B-133957, OCT. 17, 1957

B-133957: Oct 17, 1957

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THE ACTING ADMINISTRATOR REQUESTED OUR DECISION CONCERNING CERTAIN QUESTIONS WHICH HAVE ARISEN PERTAINING TO DISPOSALS BY THE FEDERAL HOUSING COMMISSIONER TO THE PUBLIC THROUGH REAL ESTATE BROKERS OF CERTAIN REAL PROPERTIES ORIGINALLY THE SECURITY FOR LOANS ACQUIRED BY HIM IN THE COURSE OF ADMINISTERING THE SEVERAL INSURANCE PROGRAMS ESTABLISHED BY THE NATIONAL HOUSING ACT. IT IS STATED THAT UNDER THE CITED STATUTE THE COMMISSIONER IS GRANTED BROAD DISCRETIONARY AUTHORITY IN DEALING WITH AND DISPOSING OF SUCH PROPERTIES AND THAT ONE EFFECTIVE METHOD FOR SUCH DISPOSALS. IS TO ENLIST THE AID OF REAL ESTATE BROKERS IN THE COMMUNITIES WHERE THE PROPERTIES ARE SITUATED BY MEANS OF A "GENERAL LISTING.'.

B-133957, OCT. 17, 1957

TO HONORABLE ALBERT M. COLE, ADMINISTRATOR, HOUSING AND HOME FINANCE AGENCY:

BY LETTER OF OCTOBER 1, 1957, WITH ENCLOSURES, THE ACTING ADMINISTRATOR REQUESTED OUR DECISION CONCERNING CERTAIN QUESTIONS WHICH HAVE ARISEN PERTAINING TO DISPOSALS BY THE FEDERAL HOUSING COMMISSIONER TO THE PUBLIC THROUGH REAL ESTATE BROKERS OF CERTAIN REAL PROPERTIES ORIGINALLY THE SECURITY FOR LOANS ACQUIRED BY HIM IN THE COURSE OF ADMINISTERING THE SEVERAL INSURANCE PROGRAMS ESTABLISHED BY THE NATIONAL HOUSING ACT, AS AMENDED, 12 U.S.C. 1701.

IT IS STATED THAT UNDER THE CITED STATUTE THE COMMISSIONER IS GRANTED BROAD DISCRETIONARY AUTHORITY IN DEALING WITH AND DISPOSING OF SUCH PROPERTIES AND THAT ONE EFFECTIVE METHOD FOR SUCH DISPOSALS, PARTICULARLY OF THE HOME-OWNERSHIP TYPE, IS TO ENLIST THE AID OF REAL ESTATE BROKERS IN THE COMMUNITIES WHERE THE PROPERTIES ARE SITUATED BY MEANS OF A "GENERAL LISTING.' IT IS STATED THAT AFTER INFORMING INTERESTED REAL ESTATE BROKERS OF THE PROPERTIES TO BE OFFERED FOR SALE AND FURNISHING THEM WITH THE ANTICIPATED SALES PRICES AND TERMS AND CONDITIONS OF THE PROPOSED SALES, IT IS THE PRACTICE TO AWAIT THE SUBMISSION OF A SATISFACTORY PURCHASE OFFER THROUGH ONE OF THE BROKERS. IT IS RELATED THAT THE PRELIMINARY ARRANGEMENTS WITH THE BROKER ARE USUALLY MADE INFORMALLY; THAT AT SUCH TIME NO CONTRACTUAL RELATIONSHIP EXISTS BETWEEN THEM AND THE COMMISSIONER; AND THAT THE HANDLING OF THESE TRANSACTIONS IS IDENTICAL IN ALL MATERIAL RESPECTS WITH TRANSACTIONS BETWEEN PRIVATE PERSONS AND FIRMS WHO LIST PROPERTIES WITH BROKERS UNDER A ,GENERAL LISTING.'

