21st Century ROAD to Housing Act Prohibition on Large Institutional Investor Purchases of Single-Family Homes

Issuing agencies

Abstract

The Department of the Treasury (Treasury) is issuing this proposed rule to carry out the purposes of section 1001 of the 21st Century ROAD to Housing Act (the Act or the ROAD Act). Section 1001 of the ROAD Act prohibits large institutional investors from purchasing single-family homes, subject to certain exceptions. The proposed rule would clarify certain terms relevant to those restrictions, including "large institutional investor"; clarify the application of certain exceptions from the statutory prohibition; and clarify the statutory enforcement mechanism. The proposed rule is intended to provide clarity to market participants and other stakeholders on the application of the statute before the effective date of the ROAD Act.

Full Text

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<title>Federal Register, Volume 91 Issue 204 (Friday, October 23, 2026)</title>
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[Federal Register Volume 91, Number 204 (Friday, October 23, 2026)]
[Proposed Rules]
[Pages 66799-66827]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-21675]


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DEPARTMENT OF THE TREASURY

31 CFR Part 36

[TREAS-DO-2026-0529]
RIN 1505-AC96


21st Century ROAD to Housing Act Prohibition on Large 
Institutional Investor Purchases of Single-Family Homes

AGENCY: Department of the Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of the Treasury (Treasury) is issuing this 
proposed rule to carry out the purposes of section 1001 of the 21st 
Century ROAD to Housing Act (the Act or the ROAD Act). Section 1001 of 
the ROAD Act prohibits large institutional investors from purchasing 
single-family homes, subject to certain exceptions.

[[Page 66800]]

The proposed rule would clarify certain terms relevant to those 
restrictions, including ``large institutional investor''; clarify the 
application of certain exceptions from the statutory prohibition; and 
clarify the statutory enforcement mechanism. The proposed rule is 
intended to provide clarity to market participants and other 
stakeholders on the application of the statute before the effective 
date of the ROAD Act.

DATES: Comments on this notice of proposed rulemaking must be received 
on or before November 23, 2026.

ADDRESSES: Written comments may be submitted through one of two 
methods:
    <bullet> Electronic Submission: Comments may be submitted 
electronically through the Federal Government eRulemaking portal at 
<a href="https://www.regulations.gov">https://www.regulations.gov</a>.
    <bullet> Mail: Send to U.S. Department of the Treasury, Attention: 
Office of Capital Markets, 1500 Pennsylvania Avenue NW, Washington, DC 
20220.
    Given potential delays in the receipt of comments by mail, we 
strongly encourage all comments to be submitted via <a href="https://www.regulations.gov">https://www.regulations.gov</a>. All comments should be captioned ``Restrictions on 
Large Institutional Investor Purchases of Single-Family Homes.'' Please 
include your name, organizational affiliation, address, email address, 
and telephone number in your comment. In general, all comments 
received, including attachments and other supporting materials, will be 
part of the public record and subject to public disclosure. Do not 
submit any information in your comment or supporting materials that you 
consider confidential or inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT: William Hicks, Office of Domestic 
Finance, 202-622-0148; Eric Froman, Office of the General Counsel, 202-
622-1942; or <a href="/cdn-cgi/l/email-protection#a3ece4e0fcf1ece2e7e2c0d7e3f7d1c6c2d0d6d1da8dc4ccd5"><span class="__cf_email__" data-cfemail="8dc2caced2dfc2ccc9cceef9cdd9ffe8ecfef8fff4a3eae2fb">[email&#160;protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Introduction and Overview

A. Statutory Background and Authority

    Section 1001 of the ROAD Act,\1\ enacted on July 11, 2026, is 
intended to promote homeownership opportunities for American families 
by prohibiting purchases of single-family homes by large institutional 
investors,\2\ subject to specified ``excepted purchases.'' The statute 
defines ``excepted purchase'' to include purchases made pursuant to a 
build-to-rent program, renovate-to-rent program, homeownership program, 
or program to boost homeownership, among others.\3\ In appropriate 
circumstances, these excepted activities can support or increase the 
nation's housing supply without reducing the availability of single-
family homes for families and other owner-occupants.
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    \1\ 42 U.S.C. 19521.
    \2\ These and other terms are defined in section 1001(a) of the 
ROAD Act.
    \3\ See Section 1001(a)(2) of the ROAD Act.
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    The ROAD Act authorizes Treasury, in consultation with the 
Secretary of Housing and Urban Development, the Director of the Federal 
Housing Finance Agency, and the Chair of the Securities and Exchange 
Commission, to issue regulations to carry out the purposes of section 
1001, including regulations to ``(i) minimize market disruptions upon 
identifying a risk of material negative impact on the housing market, 
including an impact on the ability of market participants to dispose of 
single-family homes in an orderly fashion; and (ii) mitigate, to the 
extent possible, negative impacts on consumers and communities.'' \4\ 
Treasury's regulations may not ``amend the definitions'' of certain 
terms that are defined in the statute.\5\
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    \4\ Id. at section 1001(b)(4)(A).
    \5\ Id. at section 1001(b)(4)(B).
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    The statute's requirements and prohibitions take effect on the date 
that is 180 days after the date of enactment of the Act (i.e., on 
January 7, 2027).

B. Purpose of the Proposed Rule

    Treasury is issuing this proposed rule in order to promote clarity 
for market participants and other stakeholders regarding the 
restrictions in section 1001 of the ROAD Act. Treasury may subsequently 
engage in additional rulemakings regarding other aspects of the 
statute.
    This proposed rule is intended to clarify the meaning and 
application of certain terms that are used but not defined in the Act. 
Specifically, the proposed rule clarifies terms used in the statutory 
definitions of ``excepted purchase'' and ``large institutional 
investor'': ``program,'' ``build-to-rent program,'' ``renovate-to-rent 
program,'' ``homeownership program,'' ``program to boost 
homeownership,'' ``engaged in the business of,'' ``passive investor,'' 
``purchase price of the single-family home,'' and ``structural or core 
system.'' Treasury also proposes to clarify the scope of excepted 
purchases made pursuant to sections 1001(a)(2)(F), (G), and (H) of the 
Act, which relate to certain purchases in connection with the 
satisfaction of debts previously contracted; certain purchases for the 
purpose of loss mitigation or compliance with servicing or investor 
obligations; and certain purchases from another large institutional 
investor. Finally, Treasury proposes to clarify the calculation of the 
maximum civil penalty for a purchase made in violation of the Act by 
more than one large institutional investor.
    The proposed rule is intended to assist market participants and 
other stakeholders in determining whether particular acquisition 
structures, contractual arrangements, and purchase programs are 
consistent with the ROAD Act.\6\
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    \6\ Section 1001(c)(8) of the Act requires a large institutional 
investor to submit an annual notice to the Department of Housing and 
Urban Development (HUD) with certain information about single-family 
homes over which the large institutional investor has direct or 
indirect investment control. HUD will prescribe the form and manner 
of that notice, which this proposed rule does not address.
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C. Phased Rulemaking Approach

    The purchase prohibition in section 1001 of the ROAD Act becomes 
effective 180 days after enactment.\7\ Given this short implementation 
period and the need for market participants to make decisions regarding 
homebuilding, acquisitions, ownership structures, investment 
arrangements, and compliance systems, Treasury currently intends to 
take a phased rulemaking approach.
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    \7\ Id. at section 1001(f)(1).
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    This proposed rule is the first phase, focusing on issues that 
Treasury believes would be beneficial to address as soon as possible to 
provide clarity and minimize market disruptions.
    Treasury expects to consider engaging in future rulemakings to 
address other aspects of section 1001 of the ROAD Act, such as other 
statutory excepted-purchase categories, compliance procedures, 
reporting and recordkeeping, and enforcement actions.

D. Overview of the Proposed Rule

    Following are brief summaries of the provisions of the proposed 
rule. For further explanation, see the discussion in section II below.
    Proposed Sec.  36.1 sets forth the authority, purpose, and scope of 
Part 36.
    Proposed Sec.  36.2 defines certain key terms for use in Part 36. 
Proposed Sec.  36.2 defines ``property control right'' to mean a right, 
including a consent, approval, veto, or other right, that gives an 
entity the ability to make, direct, or prevent a second entity's 
decisions, directly or indirectly, related to the purchase, sale, 
holding, leasing, renovation, or management of a single-family home. As 
discussed below, this term is relevant within the proposed definition 
of ``passive investor.'' Proposed Sec.  36.2 also defines ``purchase 
price of the property''

[[Page 66801]]

and ``purchase price of the single-family home.'' These definitions are 
intended to distinguish the total amount paid to purchase a property, 
including the land on which the single-family home is situated, from 
the portion of that amount attributable to the structure for purposes 
of applying the renovate-to-rent exception. Proposed Sec.  36.2 also 
defines ``structural or core system,'' based on the Department of 
Housing and Urban Development's (HUD's) residential building-code 
comparison framework for identifying systems or areas that affect 
structural integrity, habitability, life safety, or major building 
systems.
    Proposed Sec.  36.3 would define ``program'' for purposes of the 
statutory definition of ``excepted purchase,'' which refers to four 
categories of program-based excepted purchases: build-to-rent programs, 
renovate-to-rent programs, homeownership programs, and programs to 
boost homeownership. Under the proposal, a program would mean a set of 
written policies or written procedures that are adopted before the 
purchase of single-family homes pursuant to such program and are 
reasonably designed and implemented to ensure that all purchases of 
single-family homes pursuant to the program satisfy the applicable 
requirements of the Act, Part 36, and the program.
    Proposed Sec.  36.5 would clarify when a build-to-rent program 
meets the statutory requirements. Under the proposed rule, a build-to-
rent program is a program pursuant to which purchased single-family 
homes have not been occupied by an owner-occupant before being 
purchased, are purchased within 18 months of the single-family home 
receiving its certificate of occupancy, and, after the purchase, are 
first occupied by renters.
    Proposed Sec.  36.6 would clarify when a renovate-to-rent program 
meets the statutory requirements. Under the proposal, a renovate-to-
rent program is a program pursuant to which a large institutional 
investor substantially rehabilitates single-family homes that do not 
meet structural or core system elements of local building codes at the 
time of purchase, resolves all material deficiencies, and makes 
improvements to each single-family home in an aggregate dollar amount 
of not less than 15 percent of the purchase price of the single-family 
home. Proposed Sec.  36.6 also would provide a non-exclusive safe 
harbor for the substantial-rehabilitation requirement, if the large 
institutional investor makes improvements in an aggregate amount of not 
less than 10 percent of the purchase price of the single-family home on 
structural or core system elements and resolves all material 
deficiencies in such elements.
    Proposed Sec.  36.7 would clarify when a homeownership program 
meets the statutory requirements for that program. Under the proposal, 
a homeownership program would be a program pursuant to which a large 
institutional investor enters into contracts with renters to rent 
single-family homes purchased by the large institutional investor, 
where those contracts include certain terms relating to rental payments 
and fees and provide for specified consumer-credit treatment, positive 
reporting of rental payments, meaningful financial support for the 
purchase of the single-family home, the renter's right to purchase the 
single-family home, and the continuation of the homeownership program's 
terms in the event the home is sold to another large institutional 
investor. Proposed Sec.  36.7 would also provide a non-exclusive safe 
harbor for determining whether a large institutional investor has 
provided meaningful financial support for the purchase of the single-
family home.
    Proposed Sec.  36.8 would clarify when a program to boost 
homeownership meets the statutory requirements. Under the proposal, 
such a program would be a program pursuant to which a large 
institutional investor enters into contracts with renters to rent 
single-family homes purchased by the large institutional investor, 
where those contracts include certain terms relating to positive 
reporting of rental payments, a right of first refusal and 30-day 
first-look period, meaningful financial support for the renter's 
purchase of a single-family home, and the continuation of the program's 
terms in the event the home is sold to another large institutional 
investor. Proposed Sec.  36.8 would also provide a non-exclusive safe 
harbor for determining whether a large institutional investor has 
provided meaningful financial support, a right of first refusal, and 
30-day first-look period.
    Proposed Sec.  36.9 would clarify when a large institutional 
investor purchases a single-family home under the statutory exception 
for the satisfaction of certain debts previously contracted. Under the 
proposed rule, this category would include certain direct purchases by 
a large institutional investor in connection with the satisfaction of 
debts previously contracted by that large institutional investor, and 
certain indirect purchases by a large institutional investor from 
another person or entity that purchased the single-family home in 
connection with the satisfaction of debts previously contracted.
    Proposed Sec.  36.10 would clarify when a large institutional 
investor purchases a single-family home in accordance with the 
statutory exception for purchases for the purpose of loss mitigation or 
compliance with servicing or investor obligations. Under the proposed 
rule, this category would apply where the purchase is undertaken by a 
mortgage servicer, lender, or other entity that has a legal right to a 
single-family home for the purpose of loss mitigation or compliance 
with servicing or investor obligations, and not as a long-term 
investment strategy, and is solely as a result of specified default-
related events. The proposed rule would also address purchases directly 
(by such a mortgage servicer, lender, or other entity) or indirectly 
(from such a mortgage servicer, lender, or other entity).
    Proposed Sec.  36.11 would clarify when a large institutional 
investor purchases a single-family home from another large 
institutional investor pursuant to section 1001(a)(2)(H) of the Act. 
Under the proposal, such a purchase would be an excepted purchase if 
the selling large institutional investor either owned the single-family 
home on the date of enactment of the Act or purchased the single-family 
home in compliance with the Act, including in a purchase from another 
large institutional investor under section 1001(a)(2)(H).
    Proposed Sec.  36.15 would clarify when an entity is engaged, in 
whole or in part, in the business of investing in, owning, renting, 
managing, or holding single-family homes for purposes of section 
1001(a)(3)(A)(i)(I) of the Act. Under the proposal, an entity would 
fall within this scope if it invests, directly or indirectly, in, owns, 
rents, manages, or holds single-family homes for the purpose, in whole 
or in part, of receiving investment gains, rental income, management 
fees, or any other type of income or financial gain. Proposed Sec.  
36.15 would also clarify that an entity is not engaged in that business 
if the entity, directly or indirectly, invests in, owns, rents, 
manages, or holds single-family homes solely on a temporary and 
incidental basis in furtherance of a different bona fide business, only 
to the extent reasonably necessary for the conduct of such other bona 
fide business, and not as a regular or continuing investment strategy 
or portfolio management activity.
    Proposed Sec.  36.16 would define ``passive investor'' for purposes 
of section 1001(a)(3)(B)(iv) of the Act. Under the proposed rule, an 
entity would be a passive investor in a second entity only if it 
satisfies certain conditions relating to director and

[[Page 66802]]

management overlap and property control rights.
    Proposed Sec.  36.17 would clarify enforcement of the statutory 
restrictions under section 1001(d) of the Act, which provides for civil 
penalties of up to the greater of $1 million or three times the 
purchase price of the property. Under the proposed rule, a purchase of 
a single-family home that violates section 1001(b) of the Act with 
respect to more than one large institutional investor would be deemed a 
single violation for purposes of calculating the maximum civil penalty 
under section 1001(d)(1) of the Act. This provision is intended to 
prevent any single purchase of a single-family home from resulting in 
total penalties exceeding the statutory limit due to more than one 
large institutional investor being involved in the purchase.
    Finally, proposed Sec.  36.18 includes a severability provision.

II. Section-by-Section Discussion

A. Authority, Purpose, and Scope (Proposed Sec.  36.1)

    Proposed Sec.  36.1 sets forth the authority, purpose, and scope of 
proposed Part 36.
    The authority for Part 36 is section 1001 of the Act. Paragraph (b) 
notes that the Act authorizes Treasury to issue regulations to carry 
out the purposes of section 1001 of the Act.

B. Definitions (Proposed Sec.  36.2)

1. Act or ROAD Act
    The proposed rule defines ``Act'' or ``ROAD Act'' to mean the 21st 
Century ROAD to Housing Act, as amended from time to time.
2. Property Control Rights
    The proposed rule defines ``property control right'' as ``a right, 
including a consent, approval, veto, or other right, that gives an 
entity the ability to make, direct, or prevent a second entity's 
decisions, directly or indirectly, related to the purchase, sale, 
holding, leasing, renovation, or management of a single-family home.'' 
This term is used in proposed Sec.  36.16, which relates to passive 
investors for purposes of section 1001(a)(3)(B)(iv) of the Act, as 
discussed in section II.L below.
    The proposed definition is intended to identify rights that provide 
an investor with an ability to control an entity's decisions regarding 
single-family homes it owns. An investor may have such authority, and 
therefore not be a passive investor, even if the investor does not own 
a majority of the entity's voting interests and does not have formal 
management authority over the entity.
    The proposed formulation is intended to encompass the variety of 
rights that arise under investment agreements, limited partnership 
agreements, and other relevant structures. An investor may have the 
ability to make a decision itself, to direct the second entity or its 
manager to make or not make a decision, or to prevent a decision 
through a consent, approval, veto, or other right. Such rights appear 
to be inconsistent with passive investor status. The proposed 
definition focuses on rights related to a second entity's decisions to 
purchase, sell, hold, lease, renovate, or manage a single-family home. 
These decisions are central to the statutory framework because they 
affect whether and how a large institutional investor acquires, 
operates, retains, improves, or disposes of single-family homes.
    Under the proposed rule, the definition would focus on rights 
related to single-family homes; as a result, investor rights unrelated 
to single-family homes would not generally be considered a property 
control right. Similarly, an investor's right to reduce or liquidate 
its investment would not generally be considered a property control 
right, even if it indirectly results in the sale of single-family homes 
by the second entity. Commercial contracts include various rights that 
protect the parties' interests, such as payment rights, default 
remedies, information rights, audit rights, inspection rights, and 
standard covenants, that would not generally be considered property 
control rights under the proposed definition. This approach is intended 
to avoid disrupting an investor's portfolio-level control of its 
investments.
    The proposed definition focuses on the effect of the right rather 
than the label assigned to the right. A right may constitute a property 
control right even if it is described as a consent right, approval 
right, veto right, consultation right, covenant, restriction, or 
similar arrangement. The proposed definition does not set forth an 
exhaustive list of types of relevant rights. Contractual arrangements 
vary widely, and a fixed list would be both overinclusive and 
underinclusive.
    Treasury is not proposing a safe harbor for minority-investor 
protective rights, because such arrangements may provide an entity with 
control over a second entity's purchases, sales, holdings, leases, 
renovations, or management of single-family homes.
    Treasury invites comments on all aspects of the definition of 
``property control right.'' In particular, Treasury seeks comment on 
the following aspects of the proposed rule:
    Question 1: Is the proposed definition appropriate? How could it be 
modified to better accomplish the statutory purposes while minimizing 
market disruptions and mitigating negative impacts on consumers and 
communities? Are there ways in which the definition is either 
overinclusive or underinclusive?
    Question 2: Is it appropriate for the definition of ``property 
control right'' to focus on an entity's decisions to purchase, sell, 
hold, lease, renovate, or manage a single-family home?
    Question 3: Are the terms ``make,'' ``direct,'' and ``prevent'' in 
the proposed definition sufficiently clear?
    Question 4: Should the definition include examples of rights that 
do or do not constitute property control rights? If so, what examples 
would be appropriate?
    Question 5: Should any exclusions be added to the definition? How 
should such exclusions be framed to avoid creating opportunities for 
evasion of the statutory requirements?
    Question 6: Should rights that become exercisable only after 
default, or a similar event, be treated differently from rights 
exercisable in the ordinary course of business?
    Question 7: Should rights held by lenders, mortgage servicers, 
vendors, or similar entities be treated differently from rights held by 
investors?
3. Purchase Price of the Property
    Treasury is proposing to define ``purchase price of the property'' 
to mean ``the total amount paid by an entity to purchase a single-
family home, including the amount paid for the land on which the 
single-family home is situated.'' This definition is used (i) to 
calculate the ``purchase price of the single-family home,'' (ii) in the 
proposed rule's provisions regarding homeownership programs and 
programs to boost homeownership, and (iii) to calculate the statutory 
limit on civil penalties in enforcement actions.
    Purchases of single-family homes generally include both the 
residential structure and the land on which the structure is situated. 
Accordingly, the statutory exception for renovate-to-rent programs 
requires ``improvements in an aggregate dollar amount of not less than 
15 percent of the purchase price of the single-family home,'' \8\ while 
the statutory limit on civil penalties is based on ``the purchase price 
of the property involved.'' \9\ Treasury believes it is appropriate to 
distinguish between these statutory terms as contemplated

