Chapter 13 Sanctions Against Program Participants

Chapter 13 Sanctions Against Program Participants September 16, 1996 M26-1, Revised Chapter 13 Sanctions Against Program Participants CONTENTS Section Title Page How to Use This Chapter 13-ii 13.01 Basic Rules Governing Debarment, Suspension and LDP Actions 13-1 13.02 Evidence Needed to Support Debarment, Suspension or LDP Actions 13-2 13.03 Station Responsibilities and Procedures for Debarment, Suspension, and LDP 13-3 Actions 13.04 Formal Hearing on Debarment, Suspension, and LDP Actions 13-13 13.05 Reciprocal Actions Based on HUD/FHA Sanctions 13-18 13.06 Withdrawal of Lender's Automatic Processing Authority - Preliminary Actions 13-20 13.07 Basis for Withdrawing Lender's Automatic Processing Authority 13-21 13.08 Authority to Withdraw Lender's Automatic Processing Authority 13-24 13.09 Notice and Hearing Rights for Withdrawal of Lender's Automatic Authority 13-24 13.10 False Lender Certification on Loan Submissions 13-25 13.11 Withdrawal of LAPP (Lender Appraisal Processing Program) Authority 13-27 13.12 Sanctions Based on Unfair Sales Contract Provisions or Marketing Practices 13-28 13.13 Sanctions Based on Violations of Equal Housing Opportunity Laws 13-33 13.14 Discrimination Complaints 13-35 Exhibit Sample Letter Imposing Limited Denial of Participation 13-41 13-A 13-1 M26-1, Revised September 16, 1996 How to Use This Chapter Introduction Develop a working knowledge of all sections of this chapter prior to investigating possible improper conduct or taking any adverse action against a VA home loan program participant. This chapter explains: , The importance of getting the program participant to correct problems in order to avoid adverse action , All available types of sanctions and their appropriate use depending on , The types of parties involved , The nature and seriousness of the improper conduct , The limits of station authority - some sanctions can be imposed by stations, while for other sanctions, the station can only make recommendations , The type of evidence needed to support sanctions , Procedures for implementing the sanctions. Section Heading Subjects in this , Who Can Sanctions be Imposed Against? 13.01 Basic Rules Governing Chapter Debarment, Suspension and , Who Can Impose Sanctions? LDP Actions , Causes , Nature of Exclusion , Geographic Limits of Exclusion , Terms of Exclusion , Do Sanctions Against a Veteran Impact Use of Entitlement? 13.02 Evidence Needed to , Standards of Evidence Support Debarment, Suspension , IG and FBI Reports May Not Be Used as or LDP Actions Evidence , Fraud and Other Criminal Activity 13.03 Station Responsibilities , Regulations and Procedures for Debarment, , Disclose the Identities of Parties Subject to Suspension, and LDP Actions Sanctions , National Control List , Provide Participant the Opportunity to Avoid Sanctions , Investigate and Assemble Facts and Evidence , Refer Cases of Fraud or Criminal Conduct to the IG 13-ii Continued on next page September 16, 1996 M26-1, Revised September 16, 1996 M26-1, Revised, Continued Subjects in this Chapter (continued) Section Heading 13.03 Station Responsibilities , Recommend Debarment or Suspension if and Procedures for Debarment, Appropriate Suspension, and LDP Actions , Impose Limited Denial of Participation if (continued) Appropriate , Arrange Formal Hearing if Participant Requests 13.04 Formal Hearing on , Prepare for the Hearing Debarment, Suspension, and , Arrange for Stenographers LDP Actions , Conduct the Hearing , Complete the Process After the Hearing , Prepare Report of Findings 13.05 Reciprocal Actions , Policy Based on HUD/FHA Sanctions , Procedure for Reciprocal Actions , Multi-Jurisdictional Participants , Do Not Accept Submissions from Excluded Parties 13.06 Withdrawal of Lender's , Be Familiar with the Regulations Automatic Processing Authority , Work With the Lender - Preliminary Actions 13.07 Basis for Withdrawing , Withdrawal for Indefinite Period Lender's Automatic Processing , Withdrawal for 60 Days Authority , Withdrawal for 180 Days , Withdrawal for 1 to 3 Years 13.08 Authority to Withdraw , Authority of Station Lender's Automatic Processing , Central Office Jurisdiction Authority 13.09 Notice and Hearing , Procedures Rights for Withdrawal of Lender's Automatic Authority 13.10 False Lender , What is it? Certification on Loan , Station Responsibilities Submissions , Central Office Responsibilities , Hearing Procedures , Additional Remedies Continued on next page 13-iii M26-1, Revised September 16, 1996 M26-1, Revised September 16, 1996, Continued Subjects in this Chapter (continued) Section Heading 13.11 Withdrawal of LAPP , Authority (Lender Appraisal Processing , Procedures Program) Authority 13.12 Sanctions Based on , Sanctions Available Unfair Sales Contract Provisions , Review of Sales Contracts or Marketing Practices , Examples of Unfair Contract Provisions or Features , Examples of Unfair Marketing Practices , Questionable Contract Provisions or Marketing Practices , Application to Existing Dwellings 13.13 Sanctions Based on , Equal Housing Opportunity Laws and Violations of Equal Housing Regulations Opportunity Laws 13.14 Discrimination , What is a Discrimination Complaint? Complaints , What Form Must the Complaint be in? , Begin Processing the Complaint , Conduct