DOUBT AS TO THE PROPRIETY OF THIS PROCEDURE IS SAID TO ARISE BY REASON OF THE PROVISIONS OF SECTION 904 (F) OF THE NATIONAL HOUSING ACT, AS AMENDED BY THE ACT OF SEPTEMBER 1, 1951, 65 STAT. 295, 12 U.S.C. 1750C (F), AS FOLLOWS:

"/F) NOTWITHSTANDING ANY OTHER PROVISION OF LAW RELATING TO THE ACQUISITION, HANDLING, OR DISPOSAL OF REAL PROPERTY BY THE UNITED STATES, THE COMMISSIONER SHALL HAVE POWER TO DEAL WITH, COMPLETE, RENT, RENOVATE, MODERNIZE, INSURE, MAKE CONTRACTS OR ESTABLISH SUITABLE AGENCIES FOR THE MANAGEMENT OF, OR SELL FOR CASH OR CREDIT, IN HIS DISCRETION, ANY PROPERTIES CONVEYED TO HIM IN EXCHANGE FOR DEBENTURES AND CERTIFICATES OF CLAIM AS PROVIDED IN THIS SECTION; AND, NOTWITHSTANDING ANY OTHER PROVISION OF LAW, THE COMMISSIONER SHALL ALSO HAVE POWER TO PURSUE TO FINAL COLLECTION, BY WAY OF COMPROMISE OR OTHERWISE, ALL CLAIMS AGAINST MORTGAGORS ASSIGNED BY MORTGAGEES TO THE COMMISSIONER AS PROVIDED IN THIS TITLE: PROVIDED, THAT SECTION 3709 OF THE REVISED STATUTES SHALL NOT BE CONSTRUED TO APPLY TO ANY PURCHASE OR CONTRACT FOR SERVICES OR SUPPLIES ON ACCOUNT OF SUCH PROPERTY IF THE AMOUNT THEREOF DOES NOT EXCEED $1,000.

IT IS STATED THAT GENERALLY THE AMOUNT OF THE BROKER'S COMMISSION IN SUCH TRANSACTIONS IS LESS THAN $1,000 AND THAT, THEREFORE, NO QUESTION ARISES AS TO THE APPLICABILITY OF THE ADVERTISING REQUIREMENTS OF SECTION 3709, REVISED STATUTES, AS AMENDED, 41 U.S.C. 5, SINCE THE ABOVE QUOTED STATUTE EXPRESSLY PROVIDES THAT SECTION 3709 "SHALL NOT BE CONSTRUED TO APPLY TO ANY PURCHASE OR CONTRACT FOR SERVICES OR SUPPLIES ON ACCOUNT OF SUCH PROPERTY IF THE AMOUNT THEREOF DOES NOT EXCEED $1,000.' IT IS STATED, HOWEVER, THAT WHERE THE AMOUNT OF THE BROKER'S COMMISSION EXCEEDS $1,000 QUESTIONS HAVE ARISEN AS TO COMPLIANCE WITH SECTION 3709.

A TRANSACTION CONCERNING THE LEWIS DUPLEXES IN LAWTON, OKLAHOMA, ACQUIRED BY THE COMMISSIONER PURSUANT TO THE PROVISIONS OF SECTION 904 OF THE NATIONAL HOUSING ACT, AS AMENDED, IS CITED AS A CASE IN POINT. IT IS RELATED THAT THE MANAGEMENT PROGRAM FOR THESE PROPERTIES AS ADMINISTRATIVELY APPROVED AND RELEASED TO MR. FERGUSON, THE DIRECTOR AT OKLAHOMA CITY, PROVIDED IN ADDITION TO AUTHORIZED RENTAL RATES, AS FOLLOWS:

" "NO REPAIRS EXCEPT TO CASE 942-00053. REPAIRS FOR THIS CASE ARE APPROVED NOT TO EXCEED $4,100.