[[Page 66803]]

by the proposed definition, which distinguishes between the total 
amount paid in a real estate transaction and the portion of that amount 
attributable to the single-family home itself. Treasury preliminarily 
believes the Act's reference to ``purchase price of the property'' 
refers to the amount paid for both the single-family-home structure and 
the associated land.
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    \8\ Id. at section 1001(a)(2)(C)(ii).
    \9\ Id. at section 1001(d)(1).
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    The proposed definition of ``purchase price of the property'' 
refers to the amount paid by the purchaser, which provides an objective 
and administrable figure.
    Treasury invites comments on all aspects of the definition of 
``purchase price of the property.'' In particular, Treasury seeks 
comment on the following aspects of the proposed rule:
    Question 8: Is the proposed definition of ``purchase price of the 
property'' appropriate and clear? How could it be modified to better 
accomplish the statutory purposes while minimizing market disruptions 
and mitigating negative impacts on consumers and communities? Should 
the rule distinguish between ``purchase price of the property'' and 
``purchase price of the single-family home''?
    Question 9: Should the definition be modified to address whether 
the ``total amount paid'' includes factors such as non-cash 
consideration, assumed liabilities, closing costs, transaction costs, 
seller credits, or other adjustments? If so, how? How should the 
definition account for the full scope of the definition of ``purchase'' 
including ``mergers, acquisitions, construction, foreclosures, or bulk 
purchases, whether or not for cash consideration''?
    Question 10: Should the definition be modified to provide different 
rules for portfolio purchases, bulk purchases, purchases involving 
multiple structures, or purchases involving a single contract price for 
multiple single-family homes?
    Question 11: Is it practicable to calculate the purchase price of 
the property, as defined in this proposed rule, in an objective and 
consistent manner? What modifications to the definition could be made 
to increase its administrability and consistent application?
4. Purchase Price of the Single-Family Home
    Treasury is proposing to define ``purchase price of the single-
family home'' to mean ``the portion of the purchase price of the 
property attributable to the value of the structure, as calculated by 
subtracting the tax-assessed value of the land at the time of the 
purchase on which the single-family home is situated from the purchase 
price of the property.'' This term is used in the exception for 
renovate-to-rent programs.
    This definition is intended to provide a clear and simple method 
for calculating the purchase price of a single-family home. As noted 
above in the context of the definition of ``purchase price of the 
property,'' Treasury believes it is appropriate, in the purchase of a 
single-family home, to distinguish between the purchase price of the 
structure and the total amount paid for the structure and land 
together. Further, the Act's definition of ``single-family home'' 
refers to ``a structure,'' so it is appropriate for the ``purchase 
price of the single-family home'' to mean the purchase price of the 
``structure,'' rather than the value of associated land. In addition, 
the renovate-to-rent exception is focused on substantial rehabilitation 
of single-family homes that do not meet structural or core system 
elements of local building codes, and a denominator focused on the 
value of the structure is better aligned with that statutory construct 
than a denominator that includes the value of the purchased land.
    The proposed definition, which subtracts the tax-assessed value of 
land at the time of purchase, is intended to provide an administrable 
method for determining the portion of the purchase price attributable 
to the structure. Tax-assessed land values generally provide a 
transaction-specific, location-specific measure that may be more 
reliable and administrable than other valuation methods, such as 
appraisals.
    Treasury recognizes, however, that tax assessment practices vary 
across jurisdictions. In some jurisdictions, land and improvement 
values may be separately assessed. In others, the relevant assessed 
values may not be current, may be subject to assessment limitations, 
may be under appeal, or may not be available at the time of purchase. 
Treasury alternatively considered deducting from the purchase price of 
the property an amount that is proportionate to the amount of the total 
tax-assessed value attributable to land, but that approach creates the 
risk of overly complicating the calculation and creating more 
uncertainty than the proposed definition.
    Treasury invites comments on all aspects of the definition of 
``purchase price of the single-family home.'' In particular, Treasury 
seeks comment on the following aspects of the proposed rule:
    Question 12: Is the proposed definition of ``purchase price of the 
single-family home'' appropriate and clear? How could it be modified to 
better accomplish the statutory purposes while minimizing market 
disruptions and mitigating negative impacts on consumers and 
communities?
    Question 13: Is it appropriate to define the purchase price of the 
single-family home by subtracting the tax-assessed value of the land 
from the purchase price of the property? What alternative calculation 
methodologies would be more appropriate, more administrable, or more 
reliable? Should the definition instead use another method, such as an 
appraisal, an assessed improvement value, a purchase agreement 
allocation, an insurance replacement-cost estimate, or another measure?
    Question 14: Should the definition provide for an alternative 
calculation method in cases where the tax-assessed value of land is 
unavailable, not separately stated, not current, under appeal, or 
otherwise unreliable?
    Question 15: Should the final rule address circumstances in which 
the tax-assessed value of land equals or exceeds the purchase price of 
the property?
5. Structural or Core System
a. Overview of Definition
    Proposed Sec.  36.2 would define ``structural or core system'' to 
mean ``systems or areas of a single-family home that substantially 
affect structural integrity, habitability, life safety, or the 
functioning of major building systems, which may include fire safety, 
light and ventilation, structural loads and seismic design, foundation 
systems, materials standards, construction components, glass, 
mechanical, plumbing, and electrical.'' This definition is intended to 
clarify the scope of the renovate-to-rent exception in section 
1001(a)(2)(C) of the Act, which applies to purchases made pursuant to a 
renovate-to-rent program that substantially rehabilitates single-family 
homes ``that do not meet structural or core system elements of local 
building codes'' and makes improvements in an aggregate dollar amount 
of not less than 15 percent of the purchase price of the single-family 
home.\10\
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    \10\ Section 1001(a)(2)(C) of the ROAD Act.
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    The proposed definition is intended, for purposes of the Act's 
renovate-to-rent exception, to clarify the types of building-code 
deficiencies that qualify as structural or core system elements and 
distinguish these improvements from cosmetic improvements, ordinary 
turnover work, routine maintenance, or discretionary upgrades. A 
deficiency would not qualify merely because the

[[Page 66804]]

home is outdated, requires routine repairs, could benefit from 
modernization, or fails to satisfy a building-code requirement not 
related to structural integrity, habitability, life safety, or the 
functioning of major building systems. For example, ordinary painting, 
flooring replacement, landscaping, appliance upgrades, cabinet or 
countertop replacement, or other cosmetic or marketability improvements 
generally would not involve structural or core systems.
    Treasury recognizes that renovation projects may include both 
qualifying and non-qualifying work under this definition. A project 
that involves substantial repairs to structural or core systems as well 
as incidental related demolition, finish work, restoration, or other 
work necessary to complete the rehabilitation would also qualify. 
Cosmetic work or other work unrelated to repairs to structural or core 
systems would not fall within the proposed definition.
    A large institutional investor seeking to rely on the renovate-to-
rent exception would need to identify deficiencies that result in the 
single-family home not meeting structural or core system elements (as 
defined in the proposed rule) of applicable local building codes. 
Notably, this definition and the related excepted purchase standard do 
not replace or displace applicable local building codes.
b. Use of HUD Residential Building-Code Comparison Framework
    The proposed definition is based on HUD's residential building-code 
comparison framework under 24 CFR 200.926 and 200.926a. Treasury 
believes that incorporating existing standards from HUD will minimize 
administrative burdens and potential disruptions to existing 
construction practices. HUD's regulations provide that, when evaluating 
local building codes, HUD compares those codes to the areas listed in 
24 CFR 200.926a. The listed major areas include fire safety, light and 
ventilation, structural loads and seismic design, foundation systems, 
materials standards, construction components, glass, mechanical, 
plumbing, and electrical.
    Treasury is not proposing to incorporate HUD's minimum property 
standards wholesale or to make eligibility for the renovate-to-rent 
exception dependent on whether a property satisfies standards 
applicable to HUD mortgage insurance or other HUD programs. Rather, as 
reflected in the proposed definition, Treasury proposes to use the 
categories in HUD's framework as a reference point for identifying the 
types of local building-code elements that should be treated as 
structural or core systems for purposes of the renovate-to-rent 
category of excepted purchases under the Act.
    Treasury believes this approach would promote consistency across 
jurisdictions nationwide. Local codes vary in terminology, 
organization, and scope. The proposed definition would provide a 
federal reference for the relevant categories of code requirements.
    The proposed definition is intended to exclude single-family homes 
that have only cosmetic deficiencies or need only routine repairs 
rather than repairs to structural or core system deficiencies. For 
example, ordinary painting, flooring replacement, landscaping, 
appliance upgrades, cabinet replacement, countertop replacement, or 
other cosmetic or marketability improvements generally would not, 
standing alone, involve structural or core systems unless the work is 
necessary to address a covered local building-code deficiency relating 
to structural integrity, habitability, life safety, or a major building 
system.
    At the same time, Treasury recognizes that renovation projects may 
include both qualifying and non-qualifying work. A project may involve 
repairs to structural or core systems as well as related demolition, 
finish work, restoration, or other work necessary to complete the 
rehabilitation, which would also qualify. Purely cosmetic work or other 
work unrelated to repairs to structural or core systems would not be 
considered within scope for purposes of this definition.
    Treasury invites comments on all aspects of the ``structural or 
core system'' definition. In particular, Treasury seeks comment on the 
following aspects of the proposed rule:
    Question 16: Is the proposed definition of ``structural or core 
system'' appropriate and clear? How could it be modified to better 
accomplish the statutory purposes while minimizing market disruptions 
and mitigating negative impacts on consumers and communities? Is the 
proposed definition appropriately tailored to identify areas that 
affect structural integrity, habitability, life safety, or the 
functioning of major building systems?
    Question 17: Is incorporating the categories from HUD's residential 
building-code comparison framework appropriate for identifying 
structural or core systems?
    Question 18: Should any additional categories of structural or core 
systems be added to the definition? Should any proposed categories be 
removed?
    Question 19: How should Treasury distinguish a structural or core 
system rehabilitation from cosmetic improvements, routine maintenance, 
ordinary turnover work, or discretionary upgrades?

C. Program (Proposed Sec.  36.3)

1. Overview of ``Program''
    Proposed Sec.  36.3 would define ``program'' to mean a set of 
written policies or written procedures that are (i) adopted before the 
purchase of single-family homes pursuant to such program; and (ii) 
reasonably designed and implemented to ensure that all purchases of 
single-family homes pursuant to the program satisfy the applicable 
requirements of the Act, Part 36, and the program.
    The Act uses the term ``program'' in the context of excepted 
purchases under build-to-rent programs, renovate-to-rent programs, 
homeownership programs, and programs to boost homeownership. The 
proposed definition of ``program'' would apply to each of these 
categories and reflects Treasury's view of the best interpretation of 
the statutory term, given the context in the Act and the need for a 
clear and objective standard.
    Under the proposed definition, the relevant program must be 
tailored to the excepted-purchase category on which the large 
institutional investor intends to rely. For example, a build-to-rent 
program should be reasonably designed and implemented to ensure that 
all purchases satisfy the new-construction and rental property 
requirements; a renovate-to-rent program should be reasonably designed 
to ensure that all purchases satisfy applicable rehabilitation, local 
building-code deficiency, structural or core system, and improvement 
requirements; a homeownership program should be reasonably designed to 
ensure that all purchases satisfy the rental payment, consumer-credit 
treatment, positive rent reporting, meaningful financial support, 
purchase-right, and transfer-related requirements; and a program to 
boost homeownership should be reasonably designed to ensure that all 
purchases satisfy the positive rent reporting, right of first refusal 
and first-look, meaningful financial support, and transfer-related 
requirements. Therefore, the proposed definition of ``program'' would 
apply to proposed Sec. Sec.  36.5, 36.6, 36.7, and 36.8, which address 
the Act's program-based excepted-purchase categories.
2. Written Policies or Written Procedures
    The proposed definition would require a program to be codified in

[[Page 66805]]

``written policies or written procedures.'' Treasury believes that 
documentation of policies and procedures is necessary to distinguish a 
program from an ad hoc or post hoc characterization of purchases. For 
the same reason, Treasury proposes to require that a program be 
``adopted before the purchase of single-family homes pursuant to such 
program'': a purchase cannot be made ``pursuant to'' a program, as the 
statute requires,\11\ if the program does not yet exist at the time of 
the purchase.
---------------------------------------------------------------------------

    \11\ See Sections 1001(a)(2)(B), (C), (D), (E) of the ROAD Act.
---------------------------------------------------------------------------

    The proposed definition does not prescribe a specific form for a 
program's written policies and procedures. Large institutional 
investors vary in size, structure, geography, property type, business 
model, and acquisition strategy. The proposed definition is intended to 
provide an appropriate degree of flexibility to avoid undue burdens.
    While the proposed definition does not specify in detail the 
content of the required policies and procedures, Treasury generally 
expects that such documentation would include a combination of 
eligibility criteria, purchase criteria, property criteria, renter 
criteria, rehabilitation criteria, sales criteria, approval standards, 
compliance standards, review workflows, transaction checklists, 
approval processes, escalation procedures, certifications, training 
materials, monitoring procedures, and audit processes.
3. Reasonably Designed and Implemented
    The proposed definition would require that the program be 
reasonably designed and implemented to ensure that all purchases of 
single-family homes pursuant to the program satisfy the applicable 
requirements of the Act, Part 36, and the program.
    A reasonably designed program should be tailored to the 
requirements under the Act and part 36 for the relevant category of 
excepted purchase. The program should include policies and procedures 
sufficient to identify whether a purchase is eligible, document the 
basis for eligibility, and prevent purchases that do not satisfy the 
applicable requirements from being treated and reported as excepted 
purchases.
    Treasury expects that large institutional investors seeking to rely 
on program-based excepted purchases would maintain records sufficient 
to demonstrate that the program was implemented and that relevant 
purchases were made pursuant to the program. The specific records may 
vary depending on the program and purchase.
    This definition is intended to require meaningful compliance 
controls without disqualifying all purchases made pursuant to a program 
due to isolated, good-faith failures in the effectiveness of that 
program with respect to other purchases. This approach is intended to 
preserve the availability of the statutory exceptions and to avoid 
unnecessary disruption to housing supply, home building, and capital 
formation.
    Treasury invites comments on all aspects of the ``program'' 
definition. In particular, Treasury seeks comment on the following 
aspects of the proposed rule:
    Question 20: Is the definition of program appropriate and clear? If 
not, what changes should be made? How could it be modified to better 
accomplish the statutory purposes while minimizing market disruptions 
and mitigating negative impacts on consumers and communities?
    Question 21: Should Treasury adopt specific minimum program 
components, or is a flexible standard preferable? For example, minimum 
program components could include governance, audit, training, and other 
requirements. Should the Act's different program-based excepted-
purchase categories have different required program components?
    Question 22: How should Treasury consider the extent to which 
failures in the effectiveness of a program or in its implementation 
indicate that the program was not ``reasonably designed and 
implemented''?
    Question 23: Should a one-time or small-scale initiative qualify as 
a program if it includes written policies or written procedures? Does 
the proposed definition create other risks of evasion that should be 
mitigated in the rule?
    Question 24: Should large institutional investors be required to 
certify or otherwise affirm that each purchase of a single-family home 
pursuant to a program satisfies the requirements under the Act and Part 
36?

D. Build-to-Rent Program (Proposed Sec.  36.5)

1. Overview
    Proposed Sec.  36.5 would clarify when a build-to-rent program 
meets the requirements for an excepted purchase under section 
1001(a)(2)(B) of the Act. That statutory provision states that a 
purchase of a single-family home is an excepted purchase if it is made 
``pursuant to a build-to-rent program where the large institutional 
investor purchases, constructs, or constructs and retains newly 
constructed single-family homes to be managed as a rental property, 
whether as part of a community made up exclusively of renter-occupied 
single-family homes or as part of a community made up of single-family 
homes that are both owner- and renter-occupied.''
    As proposed, a build-to-rent program is a program (as defined in 
proposed Sec.  36.3) pursuant to which purchased single-family homes 
(i) have not been occupied by an owner-occupant before being purchased, 
(ii) are purchased within 18 months of the single-family home receiving 
its certificate of occupancy (or equivalent); and (iii) are, after the 
purchase, first occupied by renters, whether as part of a community 
made up exclusively of renter-occupied single-family homes or as part 
of a community made up of single-family homes that are both owner- and 
renter-occupied.\12\ The proposed rule interprets ``newly constructed'' 
as excluding homes previously occupied by an owner-occupant and ``to be 
managed as a rental property'' as requiring initial rental use, and 
proposes the 18-month certificate-of-occupancy criterion as an 
administrable line for applying those statutory standards.
---------------------------------------------------------------------------

    \12\ Treasury interprets the latter part of this provision, 
relating to different types of ``communities,'' as clarifying that 
qualifying single-family home purchases are not limited to those in 
a particular kind of community, including if that community includes 
homes other than single-family homes.
---------------------------------------------------------------------------

    The proposed rule is intended to provide an administrable means for 
investors to make build-to-rent purchases that maintain liquidity in 
the build-to-rent market and do not reduce the availability of owner-
occupant housing stock.
    Treasury invites comments on all aspects of the build-to-rent 
program definition. In particular, Treasury seeks comment on the 
following aspects of the proposed rule:
    Question 25: Is the proposed definition appropriately tailored to 
identify purchases made pursuant to build-to-rent programs? Should the 
definition provide additional terms relating to single-family homes 
that a large institutional investor constructs or constructs and 
retains?
    Question 26: Are there any additional conditions that should be 
included?
    Question 27: Should the final rule adopt one of the alternative 
interpretations described below?