an Investigation , Post-Investigation Procedures , Discrimination Complaint Files 13-iv September 16, 1996 M26-1, Revised 13.01 Basic Rules Governing Debarment, Suspension and LDP Actions Debarment and Suspension LDP Who Can Any program participant (individual or Any program participant (individual or Sanctions be entity) and/or affiliate. Can be all or part entity) and/or affiliate except lenders, Imposed of an organization or only certain employees of lenders, and Against? individuals. manufactured home manufacturers. Examples: lender, employee of lender, loan holder, builder, real estate broker or agent, management broker, repair contractor, compliance inspector, fee appraiser, salesperson, manufactured home manufacturer, dealer or park operator Who Can Central Office Station Director (Obtain Central Impose (Station may make recommendations) Office concurrence for multi-state Sanctions? participants) Causes Debarment - Commission of offense Sanction by HUD, evidencing serious lack of integrity, LDP by another VA station, conviction for fraud, forgery, destruction of OR records, etc., or other causes outlined in In connection with the VA Loan 38 CFR 44.305. Guaranty Program; irregularities or deficiencies in performance, violations Suspension - Evidence of, or indictment of law or regulations, or other causes for, offenses on which debarment can be outlined in 38 CFR 44.705 based - see 38 CFR 44.405. Nature of Generally, cannot participate in any Cannot participate in VA Loan Exclusion Federal nonprocurement programs Guaranty Program or certain activities (including VA Loan Guaranty Program). thereunder. (LDP can be structured to However, sanction can be structured to exclude participant from only certain exclude participant from only certain types types of transactions. Example: LDP of transactions. prohibits participant from appraising but not from acting as a management broker Continued on next page 13-1 M26-1, Revised September 16, 1996 13.01 Basic Rules Governing Debarment, Suspension and LDP Actions, Continued Debarment and Suspension LDP Geographic No limits - Participant excluded from Effective only within jurisdiction of Limits of targeted activities in all locations. office or offices imposing it. Exclusion Terms of Debarment - For a period appropriate to For a period up to 12 months. Exclusion the seriousness of the cause - generally 3 Exception for Builders: Stations may years. impose an LDP against a builder for construction deficiencies for an Suspension - For a temporary period indefinite period pending correction of pending completion of an investigation or the construction deficiencies or for a legal or debarment proceedings - generally fixed period up to 12 months. not to exceed 18 months. Do Sanctions A veteran subject to a debarment or A veteran subject to an LDP as a Against a suspension as a program participant (i.e., program participant (i.e., builder, Veteran lender, builder, etc.) can still use his or her broker, etc.) can still use his or her Impact Use entitlement to obtain a VA home loan. entitlement to obtain a VA home loan of Entitle- ment? 13.02 Evidence Needed to Support Debarment, Suspension, or LDP Actions Standards of A sanction must be supported by facts and evidence admissible in an administrative Evidence hearing, sufficient to prove the findings on which the sanction is based. , It must not be based on unsubstantiated rumors, suspicion, or allegations. , In some cases, secondary or hearsay evidence, signed written statements, etc., may be the only evidence available on some points. , Such evidence can be introduced into the record of the hearing and accorded such weight and consideration as the circumstances warrant. , Consult Regional Counsel on questions of admissibility of evidence at VA administrative hearings and sufficiency of evidence. Continued on next page 13-2 September 16, 1996 M26-1, Revised 13.02 Evidence Needed to Support Debarment, Suspension, or LDP Actions, Continued IG and FBI Inspector General (IG) and FBI reports may not be introduced as evidence since Reports May they are confidential Not Be Used , The source of information in such reports may not be revealed. as Evidence , Information in such reports may only be presented to the hearing board through an independent medium; i.e., by means of witnesses, documents, records, etc. , Unverified memoranda of interviews contained in investigative reports may not be introduced as evidence. , Allegations contained in such memoranda may be introduced into the record by direct examination of either the person interviewed or the investigator that conducted the interview when appearing as a witness at the hearing. Fraud and Sanctions based on allegations of fraud or other criminal activity have a more rigid Other Criminal standard for evidence. Activity , Documentary evidence and/or sworn statements by persons privy to the fraudulent or criminal activity may be considered as a basis for the sanction. , Authenticated copies of documents or sworn statements may be entered into any administrative hearing if the original document or the person who made the sworn statement is not reasonably available for the hearing 13.03 Station Responsibilities and Procedures for Debarment, Suspension, and LDP Actions Regulations Be familiar with VA regulations