" "PROPERTIES WILL BE OFFERED AS FOLLOWS:

1. SIX GROUPS OF 3 DUPLEXES, EACH GROUP CONTAINING 4-2 BR UNITS AND 2-1 BR UNITS, AT $40,000 PER GROUP, $3,000 CASH, 20 YR. COMMISSIONER HELD MORTGAGE.

2. SIX GROUPS OF 3 DUPLEXES, EACH GROUP CONTAINING 6-2 BR UNITS, AT $42,000 PER GROUP, $3,000 CASH, 20 YR. COMMISSIONER-HELD MORTGAGE.

3. TWO DUPLEXES, EACH CONTAINING 2-2 BR UNITS, $14,000 EACH, $1,000 CASH, 20 YR. COMMISSIONER-HELD MORTGAGE. IF SOLD TOGETHER, PRICE AND CASH ARE TO BE DOUBLED.'"

IT IS POINTED OUT THAT THE MANAGEMENT PROGRAM FOR THESE PROPERTIES CONTAINED NO INSTRUCTIONS TO MR. FERGUSON TO ADVERTISE FOR BIDS FOR SALE OF THE PROPERTIES OR ANY INSTRUCTIONS TO HIM CONCERNING SALES COMMISSIONS TO BROKERS PRODUCING SALES. IT IS STATED, HOWEVER, THAT THE DIRECTOR WAS INSTRUCTED TO OFFER THE PROPERTIES FOR SALE IN SEPARATE GROUPS. IT IS OBSERVED THAT AT THE GROUP PRICES THE PAYMENT OF THE CUSTOMARY SALES COMMISSION OF 5 PERCENT WOULD HAVE INVOLVED COMPENSATION IN EXCESS OF THE ABOVE $1,000 LIMITATION SINCE IN CASE OF THE SECOND GROUP THE SUGGESTED PRICE PER GROUP IS STATED AS $42,000 PER GROUP. IT APPEARS THAT WHILE ORIGINALLY MR. FERGUSON RECEIVED A LUMP-SUM OFFER OF $520,000 REPRESENTING THE SUGGESTED SALES PRICE FOR ALL THE PROPERTIES SUCH OFFER CONTEMPLATED REPAIRS ESTIMATED AT A COST OF $4,100 TO BE MADE BY FHA. IT APPEARS, HOWEVER, THAT SUBSEQUENTLY THIS OFFER WAS REDUCED TO $514,400 WITH THE UNDERSTANDING THAT THE PURCHASER WOULD MAKE THE REPAIRS THEN ESTIMATED AS COSTING $5,600. IT IS STATED THAT THE NEGOTIATION OF THIS SALE BY MR. FERGUSON WAS WITH THE UNDERSTANDING THAT UPON ACCEPTANCE OF THE OFFER FHA WOULD ALLOW THE AMERICAN REALTY COMPANY, THE SUBMITTING BROKER, A FEE OR COMMISSION OF 2 PERCENT OR $10,288 TO BE PAID FROM THE PROCEEDS OF THE SALE. IT IS RELATED THAT THEREAFTER THE BROKER DOCUMENTED THE SALE BY DELIVERING TO MR. FERGUSON A SALES CONTRACT IN THE REQUIRED FORM EXECUTED BY THE PROSPECTIVE PURCHASERS TOGETHER WITH FHA FORM NO. 2385, BROKER'S TENDER OF SALES CONTRACT EXECUTED BY THE BROKER. IT IS EXPLAINED THAT THIS LATTER FORM IS ADDRESSED TO THE FHA COMMISSIONER AND THAT IT TENDERS THE SALES CONTRACT WITH THE UNDERSTANDING THAT THE BROKER SIGNING THE FORM IS ENTITLED TO RECEIVE THE COMMISSION STATED THEREIN, NAMELY, $10,288. APPEARS THAT THEREAFTER FOLLOWING APPROVAL BY AUTHORIZED FHA OFFICIALS IN WASHINGTON THE DIRECTOR EXECUTED THE SALES CONTRACT ON BEHALF OF THE FHA COMMISSIONER THEREBY OBLIGATING FHA FOR PAYMENT OF THE ABOVE COMMISSION.