[[Page 66806]]

    The proposal focuses on objective indicators that a home was added 
to rental supply through a build-to-rent arrangement rather than 
acquired from existing housing stock. If a purchase of a single-family 
home does not meet the conditions in the proposed rule, the purchase 
would not be pursuant to a build-to-rent program and would not qualify 
for that category of excepted purchase.
2. Newly Constructed
    The statutory build-to-rent exception applies to ``newly 
constructed'' \13\ single-family homes. Proposed Sec.  36.5(a) and (b) 
would implement this concept by requiring (i) that the home has not 
previously been occupied by an owner-occupant and (ii) is purchased 
within 18 months of the home receiving its certificate of occupancy (or 
equivalent).
---------------------------------------------------------------------------

    \13\ See Section 1001(a)(2)(B) of the ROAD Act.
---------------------------------------------------------------------------

    A purchase of a home that has previously been occupied by an owner-
occupant would not qualify as a purchase pursuant to a build-to-rent 
program. This distinction is important because the build-to-rent 
exception is directed at homes that are newly constructed for rental 
use, rather than homes that have already been part of the existing 
stock of owner-occupied housing. The proposed requirement would apply 
to occupancy before the single-family home was purchased.
    Treasury preliminarily believes that a certificate of occupancy 
provides a clear, administrable standard for when a single-family home 
has been constructed. The 18-month standard in the proposed provision 
is intended to be an appropriate length of time for a single-family 
home to have been constructed before it may no longer be considered 
newly constructed in accordance with the Act.
    Treasury has alternatively considered interpreting the statutory 
term ``newly constructed'' to be time-bound, such as covering homes 
constructed after enactment of the ROAD Act or homes that received 
their certificate of occupancy within a certain number of years. 
Treasury preliminarily believes that the approach in the proposed rule 
more appropriately construes the term ``newly constructed'' and covers 
the kinds of homes that are intended to be eligible for purchase by 
large institutional investors under the ROAD Act.
    Treasury also considered an alternative under which a purchase of a 
single-family home could be made pursuant to a build-to-rent program if 
the single-family home was originally constructed to be rented and has 
remained rented. In effect, this would include existing build-to-rent 
properties in the scope of the build-to-rent program excepted purchase. 
However, interpreting ``newly constructed single-family home'' to 
include older homes that have been renter-occupied for potentially 
decades appears to be inconsistent with the statutory text and purpose. 
Because ``newly constructed'' and ``originally constructed'' are not 
equivalent, such an interpretation would effectively render ``newly 
constructed'' meaningless. In addition, focusing the exemption on 
single-family homes that are not pre-existing is consistent with the 
ROAD Act's goal to increase overall housing supply.
3. Managed as a Rental Property
    Proposed Sec.  36.5(c) would require that a single-family home is, 
after the purchase by a large institutional investor, first occupied by 
renters. This requirement is intended to ensure that purchases pursuant 
to a build-to-rent program meet the statutory requirement that they be 
single-family homes purchased ``to be managed as a rental property'' 
\14\--not homes purchased for resale, land banking, speculative 
appreciation, or other purposes. To effectuate this statutory language, 
the proposal would require more than a general intention to rent the 
single-family home. Treasury preliminarily believes that the strongest, 
most objective evidence that a large institutional investor purchased 
the single-family home ``to be managed as a rental property'' is that 
the large institutional investor actually rents the home. At the same 
time, proposed Sec.  36.5 would not prohibit the large institutional 
investor from selling the home.
---------------------------------------------------------------------------

    \14\ See Section 1001(a)(2)(B) of the ROAD Act.
---------------------------------------------------------------------------

    Treasury invites comments on all aspects of the ``build-to-rent 
program'' provision. In particular, Treasury seeks comment on the 
following aspects of the proposed rule:
    Question 28: Is this provision appropriate and clear? If not, what 
changes should be made? How could it be modified to better accomplish 
the statutory purposes while minimizing market disruptions and 
mitigating negative impacts on consumers and communities? Is it 
appropriately tailored to identify purchases made pursuant to build-to-
rent programs?
    Question 29: Should any additional conditions or requirements be 
added to the proposed interpretation of ``build-to-rent program''?
    Question 30: Should the final rule adopt one of the alternative 
interpretations described above?
    Question 31: Should the rules implement the statutory references to 
communities in a different manner than as proposed?
    Question 32: Are the proposed conditions for no prior owner-
occupancy and purchases within 18 months appropriate and administrable 
indicators for determining whether a home is newly constructed? What 
alternatives should Treasury consider to either or both of these 
factors?
    Question 33: Should the final rule include additional or 
alternative indicators of new construction, such as the date of 
certificate of occupancy, date of substantial completion, date of 
construction permit issuance, or date of first utility activation? Is 
Treasury's interpretation that a home is considered a single-family 
home only once it has received a certificate of occupancy (or 
equivalent) appropriate? Is there a different threshold that Treasury 
should use? Are there any jurisdictions where reference to 
``certificate of occupancy'' is not appropriate or unworkable, and if 
so, what would be a suitable replacement in the rule?
    Question 34: Is 18 months after the certificate of occupancy (or 
equivalent) an appropriate period of time for determining whether a 
single-family home is newly constructed?
    Question 35: Is the requirement that a single-family home be first 
occupied by a renter an appropriate and administrable indicator of the 
intended use of the single-family home?
    Question 36: Should the final rule specify a minimum period for 
which a single-family home must be rented after the purchase to satisfy 
this requirement?
    Question 37: Should the rule be revised to reflect circumstances in 
which a single-family home is held unoccupied by a large institutional 
investor after the purchase, before being occupied by a renter?
4. Documentation of Build-to-Rent Program Eligibility
    Treasury expects that a large institutional investor seeking to 
rely on the build-to-rent exception would maintain documentation 
sufficient to demonstrate that the purchase was made pursuant to a 
build-to-rent program and that the purchase of the single-family home 
satisfied the requirements of proposed Sec.  36.5, including that the 
single-family home was purchased within 18 months of the certificate of 
occupancy and never previously owner-occupied. Relevant documentation 
may include program

[[Page 66807]]

policies and procedures, acquisition approvals or checklists, purchase 
agreements, certificates of occupancy or construction records, records 
showing that the home was not previously occupied by an owner-occupant, 
leasing records demonstrating that the first occupant was a renter, and 
other transaction records showing that the purchase was reviewed and 
approved under the build-to-rent program.
    Appropriate documentation may vary depending on the property, 
jurisdiction, and program structure. Treasury is not proposing specific 
documentation requirements in proposed Sec.  36.5, but expects that 
documentation will be important for determining whether a purchase was 
made pursuant to a build-to-rent program and whether the requirements 
of the exception were satisfied.
    Treasury invites comments on documentation related to the build-to-
rent exception. In particular, Treasury seeks comment on the following 
aspects of the proposed rule:
    Question 38: What records should a large institutional investor be 
expected to maintain to demonstrate that a home was purchased pursuant 
to a build-to-rent program? Should Treasury require specific 
documentation--such as certificate of occupancy, title records, or 
contracts with a builder or developer--to establish that a single-
family home was newly constructed? What records should a large 
institutional investor maintain to demonstrate that a home was rented 
after being purchased?

E. Renovate-to-Rent Program (Proposed Sec.  36.6)

1. Overview
    Proposed Sec.  36.6 would clarify when a renovate-to-rent program 
meets the requirements for an excepted purchase under section 
1001(a)(2)(C) of the Act. That statutory provision states that a 
purchase of a single-family home is an excepted purchase if it is made 
``pursuant to a renovate-to-rent program that (i) substantially 
rehabilitates single-family homes that do not meet structural or core 
system elements of local building codes; and (ii) makes improvements in 
an aggregate dollar amount of not less than 15 percent of the purchase 
price of the single-family home.''
    As proposed, a renovate-to-rent program is a program (as defined in 
proposed Sec.  36.3) pursuant to which the large institutional investor 
(i) substantially rehabilitates (including by resolving all material 
deficiencies in) single-family homes that do not meet structural or 
core system elements of local building codes at the time of purchase; 
and (ii) makes improvements, including those made to resolve such 
deficiencies, to each single-family home in an aggregate dollar amount 
of not less than 15 percent of the purchase price of the single-family 
home.
    Proposed Sec.  36.6 largely reflects the text of the Act, with 
limited clarifications intended to promote the purposes of the statute 
and provide an administrable framework for applying the renovate-to-
rent exception. As specified by the Act, the exception would apply only 
to purchases of single-family homes that require meaningful 
rehabilitation of structural or core system elements, not those 
requiring only cosmetic improvements, ordinary turnover work, routine 
maintenance, or discretionary upgrades. The exception is intended to be 
available for purchases that restore deficient single-family homes to a 
condition in which they may be safely used as rental housing. 
Therefore, the proposed rule would require the large institutional 
investor to resolve all material deficiencies in single-family homes 
under a renovate-to-rent program.
    A purchase would not qualify as made pursuant to a renovate-to-rent 
program merely because it is later described as having involved 
rehabilitation work. Instead, consistent with the proposed approach for 
each type of ``program'' described in the Act, the large institutional 
investor must have a program that satisfies proposed Sec.  36.3 and 
must make the purchase pursuant to that program. Appropriate activities 
for each single-family home purchased under this exception would 
generally be expected to include identifying, before or at the time of 
purchase, whether the single-family home does not meet structural or 
core system elements of local building codes; determining whether those 
deficiencies are material; resolving all material deficiencies; and 
ensuring that the 15 percent threshold described above is satisfied.
    Treasury invites comments on all aspects of the proposed 
clarification of ``renovate-to-rent program.'' In particular, Treasury 
seeks comment on the following aspects of the proposed rule:
    Question 39: Is this provision appropriate and clear? If not, what 
changes should be made? How could it be modified to better accomplish 
the statutory purposes while minimizing market disruptions and 
mitigating negative impacts on consumers and communities? Is it 
appropriately tailored to identify purchases made pursuant to renovate-
to-rent programs? What alternatives should Treasury consider?
    Question 40: Does the proposed definition appropriately distinguish 
substantial rehabilitation of deficient single-family homes from 
cosmetic improvements, routine maintenance, ordinary turnover work, or 
discretionary upgrades?
    Question 41: Should any additional conditions or requirements be 
added to the proposed interpretation of ``renovate-to-rent program''? 
For example, should the final rule require that the renovations be 
completed within a specified time after the purchase (e.g., six 
months)?
    Question 42: Should the final rule provide additional required 
components for renovate-to-rent programs, such as inspection 
procedures, purchase approval standards, contractor review procedures, 
completion tracking, or internal certification requirements?
2. Structural or Core System Deficiencies at the Time of Purchase
    Proposed Sec.  36.6(a)(1) would require that the single-family home 
not meet structural or core system elements of local building codes at 
the time of purchase. Making this determination as of the time of 
purchase is intended to comply with the Act, which contemplates the 
renovate-to-rent exception applying only to the purchase of single-
family homes that are materially deficient when acquired. A home would 
not become eligible for the exception solely because of post-purchase 
deterioration or damage. Conversely, a single-family home that has no 
material deficiencies in structural or core system elements of local 
building codes at the time of purchase could not be substantially 
rehabilitated for purposes of the proposed rule.
    Local building codes vary across jurisdictions, and the manner in 
which deficiencies are identified, documented, and resolved differs 
depending on local law and practice. Treasury is not proposing to 
establish a federal building-code enforcement regime or to displace 
local building officials. Rather, proposed Sec.  36.6 would use local 
building codes to determine whether the home has relevant deficiencies, 
and proposed Sec.  36.2 would identify the categories of local 
building-code elements that constitute structural or core systems for 
purposes of the renovate-to-rent exception.
    Treasury invites comments on the proposed requirement that the home 
not meet structural or core system elements of local building codes at 
the time of

[[Page 66808]]

purchase. In particular, Treasury seeks comment on the following 
aspects of the proposed rule:
    Question 43: Is the time of purchase the appropriate time to 
determine whether a single-family home does not meet structural or core 
system elements of local building codes?
    Question 44: Should the final rule provide additional guidance on 
how a large institutional investor should determine whether a home does 
not meet structural or core system elements of local building codes?
    Question 45: Should the final rule provide additional guidance on 
what constitutes a ``material deficiency''? If so, how should the rule 
distinguish material deficiencies from minor or technical noncompliance 
with local building codes?
    Question 46: Should the final rule require a particular form of 
evidence that a home does not meet structural or core system elements 
of local building codes, such as an inspection report, code violation 
notice, contractor certification, engineer certification, architect 
certification, permit record, or other documentation?
3. Substantial Rehabilitation, Improvements, and Safe Harbor
    Proposed Sec.  36.6(a)(1) would require the large institutional 
investor to substantially rehabilitate the single-family home, 
including by resolving all material deficiencies in structural or core 
system elements of local building codes. This requirement is consistent 
with the text of the Act and is intended to ensure that the purchaser 
in fact rehabilitates the single-family home. A renovation that leaves 
material deficiencies in structural integrity, habitability, life 
safety, or major building systems unresolved would not constitute 
substantial rehabilitation for purposes of the Act or the proposed 
rule. The requirement for substantial rehabilitation would not be 
satisfied by work that merely improves marketability or increases 
rental value.
    Proposed Sec.  36.6(a)(2) would require the large institutional 
investor to make improvements, including the improvements described in 
proposed Sec.  36.6(a)(1), to each single-family home in an aggregate 
dollar amount of not less than 15 percent of the purchase price of the 
single-family home. This requirement largely reflects the statutory 
text, with limited additions. First, the proposed rule clarifies the 
Act by applying this requirement to each relevant single-family home to 
ensure that the exception only applies as contemplated by the Act. 
Second, the proposed rule provides that improvements made under 
proposed Sec.  36.6(a)(1) (regarding substantial rehabilitation) count 
toward the 15 percent threshold. Under proposed Sec.  36.6(a)(2), all 
improvements by the large institutional investor, not only the 
improvements related to the substantial rehabilitation of the single-
family home, would count toward the 15 percent threshold.
    Proposed Sec.  36.6(b) would provide that a large institutional 
investor that makes improvements to structural or core system elements 
of a single-family home that does not meet structural or core system 
elements of local building codes at the time of purchase in an 
aggregate dollar amount of not less than 10 percent of the purchase 
price of the single-family home, and that resolves all material 
deficiencies in such structural or core system elements, will be deemed 
to have satisfied proposed Sec.  36.6(a)(1), which sets forth the 
requirements related to substantial rehabilitation. This non-exclusive 
safe harbor is intended to provide a clear standard for determining 
when a large institutional investor has substantially rehabilitated a 
deficient single-family home. In general, determining whether a large 
institutional investor has substantially rehabilitated a single-family 
home may depend on the facts and circumstances. Proposed Sec.  36.6(b) 
would provide greater certainty in cases where a large institutional 
investor makes a meaningful level of improvements specifically to 
structural or core system elements and resolves all material 
deficiencies in such elements.
    The proposed safe harbor provision would not reduce the statutory 
15 percent improvement requirement. A large institutional investor that 
satisfies proposed Sec.  36.6(b) would be deemed to have satisfied 
proposed Sec.  36.6(a)(1) but would still need to satisfy proposed 
Sec.  36.6(a)(2). Accordingly, if the investor makes improvements equal 
to 10 percent of the purchase price of the single-family home to 
structural or core system elements and resolves all material 
deficiencies in such elements, the investor would still need to make 
total improvements to the single-family home in an aggregate dollar 
amount of not less than 15 percent of the purchase price of the single-
family home.
    As discussed above in section II.B, proposed Sec.  36.2 would 
define the term ``purchase price of the single-family home,'' which 
proposed Sec.  36.6 would use both for the 15 percent improvement 
requirement in proposed Sec.  36.6(a)(2) and for the 10 percent safe 
harbor threshold in proposed Sec.  36.6(b). Using the purchase price of 
the single-family home, rather than the purchase price of the entire 
property including land, is intended to focus the renovate-to-rent 
exception on rehabilitation of the home itself. Land values vary 
significantly across jurisdictions and may bear little relationship to 
the cost or extent of rehabilitation needed to resolve structural or 
core system deficiencies. By using the purchase price of the single-
family home, the proposed rule is intended to align the two percentage 
thresholds with the value of the structure that is being rehabilitated.
    Treasury invites comments on all aspects of the substantial-
rehabilitation and improvement requirements and the proposed safe 
harbor. In particular, Treasury seeks comment on the following aspects 
of the proposed rule:
    Question 47: Should the final rule define ``substantially 
rehabilitates''? If so, what definition would be appropriate to fulfill 
the purposes of the Act? Should such a definition use quantitative or 
qualitative factors?
    Question 48: Is resolving all material deficiencies in structural 
or core system elements an appropriate component of substantial 
rehabilitation and a renovate-to-rent program?
    Question 49: Is a 10 percent threshold an appropriate safe harbor 
for the substantial-rehabilitation requirement? Should it be higher or 
lower, or should it be calculated in a different manner than as 
proposed? Should the 10 percent threshold alternatively be calculated 
only including improvements to resolve material deficiencies in 
structural or core system elements?
    Question 50: Should the final rule further clarify what costs count 
as ``improvements'' for purposes of the 15 percent threshold?
    Question 51: Should the final rule distinguish between costs 
directly related to structural or core system work and other renovation 
costs? For mixed-scope renovation projects, what costs should count 
toward the statutory requirement that improvements equal at least 15 
percent of the purchase price of the single-family home?
    Question 52: Should ``soft'' costs, such as permitting, 
architectural and engineering costs, inspection, contractor overhead, 
or project-management costs, count toward the 15 percent threshold?
    Question 53: Is it appropriate to apply both the 15 percent 
improvement requirement and the 10 percent safe harbor threshold by 
reference to the purchase price of the single-family home? Should one 
or both of these include the cost of the land associated with the 
single-family home?

[[Page 66809]]

4. Documentation of Renovate-to-Rent Program Eligibility
    Treasury expects that a large institutional investor seeking to 
rely on the renovate-to-rent exception would maintain documentation 
sufficient to demonstrate that the purchase was made pursuant to a 
renovate-to-rent program and that the purchase of the single-family 
home satisfied the requirements of proposed Sec.  36.6, including that 
the single-family home did not meet structural or core system elements 
of applicable local building codes and that the rehabilitation 
addressed those deficiencies. Relevant documentation may include 
program policies and procedures, inspection reports, code violation 
notices, contractor assessments, engineer or architect reports, permit 
records, photographs, rehabilitation scopes of work, invoices, proof of 
payment, records of completed work, purchase-price calculations, and 
records supporting the calculation of the applicable improvement 
thresholds.
    Appropriate documentation may vary depending on the property, 
jurisdiction, program structure, and type of rehabilitation performed. 
Treasury is not proposing specific documentation requirements in 
proposed Sec.  36.6, but expects that documentation will be important 
for determining whether a purchase was made pursuant to a renovate-to-
rent program and whether the requirements of the exception were 
satisfied.
    Treasury invites comments on documentation related to the renovate-
to-rent exception. In particular, Treasury seeks comment on the 
following aspects of the proposed rule:
    Question 54: What records should a large institutional investor 
maintain to demonstrate that a home did not meet structural or core 
system elements of local building codes at the time of purchase? Should 
Treasury require specific documentation--such as an inspection, permit, 
code citation, contractor certification, or engineer certification--to 
establish that a deficiency relates to structural or core systems? What 
records should a large institutional investor maintain to demonstrate 
that all material deficiencies were resolved?
    Question 55: What records should a large institutional investor 
maintain to demonstrate that the 10 percent and 15 percent thresholds 
were satisfied?