at 38 CFR 44 and this chapter. , Where appropriate, apply the provisions of M26-2, chapter 2. Continued on next page 13-3 M26-1, Revised September 16, 1996 13.03 Station Responsibilities and Procedures for Debarment, Suspension, and LDP Actions, Continued Disclose the Notify the local HUD office(s) of VA's imposition of any debarment, suspension or Identities of LDP against a participant within its geographic jurisdiction. Parties Subject to Sanctions Release the names of participants against whom sanctions have been imposed to anyone requesting such information. Sources by which to identify the names include: , VA's National Control List , GSA's List of Parties Excluded from Federal Procurement or Nonprocurement Programs , VA's Limited Denial of Participation List , Station knowledge of participants formally sanctioned, but whose names have not yet been included on the lists. Ensure disclosure is not made of participants who are being considered or recommended for sanctions, but against whom no formal action has been taken. Send a copy of any LDP imposed, after expiration of conference rights, to Central Office (264). Central Office is responsible for adding or deleting names from VA's National Control List and LDP List, and GSA's List of Parties Excluded from Federal Procurement or Nonprocurement Programs. National VA's National Control List (NCL) consists of participants suspended by VA who Control List are not subject to governmentwide debarment , Most were suspended prior to October 1, 1988. , For builders, it includes those suspended on or after July 1, 1978. , Maintain only pre-July 1978 cards prepared on suspended builders within your station's jurisdiction in accordance with Records Control Schedule VB-1, part I, item 12-054. , Furnish names and addresses of pre-July 1978 suspended builders to Central Office (264) for inclusion in the NCL only if the builder is or may become active in another jurisdiction or suspension was based on criminal activity, fraud, or an exceptionally serious construction defect. Continued on next page 13-4 September 16, 1996 M26-1, Revised 13.03 Station Responsibilities and Procedures for Debarment, Suspension, and LDP Actions, Continued National Control List (continued) , There is no similar cutoff date for suspended lenders, brokers, salespersons and manufactured home participants. To access the NCL: , System address is 101VBA05 , Field station User ID is NC1 , Password is NCLFILE. , Select PF15 to print displayed material. , Printed copies of the NCL must be destroyed in accordance with RCS VB- 1, part 1, item No.12-054.500. Provide Notify the participant in writing that sanctions are being considered and provide the Participant the opportunity to correct problems where possible. Opportunity to , Does not apply to cases involving fraud or criminal activity. Avoid Sanctions Example - Builder Construction Deficiency. (See M26-2, par. 2.59). , A veteran reports that after the station notified the builder of a construction deficiency complaint, the builder did not correct the problem or refuses to cooperate. , If the facts warrant, based on a field review of the property, notify the builder in writing that sanctions are being considered. , Include the builder's option to submit documentation or visit the station to dispute the complaint. , If the builder fails to successfully dispute the complaint or correct the deficiencies determined by VA to be the builder's responsibility after reasonable opportunity, advise the builder by registered or certified mail that, unless satisfactory arrangements are made with the station by a specific date, sanctions will be imposed. , If arrangements are not made by the builder by the specified date, impose or recommend sanctions. Continued on next page 13-5 M26-1, Revised September 16, 1996 13.03 Station Responsibilities and Procedures for Debarment, Suspension, and LDP Actions, Continued Provide Participant the Opportunity to Avoid Sanctions (continued) Example - Excluded Individual Employed by Lender. , A field station learns that a debarred or suspended individual is employed by a lender. , Consult Central Office (264) prior to contacting the lender. , With Central Office concurrence, notify the lender that the individual has been debarred or suspended by VA and may not be employed in a position involving VA loans until the sanction is lifted. , Include a warning that continued employment of the individual in such capacity could result in sanctions against the lender. , Provide lender an opportunity to discuss the matter with the station. , If the lender still employs the individual in a position involving VA loans after a reasonable opportunity to terminate, advise the lender by registered or certified mail that, unless employment is terminated by a specific date, sanctions will be imposed. , If the lender doesn't correct the problem by the specified date, report the facts to Central Office (264) with a recommendation concerning suspension or debarment. Investigate and Realize that sanctions can have severe economic consequences on program Assemble participants. Facts and , Sound judgment is essential. Evidence Develop sufficient facts and evidence as described in section 13.02. Complete an investigation of the facts before recommending or imposing a sanction except when either: , Evidence accumulated from ongoing field station business is adequate , The sanction will be a reciprocal action based on a like-sanction by another office within VA or another federal agency OR , An investigation was already performed by the IG of VA or another agency, another office within VA, or a law enforcement agency, and there is adequate admissible evidence from that investigation. , Consult Regional Counsel as to admissibility. 