ON THE BASIS OF THE FOREGOING YOU STATE THAT THE BASIC QUESTION FOR CONSIDERATION IS WHETHER THE ABOVE NEGOTIATIONS, INVOLVING THE OBLIGATION OF FUNDS FOR A BROKER'S COMMISSION IN EXCESS OF THE STATUTORY LIMITATION OF $1,000, IS CONSISTENT WITH THE PROVISIONS OF SECTION 3709 AND YOU ASK WHETHER WE WOULD TAKE EXCEPTION TO THE PAYMENT OF SUCH COMMISSION UNDER THE FACTS DESCRIBED IN THE ABSENCE OF DOCUMENTARY OR SUPPORTING DATA AS TO THE BROKERS, OTHER THAN THE AMERICAN REALTY COMPANY, INVITED TO PARTICIPATE IN DISPOSAL OF LEWIS DUPLEXES. ALSO, YOU ASK WHETHER THE ,GENERAL LISTING" AS DESCRIBED IN YOUR LETTER--- AND WHICH YOU STATE IS REGULARLY UTILIZED BY PRIVATE FIRMS IN THE DISPOSAL OF REAL PROPERTY--- MEETS WITH OUR APPROVAL AS AN ESTABLISHED PROCEDURE FOR THE FEDERAL HOUSING COMMISSIONER. IN THIS CONNECTION, IT IS STATED THAT THE COMMISSIONER IS AUTHORIZED TO NEGOTIATE THE SALE OF PROPERTIES WITHOUT COMPETITIVE BIDDING AND THAT SINCE, THEREFORE, NEGOTIATIONS COULD BE BASED UPON A SELLING PRICE NET TO THE COMMISSIONER WITH THE BROKER LOOKING TO THE PURCHASERS OF THE PROPERTIES ADVICE IS REQUESTED AS TO WHETHER IT IS NOT THE SOUNDER APPROACH TO FOLLOW THE PROCEDURE DESCRIBED ABOVE WHICH IT IS STATED REPRESENTS THE USUAL AND CUSTOMARY PROCEDURE OF DEALING WITH REAL ESTATE BROKERS. ALSO, IT IS SUGGESTED THAT THE COMPETITION ENGENDERED BY A "GENERAL LISTING" MAY BE ADEQUATE TO MEET THE REQUIREMENTS OF SECTION 3709 WITHOUT RECOURSE TO A PROCEDURE UNDER WHICH THE BROKER'S COMMISSION MUST BE PAID BY THE PURCHASER RATHER THAN BY THE GOVERNMENT.

IN THE CASE OF A SALE MADE THROUGH A BROKER WITHOUT COMPETITIVE BIDDING UNDER THE PROCEDURE OUTLINED IN THE SUBMISSION THERE APPEARS TO BE NO BASIS UPON WHICH TO REQUIRE BIDDING WITH REFERENCE TO THE BROKER'S COMMISSION SINCE IT IS OBVIOUS THAT NO OTHER BROKER WOULD HAVE THE OPPORTUNITY OR COULD BY ANY POSSIBILITY BE INTERESTED IN THE MATTER. SINCE THE QUOTED SECTION OF THE ACT AUTHORIZES THE COMMISSIONER TO SELL WITHOUT REGARD TO ANY OTHER PROVISIONS OF LAW, HE MAY ACCEPT ANY OFFER WHICH HE CONSIDERS TO BE IN THE BEST INTEREST OF THE GOVERNMENT, AND THE FACT THAT AN OFFER MAY BE CONDITIONED UPON PAYMENT OF A BROKER'S COMMISSION DOES NOT REQUIRE THAT A SEPARATE CONTRACT FOR THE BROKER'S SERVICES BE MADE BEFORE THE OFFER MAY BE ACCEPTED. THE PAYMENT OF THE COMMISSION IS ONE OF THE TERMS OF THE OFFER, AND NOT A SEPARATE CONTRACT FOR SERVICES WHICH MUST BE AWARDED AFTER ADVERTISING IF THE COMMISSION EXCEEDS $1,000. THEREFORE, IN THE SITUATION AS DESCRIBED IN THE SUBMISSION WE WOULD NOT BE REQUIRED TO TAKE EXCEPTION TO THE PAYMENT OF THE COMMISSION AS SUCH, NOTWITHSTANDING THE ABSENCE OF DOCUMENTATION OR SUPPORTING DATA AS TO ANY BROKERS, OTHER THAN THE AMERICAN REALTY COMPANY, INVITED TO PARTICIPATE IN THE SALE OF THE LEWIS DUPLEXES.