F. Homeownership Program (Proposed Sec.  36.7)

1. Overview
    Proposed Sec.  36.7 would clarify when a homeownership program 
meets the requirements for an excepted purchase in section 
1001(a)(2)(D) of the Act. That statutory provision states that a 
purchase of a single-family home is an excepted purchase if it is made 
pursuant to a homeownership program that (i) requires rental payments 
and other fees not greater than those on other similarly situated 
single-family homes not covered by the program; (ii) is subject to a 
contract between the large institutional investor and renter that is 
considered a consumer credit transaction secured by a dwelling or real 
property; (iii) provides for positive reporting of rental payments to 
consumer reporting agencies; and (iv) requires contribution of 
meaningful financial support from the large institutional investor, 
including price concessions, for the purchase of the single-family home 
by the renter.
    As proposed, a homeownership program is a program (as defined in 
proposed Sec.  36.3) that generally includes the provisions as 
described in section 1001(a)(2)(D) of the Act. The proposed rule also 
includes several clarifications, described below, of the statutory 
requirements in order to provide an administrable framework for 
determining when a purchase of a single-family home is made pursuant to 
a homeownership program.
    Treasury invites comments on all aspects of the proposed provision 
regarding homeownership programs. In particular, Treasury seeks comment 
on the following aspects of the proposed rule:
    Question 56: Is the proposed definition appropriately tailored to 
identify purchases made pursuant to a homeownership program? What 
changes, if any, should be made?
    Question 57: Are the proposed contract requirements sufficient to 
distinguish homeownership programs from ordinary rental arrangements? 
Should additional conditions for rental contracts be added?
    Question 58: Should the final rule include additional conditions 
for homeownership programs? Should any of the proposed conditions be 
modified or removed?
2. Rental Payments and Fees
    As set forth in the Act, proposed Sec.  36.7(a)(1) would require 
that contracts under a homeownership program require rental payments 
and any other fees that are not greater than those collected by the 
large institutional investor on other similarly situated single-family 
homes not covered by the homeownership program.
    Determining whether single-family homes are similarly situated may 
require consideration of facts and circumstances. Relevant factors may 
include location, size, number of bedrooms and bathrooms, property 
condition, amenities, lease term, market rent, timing of lease 
execution, and other features that affect rental value. Treasury is not 
proposing a specific comparison methodology at this time, but expects 
that a large institutional investor seeking to rely on the 
homeownership program exception would maintain records sufficient to 
support its determination that the renter's rental payments and other 
fees are not greater than those collected on other similarly situated 
single-family homes not covered by the program.
    Treasury invites comments on all aspects of the rental-payment and 
fee limitation. In particular, Treasury seeks comment on the following 
aspects of the proposed rule:
    Question 59: Should Treasury define ``similarly situated'' for 
purposes of this requirement?
    Question 60: Should the final rule provide guidance as to how to 
compare rental payments and fees where the large institutional investor 
does not own or rent comparable single-family homes in the same market? 
What would be an appropriate reference point?
3. Consumer-Credit Transaction
    As set forth in the Act, proposed Sec.  36.7(a)(2) would require 
that contracts under a homeownership program are considered consumer 
credit transactions secured by a dwelling or real property.
    Proposed Sec.  36.7(a)(2) is not intended to alter the application 
of federal or state consumer financial laws. Instead, the proposed rule 
would require that the contract under the homeownership program have 
the treatment specified in section 1001(a)(2)(D) of the Act.
    Treasury invites comments on all aspects of the consumer-credit 
treatment requirement. In particular, Treasury seeks comment on the 
following aspects of the proposed rule:
    Question 61: Is the proposed rule sufficiently clear regarding the 
requirement that the contracts be considered consumer credit 
transactions secured by a dwelling or real property? What additional 
clarification regarding the treatment of contracts in the manner 
required by the Act would be beneficial?
    Question 62: Are additional clarifications needed to promote 
consistency with other federal or state

[[Page 66810]]

consumer financial laws or otherwise to reduce burdens on the parties? 
What types of rent-to-own contracts may constitute ``consumer credit 
transactions secured by a dwelling or real property'' under existing 
federal or state law?
4. Positive Reporting of Rental Payments
    As set forth in the Act, proposed Sec.  36.7(a)(3) would require 
contracts under a homeownership program to require the large 
institutional investor to inform the renter of the option for positive 
reporting of rental payments to consumer reporting agencies and to 
provide for such positive reporting for any renter who opts into such 
reporting.
    The proposed rule would require the large institutional investor to 
provide positive reporting at no charge or expense to the renter. This 
proposed requirement is intended to ensure that the renter actually 
receives the intended benefit of the program, as contemplated by the 
Act, and that such benefit is not offset by additional charges or 
expenses.
    Treasury invites comments on all aspects of the positive-rent-
reporting requirement. In particular, Treasury seeks comment on the 
following aspects of the proposed rule:
    Question 63: Should the final rule specify when and how the renter 
must be informed of the option for positive reporting? If so, what 
terms should be included in the rule? Should ``positive reporting of 
rental payments'' be defined as ``paid-as-agreed'' or an alternative 
definition?
    Question 64: Should the final rule specify any standards for the 
accuracy, frequency, or duration of rental payment reporting?
    Question 65: Is the requirement that positive reporting be provided 
at no charge or expense to the renter appropriate for a homeownership 
program and beneficial to renters?
5. Meaningful Financial Support and Right To Purchase
    As set forth in the Act, proposed Sec.  36.7(a)(4) would require 
contracts under a homeownership program to require the large 
institutional investor to contribute meaningful financial support for 
the purchase of the single-family home by the renter. In addition, the 
proposed rule states that the contract must provide the renter the 
right, exercisable no later than the termination of the contract, to 
purchase the single-family home from the large institutional investor 
at a price no greater than fair market value minus the amount of such 
meaningful financial support.
    The requirement to contribute meaningful financial support is 
central to distinguishing a homeownership program from an ordinary 
rental program. A homeownership program should provide the renter with 
real economic assistance in purchasing the single-family home, rather 
than merely providing the renter with a right to make an offer at 
market price. Proposed Sec.  36.7(a)(4) would require that the renter's 
purchase price be reduced by the amount of meaningful financial 
support, ensuring that the support is reflected in the economics of the 
purchase.
    The proposed rule would require that the renter have a right to 
purchase the single-family home and that such right be exercisable no 
later than the termination of the contract. Treasury preliminarily 
believes that the renter having a right to purchase the single-family 
home at a price no greater than fair market value minus the amount of 
any meaningful financial support is necessary for a homeownership 
program described in the Act to be meaningful. Absent such a 
requirement, the provision of meaningful financial support could be 
obviated by a large institutional investor refusing to accept an offer 
from a renter. The timing of this requirement is intended to ensure 
that the renter has a meaningful opportunity to exercise the purchase 
right before the contractual arrangement ends, regardless of the 
duration or structure of the contract. Large institutional investors 
could choose whether to provide the right during the term of the rental 
contract, at termination of the contract, or a combination thereof.
    Relatedly, proposed Sec.  36.7(b) would provide a non-exclusive 
safe harbor for meaningful financial support. Under the proposal, a 
large institutional investor would be deemed to contribute meaningful 
financial support for the purchase of the single-family home by a 
renter who has rented the single-family home for at least 5 years if, 
in the event the renter purchases the single-family home from the large 
institutional investor, the amount of such financial support is at 
least the lesser of (i) $5,000 or (ii) 2.5 percent if the renter has 
rented the single-family home for at least five years and at least 3.5 
percent if the renter has rented the single-family home for at least 
seven years. In each case, the applicable percentage would be 
calculated using the lesser of (a) the purchase price of the property 
purchased by the renter or (b) the Federal Housing Administration's 
mortgage limit for a one-unit property that applies to the county where 
the single-family home is located and that is in effect on the date the 
renter purchases the single-family home. Thus, the applicable safe-
harbor percentage would increase when the renter's rental reaches five 
and seven years.
    This safe harbor is intended to promote clarity and 
administrability, as the statute does not specify the amount of 
financial support that should constitute ``meaningful financial 
support'' in a homeownership program. The proposed approach would 
increase with the duration of the renter's rental of the single-family 
home, up to a maximum of seven years, while using a county-specific 
reference to account for regional differences in home prices. The use 
of the lesser of the purchase price of the property and the applicable 
Federal Housing Administration mortgage limit is intended to promote 
meaningful financial support while limiting the extent to which the 
amount of support increases solely because the renter purchases a 
higher-priced property. This lesser-of approach is intended to provide 
large institutional investors with greater certainty for long-term 
financial projections, which may support the use of homeownership 
programs. The 3.5 percent amount in the proposed rule is based on the 
Federal Housing Administration's minimum down payment amount, as 
described below in the context of programs to boost homeownership. 
Although meaningful financial support provided pursuant to a 
homeownership program may not be eligible to supplement a renter's down 
payment under federal mortgage standards, because it may be considered 
an interested party contribution, Treasury believes that using the same 
approach for meaningful financial support in each program will simplify 
the rules and therefore minimize market confusion. For purposes of the 
safe-harbor calculation, the purchase price of the property would be 
determined before applying or crediting meaningful financial support. 
This treatment would avoid a circular calculation in which the amount 
of support reduces the purchase price used to calculate that same 
support.
    The proposed rule would increase the safe-harbor amount in stages 
based on the renter's completed rental period. This approach is 
intended to balance the goal of providing progressively greater 
assistance to longer-term renters with the goal of encouraging large 
institutional investors to offer homeownership programs. Making the 
full 3.5 percent safe harbor amount available at the beginning of the 
rental relationship could discourage large institutional investors from 
offering such programs. Conversely, providing no safe-harbor amount 
until the renter

[[Page 66811]]

has completed seven years of rental could delay the renter's transition 
to homeownership or reduce the number of renters who ultimately receive 
meaningful financial support.
    Treasury also believes it is appropriate to cap the amount of 
financial support required to satisfy the safe harbor at $5,000. This 
amount is intended to ensure that the financial support will be 
impactful for the renter's purchase of the single-family home, without 
making the program cost-prohibitive for large institutional investors.
    Under proposed Sec.  36.7(b)(2), to qualify for the safe harbor, 
the large institutional investor must not directly or indirectly 
recover any portion of the meaningful financial support from the 
renter, including by increasing the purchase price of the single-family 
home or imposing any expense, charge, or fee in connection with the 
financial support. This requirement is intended to ensure that the 
financial support provides a net economic benefit to the renter, as 
contemplated by the Act, and is not offset through an increase in the 
purchase price or through separately imposed costs.
    Because proposed Sec.  36.7(b) would provide a non-exclusive safe 
harbor, a contribution that does not satisfy the safe-harbor formula 
may nevertheless constitute meaningful financial support based on the 
facts and circumstances. This could include support provided where a 
renter purchases the single-family home before completing five years of 
the rental or where the support is structured differently than 
contemplated by the safe harbor, provided that the support gives the 
renter a real economic benefit and is not directly or indirectly 
recovered from the renter.
    Treasury invites comments on all aspects of the meaningful 
financial support and purchase-right requirements and the related safe 
harbor. In particular, Treasury seeks comment on the following aspects 
of the proposed rule:
    Question 66: Is the proposed requirement that the renter be able to 
purchase the single-family home at a price no greater than fair market 
value minus meaningful financial support appropriate?
    Question 67: Should the final rule define ``fair market value'' or 
specify how fair market value must be determined?
    Question 68: Is the proposed formula an appropriate safe harbor for 
meaningful financial support? Are the 2.5 and 3.5 percent amounts 
appropriate? Is the $5,000 cap on the amount required to rely on the 
safe harbor an appropriate amount? Do the five- and seven-year 
thresholds appropriately balance the considerations Treasury describes? 
Should Treasury provide a safe harbor for support provided before five 
years? Should the final rule provide a mechanism to ensure that a large 
institutional investor cannot evade the meaningful financial support 
provision by materially altering the terms of the rental agreement to 
discourage the renter from renewing the rental agreement? Is it 
appropriate to use the lesser of the purchase price of the property and 
the Federal Housing Administration mortgage limit for a one-unit 
property in the relevant county? Should additional safe harbors be 
provided?
    Question 69: Should the final rule provide additional guidance or 
examples regarding when a large institutional investor has directly or 
indirectly recovered meaningful financial support, including through an 
increase in the purchase price of the single-family home? What other 
factors should be used to indicate whether support constitutes 
meaningful financial support under a homeownership program?
6. Termination of Financial Support
    Proposed Sec.  36.7(c) would provide that a homeownership program 
does not fail to satisfy proposed Sec.  36.7(a) solely because the 
program allows the large institutional investor's obligation to 
contribute meaningful financial support under proposed Sec.  36.7(a)(4) 
to terminate in any of three circumstances: (i) if, as of the scheduled 
date for the renter's purchase of the single-family home, the renter 
has failed to pay all rent then due and payable to the large 
institutional investor, other than amounts lawfully withheld; (ii) if 
the renter breaches the rental contract in a manner that permits the 
large institutional investor to terminate the contract under applicable 
law; or (iii) if the renter elects to terminate the rental contract for 
a purpose other than purchasing the single-family home. Proposed Sec.  
36.7(c) would not require or automatically cause the obligation to 
contribute meaningful financial support to terminate; instead, it would 
permit a homeownership program to include contractual terms allowing 
termination of that obligation in the specified circumstances without 
causing the program to fail to satisfy proposed Sec.  36.7(a).
    This approach is intended to avoid situations in which a large 
institutional investor is required to provide meaningful financial 
support to a renter who has failed to pay their rent, breached other 
material contractual obligations, or chosen to end the rental for a 
purpose other than purchasing the single-family home. The condition 
would not include future rent that is contemplated by the rental 
contract but is not yet due and payable. The proposed breach condition 
would not require that the large institutional investor actually evict 
the renter. A breach that does not permit termination of the rental 
contract under applicable law would not satisfy this condition. 
Treasury believes that the alternative of requiring a large 
institutional investor to actually terminate the rental contract or 
evict the renter in order to eliminate the requirement for meaningful 
financial support would create adverse incentives.
    Treasury invites comments on all aspects of the proposed 
termination provision. In particular, Treasury seeks comment on the 
following aspects of the proposed rule:
    Question 70: Is it appropriate to permit the obligation to provide 
meaningful financial support to terminate if, as of the scheduled 
purchase date, the renter has failed to pay all rent then due and 
payable, other than amounts lawfully withheld? Should this provision be 
conditioned or otherwise modified? Should the final rule provide 
additional guidance regarding what amounts constitute rent ``then due 
and payable'' or what amounts have been ``lawfully withheld''?
    Question 71: Is it appropriate to permit the obligation to provide 
meaningful financial support to terminate if the renter breaches the 
rental contract in a manner that permits the large institutional 
investor to terminate the contract under applicable law? Is the 
standard for breach that permits termination of the rental contract 
sufficiently clear across jurisdictions? Would a different standard be 
more appropriate?
    Question 72: Is it appropriate to permit the obligation to provide 
meaningful financial support to terminate if the renter elects to 
terminate the rental contract for a purpose other than purchasing the 
single-family home? Should the final rule provide additional guidance 
regarding when a renter terminates a rental contract ``for a purpose 
other than purchasing the single-family home''? Should the rule provide 
other grounds on which the obligation should be permitted to terminate?

[[Page 66812]]

7. Transfer to Another Large Institutional Investor
    Proposed Sec.  36.7(a)(5) would require contracts under a 
homeownership program to provide that, if the large institutional 
investor sells or otherwise transfers the single-family home to another 
large institutional investor before termination of the contract, the 
transferring large institutional investor's obligations under proposed 
Sec.  36.7(a)(1) through (4) are automatically deemed to be assigned 
to, and enforceable by the renter against, the transferee large 
institutional investor. The transferring large institutional investor 
also would be required to cause the transferee large institutional 
investor expressly to assume those obligations in writing and effective 
upon consummation of the transfer.
    The relevant provision of the Act does not expressly address the 
continuation of homeownership program obligations when a large 
institutional investor sells the single-family home to another large 
institutional investor. Proposed Sec.  36.7(a)(5) is intended to 
preserve the renter protections associated with a homeownership program 
and contemplated by the Act. Without such a requirement, a large 
institutional investor could transfer the home to another large 
institutional investor in a manner that eliminates the renter's rights 
under the program. Such a result would be inconsistent with the purpose 
of the statutory exception for homeownership programs.
    The proposed rule would require both automatic assignment and 
express written assumption of the large institutional investor's 
obligations. Automatic assignment is intended to ensure that the 
renter's rights are not dependent on the parties' actions, while 
express written assumption would provide additional clarity and 
mitigate the risk of disputes regarding the transferee's obligations.
    Treasury invites comments on all aspects of the transfer-related 
requirements. In particular, Treasury seeks comment on the following 
aspects of the proposed rule:
    Question 73: Are the automatic-assignment and express-assumption 
requirements appropriate and workable under applicable law? Would they 
pose undue burdens? Should they be modified or replaced in a way that 
preserves the intended benefit for renters participating in 
homeownership programs?
    Question 74: Should the final rule address transfers of single-
family homes other than to large institutional investors?
    Question 75: Should the final rule specify remedies, notice 
requirements, or documentation requirements in connection with 
transfers?

G. Program To Boost Homeownership (Proposed Sec.  36.8)

1. Overview
    Proposed Sec.  36.8 would clarify when a program to boost 
homeownership meets the requirements for an excepted purchase under 
section 1001(a)(2)(E) of the Act. That statutory provision states that 
a purchase of a single-family home is an excepted purchase if it is 
pursuant to a program to boost homeownership that (i) provides for 
positive reporting of rental payments to consumer reporting agencies 
for any renter, who must be informed of and opts into such reporting; 
(ii) provides for the right of first refusal and a 30-day ``first 
look'' period; and (iii) may entail meaningful financial support from 
the large institutional investor, including price concessions, for the 
purchase of a single-family home by the renter (whether it is the home 
the renter occupies or another home).
    As proposed, a program to boost homeownership is a program (as 
defined in proposed Sec.  36.3) that generally includes the provisions 
as described in section 1001(a)(2)(E) of the Act. The proposed rule 
also includes several clarifications, described below, of the statutory 
requirements intended to provide an administrable framework for 
determining when a purchase of a single-family home is made pursuant to 
a program to boost homeownership, while preserving the practical 
availability of programs that support renters' transition to 
homeownership.
    Under the Act and the proposed rule, a program to boost 
homeownership differs from a homeownership program in several important 
respects. Under section 1001(a)(2)(D) of the Act, a homeownership 
program provides for the renter to purchase ``the single-family home'' 
rented by the renter from the large institutional investor; in 
contrast, section 1001(a)(2)(E) of the Act provides for the renter to 
purchase ``a single-family home,'' not necessarily the home occupied by 
the renter.
    Treasury invites comments on all aspects of the proposed provision 
regarding programs to boost homeownership. In particular, Treasury 
seeks comment on the following aspects of the proposed rule:
    Question 76: Is the proposed definition appropriately tailored to 
identify purchases made pursuant to a program to boost homeownership? 
What changes, if any, should be made?
    Question 77: Are the proposed contract requirements sufficient to 
distinguish programs to boost homeownership from ordinary rental 
arrangements and from homeownership programs? Should additional 
conditions for rental contracts be added?
    Question 78: Should the final rule include additional conditions 
for programs to boost homeownership? Should any of the proposed 
conditions be modified or removed?
2. Positive Reporting of Rental Payments
    As set forth in the Act, proposed Sec.  36.8(a)(1) would require 
contracts under a program to boost homeownership to require the large 
institutional investor to inform the renter of the option for positive 
reporting of rental payments to consumer reporting agencies and to 
provide for such positive reporting for any renter who opts into such 
reporting. The proposed rule would require the large institutional 
investor to provide positive reporting at no charge or expense to the 
renter, to ensure that the renter actually receives the intended 
benefit of the program, as contemplated by sections 1001(a)(2)(E) and 
1001(b)(4)(A)(ii) of the Act, and that such benefit is not offset by 
additional charges or expenses.
    This requirement serves the same general purpose as the positive-
reporting requirement for homeownership programs under proposed Sec.  
36.7(a)(3). The positive-reporting requirement may support renters' 
ability to establish or improve credit histories relevant to mortgage 
eligibility and a transition to homeownership. Providing that reporting 
without charge or expense may support homeownership.
    Treasury invites comments on all aspects of the positive-reporting 
requirement. In particular, Treasury seeks comment on the following 
aspects of the proposed rule:
    Question 79: Should the final rule specify when and how the renter 
must be informed of the option for positive reporting?
    Question 80: Should the positive-reporting requirements for 
homeownership programs and programs to boost homeownership be 
identical?
3. Meaningful Financial Support
    Proposed Sec.  36.8(a)(3) would require contracts under a program 
to boost homeownership to provide for the large institutional investor 
to contribute meaningful financial support for the purchase of a 
single-family home by the renter, whether it is the home the renter 
occupies or another home.