13-6 Continued on next page September 16, 1996 M26-1, Revised 13.03 Station Responsibilities and Procedures for Debarment, Suspension, and LDP Actions, Continued Investigate and Assemble Facts and Evidence (continued) A station investigation may be performed either to provide full support for a sanction or supplement evidence from an investigative report by the IG or other source. For each relevant finding, document: , Source of information , Investigative activities performed , Results. Include: , Dates of interviews, inspections, and other investigative activities , Observations made , Identity of alleged violators, victims and possible witnesses , How to contact these parties in the future , Relevant conversations with or statements by these parties , Where relevant, photographic evidence or copies of records or correspondence pertaining to the alleged conduct. For sanctions based on allegations of fraud or other criminal activity, see the "Fraud and Other Criminal Activity" heading in section 13.02 for standards for evidence. Refer Cases of Ensure allegations resulting from station investigations are not frivolous. Fraud or , Station management should discuss allegations with the investigating employee Criminal and Regional Counsel before referral to IG. Conduct to the IG Refer all well-founded allegations of fraud or criminal conduct relating to the Loan Guaranty Program to the regional office of jurisdiction of the IG (Investigations). Include (if available): , Description of alleged violation, including date and location , Identities of alleged violators, victims, and possible witnesses , Estimate of loss to the Government or individual Continued on next page 13-7 M26-1, Revised September 16, 1996 13.03 Station Responsibilities and Procedures for Debarment, Suspension, and LDP Actions, Continued Refer Cases of Fraud or Criminal Conduct to the IG (continued) , Copy of any field examination or station investigation of the matter , Copy of records related to participant's fraudulent or criminal activity such as , Journal extracts of case activity through Department ADP systems , Application(s) for loan guaranty benefits , Verification(s) of employment and deposit , Contracts, etc., , Identity and location of custodian of above records , Letters, memoranda, notes, and reports of contact, etc., related to the fraudulent or criminal conduct , A request that the IG provide the station with a report containing evidence admissible in an administrative hearing which may sustain imposition of sanctions. Provide a copy of the referral to Central Office (264). Verbal referrals may be made in unusual situations requiring immediate action. , Confirm in writing as soon as possible thereafter. A sanction based on allegations of fraud or other criminal activity may be imposed either before or after referral to and investigation by the IG or appropriate law enforcement agency, as long as the evidence is adequate to support the action. Recommend Submit a debarment recommendation to Central Office (264) if the seriousness of Debarment or the conduct warrants such. Suspension if , Submit a suspension recommendation only if needed as a temporary measure Appropriate pending investigation or legal or debarment proceedings. Continued on next page 13-8 September 16, 1996 M26-1, Revised 13.03 Station Responsibilities and Procedures for Debarment, Suspension, and LDP Actions, Continued Recommend Debarment or Suspension if Appropriate (continued) Submit adequate written documentation in support of the recommendation, including: , A description of the specific act(s) or violation(s) committed , All relevant facts, documents, and evidence in the case , Identification of the causes relied upon from 38 CFR 44.305 (38 CFR 44.405 for suspensions). Central Office will request documentation from other affected stations as needed for multijurisdictional participants. Central Office will make a final decision and notify affected participants of the suspension or debarment and their right to request a hearing. , A copy of the notice will be furnished to the field station(s). Impose The determination is at the field facility Director's discretion Limited Denial , In the best interests of the Government of Participation , Ensuring that the conduct involved is based on causes outlined in 38 CFR 44.705 and if Appropriate of a level of seriousness commensurate with this type of sanction. An LDP can be the sole sanction against a participant or a means to immediately end unacceptable conduct while more severe sanctions are considered. , A station can recommend suspension or debarment in conjunction with imposing an LDP. If the LDP is against a builder, consider including any exceptions to the LDP necessary to prevent substantial harm to veterans who have already contracted for the purchase of homes from the builder. An affiliate