Note: This guidance was superceded December 11, 2014.
U.S. Department of Transportation
Federal Highway Administration
|Subject:||INFORMATION: Temporary Waiver of Methodology for Calculating Replacement Housing Payment for Negative Equity||Date:||October 9, 2012|
|From:||Nelson Castellanos, Director
Office of Real Estate Services
Attn: Division Realty Professionals
This temporary waiver of the Title 49 of the Code of Federal Regulations (CFR) § 24.401(b)(1) methodology for calculating Replacement Housing Payments (RHP) for displaced homeowner-occupants supersedes the waiver issued November 10, 2010, and shall remain in effect through December 31, 2014 unless otherwise extended or rescinded in writing by FHWA Office of Real Estate Services. All other requirements of 49 CFR Part 24 continue to apply.
Under the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended (Uniform Act), persons displaced by a Federal financially-assisted project are entitled to specified benefits designed to minimize the hardship caused when they are forced to relocate to accommodate a public improvement project. One such benefit is the RHP provided to homeowner-occupants to help bridge the gap between the just compensation they are constitutionally entitled to receive for the acquisition of their property and the additional costs they may incur to obtain a comparable replacement property. In describing one of the fundamental objectives of the Uniform Act, the legislative history makes clear that a displaced homeowner should not be left worse off economically than he or she was before displacement and should be able to relocate to a comparable dwelling that is decent, safe, and sanitary -- that sentiment is codified in Title 42 of the United States Code (U.S.C.) § 4621.
In today's real estate market, many state agencies are faced with the prospect of displacing homeowner-occupants who hold negative equity in what is commonly referred to as "upside-down" mortgages where the fair market value of the property (or just compensation) is less than the outstanding debt (the mortgage). In these circumstances, an administrative settlement negotiated to acquire the property for a Federally-assisted project may eliminate the RHP otherwise available to the homeowner-occupant to assist in relocating to a replacement dwelling. Since the need to satisfy the mortgage balance arises as a direct result of the acquisition by the State DOT of the property for Title 23 U.S.C. eligible projects, the displaced homeowner-occupant should not be deprived of a RHP, making his or her situation worse than it was before displacement. In other words, but for the displacement caused by the transportation project, the homeowner-occupant could continue to remain in the property, pay the periodic mortgage payments until real property values recover to eliminate the negative equity, and avoid the disruption caused by relocation.The Office of Real Estate Services has conducted outreach with its Division Realty Officers, and with its partners and stakeholders involved in relocation of displaced homeowner-occupants. Similar outreach has been conducted with partners at other Federal agencies that similarly impact homeowner-occupants through Federal projects and programs that are subject to the Uniform Act. The current and historically unique negative equity housing situation has created circumstances where the methodology to calculate a RHP under 49 CFR § 24.401(b)(1) must be waived to ensure that homeowner-occupants receive the assistance needed to relocate to a comparable replacement dwelling. Section 24.7 of the Uniform Act regulations allow waivers of any requirement in 49 CFR Part 24 not required by law if the funding agency determines that the waiver "does not reduce any assistance or protection provided to an owner or displaced person." For the above reasons, the Office of Real Estate Services is issuing this temporary waiver to be implemented in accordance with the requirements set forth below.
This waiver is applicable only to those situations where displaced homeowner-occupants have negative equity in the property being acquired. Negative equity is a situation in which real property is encumbered by a mortgage (or other qualified liens) that exceeds the current fair market value of the property. Where applicable, this waiver eliminates the normal requirement that the RHP calculation use the amount finally determined and paid as just compensation for the property. Instead, the RHP calculation uses the appraisal-based just compensation amount in the original offer to acquire, even though the final just compensation amount may have been increased through an administrative settlement that takes into account the amount by which the mortgage/lien balance exceeds the fair market value of the property acquired.
In other words, pursuant to 49 CFR 24.7, in a negative equity situation this waiver defines “acquisition cost” as used in 49 CFR 24.401(b)(1) to mean the initial written offer of just compensation when calculating the amount by which the cost of the replacement dwelling exceeds the acquisition cost to determine the RHP amount.
This allows a State DOT, when appropriately justified (see Attachment A), to enter into an administrative settlement for the acquisition of a property with negative equity without affecting the calculation and reimbursement of a RHP. Examples of this calculation are shown in Attachment B to this memorandum.
The use of the waiver is voluntary on the part of the State DOT and is subject to FHWA approval on a programmatic basis. Should a State DOT elect to use this waiver, it must do so in accordance with the following requirements:
The State DOT's proposal for implementation of the waiver shall be submitted in writing to the Division Administrator for review and approval. The Division Administrator will review the proposal and issue either an implementation approval or, where warranted, the Division Administrator may temporarily withhold approval and recommend revisions to the State DOT's proposal in keeping with these requirements and request that the State DOT resubmit its request.
Implementation shall be subject to Division Administrator oversight. It is anticipated that the Division office will review the use and implementation of this waiver at six month intervals to evaluate its effectiveness and ensure that it is implemented in a manner consistent with this memorandum. Division office approval may be rescinded upon a determination that the waiver is not being properly implemented.
This waiver is intended to provide an additional tool to assist State DOTs in the relocation of homeowner-occupants impacted by negative equity in the acquired property, and is not intended to eliminate the need to comply with other requirements of the Uniform Act and implementing regulations, including but not limited to the requirements for relocation planning, advisory services, and coordination pursuant to 49 CFR 24.205. Moreover, it is intended to supplement other available tools (Attachment A) to assist State DOTs in addressing all impacts associated with the acquisition of property and relocation of the homeowner.
Questions concerning this waiver may be directed to Mary Jane Daluge at (202) 366-2035 or at firstname.lastname@example.org, or by contacting your Office of Real Estate Point of Contact.