[[Page 66813]]

    Section 1001(a)(2)(E)(iii) of the Act states that a program to 
boost homeownership may entail the provision of meaningful financial 
support. Its reference to such support reflects the relevance of this 
factor to programs to boost homeownership. The statute does not mandate 
excepted-purchase treatment for programs that do not provide such 
support. Proposed Sec.  36.8(a)(3) specifies how Treasury proposes to 
evaluate meaningful financial support, in order to give effect to the 
statutory framework for programs to boost homeownership and to promote 
the purpose of increasing homeownership.
    The meaningful financial support provided under a program to boost 
homeownership, as opposed to a homeownership program, is required 
regardless of whether the renter purchases the single-family home 
occupied by the renter or another single-family home. A renter may be 
interested in purchasing the home the renter occupies but may also 
prefer or need to purchase a different home. Proposed Sec.  36.8 would 
permit meaningful financial support to be used for the purchase of 
another single-family home, thereby focusing on the renter's transition 
to homeownership rather than on only the disposition of the specific 
rented property.
    Proposed Sec.  36.8(b) would provide a safe harbor for meaningful 
financial support, similar to the safe harbor for homeownership 
programs, described above. Under the proposal, a large institutional 
investor would be deemed to contribute meaningful financial support to 
a renter who has rented a single-family home for at least 5 years if, 
in the event the renter purchases a single-family home, the amount of 
the support is at least the lesser of (i) $5,000 or (ii) 2.5 percent if 
the renter has rented the single-family home for at least five years 
and at least 3.5 percent if the renter has rented the single-family 
home for at least seven years. In each case, the applicable percentage 
would be calculated using the lesser of (a) the purchase price of the 
property purchased by the renter or (b) the Federal Housing 
Administration's mortgage limit for a one-unit property that applies to 
the county where the single-family home rented by the renter is located 
and that is in effect on the date the renter purchases a single-family 
home. As under proposed Sec.  36.7(b), the safe-harbor percentage would 
change only when the renter reaches the specified five- and seven-year 
thresholds and would not be prorated between those thresholds.
    Treasury preliminarily believes this formula would provide a clear 
and administrable standard while accounting for both the duration of 
the renter's rental of the single-family home and regional variation in 
home prices. Proposed Sec.  36.8(b)(2) would specify how the 
contribution must be provided. If the seller of the single-family home 
is not the large institutional investor, the large institutional 
investor would be required to transmit the amount to the seller of the 
single-family home for the renter's account at or before the sale. 
Treasury has proposed financial support of up to 3.5 percent under this 
formula because, if the purchase price does not exceed the applicable 
Federal Housing Administration mortgage limit and applicable mortgage 
requirements permit, a contribution at that level could potentially 
satisfy the renter's minimum down payment for a Federal Housing 
Administration-insured mortgage. Treasury does not propose to require a 
specific account structure for a large institutional investor's 
contribution of meaningful financial support to a third-party seller. 
If the seller is the large institutional investor, the large 
institutional investor would be required to credit the amount toward 
the purchase price. Because a contribution by a large institutional 
investor that is selling the home to a renter may be considered an 
interested party contribution for purposes of Federal mortgage 
standards, the contribution would not count towards a down payment. As 
a result, a price concession may be an appropriate alternative in this 
situation. These payment mechanics are intended to ensure that the 
financial support is actually available for the renter's purchase and 
is not merely a post-closing reimbursement or unenforceable promise. 
For purposes of the safe-harbor calculation, the purchase price of the 
property would be determined before applying or crediting meaningful 
financial support. This treatment would avoid a circular calculation in 
which the amount of support reduces the purchase price used to 
calculate that same support.
    The proposed rule would increase the safe-harbor amount in stages 
based on the renter's completed period of rental, to encourage large 
institutional investors to offer programs to boost homeownership while 
providing progressively greater assistance to longer-term renters. 
Making the full 3.5 percent safe-harbor amount available at the 
beginning of the rental relationship could discourage participation by 
large institutional investors, while further delaying any safe-harbor 
amount could slow the renter's transition to homeownership or reduce 
the number of renters who ultimately receive support.
    Treasury also believes it is appropriate to cap the amount of 
financial support required to satisfy the safe harbor at $5,000. This 
amount is intended to ensure that the financial support will be 
impactful for the renter's purchase of a single-family home, without 
making the program cost-prohibitive for large institutional investors.
    Proposed Sec.  36.8(b)(3) would require the large institutional 
investor not, directly or indirectly, to recover any portion of the 
meaningful financial support from the renter, including by increasing 
the purchase price of the single-family home or imposing any expense, 
charge, or fee in connection with the financial support. This 
requirement is intended to ensure that the economic value of the 
support is not reduced by offsetting charges.
    Treasury invites comments on all aspects of the meaningful 
financial support requirement. In particular, Treasury seeks comment on 
the following aspects of the proposed rule:
    Question 81: Is it appropriate for Treasury to define a program to 
boost homeownership to require the provision of meaningful financial 
support? Is the proposed formula an appropriate safe harbor for 
meaningful financial support under a program to boost homeownership? 
Should the formula for meaningful financial support be the same for 
homeownership programs and programs to boost homeownership?
    Question 82: Are the proposed payment mechanics appropriate when 
the renter purchases a home from a third party?
4. Termination for Unpaid Rent, Material Damage, and Breach
    Proposed Sec.  36.8(c) would provide that a program to boost 
homeownership does not fail to satisfy proposed Sec.  36.8(a) solely 
because the program allows the large institutional investor's 
obligation to contribute meaningful financial support to terminate (i) 
if the renter has not paid all rent then due and payable to the large 
institutional investor as of the scheduled date for the renter's 
purchase of the single-family home, other than amounts lawfully 
withheld; (ii) if the renter has caused material damage to the single-
family home occupied by the renter, beyond ordinary wear and tear, 
excluding any damage caused by the large institutional investor's 
failure to maintain the single-family home, and the large institutional 
investor has provided the renter with

[[Page 66814]]

written notice and a reasonable opportunity to cure; or (iii) if the 
renter breaches the rental contract in a manner that permits the large 
institutional investor to terminate the rental contract under 
applicable law.
    These termination provisions are intended to account for unpaid 
rental obligations, material damage caused by the renter, and certain 
breaches by the renter, similar to the reasons for proposed Sec.  36.7 
described above. The proposed provision is intended to prevent the 
requirement to provide meaningful financial support from eliminating 
ordinary obligations under the rental contract. For that reason, the 
proposed rule would limit the termination for material damage to damage 
beyond ordinary wear and tear, would exclude damage caused by the large 
institutional investor's failure to maintain the single-family home, 
and would require written notice to the renter and a reasonable 
opportunity to cure.
    The proposed breach condition would not require that the large 
institutional investor actually evict the renter. A breach that does 
not permit termination of the rental contract under applicable law 
would not satisfy this condition. Treasury believes that the 
alternative of requiring a large institutional investor to actually 
terminate the rental contract or evict the renter in order to eliminate 
the requirement for meaningful financial support would create adverse 
incentives.
    Treasury invites comments on all aspects of these proposed 
termination provisions. In particular, Treasury seeks comment on the 
following aspects of the proposed rule:
    Question 83: Is it appropriate to permit meaningful financial 
support to be terminated where, as of the scheduled purchase date, the 
renter has failed to pay all rent then due and payable, other than 
amounts lawfully withheld? Is it appropriate to permit meaningful 
financial support to be terminated for material damage caused by the 
renter beyond ordinary wear and tear, subject to the maintenance 
exclusion, notice requirement, and opportunity to cure? Is it 
appropriate to permit meaningful financial support to be terminated 
where the renter breaches the rental contract in a manner that permits 
the large institutional investor to terminate the contract under 
applicable law? Should any other factors be added to the requirements 
in this paragraph of the proposed rule?
    Question 84: Should the final rule define ``material damage,'' 
``ordinary wear and tear,'' or ``reasonable opportunity to cure''?
    Question 85: Treasury has not proposed a similar material-damage 
termination for homeownership programs under proposed Sec.  36.7 
because the renter would purchase the occupied home and would 
thereafter be responsible for necessary repairs. Should the final rule 
include a similar provision for homeownership programs?
5. Termination of the Financial-Support Obligation
    Proposed Sec.  36.8(d) would provide that a large institutional 
investor's obligation to contribute meaningful financial support to a 
renter under a program to boost homeownership may terminate beginning 
90 days after the renter no longer occupies a single-family home owned 
by the large institutional investor. As a result, the right to 
terminate such obligation pursuant to the applicable contract would not 
render the purchase of the single-family home ineligible to be an 
excepted purchase under the Act.
    This provision is intended to provide a reasonable transition 
period after the renter no longer occupies a single-family home owned 
by the large institutional investor. A program to boost homeownership 
is tied to the renter's rental relationship with the large 
institutional investor. Requiring the obligation to remain available 
for at least 90 days after the renter no longer occupies a single-
family home owned by the large institutional investor is intended to 
provide a reasonable transition period without requiring the investor 
to maintain the obligation indefinitely. During that period, the renter 
may have additional time to obtain financing and identify another 
single-family home to purchase. The 90-day provision would not prevent 
earlier termination to the extent separately permitted under proposed 
Sec.  36.8(c).
    Treasury invites comments on all aspects of this proposed 
termination provision. In particular, Treasury seeks comment on the 
following aspects of the proposed rule:
    Question 86: Is 90 days an appropriate period before the obligation 
to contribute meaningful financial support may terminate? Should 
termination based on other factors be permissible? Should this proposed 
termination right be narrowed or eliminated?
    Question 87: Should the termination provision depend on the reason 
the renter no longer occupies the single-family home?
6. Facts-and-Circumstances Support
    Proposed Sec.  36.8(e) would provide that a contribution that does 
not satisfy the safe harbor may constitute meaningful financial support 
based on the facts and circumstances, including the economic value of 
price concessions, down-payment assistance, closing-cost assistance, or 
other support for the renter's purchase.
    Programs to boost homeownership may provide meaningful financial 
support in forms that are not fully captured by a single formula. For 
example, a large institutional investor may provide support through a 
below-market sale price, assistance with closing costs, or similar 
support. These forms of support may have substantial economic value to 
the renter even if they do not take the form specified in proposed 
Sec.  36.8(b)(1) and (2). At the same time, a facts-and-circumstances 
standard should not undermine the administrability of the proposed 
rule.
    Treasury invites comments on all aspects of the facts-and-
circumstances provision. In particular, Treasury seeks comment on the 
following aspects of the proposed rule:
    Question 88: Is it appropriate to provide a facts-and-circumstances 
path for meaningful financial support? Should the final rule provide 
additional examples, valuation rules, or documentation requirements for 
alternative forms of meaningful financial support?
    Question 89: Should the final rule include additional examples of 
support that may constitute meaningful financial support? Should the 
final rule specify how to value price concessions, closing-cost 
assistance, or similar support?
    Question 90: Should a similar facts-and-circumstances provision be 
included for homeownership programs under proposed Sec.  36.7?
7. Right of First Refusal and 30-Day First-Look Period
    As specified in section 1001(a)(2)(E)(ii) of the Act, proposed 
Sec.  36.8(a)(2) would require contracts under a program to boost 
homeownership to provide the renter with a right of first refusal and a 
30-day first-look period. Proposed Sec.  36.8(f) would provide a non-
exclusive safe harbor for this requirement.
    Under the proposed safe harbor, a large institutional investor 
would be deemed to provide the required right of first refusal and 30-
day first-look period if, until the earlier of 90 days after the 
renter's rental contract terminates or the date the single-family home 
is rented to a person other than such renter, the large institutional 
investor provides certain rights specified in proposed Sec.  
36.8(f)(1), (2), and (3).

[[Page 66815]]

    The proposed time period for these rights is intended to prevent a 
large institutional investor from declining to renew a rental agreement 
with a renter and immediately selling the single-family home, while 
also not requiring the large institutional investor to offer such 
rights to multiple individuals at once.
    During the applicable period, before the large institutional 
investor lists, markets, solicits offers for the purchase of, 
negotiates for the potential sale of, or accepts from any person other 
than the renter any offer to purchase the single-family home occupied 
by the renter, the large institutional investor must provide the renter 
with written notice. The notice must include the large institutional 
investor's intent to sell the home, the proposed sale or list price, 
any proposed material sale terms known to the large institutional 
investor, the amount of any meaningful financial support to which the 
renter is entitled, and the manner and date by which the renter may 
submit an offer to purchase the home.
    Proposed Sec.  36.8(f)(2) would require that, during the 30-day 
period beginning on, but not including, the date the notice is 
provided, the large institutional investor not list, market, solicit 
offers for the purchase of, negotiate for the potential sale of, or 
accept from any person other than the renter any offer to purchase the 
single-family home. This restriction is intended to provide the renter 
a meaningful first opportunity to consider purchasing the home without 
competing against other potential purchasers during the first-look 
period.
    Proposed Sec.  36.8(f)(3) would address the right of first refusal. 
If, after the 30-day first-look period described above, the large 
institutional investor receives a bona fide offer from any person other 
than the renter that the large institutional investor is prepared to 
accept and that is less than or equal to a price offered by the renter 
during the first-look period, then, before accepting that offer, the 
large institutional investor must provide the renter with written 
notice of all material economic terms of the offer and not less than 
five business days to elect to purchase the home on terms that match 
the material economic terms of the offer, before giving effect to any 
meaningful financial support required under proposed Sec.  36.8(a)(3). 
If the renter timely elects to match such terms, the large 
institutional investor must sell the home to the renter on such terms, 
subject to customary closing conditions applicable to an owner-occupant 
purchaser.
    This two-stage structure is intended to give effect to both the 30-
day first-look period and the right of first refusal, which are not 
further described in section 1001 of the Act. The first-look period 
provides the renter an exclusive initial opportunity to make an offer. 
The right of first refusal protects the renter if the large 
institutional investor later receives a bona fide offer that it is 
prepared to accept and that is less than or equal to the renter's 
earlier offer. Measuring the renter's ability to match the third-party 
offer before giving effect to meaningful financial support is intended 
to ensure that the renter receives the benefit of the required support.
    Proposed Sec.  36.8(g) would provide that, for purposes of the safe 
harbor in proposed Sec.  36.8(f), written notice would be deemed to be 
provided on the date the notice is delivered personally to the renter, 
sent by electronic means to an electronic address designated by the 
renter for notices under the rental agreement, or deposited in the U.S. 
mail or with a commercial delivery service for delivery to the renter's 
address for notices under the rental agreement, at the option of the 
large institutional investor. If notice is provided by mail or 
commercial delivery service, the applicable response period would begin 
on the third business day after the notice is deposited.
    Treasury invites comments on all aspects of the 30-day first-look 
period and the right of first refusal. In particular, Treasury seeks 
comment on the following aspects of the proposed rule:
    Question 91: Does proposed Sec.  36.8(f) appropriately implement 
the right of first refusal and 30-day first-look period? What changes, 
if any, should be made? Should any additional safe harbors be provided?
    Question 92: Should the large institutional investor be prohibited 
from listing, marketing, soliciting offers, negotiating, or accepting 
offers from others during the 30-day first-look period, as proposed? 
Should they be prohibited from any other activities?
    Question 93: Is five business days an appropriate period for the 
renter to elect to match a third-party offer?
    Question 94: Should the right of first refusal apply only to third-
party offers at or below the renter's first-look offer, as proposed, or 
should it apply more broadly? Should the right of first refusal apply 
to any type of offer to purchase, including portfolio and bulk sales?
    Question 95: Are the proposed methods of written notice 
appropriate?
8. Transfer to Another Large Institutional Investor
    Proposed Sec.  36.8(a)(4) would require contracts under a program 
to boost homeownership to provide that, if the large institutional 
investor sells or otherwise transfers the single-family home to another 
large institutional investor before the renter's rights under the 
program terminate, the transferring large institutional investor's 
obligations under proposed Sec.  36.8(a)(1) through (3) are 
automatically deemed to be assigned to, and enforceable by the renter 
against, the transferee large institutional investor. The transferring 
large institutional investor also would be required to cause the 
transferee large institutional investor expressly to assume those 
obligations in writing and effective upon consummation of the transfer.
    The relevant provision of the Act does not expressly address the 
continuation of program obligations when a large institutional investor 
sells the single-family home to another large institutional investor. 
Proposed Sec.  36.8(a)(4) is intended to preserve the renter 
protections associated with a program to boost homeownership and 
contemplated by the Act. Without such a requirement, a large 
institutional investor could transfer the home to another large 
institutional investor in a manner that eliminates the renter's rights 
under the program. Such a result would be inconsistent with the purpose 
of the statutory exception for programs to boost homeownership.
    The proposed rule would require both automatic assignment and 
express written assumption of the large institutional investor's 
obligations. Automatic assignment is intended to ensure that the 
renter's rights are not dependent on the parties' actions, while 
express written assumption would provide additional clarity and 
mitigate the risk of disputes regarding the transferee's obligations.
    Treasury invites comments on all aspects of the transfer-related 
requirements for programs to boost homeownership. In particular, 
Treasury seeks comment on the following aspects of the proposed rule:
    Question 96: Are the automatic-assignment and express-assumption 
requirements appropriate? Would they pose undue burdens? Should they be 
modified in a way that preserves the intended benefit for renters 
participating in programs to boost homeownership?
    Question 97: Should the final rule address transfers of single-
family homes

[[Page 66816]]

other than to large institutional investors?
    Question 98: Should the final rule specify remedies, notice 
requirements, or documentation requirements in connection with 
transfers?

H. Satisfaction of Debts Previously Contracted (Proposed Sec.  36.9)

    Proposed Sec.  36.9 would clarify the application of section 
1001(a)(2)(F) of the Act, which states that a purchase of a single-
family home is an excepted purchase if it is in connection with the 
satisfaction of debts previously contracted in good faith and where the 
large institutional investor has the right to repossess the single-
family home under such contract.
    The proposed rule primarily clarifies that a large institutional 
investor may purchase a single-family home in accordance with this 
category of excepted purchase either directly or indirectly. 
Specifically, the proposed rule provides for a large institutional 
investor to (i) directly purchase the single-family home, by purchasing 
the single-family home in connection with the satisfaction of debts 
previously contracted by such large institutional investor in good 
faith and where such large institutional investor has the right to 
repossess the single-family home under such contract; or (ii) 
indirectly purchase the single-family home, by purchasing the single-
family home directly or indirectly from another person or entity that 
purchased the single-family home in connection with the satisfaction of 
debts previously contracted in good faith by such person or entity and 
where such person or entity had the right to repossess the single-
family home under such contract.
    This clarification of the statutory text is intended to ensure that 
the exception remains available for debt-collection and collateral-
related circumstances that are distinct from ordinary investment 
purchases of single-family homes, while mitigating market disruptions. 
As set forth in the Act, the proposed rule would require that the debt 
was previously contracted in good faith and that the relevant person 
had the right to repossess the single-family home under the contract. 
This excepted purchase would not apply merely because a purchaser is 
owed money by a seller or because proceeds of the sale may be used to 
satisfy a debt; instead, the debt relationship must include a right to 
repossess the single-family home.
    Proposed Sec.  36.9(b), regarding indirect purchases, is intended 
to address circumstances in which a large institutional investor 
acquires a single-family home through a chain of transactions following 
a debt-satisfaction event. For example, an entity with the right to 
repossess a single-family home may acquire the home in connection with 
satisfaction of a debt and later sell the home. Prohibiting indirect 
purchases of such homes may disrupt debt markets in a manner that the 
Act did not intend. For example, if a bank that has repossessed a 
single-family home enters receivership, it would not be consistent with 
the purposes of the Act for this restriction potentially to prevent the 
sale of that bank or its assets to a large institutional investor. At 
the same time, the indirect-purchase provision should not permit 
evasion of the purchase prohibition. A large institutional investor 
should not be able to rely on the exception solely because a 
transaction is routed through an intermediary. The proposed rule 
therefore requires that the person or entity from which the home is 
purchased acquired the home in connection with the satisfaction of 
debts previously contracted in good faith and had the right to 
repossess the home under the contract.
    Treasury invites comments on all aspects of proposed Sec.  36.9. In 
particular, Treasury seeks comment on the following aspects of the 
proposed rule:
    Question 99: Is proposed Sec.  36.9 appropriately tailored to 
purchases in connection with satisfaction of debts previously 
contracted? Is it appropriate for this provision to encompass both 
direct and indirect purchases, as proposed?
    Question 100: Should the final rule address whether and how the 
exception applies to different forms of security interests, installment 
contracts, lease-purchase arrangements, or other secured obligations?
    Question 101: Should the final rule permit indirect purchases from 
persons or entities that acquired the home in connection with 
satisfaction of debts previously contracted, as proposed? Should 
Treasury impose time limits, disposition requirements, or anti-evasion 
conditions on indirect purchases? Should the proposed rule be modified 
to ensure the continued availability of appropriate transactions by 
government-sponsored entities?
    Question 102: What due diligence should a large institutional 
investor be expected to perform to determine whether the seller 
acquired the home in connection with satisfaction of debts previously 
contracted?