or organizational element of the participant may be included in the LDP solely on the basis of its affiliation. , No knowledge of or participation in the acts committed is necessary. , The affiliate has the burden of proving it can meet VA requirements and is a responsible entity not controlled directly or indirectly by the participant receiving the LDP. Continued on next page 13-9 M26-1, Revised September 16, 1996 13.03 Station Responsibilities and Procedures for Debarment, Suspension, and LDP Actions, Continued Impose Limited Denial of Participation if Appropriate (continued) Adequately document the file to support the LDP including: , Description of specific act(s)or violation(s) committed , All relevant facts, documents, and evidence in the case , Identification of causes relied upon from 38 CFR 44.705. Send a notice to the participant and any specifically named affiliate, certified mail return receipt requested (see exhibit 13-A) which includes: , Effective date of sanction (i.e. date of notice) , Period of time the LDP will remain in effect , Impact of the LDP, including programs participant is excluded from and geographic area , (The LDP may be structured so participant is excluded from only certain functions. For example, participant may not participate as a management broker, but may continue as an appraiser.) , Reasons for LDP in terms sufficient to put participant on notice of the specific conduct or transaction(s), and causes under 38 CFR 44.705 , The right to request in writing, within 30 days of receipt of the notice, a conference , The right to have a conference held within 10 business days of receipt of the request. If no conference is requested within 30 days, the participant has no right to a formal hearing. , Advise Central Office (264) that an LDP has been imposed. If a conference is requested within 30 days, arrange the conference. , The station Director may designate another official to conduct the conference. , Formal rules of procedure do not apply. , The participant may be represented by counsel. , The participant may present all relevant information and materials. Continued on next page 13-10 September 16, 1996 M26-1, Revised 13.03 Station Responsibilities and Procedures for Debarment, Suspension, and LDP Actions, Continued Impose Limited Denial of Participation if Appropriate (continued) The official sends the written decision to the participant within 20 days after the conference. , The decision will be either to withdraw, modify or affirm the LDP. , If the decision is to affirm all or part of the remaining period of the LDP, advise the participant of the right to request a formal hearing in writing to the Under Secretary for Benefits within 30 days of receipt of the notice of decision , Send a copy of any notice of an affirmative decision to Central Office (264) The station Director may terminate an LDP prior to the expiration of a fixed-period LDP where the cause for the LDP is resolved. Before imposing an LDP against an interstate participant operating in areas beyond your station's jurisdiction: , Contact all stations serving jurisdictions in which the participant operates to find out whether , They have experienced problems with the participant , They wish to impose sanctions against the participant in their jurisdictions and to what extent. , Obtain concurrence of Central Office (264) on chosen course of action. , Coordinate the contents of the LDP notices between all affected stations. A station may implement an LDP to a greater or lesser degree within its jurisdiction than another station, or choose not to take action when another station does. , Ensure that the reasons for the difference in treatment are supported by adequate documentation of all relevant facts, including any differences in the participant's activities in each jurisdiction. Arrange If a participant against whom debarment, suspension, or an LDP is imposed requests a Formal formal hearing, Central Office (264) may first encourage the participant to have an Hearing if informal meeting with the station to resolve the issues. Participant , Make every effort toward informal resolution to avoid the time and cost of a Requests formal hearing. Continued on next page 13-11 M26-1, Revised September 16, 1996 13.03 Station Responsibilities and Procedures for Debarment, Suspension, and LDP Actions, Continued Arrange Formal Hearing if Participant Requests (continued) If informal means of resolution become exhausted, arrange a hearing date, in consultation with Central Office (264). Provide Regional Counsel with all documentation and facts relevant to imposition of the sanction. , Ascertain from Regional Counsel the approximate time needed to prepare VA's case for presentation to the hearing board. The hearing is to begin within 30 days of receipt of the request, unless postponed because: , Participant requests postponement and presents a reasonable basis, or , VA requires additional time to conclude its investigations, or , The case has been, or is being, referred by the IG to a U.S. attorney or the Department of Justice for consideration of criminal prosecution, or criminal prosecution has been initiated but has not been concluded. , The date will not be fixed for a hearing until the criminal prosecution is concluded or the U.S. attorney or Department