QUESTION
We were asked to complete a form by one of our investors. One of the
questions asks us if our company and/or principals were ever denied, suspended,
or debarred by HUD. What do these HUD actions imply?
ANSWER
Although some people believe the Department of Housing and Urban
Development (HUD) can only force mortgagees and lenders to indemnify or
reimburse FHA for insurance claims paid on mortgages that are found not to meet
HUD guidelines, HUD has vastly more authorities to ensure enforcement. To be
sure, in October 2010 HUD proposed regulations to strengthen and expand its
ability to compel indemnification and reimbursement. [75 FR 62335] But HUD has
many more enforcement authorities.
With respect to your specific inquiry, HUD can suspend, debar, or issue
a Limited Denial of Participation (LDP) to participants in HUD programs. [24
CFR, Part 2424] These sanctions are typically meted out for fraud or other
serious misconduct.
Suspensions and debarments operate throughout the government; that is,
if one agency suspends or debars, the person or entity is debarred from doing
business with the entire federal government. HUD does provide an appeal
opportunity. [See 24 CFR, Part 24; 24 CFR, Part 26] In my view, one should not navigate
this process without the assistance of legal counsel, supported by a firm such
as ours to handle the due diligence.
The nomenclature of the terms “suspend” and “debar” mean precisely what
they imply. If a person or entity is suspended, they are barred from doing
business with the government for a specified period of time, ranging upwards of
one year, sometimes longer. If a person or entity is debarred, they are
prohibited from doing business with the government for what is a normally a set
period, usually in effect much longer than a suspension.
Unlike suspensions and debarments, LDPs are unique to HUD. There are
specific rules governing LDPs. [See 24 CFR, Part 2424, Subpart J] LDPs are
issued for the same types of misconduct as suspensions and debarments, but, as
implied in the term itself, these are more limited in impact. An LDP does not
bar participation in the programs of other federal agencies. Furthermore, LDPs
are usually limited to specific HUD programs and/or specific HUD field offices.
Most of the time, LDPs are issued for one year or less.
Persons or entities receiving an LDP, suspension
or debarment can appeal within HUD and have an on-the-record hearing before a
HUD Administrative Law Judge. [24 CFR, Part 2424.1130] It is also possible to
appeal to the federal courts. The appeal process, though, should be conducted with
support of legal counsel in conjunction with a firm like Lenders Compliance
Group to handle the due diligence.
Managing Director
Lenders Compliance Group