I. Loss Mitigation or Compliance (Proposed Sec.  36.10)

    Proposed Sec.  36.10 would clarify the application of section 
1001(a)(2)(G) of the Act, which states that a purchase of a single-
family home is an excepted purchase if it is undertaken by a mortgage 
servicer, lender, or other entity that has a legal right to a single-
family home, for the purpose of loss mitigation or compliance with 
servicing or investor obligations, and not as a long-term investment 
strategy, and is solely as a result of (i) a foreclosure; (ii) a deed-
in-lieu of foreclosure; (iii) enforcement of a mortgage, deed of trust, 
or other security interest; or (iv) operation of law following borrower 
default.
    Proposed Sec.  36.10(a) reflects the statutory text. Proposed Sec.  
36.10(b) provides additional clarification that the large institutional 
investor purchasing the single-family home under this excepted-purchase 
category either (i) is the mortgage servicer, lender, or other entity; 
or (ii) purchases the single-family home directly or indirectly from 
such mortgage servicer, lender, or other entity. This clarification is 
intended to preserve the practical operation of mortgage servicing, 
default management, and investor-obligation compliance processes, by 
accounting for circumstances in which a mortgage servicer, lender, or 
other covered entity acquires a single-family home through a default-
related process and later sells the home. The proposed rule would 
permit a large institutional investor to purchase the home directly or 
indirectly from such an entity where the conditions of proposed Sec.  
36.10 are satisfied. The availability of indirect purchases would be 
appropriate in this context for the same reasons described above with 
respect to proposed Sec.  36.9.
    Treasury invites comments on all aspects of proposed Sec.  36.10. 
In particular, Treasury seeks comment on the following aspects of the 
proposed rule:
    Question 103: Is proposed Sec.  36.10 appropriately tailored to 
purchases for loss mitigation or compliance? Should the rule provide 
examples of purchases that are for loss mitigation or compliance with 
servicing or investor obligations? Should the rule provide examples of 
purchases that would be considered part of a long-term investment 
strategy?
    Question 104: Is the phrase ``mortgage servicer, lender, or other 
entity that has a legal right to a single-family home'' sufficiently 
clear? Should Treasury clarify whether this category of excepted 
purchase, or any other category of excepted purchase, is available to 
an

[[Page 66817]]

entity that is not a large institutional investor at the time of 
purchase?
    Question 105: Are the specified default-related events appropriate? 
Should additional events be included?
    Question 106: Is it appropriate to permit purchases directly or 
indirectly from covered entities? If so, should different conditions be 
imposed on those purchases? Should the proposed rule be modified to 
ensure the continued availability of appropriate transactions by 
government-sponsored entities? What due diligence should a large 
institutional investor be expected to perform to determine whether the 
seller acquired the home in a manner that would enable the large 
institutional investor to satisfy proposed Sec.  36.10?

J. Purchases From Another Large Institutional Investor (Proposed Sec.  
36.11)

    Proposed Sec.  36.11 would clarify the application of section 
1001(a)(2)(H) of the Act, which states that a purchase of a single-
family home is an excepted purchase if the home is purchased from 
another large institutional investor that either owned the single-
family home on the date of enactment of the Act or purchased the 
single-family home in compliance with section 1001 of the Act.
    Proposed Sec.  36.11 reflects the statutory text, with a 
clarification that the Act's reference to purchases of single-family 
homes in compliance with section 1001 of the Act includes a purchase 
from a large institutional investor that purchased the home under 
section 1001(a)(2)(H) of the Act. Treasury preliminarily believes this 
approach represents the best reading of the text and structure of 
section 1001(a)(2)(H). The ROAD Act permits a large institutional 
investor to purchase a single-family home from another large 
institutional investor where the selling large institutional investor 
purchased the home in compliance with the Act. With respect to 
potential means of compliance, the Act does not indicate that certain 
excepted purchases should be excluded. Therefore, under the proposed 
rule, a single-family home purchased in compliance with the Act would 
remain eligible for subsequent purchases by large institutional 
investors, provided that each transfer satisfies a purchase exemption, 
including section 1001(a)(2)(H). In addition to consistency with the 
statute, the proposed rule is intended to provide clarity and reduce 
market disruption by permitting orderly transfers of existing or 
compliant inventory among large institutional investors.
    Treasury views the statutory phrase ``purchased the single-family 
home in compliance with the Act'' to include purchases made before the 
large institutional investor was subject to the prohibition under the 
Act, purchases that qualify for any category of excepted purchase, and 
purchases made under section 1001(b)(2)(B) of the Act (i.e., purchases 
in connection with a restructuring or other reorganization of ownership 
of single-family homes that were owned or purchased on or before the 
date of enactment of the Act). This interpretation gives meaning to the 
plain text of the statute. Further, a contrary interpretation could 
impair market liquidity and orderly disposition of single-family homes 
without materially advancing the purposes of the Act.
    At the same time, the proposed rule would not permit a large 
institutional investor to rely on section 1001(a)(2)(H) of the Act if 
the selling large institutional investor acquired the single-family 
home in violation of the Act. If a large institutional investor 
acquired a single-family home in violation of the Act, a later sale of 
that single-family home to another large institutional investor would 
not satisfy proposed Sec.  36.11 merely because the seller is a large 
institutional investor. The selling large institutional investor must 
have owned the single-family home on the date of enactment or purchased 
the single-family home in compliance with the Act.
    Treasury invites comments on all aspects of proposed Sec.  36.11. 
In particular, Treasury seeks comment on the following aspects of the 
proposed rule:
    Question 107: Does proposed Sec.  36.11 appropriately implement 
section 1001(a)(2)(H) of the Act? Would additional clarifications be 
beneficial? Does the proposed rule sufficiently clarify that a single-
family home purchased in compliance with the Act may be transferred 
among large institutional investors more than once?
    Question 108: Is Treasury's interpretation of ``purchased the 
single-family home in compliance with the Act'' appropriate? Should the 
final rule identify categories of compliant purchases, such as 
purchases before the effective date, excepted purchases, and prior 
purchases under section 1001(a)(2)(H)?
    Question 109: Should Treasury require specific documentation 
showing that the selling large institutional investor owned the home on 
the date of enactment of the Act or purchased the home in compliance 
with the Act? Is the date-of-enactment standard sufficiently clear?
    Question 110: What records should a selling or purchasing large 
institutional investor maintain to demonstrate ownership on the date of 
enactment?
    Question 111: What due diligence should a purchasing large 
institutional investor be expected to perform to determine whether the 
selling large institutional investor purchased the home in compliance 
with the Act? Should the final rule permit reliance on seller 
representations, certifications, covenants, or indemnities? If so, 
under what circumstances? Should large institutional investors be 
required to divest single-family homes acquired in reliance on false 
representations, certifications, covenants, or indemnities?

K. In the Business of (Proposed Sec.  36.15)

1. Overview
    Proposed Sec.  36.15 would clarify when an entity is engaged, in 
whole or in part, in the business of investing in, owning, renting, 
managing, or holding single-family homes as described in section 
1001(a)(3)(A)(i)(I) of the Act. Section 1001(a)(3)(A) of the Act 
defines ``large institutional investor'' by reference to, among other 
things, whether the entity ``is engaged, in whole or in part, in the 
business of investing in, owning, renting, managing, or holding single-
family homes.'' The Act does not further define ``in the business of'' 
for this purpose and proposed Sec.  36.15 would do so.
    The proposed rule would interpret ``in the business of'' in order 
to enable stakeholders to identify entities that participate in the 
single-family home market as a business or investment activity in a 
manner that relates to the purposes of the Act, while excluding 
entities that hold or manage single-family homes for reasons that are 
properly outside the scope of the Act's definition of ``large 
institutional investor.''
    Under proposed Sec.  36.15(a), an entity would be considered to be 
engaged, in whole or in part, in the business of investing in, owning, 
renting, managing, or holding single-family homes if the entity, 
directly or indirectly, invests in, owns, rents, manages, or holds 
single-family homes for the purpose, in whole or in part, of receiving 
investment gains, rental income, management fees, or any other type of 
income or financial gain.
    Proposed Sec.  36.15(b) is intended to clarify the types of 
entities that are not considered to be large institutional investors. 
Specifically, that provision states that an entity would not be 
considered to be engaged, in whole or in part, ``in the business'' if 
the entity,

[[Page 66818]]

directly or indirectly, invests in, owns, rents, manages, or holds 
single-family homes (i) solely on a temporary and incidental basis in 
furtherance of a different bona fide business; (ii) only to the extent 
reasonably necessary for the conduct of such other bona fide business; 
and (iii) not as a regular or continuing investment strategy or 
portfolio management activity. These limits are narrowly tailored; a 
broad exclusion could allow entities to hold substantial single-family 
home portfolios while claiming that the activity is incidental to a 
broader enterprise.
    Proposed Sec.  36.15 would interpret only one element of the 
statutory definition of ``large institutional investor.'' It would not 
determine, by itself, whether an entity is a large institutional 
investor. An entity ``in the business of'' activities related to 
single-family homes under proposed Sec.  36.15 is not a large 
institutional investor unless it also meets the other criteria under 
the Act and Part 36, including provisions regarding whether the entity 
has direct or indirect investment control over the required number of 
single-family homes and whether the entity is a passive investor.
    Importantly, under the Act, purchases of single-family homes that 
would constitute excepted purchases if the purchaser were a large 
institutional investor should still be taken into consideration in 
determining whether an entity is engaged in the business of investing 
in, owning, renting, managing, or holding single-family homes. For 
example, an entity engaged in build-to-rent activities may be engaged 
in the relevant business even if such activities would constitute 
excepted purchases if the entity were a large institutional investor.
    The following subsections further discuss certain key concepts 
related to proposed Sec.  36.15.
    Treasury invites comments on all aspects of proposed Sec.  36.15. 
In particular, Treasury seeks comment on the following aspects of the 
proposed rule:
    Question 112: Is proposed Sec.  36.15 appropriately tailored to 
identify entities engaged--and those not engaged--in whole or in part 
in the business of investing in, owning, renting, managing, or holding 
single-family homes? What additional considerations should be taken 
into account in identifying entities that are or are not engaged in 
such business? Does the proposed rule appropriately distinguish 
business or investment activity in single-family homes from temporary 
and incidental holdings in furtherance of another bona fide business?
    Question 113: Should Treasury define any of the terms used in 
proposed Sec.  36.15, including ``indirectly,'' ``investment gains,'' 
``rental income,'' ``management fees,'' ``income or financial gain,'' 
``temporary,'' ``incidental,'' ``bona fide business,'' ``reasonably 
necessary,'' or ``regular or continuing business''? If so, what 
definitions would promote clarity and the purposes of the Act, while 
avoiding undue burdens?
    Question 114: Should Treasury further clarify the relationship 
between proposed Sec.  36.15 and the other elements of the definition 
of ``large institutional investor''? Should the final rule clarify how 
proposed Sec.  36.15 applies to entities that make only excepted 
purchases? Should the final rule further clarify how proposed Sec.  
36.15 interacts with the definition of ``passive investor'' in proposed 
Sec.  36.16?
2. For the Purpose of Receiving Income or Financial Gain
    As noted above, proposed Sec.  36.15(a) would provide that an 
entity is engaged, in whole or in part, in the business of investing 
in, owning, renting, managing, or holding single-family homes if the 
entity, directly or indirectly, invests in, owns, rents, manages, or 
holds single-family homes ``for the purpose, in whole or in part, of 
receiving investment gains, rental income, management fees, or any 
other type of income or financial gain.'' This standard is intended to 
implement the reference in section 1001(a)(3)(A)(i)(I) of the Act to an 
entity engaged ``in the business of investing in, owning, renting, 
managing, or holding single-family homes.'' Each part of that statutory 
phrase addresses activities that are undertaken by entities for income 
or financial gain. Investment gains, rental income, and management fees 
are common forms of economic return from single-family home investment, 
ownership, rental, management, and holding activity. The proposed rule 
also would include ``any other type of income or financial gain'' as a 
catch-all to prevent opportunities for evasion based on the technical 
nature of the compensation or economic return, such as entities 
receiving income or financial gain through appreciation, fees, carried 
interest, incentive compensation, servicing compensation, management 
compensation, affiliate arrangements, or another arrangement.
    The proposed definition would apply where the relevant purpose 
exists ``in whole or in part.'' This language is intended to give 
effect to the statutory phrase ``engaged, in whole or in part, in the 
business.'' That statutory definition includes an entity even if its 
single-family home investment, ownership, rental, management, or 
holding activity is merely one part of a broader business. Notably, the 
statute does not establish any minimum threshold for the extent of an 
entity's engagement in such business ``in part.'' Similarly, an entity 
should not avoid the business element solely because it receives 
financial gain through appreciation, fees, carried interest, incentive 
compensation, servicing compensation, management compensation, 
affiliate arrangements, or another economic arrangement rather than 
through direct rental income.
    Proposed Sec.  36.15(a) focuses on an entity's purpose rather than 
profit. An entity may be engaged in a business even if its homes, 
portfolios, or business lines do not generate a profit in a particular 
period.
    Treasury invites comments on all aspects of the proposed purpose 
test and income-or-financial-gain standard. In particular, Treasury 
seeks comment on the following aspects of the proposed rule:
    Question 115: Is it appropriate to define ``in the business of'' by 
reference to the purpose of receiving investment gains, rental income, 
management fees, or any other type of income or financial gain? Should 
a different standard be applied, or should different factors be 
considered, to determine whether an entity is ``in the business'' for 
purposes of this definition? Should the final rule further define when 
an entity is engaged in the business ``in part'' with a quantitative or 
qualitative threshold or standard? Should the final rule include 
examples of other types of income or financial gain that would be 
covered? Should the final rule clarify that an entity may be engaged in 
the business even if the activity does not generate net profit in a 
particular period?
    Question 116: Should the final rule define ``investment gains,'' 
``rental income,'' ``management fees,'' ``financial gain,'' or other 
terms in proposed Sec.  36.15(a)?
3. Covered Activities
    Proposed Sec.  36.15(a) incorporates the language in section 
1001(a)(3)(A)(i)(I) of the Act regarding entities engaged in the 
business of ``investing in, owning, renting, managing, or holding'' 
single-family homes. Treasury anticipates interpreting this phrase to 
give independent meaning to each of those listed activities. An entity 
may be engaged in the relevant business through investment activity, 
ownership, rental activity, management activity,

[[Page 66819]]

holding activity, or a combination of any of these activities.
    As non-exhaustive examples in the context of various business 
models, an entity may be engaged ``in the business'' if it (i) owns 
single-family homes and rents them for rental income; (ii) manages 
single-family homes for management fees but does not own the homes; 
(iii) holds single-family homes not currently occupied by renters for 
appreciation, resale, disposition, rental conversion, or portfolio 
strategy; or (iv) invests in single-family homes through another entity 
for financial gain.
    Being ``in the business of'' one of the activities above does not, 
by itself, mean that an entity is a large institutional investor. To be 
a large institutional investor, an entity must also meet the other 
statutory criteria, including having direct or indirect investment 
control of not less than 350 single-family homes, as provided in 
section 1001(a)(3)(A)(i)(II) of the Act. For example, a fee-based 
property management company may be ``in the business of'' managing 
single-family homes, but if that entity does not have direct or 
indirect investment control over those single-family homes as defined 
in the Act, including that it does not have ``primary authority . . . 
to make material . . . management decisions,'' \15\ it would not be a 
large institutional investor.
---------------------------------------------------------------------------

    \15\ See Section 1001(a)(3)(B)(i) of the ROAD Act.
---------------------------------------------------------------------------