of Justice has no objection to the hearing. , If the U.S. attorney or Department of Justice objects to the hearing, Regional Counsel will report the facts through station management to Central Office (264), which will determine whether to grant the hearing. Arrange a hearing date satisfactory to Regional Counsel and the participant. , Generally to take place at the station and begin on a Tuesday or Wednesday, not immediately preceding or following a holiday. , Promptly advise Central Office (264) and Regional Counsel of the hearing date. , The Undersecretary for Benefits with the assistance of Central Office (264) will appoint members to the hearing board and arrange for their attendance at the hearing. , Prompt notice should be given to all parties concerned, including board members, whenever any change in the hearing date is made. 13-12 September 16, 1996 M26-1, Revised 13.04 Formal Hearing on Debarment, Suspension, and LDP Actions Prepare for the Where an LDP is followed by debarment or suspension, the LDP is superseded Hearing and the appeal is heard solely as an appeal of the debarment or suspension. Regional Counsel will prepare to: , Present the best evidence available to the board , Introduce into the record of the hearing all facts and circumstances which constitute the basis for the sanction , By means of a stipulation between the adverse party and VA, and/or , By direct testimony. A prehearing conference between Regional Counsel and the adverse party, and/or the party's counsel, may be held to determine what facts, if any, can be stipulated, and to prepare the stipulation. , Regional Counsel may make stipulations with respect to any conclusion of fact but not of law. , Questions as to the propriety of a stipulation will be submitted to Central Office (264) for resolution. , If the pertinent facts cannot be stipulated, Regional Counsel will have necessary witnesses subpoenaed to ensure their presence at the hearing. (See 38 CFR 2.1 and 2.2.) , If it is anticipated that any witness important to the support of VA's case will not be available at the hearing, his or her deposition will be taken, preferably with notice to the adverse party and the opportunity for cross-examination. The Under Secretary for Benefits appoints the hearing board composed of one or more officers or employees of VA. , Each board member must become thoroughly familiar with appropriate sections of the law and regulations and this section of M26-1. Board members and Regional Counsel should discuss the procedural aspects of the case prior to the hearing. Continued on next page 13-13 M26-1, Revised September 16, 1996 13.04 Formal Hearing on Debarment, Suspension, and LDP Actions, Continued Arrange for Select hearing stenographers and advise them of their duties. Stenographers , To transcribe their notes on standard-size paper, double spacing, leaving sufficient room for binding at the top and numbering at the bottom. , To make an original and two copies for VA (original and one copy for Central Office, RCS VB-1, part I, item No. 12-146.000 or 12-090.100). If the transcript is prepared by VA stenographic personnel, a copy will be furnished to the adverse party at the conclusion of the hearing at no charge. If the transcript is prepared by contract personnel engaged by the station, Regional Counsel will advise adverse party's counsel of the stenographic arrangement and that if the adverse party desires a copy of the transcript, arrangements must be made with the contractor directly and at the expense of the adverse party. Conduct the The Under Secretary for Benefits issues an order convening the board and Hearing designates one member as chairperson. The Chairperson is responsible for: , Official conduct of the hearing , Administering oaths or affirmations to witnesses , Properly identifying all exhibits by order of introduction , Numerically for VA exhibits , Alphabetically for adverse party's exhibits , Ruling on all questions presented to the board , If another board member objects to the ruling, a majority vote of the board (either in open or closed session) will decide the issue. , Chairman's ruling is always entered into the record. Continued on next page 13-14 September 16, 1996 M26-1, Revised 13.04 Formal Hearing on Debarment, Suspension, and LDP Actions, Continued Conduct the Hearing (continued) The hearing is conducted in an orderly manner and a serious businesslike atmosphere of dignity and decorum. , The Chairperson should not permit any person to argue while testifying. , The hearing must be fair and impartial in all respects. Conduct of board members , Must be characterized by fairness, impartiality, and cooperativeness. , No member will engage in any argument with the adverse party, his or her counsel, or any witness. Members of the board may question witnesses to elicit material testimony. , The board is entitled to all information of a material nature that is properly available irrespective of who does the questioning. The hearing is a fact finding proceeding, not a trial or adjudicatory proceeding. , Any oral or written matter which the board deems to be of probative value in determining the issues involved can be admitted in evidence. , Irrelevant, immaterial or unduly repetitious evidence will be excluded. , Wide latitude is exercised as to