AS TO THE QUESTION WHETHER THE DESCRIBED "GENERAL LISTING" METHOD MEETS WITH OUR APPROVAL IT MAY BE STATED THAT SINCE WE DO NOT DISAGREE WITH THE VIEW THAT THE COMMISSIONER HAS AUTHORITY TO NEGOTIATE SALES WITHOUT COMPETITIVE BIDDING WE WOULD NOT FEEL JUSTIFIED IN OBJECTING TO THE ,GENERAL LISTING" METHOD AS OUTLINED IN SITUATIONS WHERE IT IS ADMINISTRATIVELY DETERMINED THAT THE USE OF SUCH METHOD IS IN THE BEST INTEREST OF THE UNITED STATES. CF. SECTION 203 (C) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS AMENDED BY THE ACT OF AUGUST 3, 1956, 70 STAT. 1020. WE ARE INCLINED, HOWEVER, TO QUESTION WHETHER THE STATEMENT OF A FIXED PRICE IN SUCH A GENERAL LISTING IS MOST LIKELY TO INSURE THE BEST PRICE OBTAINABLE, SINCE IT PRACTICALLY REQUIRES THE ACCEPTANCE OF THE FIRST OFFER OBTAINED AT THAT PRICE. WE ALSO, SUGGEST THAT WHERE CIRCUMSTANCES SO DICTATE, ADDITIONAL APPROPRIATE STEPS BE TAKEN INCLUDING THE FURNISHING OF INFORMATION TO ALL PROSPECTIVE PURCHASERS OR BROKERS OF ANY CHANGES IN THE TERMS OR CONDITIONS OF THE PROPOSED SALE, TO OBTAIN THE BEST PRICE AND TERMS AVAILABLE. IN THIS CONNECTION, IT IS NOTED THAT WHILE MR. FERGUSON WAS INSTRUCTED TO OFFER THE PROPERTIES FOR SALE IN SEPARATE GROUPS, THE 38PROPERTIES WERE DISPOSED OF AS A WHOLE AND THAT HE NEVER MADE IT GENERALLY KNOWN THAT THE PROPERTIES WERE AVAILABLE FOR PURCHASE AS A WHOLE OR THAT THE FHA WOULD BE WILLING TO ACCEPT $514,000 FOR THE ENTIRE PROJECT AND PAY THE BROKER A 2 PERCENT COMMISSION. SUCH PROCEDURE APPEARS TO BE CONTRARY TO THE INSTRUCTIONS TO MR. FERGUSON REFERRED TO IN THE SUBMISSION, AND CONCEIVABLY IT COULD HAVE AFFECTED THE AMOUNT WHICH OTHER PROSPECTIVE PURCHASERS MIGHT HAVE BEEN WILLING TO OFFER ON THE PROPERTIES. HOWEVER, SINCE IT APPEARS THAT THE SALE HAS BEEN APPROVED, WE MUST ASSUME THAT THE DEPARTURE FROM INSTRUCTIONS HAS BEEN RATIFIED BY YOU.