    Treasury invites comments on all aspects of the list of covered 
activities. In particular, Treasury seeks comment on the following 
aspects of the proposed rule:
    Question 117: Should Treasury provide additional examples of 
activities that do or do not constitute investing in, owning, renting, 
managing, or holding single-family homes?
    Question 118: Should the final rule address entities that hold 
single-family homes for disposition, redevelopment, resale, or 
portfolio management?
4. Temporary and Incidental Holdings
    Proposed Sec.  36.15(b) would provide that an entity is not 
engaged, in whole or in part, in the business of investing in, owning, 
renting, managing, or holding single-family homes if the entity 
directly or indirectly invests in, owns, rents, manages, or holds 
single-family homes ``solely on a temporary and incidental basis in 
furtherance of a different bona fide business'' and satisfies certain 
other criteria. As described above, the Act refers to entities that are 
engaged ``in the business of'' the relevant activities; an entity that 
holds or manages single-family homes solely temporarily and 
incidentally in furtherance of a different bona fide business, in 
accordance with the terms of proposed Sec.  36.15(b), would not fall 
within the scope of this definition.
    Treasury preliminarily believes that each of these limits is 
necessary to prevent the exclusion from being used to avoid the 
statutory definition of large institutional investor. A broad exclusion 
for entities with another primary business could allow entities to hold 
substantial single-family home portfolios while claiming that the 
activity is incidental to a broader enterprise. Proposed Sec.  36.15(b) 
would therefore require that the activity be both incidental and 
reasonably necessary to the other bona fide business, and not a regular 
or continuing investment strategy or portfolio management activity.
    Treasury invites comments on all aspects of the proposed criterion 
for temporary and incidental activities. In particular, Treasury seeks 
comment on the following aspects of the proposed rule:
    Question 119: Is it appropriate to exclude activities that are 
solely temporary and incidental to another bona fide business? Should 
the rule include different factors for purposes of identifying entities 
that are not in the relevant business?
    Question 120: Should the rule define ``temporary'' or 
``incidental''? If so, how should those terms be defined? Should the 
rule include a maximum time period for treating ownership, rental, 
management, or holding activity as ``temporary''? Should Treasury 
define ``different bona fide business''? If so, what definition would 
be appropriate?
5. Reasonably Necessary to the Conduct of Another Bona Fide Business
    Proposed Sec.  36.15(b)(2) would provide that an entity is not 
engaged, in whole or in part, in the business of investing in, owning, 
renting, managing, or holding single-family homes if the entity 
directly or indirectly engages in such activities ``only to the extent 
reasonably necessary for the conduct of'' the entity's other bona fide 
business and satisfies certain other criteria. This criterion is 
intended to help appropriately limit the exclusion to circumstances 
where the entity's activities related to single-family homes do not 
indicate the company is ``in the business'' of conducting such 
activities. The exclusion would not apply merely because the entity 
also conducts another bona fide business; instead, under proposed Sec.  
36.15(b)(2), the entity's single-family home activities must be limited 
to activities reasonably necessary for the conduct of that other 
business.
    Treasury recognizes that the determination of whether an activity 
is reasonably necessary to a business will depend on the facts and 
circumstances. Relevant considerations may include the nature of the 
business; the reason the entity acquired, holds, or manages the homes; 
the length of time the homes are held; whether the entity receives 
rental income or other financial gain as a result of its activity 
related to single-family homes; whether the entity markets or manages 
the homes as part of a continuing portfolio; and whether the entity has 
policies setting forth its practice of disposing of homes promptly.
    Treasury invites comments on all aspects of the ``reasonably 
necessary'' criterion. In particular, Treasury seeks comment on the 
following aspects of the proposed rule:
    Question 121: Is the ``reasonably necessary'' standard appropriate? 
Is there a different standard that would better fulfill the purposes of 
the Act? Should the final rule specify factors for determining whether 
single-family home activity is reasonably necessary to another bona 
fide business?
    Question 122: Should the final rule require an entity relying on 
proposed Sec.  36.15(b) to dispose of single-family homes within a 
specified period?
6. Regular or Continuing Investment Strategy or Portfolio Management 
Activity
    Proposed Sec.  36.15(b)(3) would provide that an entity is not 
engaged, in whole or in part, in the business of investing in, owning, 
renting, managing, or holding single-family homes if the entity 
directly or indirectly engages in such activities ``not as a regular or 
continuing investment strategy or portfolio management activity'' and 
satisfies certain other criteria. This criterion is intended to help 
avoid characterizing recurring single-family home activity as not being 
part of the business in which the entity is engaged, in whole or in 
part. Recurring acquisition, ownership, rental, management, or holding 
of single-family homes as an investment strategy or for portfolio 
management is inconsistent with the statutory exclusion for entities 
not in the business of activities related to single-family homes.
    Treasury invites comments on all aspects of proposed Sec.  
36.15(b)(3). In particular, Treasury seeks comment on the following 
aspects of the proposed rule:

[[Page 66820]]

    Question 123: Is it appropriate not to exclude, from the definition 
of ``large institutional investor,'' entities whose single-family home 
activity is a regular or continuing investment strategy or portfolio 
management activity? Should this criterion be modified to better 
fulfill the purposes of the Act or to address market practices?
    Question 124: Should the final rule define ``regular or 
continuing''? Should the final rule include numerical or time-based 
thresholds for determining whether activity is regular or continuing?
7. Documentation
    Treasury expects that a large institutional investor or other 
entity seeking to rely on proposed Sec.  36.15(b) would maintain 
records sufficient to demonstrate that its investment in, ownership, 
rental, management, or holding of single-family homes satisfies each of 
the criteria in proposed Sec.  36.15(b).
    Relevant records may include business plans, acquisition records, 
disposition plans, contracts, servicing or operational records, 
internal approvals, board or management materials, accounting records, 
rental records, property-management records, records showing the 
relationship between the homes and the entity's other bona fide 
business, and documentation showing the timing and reasons for single-
family home acquisitions and dispositions. Treasury is not proposing 
specific documentation requirements in proposed Sec.  36.15 at this 
time, but expects documentation to be important to evidence an entity's 
compliance with the proposed exclusion.
    Treasury invites comments on documentation related to proposed 
Sec.  36.15. In particular, Treasury seeks comment on the following 
aspects of the proposed rule:
    Question 125: Should Treasury require any specific documentation or 
records for an entity relying on proposed Sec.  36.15(b)? If so, what 
records should be sufficient to demonstrate that single-family home 
activity is temporary, incidental, and reasonably necessary to another 
bona fide business?
    Question 126: Should the final rule require entities relying on 
proposed Sec.  36.15(b) to maintain documentation of a disposition 
plan, maximum holding period, or satisfaction of other applicable 
criteria?

L. Passive Investor Definition (Proposed Sec.  36.16)

1. Overview of Passive Investor Treatment
    Proposed Sec.  36.16 would clarify when one entity is a ``passive 
investor'' in a second entity. The ROAD Act uses the term ``passive 
investor'' only in the definition of ``large institutional investor.'' 
Specifically, a large institutional investor generally includes an 
entity that has direct or indirect investment control of not less than 
350 single-family homes, and ``investment control'' is defined to 
include owning or controlling more than 25 percent of any class of 
equity interests of the entity that owns the single-family home, 
``unless such entity is a passive investor.'' \16\ In other words, an 
entity that holds a significant equity interest in another entity that 
owns single-family homes may avoid being considered a large 
institutional investor if it is a passive investor. Importantly, an 
entity that is a passive investor may meet other criteria in the 
``large institutional investor'' definition, in which case the entity 
could nonetheless be a large institutional investor.
---------------------------------------------------------------------------

    \16\ Id. at section 1001(a)(3).
---------------------------------------------------------------------------

    Under the proposal, passive-investor treatment would be available 
only if each of two conditions is met: (i) no director, officer, 
employee, or designee of the first entity, or of any entity controlled 
by the first entity, is a director or officer of the second entity; and 
(ii) the first entity does not have a property control right (as 
defined in proposed Sec.  36.2) with respect to single-family homes 
over which the second entity has direct or indirect investment control. 
Each of these proposed conditions is explained further below. The 
proposed rule uses the term ``first entity'' and ``second entity'' to 
refer, respectively, to the potential passive investor and the entity 
in which it owns or controls equity interests.
    These two proposed conditions are intended to provide administrable 
criteria that reflect common understandings of passivity, and to 
exclude investors with rights, employees, or designees that provide an 
ability to make, direct, or prevent decisions related to single-family 
homes.\17\
---------------------------------------------------------------------------

    \17\ Treasury considered an alternative approach for defining 
``passive investor'' based on section 469 of the Internal Revenue 
Code, which provides that a ``passive activity'' is one where the 
taxpayer ``does not materially participate.'' 26 U.S.C. 469(c). It 
defines ``material participation'' generally to be involvement in 
the operations of an activity that is ``regular, continuous, and 
substantial.'' 26 U.S.C. 469(h). Adopting the approach from the 
Internal Revenue Code in an entirely unrelated context, without the 
relevant interpretive history, may cause significant uncertainty 
regarding how it would apply in this context.
---------------------------------------------------------------------------

    Treasury invites comments on all aspects of the definition of 
``passive investor.'' In particular, Treasury seeks comment on the 
following aspects of the proposed rule:
    Question 127: Is the passive investor definition in the proposed 
rule appropriate? Would an alternative approach be more suitable and 
administrable? If so, what factors should apply? If Treasury adopts the 
Internal Revenue Code section 469 approach, how should it be applied in 
this context? How should Treasury limit the ``passive investor'' 
definition to prevent evasion of the requirements under the Act?
    Question 128: Are the conditions in the passive investor definition 
appropriate? Are any conditions missing from the definition? For 
example, should the rule include a limit on ownership of equity 
securities or of voting equity securities? If so, what would be the 
appropriate thresholds for such limits?
2. Director and Officer Interlocks
    Under proposed Sec.  36.16(a), for a first entity to qualify as a 
passive investor in a second entity, no director, officer, employee, or 
designee of the first entity, or of any entity controlled by the first 
entity, can be a director or officer of the second entity. This 
condition is intended to prevent passive-investor treatment where the 
investor's representatives participate in the governance or management 
of the entity that owns or controls single-family homes.
    Overlapping directors or officers can provide an investor with 
access, influence, or control inconsistent with passive status. The 
proposed condition is designed to provide an administrable indicator 
that the investor is not passive where such overlap exists. The 
proposed rule uses ``designee'' to describe persons selected, 
designated, appointed, or otherwise placed by the first entity or its 
controlled entities, regardless of whether the person is formally 
described as a representative.
    Treasury invites comments on all aspects of the director and 
officer interlock condition. In particular, Treasury seeks comment on 
the following aspects of the proposed rule:
    Question 129: Should the interlock condition apply only to 
directors and officers of the first entity? Should the interlock 
condition be limited to scenarios where the first entity has a majority 
of the directors of the second entity? Should any other representatives

[[Page 66821]]

or rights of the first entity be included, such as board observers, 
advisory committee members, consultation rights, or other mechanisms 
for governance or management participation?
3. No Property Control Right
    Under proposed Sec.  36.16(b), for a first entity to qualify as a 
passive investor in a second entity, the first entity must not have a 
property control right (as defined in proposed Sec.  36.2) with respect 
to single-family homes over which the second entity has direct or 
indirect investment control. This condition is intended to ensure that 
an investor will not be treated as passive if it has a right to make, 
direct, or prevent decisions, directly or indirectly, related to the 
purchase, sale, holding, leasing, renovation, or management of a 
single-family home. An investor that can require, block, or condition 
decisions regarding single-family homes would not be passive even if it 
lacks formal management authority.
    Treasury invites comments on all aspects of the property control 
right condition. In particular, Treasury seeks comment on the following 
aspects of the proposed rule:
    Question 130: Is prohibiting property control rights appropriate 
for determining an entity's status as a passive investor? Should 
alternative standards or criteria apply? Should property control rights 
be treated differently if they are exercised through a subsidiary or 
other intermediate entity?
4. Documentation of Passive Investor Status
    Treasury expects that an entity seeking to rely on passive-investor 
status under proposed Sec.  36.16 would maintain records sufficient to 
demonstrate that each of the two conditions is satisfied. Relevant 
records may include ownership charts, capitalization tables, governing 
documents, voting agreements, investor rights agreements, side letters, 
board and officer records, employment and designation records, and 
service agreements.

M. Enforcement (Proposed Sec.  36.17)

1. Overview
    Section 1001(d)(1) of the Act authorizes Treasury, or the 
Department of Justice at Treasury's request, to bring an action against 
a large institutional investor that violates the Act's prohibition for 
a civil penalty up to the greater of $1 million per violation or three 
times the purchase price of the property involved. Proposed Sec.  36.17 
would provide that a purchase of a single-family home that violates the 
Act's prohibition with respect to more than one large institutional 
investor is deemed a single violation for purposes of calculating this 
maximum civil penalty.
    More than one large institutional investor may be involved in a 
transaction in which a single-family home is purchased. For example, an 
investment fund, an investment manager, and a general partner may each 
have direct or indirect investment control with respect to the same 
single-family home. Similarly, a large institutional investor may 
acquire a single-family home through a subsidiary, and an affiliated 
large institutional investor may have indirect investment control with 
respect to the same home. In those circumstances, a prohibited purchase 
of a single-family home could violate the statutory prohibition with 
respect to multiple large institutional investors. Treasury believes it 
is appropriate to treat each purchase as a single violation for 
purposes of calculating the maximum civil penalty under section 
1001(d)(1) of the Act. This approach maintains consistency between the 
effects of the violation and the resulting penalty, and avoids the 
potential for an unwarranted increase in the total penalty based merely 
on the number of large institutional investors involved.
    Proposed Sec.  36.17 would apply only to the calculation of the 
maximum civil penalty under section 1001(d)(1). It would not alter 
whether a purchase violates section 1001(b) of the Act, whether any 
particular entity is a large institutional investor, or whether more 
than one entity may be responsible for a violation.\18\ In addition, 
the proposed rule would not treat purchases of different single-family 
homes, or purchases of the same single-family home in separate 
transactions, as a single violation. It also does not establish 
procedures for investigating potential violations, which Treasury may 
address in the future. The proposed rule does not specify how 
responsibility for a violation should be allocated among large 
institutional investors, and does not limit Treasury's ability to 
pursue enforcement actions against all entities whose conduct violates 
section 1001(b) of the Act. The proposed rule would preserve Treasury's 
ability to consider the facts and circumstances of any violation, 
including the role of each large institutional investor, in any 
enforcement process. Treasury may address such issues in the future.
---------------------------------------------------------------------------

    \18\ Treasury understands that agreements related to investment 
funds and similar arrangements may provide for indemnification 
against civil monetary penalties. The proposed rule does not 
restrict that practice.
---------------------------------------------------------------------------

    Treasury invites comments on all aspects of proposed Sec.  36.17. 
In particular, Treasury seeks comment on the following aspects of the 
proposed rule:
    Question 131: Is it appropriate to treat a single purchase 
involving multiple large institutional investors as one violation for 
purposes of calculating the maximum civil penalty, as contemplated by 
proposed Sec.  36.17? Should the maximum civil penalty for a single 
prohibited purchase be calculated on a per-purchase or per-entity 
basis?
    Question 132: Should the final rule provide additional guidance on 
when a purchase violates section 1001(b) ``with respect to more than 
one large institutional investor''?
    Question 133: Should proposed Sec.  36.17 only apply to affiliated 
large institutional investors? Should the rule avoid limiting liability 
for all large institutional investors that directly participate in the 
purchase of a single-family home in violation of the Act's purchase 
prohibition?
    Question 134: Should the final rule clarify that separate 
prohibited purchases remain separate violations for purposes of 
calculating the maximum civil penalty? If so, how?

N. Severability (Proposed Sec.  36.18)

    Proposed Sec.  36.18 provides that the provisions of Part 36 are 
separate and severable from one another. If any provision, clause, or 
phrase of Part 36, or the application thereof to any person, entity, or 
circumstance, is stayed or deemed to be invalid, unlawful, or 
unenforceable by a court of competent jurisdiction, such determination 
would not affect the validity, lawfulness, or enforceability of the 
remaining provisions or applications of this regulation, which would 
remain in full force and effect to the maximum extent permitted by law.
    Treasury is proposing to include a severability clause so that in 
the event any particular provision of the proposed rule is held to be 
invalid, the remainder of the rule would remain in effect, providing 
clarity for large institutional investors, homebuilders, and other 
market participants. This regulation would have been proposed 
independently of any provision or application that may be declared 
invalid.

[[Page 66822]]

III. Regulatory Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires an agency to consider 
the impact of its proposed rules on small entities. In connection with 
a proposed rule, the RFA generally requires an agency to prepare an 
Initial Regulatory Flexibility Analysis (IRFA) describing the impact of 
the rule on small entities, unless the head of the agency certifies 
that the proposed rule will not have a significant economic impact on a 
substantial number of small entities and publishes such certification 
along with a statement providing the factual basis for such 
certification in the Federal Register.
    Section 1001 of the ROAD Act establishes a statutory framework that 
generally prohibits a large institutional investor from purchasing, or 
entering into a contract to purchase, a single-family home unless the 
purchase is an excepted purchase. This proposed rule is intended to 
provide interpretive and operational clarity for certain statutory 
terms and conditions. The proposed rule would not create additional 
categories of excepted purchases, alter the statutory definition of 
``large institutional investor,'' or eliminate any statutory exception. 
Treasury's rulemaking authority, described further below in section 
III.E, is limited by a rule of construction providing that no 
regulation issued by Treasury ``may amend the definitions of the 
[statutorily defined terms], including to'' make certain specified 
categories of changes.
    Treasury expects that the economic effect of the proposed rule on 
small entities would be limited, in part because the statutory 
prohibition applies only to large institutional investors, although 
some large institutional investors may be small entities, and the rule 
as proposed would primarily relate to compliance review, documentation, 
and transaction planning. Therefore, at this time, Treasury does not 
expect that the proposed rule would have a significant economic impact 
on a substantial number of small entities as described under the RFA.

B. Unfunded Mandates Reform Act

    Treasury has analyzed the proposed rule under the factors in the 
Unfunded Mandates Reform Act of 1995 (UMRA). Under this analysis, 
Treasury considered whether the proposed rule includes a federal 
mandate that may result in the expenditure by state, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year (adjusted annually for inflation). 
Pursuant to section 202 of the UMRA, if a proposed rule meets this UMRA 
threshold, Treasury would need to prepare a written statement that 
includes, among other things, a cost-benefit analysis of the proposal. 
This requirement does not apply to regulations to the extent they 
incorporate requirements specifically set forth in law.
    Treasury has determined that the proposed rule would not result in 
a covered unfunded mandate within the meaning of UMRA. The proposed 
rule would not require state, local, or Tribal governments to 
administer a program or expend funds. The proposed rule may result in 
incremental recordkeeping and planning costs for entities that evaluate 
whether they are large institutional investors or whether particular 
purchases qualify as excepted purchases, but Treasury does not expect 
those incremental costs to meet the UMRA threshold.

C. Providing Accountability Through Transparency Act of 2023

    The Providing Accountability Through Transparency Act of 2023, 5 
U.S.C. 553(b)(4), requires that a notice of proposed rulemaking include 
the internet address of a summary of not more than 100 words in length 
of a proposed rule, in plain language, that shall be posted on the 
website <a href="http://www.regulations.gov">www.regulations.gov</a>.
    Treasury is proposing to issue regulations pursuant to section 1001 
of the Act (42 U.S.C. 19521) that clarify various undefined terms in 
the ROAD Act. The proposal and the required summary can be found at 
<a href="https://www.regulations.gov">https://www.regulations.gov</a>.

D. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521), an 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid OMB control number. The preamble to this proposed rule includes a 
voluntary recordkeeping collection within the meaning of the PRA. 
Treasury is requesting a new control number for the information 
collection requirements and will submit the collection to OMB for 
review.
Information Collection
    Title: Recordkeeping; 21st Century ROAD to Housing Act Prohibition 
on Large Institutional Investor Purchases of Single-Family Homes.
    OMB Control No.: 1505-NEW.
    Type of Review: New collection.
    Affected Public: Large institutional investors seeking to make 
certain types of excepted purchases of single-family homes.
    Respondent Obligation: Voluntary.
    Estimated Number of Respondents: 100 to 300.
    Estimated Frequency of Response: Periodically.
    Estimated Number of Annual Responses: 100 to 300.
    Estimated Time per Response: One hour.
    Estimated Total Annual Burden: 100 to 300 hours.
    Description: The preamble states that Treasury expects a large 
institutional investor seeking to rely on a program-based excepted 
purchase to maintain records sufficient to demonstrate that the program 
was implemented and that relevant purchases were made pursuant to the 
program. Such records may assist an entity in substantiating, and 
Treasury in evaluating, whether a purchase qualifies as an excepted 
purchase. The proposed rule does not prescribe particular records or a 
retention period, and the records would not be routinely submitted to 
Treasury. Treasury expects that most relevant records would be created 
in the ordinary course of business.
    These collections of information will be submitted to OMB for 
review in accordance with the PRA. Commenters are strongly encouraged 
to submit public comments electronically. Written comments and 
recommendations regarding the collection should be submitted to the 
Office of Information and Regulatory Affairs, Attention: Desk Officer 
for the Department of the Treasury, through <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a> by the deadline specified in the DATES section of this notice, 
with a copy to Treasury as provided in the ADDRESSES section of this 
notice. On the <a href="http://reginfo.gov">reginfo.gov</a> website, find this information collection by 
selecting ``Currently under Review--Open for Public Comments,'' then by 
using the search function. Comments are invited on (i) whether the 
collection of information is necessary for the proper performance of 
Treasury's functions, including whether it has practical utility; (ii) 
the accuracy of Treasury's burden estimate, including the validity of 
the methodology and assumptions used; (iii) ways to enhance the 
quality, utility, and clarity of the information; and (iv) ways to 
minimize the burden of the collection on respondents, including through 
the use of automated collection techniques or other forms of 
information technology.