relevancy, materiality, and competency. Objections relating to the jurisdiction of the board or the constitutionality of 38 U.S.C. chapter 37 or VA regulations are not before the board for decision. , The time of the board will not be used to hear arguments on these matters. , Such objections will be noted on the record of the hearing. The hearing can be opened or closed to the public according to the adverse party's preference , Unless the majority of the board determines the public interest requires the contrary. , Interested representatives of another Government Agency or Department may attend in any case. Continued on next page 13-15 M26-1, Revised September 16, 1996 13.04 Formal Hearing on Debarment, Suspension, and LDP Actions, Continued (continued) Regional Counsel's role is to: , Act for VA in presenting its case to the board , Advise the board as to applicable regulations and directives , Be available for consultation with the board at any time. The adverse party has the right to: , Present his or her case by oral or documentary evidence , Submit rebuttal evidence , Cross-examine witnesses , Make statements in his or her own behalf as may be appropriate for a true and full disclosure of the facts. Complete the The board will review the typed transcript for accuracy and completeness as soon Process After as it becomes available. the Hearing THEN Ask the adverse party and his or her counsel to read the transcript and either indicate approval by initialing or make known any objections. , Exceptions or changes requested which would materially affect the meaning will receive careful consideration. , Changes will be made only upon majority acceptance by the board. , Exceptions and requested changes denied by the board shall be noted and appended to the transcript as a part of the record. Finalize the transcript as soon as possible and forward it, with the original exhibits, to Central Office (264). Furnish a copy of the transcript, together with copies of all exhibits, to: , The adverse party without cost if the transcript has been prepared by VA stenographic personnel. , (If completed by contract personnel, see the "Arrange for Stenographers" heading in this section.) , Station management. 13-16 Continued on next page September 16, 1996 M26-1, Revised 13.04 Formal Hearing on Debarment, Suspension, and LDP Actions, Continued Complete the Process After the Hearing (continued) As soon as possible after the hearing, the board will prepare written findings of fact. No one other than board members can be present when the board reviews and considers the evidence and makes its findings of fact. , Thereafter, the basis for such findings of fact cannot be discussed between board members and the adverse party, or between board members and VA station personnel. The board will consider: , Only the matter which came before it during the hearing , The entire record of hearing , The manner in which witnesses testified , Their demeanor on the witness stand , Their opportunity to have personal knowledge of the facts concerning which they have testified , The authenticity of documentary evidence , Lack of evidence upon any worthy point at issue. Extraneous matters such as FBI reports will not be read or considered. The board will state what facts and circumstances have been established by the evidence presented at the hearing and whether and in what respects the charges in the notice of suspension, debarment, or LDP have been substantiated. Prepare The report of findings of fact prepared by the board will generally follow this Report of format: Findings I. FINDINGS OF FACT II. DISCUSSION, COMMENT, OR EXPLANATION (If necessary) III. SIGNATURES OF BOARD MEMBERS 13-17 M26-1, Revised September 16, 1996 13.04 Formal Hearing on Debarment, Suspension, and LDP Actions, Continued Prepare Report of Findings (continued) Submit findings of fact to Central Office. , Furnish a copy to the adverse party. , The adverse party has the right to file with Central Office, within 14 days of receipt of the board's findings, a brief of facts and/or laws. 13.05 Reciprocal Actions Based on HUD/FHA Sanctions Policy Governmentwide suspensions and debarments by any Federal agency included in GSA's Lists of Parties Excluded from Federal Procurement and Nonprocurement Programs are recognized by VA. , No reciprocal action or notice from VA is needed. , The participant is automatically excluded from the VA home loan program. Stations have discretionary authority to impose reciprocal LDPs by giving notice to the participant. , VA Policy is to impose LDPs based on LDPs by HUD/FHA (or USDA) without looking into the facts of the case and terminate LDPs only when furnished satisfactory evidence of reinstatement by such agency. , The station may decline to impose an LDP if the participant's record of performance in the VA home loan program warrants, and the sanction would not be in the best interest of veterans or VA. Central Office (264) takes any necessary reciprocal action against program participants based on HUD withdrawal of mortgagee approval, or other sanctions besides governmentwide suspensions, debarments and LDPs. Forward any notifications of such sanctions to Central Office (264). Procedure for VA learns of HUD sanctions by way of Reciprocal , A copy of the HUD/FHA letter to the