. It is not intended to be a substitute for relocation benefits. Under this Waiver, the amount of the Administrative Settlement will not be taken into consideration in determining a RHP, which would otherwise offset funds available to the homeowner to acquire a comparable replacement home.

Housing of Last Resort

The State Dot may, when appropriate and justified, utilize "Replacement Housing of Last Resort". The purpose of Housing of Last Resort is to provide the assistance necessary to ensure that a comparable replacement dwelling is available when no comparable replacement housing is available within the limits specified in 49 CFR 24.401. However, Housing of Last Resort is not intended to be used as a method to provide financial relief to those with negative equity. A comparable replacement dwelling may be "housing of last resort" if there are no comparables available within the specified limits in 49 CFR 24.401. The additional tools under Housing of Last Resort are only available in specific instances where use of Housing of Last Resort is otherwise required for the reasons described at 49 CFR 24.404. These additional tools are incidental to providing an RHP and are not meant to augment the RHP.

Attachment C: Example Calculation

Example 1:

An owner owes $200,000 for a home purchased 3 years ago1. The real estate market has rapidly declined over the last several months. The State Dot needs the property for a project, appraises the property and presents the owner a written offer in the amount of $150,000. The State Dot finds a comparable replacement dwelling on the market for $170,000 because of the market decline. The price differential payment eligibility is $20,000. The owner and State Dot agree to a settlement of $200,000 for the purchase of the property. Normally the $20,000 price differential eligibility is zeroed, per the regulations, because the appropriately justified $50,000 administrative settlement exceeds the price differential eligibility. However, this Waiver allows the State Dot to pay $200,000 to the owner to acquire the property and allows the owner to retain the $20,000 RHP as a down payment on the comparable, provided the remaining requirements of 49 CFR Part 24 are met.

$170,000 (Comparable Replacement Dwelling) $200,000 (Agreement Amount)
- $150,000 (Just Compensation Offer) - $150,000 (Just Compensation Offer)
$ 20,000 (RHP Eligibility) $ 50,000 (Increase--Administrative Settlement)
Normal RHP Determination Waiver RHP Determination
$50,000 (Increase–Administrative Settlement) is greater than the $20,000 (RHP Eligibility) resulting in a $0 RHP Payment $50,000 (Increase–Administrative Settlement) is greater than the $20,000 (RHP Eligibility) so the Waiver allows a $20,000 RHP Payment

Example 2:

An owner owes $300,000 for a home purchased 2 years ago1. The real estate market has rapidly declined over the last several months. The State Dot needs the property for a project, appraises the property and presents the owner a written offer in the amount of $225,000. The State Dot finds a comparable replacement dwelling on the market for $260,000 because of the market decline. The price differential payment eligibility is $35,000. Because a comparable replacement dwelling is not available within the specified limits of 49 CFR 24.401, the comparable is made available under Housing of Last Resort. The owner and State Dot agree to a settlement of $300,000 for the purchase of the property. Normally the $35,000 price differential eligibility is zeroed, per the regulations, because the appropriately justified $75,000 administrative settlement exceeds the price differential eligibility. However, this Waiver allows the State Dot to pay $300,000 to the owner to acquire the property and allows the owner to retain the $35,000 RHP as a down payment on the comparable, provided the remaining requirements of 49 CFR Part 24 are met.

$260,000 (Comparable Replacement Dwelling) $300,000 (Agreement Amount)
- $225,000 (Just Compensation Offer) -$225,000 (Just Compensation Offer)
$ 35,000 (RHP Eligibility) $ 75,000 (Increase--Administrative Settlement)
Normal RHP Determination Waiver RHP Determination
$75,000 (Increase–Administrative Settlement) is greater than the $35,000 (RHP Eligibility) resulting in a $0 RHP Payment $75,000 (Increase–Administrative Settlement) is greater than the $35,000 (RHP Eligibility) so the Waiver allows a $35,000 RHP Payment

1 NOTE: The original purchase price is not a factor in these calculations.

Updated: 04/02/2013
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