E. Regulatory Planning and Review

    The Office of Information and Regulatory Affairs (OIRA), within the

[[Page 66823]]

Office of Management and Budget (OMB), has determined that this 
proposed rule is a significant regulatory action as defined under 
section 3(f) of Executive Order 12866 and, therefore, is subject to 
review under Executive Order 12866. Treasury's analysis conducted in 
connection with Executive Order 12866 is set forth below. Treasury 
believes that the costs of the proposal are outweighed by the benefits, 
as described further below, and invites comments that would help 
quantitatively or qualitatively analyze the costs and benefits of the 
proposal, as well as any alternatives and their associated costs and 
benefits. This rule is not considered an Executive Order 14192 
regulatory action because it imposes no more than de minimis costs.
1. Affected Parties
    Parties directly affected by this proposal are large institutional 
investors and entities that may be part of, or provide capital to, the 
investment control ownership chain for single-family homes for large 
institutional investors. Treasury proposes to interpret the definitions 
in the statute in a manner that accounts for the practical effect of 
ownership interests, contractual rights, and governance arrangements. 
Large institutional investment in single-family homes may involve 
layered ownership structures, special-purpose vehicles, affiliated 
funds, side letters, contractual consent rights, service agreements, 
debt covenants, and other arrangements that may make it difficult to 
understand who has direct or indirect investment control over a single-
family home. The proposed rule is intended to account for these 
variations in form. Reliable data are not currently available regarding 
how many institutional investors and other entities may be affected.
2. Baseline
    Treasury has assessed the benefits and costs of the proposed rules 
relative to a no-action baseline reflecting the statutory requirements 
in the absence of the proposed rules. Once the prohibition in the ROAD 
Act becomes effective, a large institutional investor may not purchase, 
or enter into a contract to directly or indirectly purchase, any 
single-family home, unless the home is purchased pursuant to one of 
several exceptions defined in the ROAD Act. Section 1001 of the Act 
generally defines a large institutional investor as a for-profit entity 
engaged, in whole or in part, in the business of investing in, owning, 
renting, managing, or holding single-family homes that, alone or in 
concert with one or more other entities, directly or indirectly has 
investment control of not less than 350 single-family homes, excluding 
any single-family home purchased in an excepted purchase after 
enactment of the Act. Section 1001 of the Act also provides several 
categories of excepted purchases, including purchases pursuant to a 
build-to-rent program, renovate-to-rent program, homeownership program, 
and program to boost homeownership.
    In the absence of this proposed rule, large institutional investors 
and other market participants would face significant uncertainty over 
the application of section 1001 of the Act to their business models, 
ownership structures, equity interests, governance rights, investment 
management arrangements, contracts, and other business decisions 
associated with the ownership of or investment in single-family homes. 
Investors might forgo otherwise permissible transactions, expend 
significant resources on transaction-specific legal analysis and 
structures, or take inconsistent positions across similar investments.
3. Costs
    Costs associated with determining whether a purchase of a single-
family home is prohibited or excepted will largely be attributable to 
the ROAD Act itself rather than the proposed rules. Treasury expects 
that its proposed rulemaking will bring clarity and reduce risk for 
market participants. Relative to the baseline, Treasury expects that 
market participants will not need to expend significant time and other 
resources to ensure that they are in compliance with the proposed 
rules. The proposed definitions are designed to address potential 
uncertainty regarding the application of the statutory prohibition. The 
proposal is intended to reduce, rather than increase, total compliance 
costs for many affected entities by providing clearer standards for 
conduct that the ROAD Act already regulates.
    Compliance with the proposed rules may impose certain compliance 
and operational costs on large institutional investors. These market 
participants would need to evaluate the extent to which their 
businesses and activities are covered by the terms of this proposal. 
Treasury also expectsthat anentity seeking to rely on the terms in this 
rulemaking would maintain records sufficientto demonstrate that each 
condition is satisfied as outlined in the proposed rule; some of those 
records may already be created in the ordinary course of business for a 
large institutional investor.
    Some large institutional investors and other market participants 
may choose not to engage in activities that are subject to the ROAD 
Act's prohibition. This proposal does not establish any obligations, 
and will not impose any direct costs, on entities that determine not to 
engage in such activities.
    Question 1: What information and methodology could Treasury use to 
quantify the total cost of requiring that large institutional investors 
provide meaningful financial support if they seek to rely on the 
purchase exception in section 1001(a)(2)(E)?
4. Benefits
    As discussed in section II of this preamble, Treasury expects the 
proposed definitions and clarifications to be beneficial to the housing 
market. The proposed rules would reduce uncertainty for large 
institutional investors and other market participants, support more 
consistent compliance and enforcement, and help prevent circumvention 
of the law through layered ownership structures, nominally passive 
arrangements, or contractual rights that confer material control. The 
proposed rule also would help promote the practical availability of the 
statutory exceptions while reducing the risk that those exceptions are 
used in ways inconsistent with the ROAD Act. The clarifications in the 
proposed rule are expected to reduce inadvertent violations, improve 
administrability, reduce uncertainty, support more consistent 
compliance and enforcement outcomes, and avoid unnecessary disruption 
to housing supply, homebuilding, housing stock rehabilitation activity, 
and capital formation. Treasury expects that the definitions in this 
proposed rule will reduce the ability and incentives to evade the 
statutory prohibition. Treasury also expects that the rulemaking will 
reduce or eliminate the risk that truly passive capital providers are 
treated as having direct or indirect investment control, and therefore 
could potentially be scoped in as large institutional investors that 
are subject to restrictions and compliance obligations in connection 
with the ROAD Act.
5. Discretion and Alternatives
    In establishing the statutory framework for the large institutional 
investor ban on purchasing single-family homes, Congress used several 
terms that are central to the administration and enforcement of the 
statute. The ROAD Act does not define these terms in detail. However, 
Treasury believes that these terms would benefit from clarification to 
support an

[[Page 66824]]

administrable framework for large institutional investors and other 
market participants.
    Treasury's rulemaking authority is limited by a rule of 
construction in section 1001(b)(4)(B) of the Act providing that no 
regulation issued by Treasury ``may amend the definitions of [certain 
statutorily defined terms],'' including to make certain specified 
categories of changes.\19\ The list of specified categories of 
prohibited changes is illustrative rather than exhaustive. The phrase 
``including to'' indicates that the listed categories are examples of 
amendments that Treasury may not make, not an affirmative authorization 
to amend the statutory definitions in other ways. Accordingly, in the 
proposed rule, Treasury has sought to clarify certain statutory terms, 
without amending the statutory definitions themselves. Interpreting the 
statutory terms by regulation is intended to provide greater clarity 
and certainty, relative to the alternative of addressing interpretive 
questions through subregulatory guidance.
---------------------------------------------------------------------------

    \19\ ROAD Act at section 1001(b)(4)(B).
---------------------------------------------------------------------------

    See Section II above for more detail on the alternatives Treasury 
considered.
    Question 2: Will the proposed rule have a significant impact on a 
substantial number of small entities as described under the RFA? If 
yes, how?
    Question 3: Is any aspect of the proposed definitions too broad? 
Could any aspect of the proposed definitions unintentionally include 
conduct outside the intended scope of the statute?
    Question 4: Is any aspect of the proposed definitions too narrow? 
Could any aspect of the proposed definitions exclude persons, 
activities, or circumstances that should be covered?

List of Subjects in 31 CFR Part 36

    Enforcement, Excepted Purchases, Housing, Large Institutional 
Investors, Recordkeeping.


0
For the reasons stated in the preamble, the Department of the Treasury 
proposes to amend 31 CFR subtitle A by adding part 36 to read as 
follows:

PART 36--LARGE INSTITUTIONAL INVESTOR BAN

    Authority:  42 U.S.C. 19521.


Sec.  36.1  Authority, purpose, and scope.

    (a) Authority. This part is issued by the U.S. Department of the 
Treasury (Treasury) pursuant to section 1001 of the 21st Century ROAD 
to Housing (ROAD) Act (42 U.S.C. 19521).
    (b) Purpose and scope. The ROAD Act authorizes Treasury to issue 
regulations to carry out the statutory purposes. This part contains 
those regulations. Nothing in this part limits the authority of the 
Secretary of Housing and Urban Development to administer Section 
1001(c) of the Act.


Sec.  36.2  Definitions.

    ``Act'' or ``ROAD Act'' means the 21st Century ROAD to Housing Act, 
as amended from time to time.
    ``Property control right'' means a right, including a consent, 
approval, veto, or other right, that gives an entity the ability to 
make, direct, or prevent a second entity's decisions, directly or 
indirectly, related to the purchase, sale, holding, leasing, 
renovation, or management of a single-family home.
    ``Purchase price of the property'' means the total amount paid by 
an entity to purchase a single-family home, including the amount paid 
for the land on which the single-family home is situated.
    ``Purchase price of the single-family home'' means the portion of 
the purchase price of the property attributable to the value of the 
structure, as calculated by subtracting the tax-assessed value of the 
land at the time of the purchase on which the single-family home is 
situated from the purchase price of the property.
    ``Structural or core system'' means systems or areas of a single-
family home that substantially affect structural integrity, 
habitability, life safety, or the functioning of major building 
systems, which may include fire safety, light and ventilation, 
structural loads and seismic design, foundation systems, materials 
standards, construction components, glass, mechanical, plumbing, and 
electrical.


Sec.  36.3  Program.

    For purposes of sections 1001(a)(2)(B) to (E) of the Act, a program 
is a set of written policies or written procedures that are--
    (a) adopted before the purchase of single-family homes pursuant to 
such program; and
    (b) reasonably designed and implemented to ensure that all 
purchases of single-family homes pursuant to the program satisfy the 
applicable requirements of the Act, this part, and the program.


Sec.  36.4  [Reserved]


Sec.  36.5  Build-to-rent program.

    A build-to-rent program as described in section 1001(a)(2)(B) of 
the Act is a program pursuant to which single-family homes--
    (a) have not been occupied by an owner-occupant before being 
purchased;
    (b) are purchased within 18 months of the single-family home 
receiving its certificate of occupancy (or equivalent); and
    (c) are, after the purchase, first occupied by renters, whether as 
part of a community made up exclusively of renter-occupied single-
family homes or as part of a community made up of single-family homes 
that are both owner- and renter-occupied.


Sec.  36.6  Renovate-to-rent program.

    (a) A renovate-to-rent program as described in section 
1001(a)(2)(C) of the Act is a program pursuant to which the large 
institutional investor--
    (1) substantially rehabilitates (including by resolving all 
material deficiencies in) single-family homes that do not meet 
structural or core system elements of local building codes at the time 
of purchase; and
    (2) makes improvements, including those under paragraph (1), to 
each single-family home in an aggregate dollar amount of not less than 
15 percent of the purchase price of the single-family home.
    (b) A large institutional investor that makes improvements to 
structural or core system elements of a single-family home that does 
not meet structural or core system elements of local building codes at 
the time of purchase in an aggregate dollar amount of not less than 10 
percent of the purchase price of the single-family home, and that 
resolves all material deficiencies in such structural or core system 
elements, shall be deemed to have satisfied paragraph (a)(1).


Sec.  36.7  Homeownership program.

    (a) A homeownership program as described in section 1001(a)(2)(D) 
of the Act is a program pursuant to which a large institutional 
investor enters into contracts with renters to rent single-family homes 
purchased by the large institutional investor, where the contracts--
    (1) require rental payments and any other fees that are not greater 
than those collected by the large institutional investor on other 
similarly situated single-family homes not covered by the homeownership 
program;
    (2) are considered a consumer credit transaction secured by a 
dwelling or real property;
    (3) require the large institutional investor to inform the renter 
of the option for positive reporting of rental payments to consumer 
reporting agencies, and provide for such positive reporting, at no 
charge or expense to the renter, for any renter who opts into such 
reporting;

[[Page 66825]]

    (4) require the large institutional investor to contribute 
meaningful financial support for the purchase of the single-family home 
by the renter and provide the renter the right, exercisable no later 
than the termination of the contract, to purchase the single-family 
home from the large institutional investor at a price no greater than 
fair market value minus the amount of such meaningful financial 
support; and
    (5) provide that, if the large institutional investor sells or 
otherwise transfers the single-family home to another large 
institutional investor before the termination of the contract, (i) the 
transferring large institutional investor's obligations described in 
paragraphs (1) through (4) shall automatically be deemed to be assigned 
to, and enforceable by the renter against, the transferee large 
institutional investor, and (ii) the transferring large institutional 
investor shall cause the transferee large institutional investor 
expressly to assume, in writing and effective upon consummation of the 
transfer, the transferring large institutional investor's obligations 
described in paragraphs (1) through (4).
    (b) For purposes of paragraph (a)(4), a large institutional 
investor shall be deemed to contribute meaningful financial support for 
the purchase of the single-family home by a renter who has rented the 
single-family home for at least 5 years if, in the event the renter 
purchases the single-family home from the large institutional 
investor--
    (1) The amount of such financial support is at least the lesser 
of--
    (i) $5,000; or
    (ii) 2.5 percent if the renter has rented the single-family home 
for at least 5 years, and 3.5 percent if the renter has rented the 
single-family home for at least 7 years, in each case calculated as a 
percentage of the lesser of--
    (A) The purchase price of the property purchased by the renter, 
determined before giving effect to the meaningful financial support 
provided under this section; or
    (B) The Federal Housing Administration's mortgage limit for a one-
unit property that applies to the county where the single-family home 
rented by the renter is located and that is in effect on the date the 
renter purchases the single-family home; and
    (2) The large institutional investor does not, directly or 
indirectly, recover any portion of the financial support from the 
renter, including by increasing the purchase price of the single-family 
home or imposing any expense, charge, or fee in connection with the 
financial support.
    (c) A homeownership program does not fail to satisfy the 
requirements of paragraph (a) solely because the program allows the 
large institutional investor's obligation to contribute meaningful 
financial support under paragraph (a)(4) to terminate if--
    (1) As of the scheduled date for the renter's purchase of the 
single-family home, the renter has failed to pay all rent then due and 
payable to the large institutional investor, other than any amounts 
lawfully withheld;
    (2) The renter breaches the rental contract in a manner that 
permits the large institutional investor to terminate the contract 
under applicable law; or
    (3) The renter elects to terminate the rental contract for a 
purpose other than purchasing the single-family home.


Sec.  36.8  Program to boost homeownership.

    (a) A program to boost homeownership as described in section 
1001(a)(2)(E) of the Act is a program pursuant to which a large 
institutional investor enters into contracts with renters to rent 
single-family homes purchased by the large institutional investor, 
where the contracts--
    (1) require the large institutional investor to inform the renter 
of the option for positive reporting of rental payments to consumer 
reporting agencies, and provide for such positive reporting, at no 
charge or expense to the renter, for any renter who opts into such 
reporting;
    (2) provide the renter with a right of first refusal and a 30-day 
first-look period, as described in paragraph (f);
    (3) provide for the large institutional investor to contribute 
meaningful financial support for the purchase of a single-family home 
by the renter (whether it is the home the renter occupies or another 
home), in accordance with this section; and
    (4) provide that, if the large institutional investor sells or 
otherwise transfers the single-family home to another large 
institutional investor before the renter's rights under the program to 
boost homeownership terminate, (i) the transferring large institutional 
investor's obligations described in paragraphs (1) through (3) shall 
automatically be deemed to be assigned to, and enforceable by the 
renter against, the transferee large institutional investor, and (ii) 
the transferring large institutional investor shall cause the 
transferee large institutional investor expressly to assume, in writing 
and effective upon consummation of the transfer, the transferring large 
institutional investor's obligations described in paragraphs (1) 
through (3).
    (b) For purposes of paragraph (a)(3), a large institutional 
investor shall be deemed to contribute meaningful financial support for 
the purchase of a single-family home by a renter who has rented a 
single-family home for at least 5 years if, in the event the renter 
purchases a single-family home--
    (1) The amount of such financial support is at least the lesser 
of--
    (i) $5,000; or
    (ii) 2.5 percent if the renter has rented the single-family home 
for at least 5 years and 3.5 percent if the renter has rented the 
single-family home for at least 7 years, in each case calculated as a 
percentage of the lesser of--
    (A) The purchase price of the property purchased by the renter, 
determined before giving effect to the meaningful financial support 
provided under this section; or
    (B) The Federal Housing Administration's mortgage limit for a one-
unit property that applies to the county where the single-family home 
rented by the renter is located and that is in effect on the date the 
renter purchases the single-family home; and
    (2) The large institutional investor contributes the amount 
described in paragraph (1)--
    (i) if the seller of the single-family home is not the large 
institutional investor, by transmitting such amount to the seller of 
the single-family home for the renter's account at or before the sale 
of such single-family home; or
    (ii) if the seller of the single-family home is the large 
institutional investor, by crediting such amount toward the purchase 
price of such single-family home; and
    (3) The large institutional investor does not, directly or 
indirectly, recover any portion of the meaningful financial support 
from the renter, including by increasing the purchase price of the 
single-family home or imposing any expense, charge, or fee in 
connection with the financial support.
    (c) A program to boost homeownership does not fail to satisfy the 
requirements of paragraph (a) solely because the program allows the 
large institutional investor's obligation to contribute meaningful 
financial support under paragraph (a)(3) to terminate if--
    (1) As of the scheduled date for the renter's purchase of a single-
family home, the renter has failed to pay all rent then due and payable 
to the large institutional investor, other than any amounts lawfully 
withheld;
    (2) The renter has caused material damage to the single-family home 
occupied by the renter, beyond ordinary wear and tear, excluding any 
damage caused by the large institutional

[[Page 66826]]

investor's failure to maintain the single-family home, and the large 
institutional investor has provided the renter with written notice and 
a reasonable opportunity to cure; or
    (3) The renter breaches the rental contract in a manner that 
permits the large institutional investor to terminate the contract 
under applicable law.
    (d) A large institutional investor's obligation to contribute 
meaningful financial support to a renter under a program to boost 
homeownership may terminate beginning 90 days after the renter no 
longer occupies a single-family home owned by the large institutional 
investor.
    (e) A contribution that does not satisfy the safe harbor in 
paragraph (b) may constitute meaningful financial support based on the 
facts and circumstances, including the economic value of price 
concessions, down-payment assistance, closing-cost assistance, or other 
support for the renter's purchase.
    (f) For purposes of paragraph (a)(2), a large institutional 
investor shall be deemed to provide the renter with a right of first 
refusal and a 30-day first-look period if, until the earlier of 90 days 
after the renter's rental contract terminates and the date the single-
family home is rented to a person other than such renter--
    (1) before the large institutional investor lists, markets, 
solicits offers for the purchase of, negotiates for the potential sale 
of, or accepts from any person other than the renter any offer to 
purchase the single-family home occupied by such renter, the large 
institutional investor provides the renter with written notice of the 
large institutional investor's intent to sell the single-family home, 
the proposed sale or list price, any proposed material sale terms known 
to the large institutional investor, the amount of any meaningful 
financial support to which the renter is entitled under paragraph 
(a)(3), and the manner and date by which the renter may submit an offer 
to purchase the single-family home;
    (2) during the 30-day period beginning on, but not including, the 
date the notice described in paragraph (f)(1) is provided, the large 
institutional investor does not list, market, solicit offers for the 
purchase of, negotiate for the potential sale of, or accept from any 
person other than the renter any offer to purchase the single

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