participant, or Actions , HUD's list of LDPs and supplements to the list. Upon learning of a HUD (or USDA) sanction, send a notice to the excluded 13-18 Continued on next page September 16, 1996 M26-1, Revised 13.05 Reciprocal Actions Based on HUD/FHA Sanctions, Continued Procedure for Reciprocal Actions (continued) firm or individual explaining that VA is recognizing HUD/FHA's (or USDA's) LDP, with a copy to Central Office (264). Include in the notice: , The impact of the sanction , Programs or activities the participant is excluded from , The geographic area affected , A statement that the VA sanction will be in effect until the HUD/FHA (or USDA) sanction has been rescinded. Generally, implement the VA LDP to the same degree as the HUD/FHA (or USDA) LDP, and no further. , In such cases, VA will not afford the participant a hearing since any appeal rights are to be exercised with HUD/FHA (or USDA). However, the station may use its discretion to implement the LDP to a greater or lesser degree than HUD/FHA (or USDA), or to not impose an LDP. For example: , VA may exclude the participant from a smaller or larger geographic area than HUD/FHA , VA may allow the participant limited participation in the program. If VA chooses to impose sanctions materially more restrictive than the HUD/FHA (or USDA) action: , The grounds for the additional restrictions must be well documented , The participant must be afforded the opportunity for a hearing on the additional restrictions. Multi-Before imposing a reciprocal LDP against an interstate participant operating in Jurisdictional areas beyond your station's jurisdiction: Participants , Contact all stations serving jurisdictions in which the participant operates to find out whether , They have experienced problems with the participant , They wish to impose sanctions against the participant in their jurisdictions and to what extent. Continued on next page 13-19 M26-1, Revised September 16, 1996 13.05 Reciprocal Actions Based on HUD/FHA Sanctions, Continued Multi-Jurisdictional Participants (continued) , Obtain concurrence from Central Office (264) only if the LDP will be materially more restrictive than the HUD/FHA (or USDA) LDP for any or all affected VA jurisdictions. , Hearing rights are required for a more restrictive sanction than HUD/FHA (or USDA). , Coordinate the contents of LDP notices between all affected stations. The station may implement a reciprocal LDP to a greater or lesser degree within its jurisdiction than another station, or choose not to take action when another station does. , Ensure the reasons for the difference in treatment are supported by adequate documentation of all relevant facts, including any differences in the participant's activities in each jurisdiction. Do Not Accept Return any submission received from a participant on the GSA or HUD excluded Submissions list to the participant. from Excluded Parties Advise the participant that VA is refusing to take action on the case because of sanctions imposed by another Federal agency. If notification of a VA reciprocal action is required, as for an LDP, and has not previously been sent to participant, send the notice in conjunction with return of the submitted material. VA will honor commitments issued prior to imposition of the HUD/FHA (or USDA) sanction. 13.06 Withdrawal of Lender's Automatic Processing Authority - Preliminary Actions Be Familiar The regulations at 38 CFR 36.4349 provide: with the , Criteria for withdrawal of automatic authority for supervised or nonsupervised Regulations lenders for various periods of time ranging from 60 days Continued on next page 13-20 September 16, 1996 M26-1, Revised 13.06 Withdrawal of Lender's Automatic Processing Authority - Preliminary Actions, Continued Be Familiar with the Regulations (continued) to 3 years , That automatic authority can be withdrawn upon 30 days' notice , That automatic authority may be withdrawn for imprudent lending practices or practices prejudicial to the interests of veterans or the Government , These practices are of a lesser degree than would warrant complete debarment or suspension. Work With the If information casts doubt on the conformity of the lender's credit practices to the Lender purposes of the law, spot check or postaudit the lender's credit underwriting practices. Options include: , Request submission of substantiating credit data in selected cases , Obtain backup credit reports If the lender's underwriting has resulted in closing a loan not meeting VA's credit requirements or standards, bring it to the attention of the lender's liaison employee (nonsupervised lender) or other appropriate officials in an effort to improve future performance. , Personal attention of the Loan Guaranty Officer is required in such cases to assure the tone of the discussion is that of helpfulness and guidance. If after a reasonable period the lender fails to demonstrate satisfactory performance, consider requiring prior approval for all future loans. , I.e., lenders with automatic authority withdrawn may still process VA guaranteed loans on a prior approval basis. 13.07 Basis for Withdrawing Lender's Automatic Processing Authority Withdrawal for Automatic authority may be withdrawn for an indefinite period based on: Indefinite Failure to continue meeting basic qualifying criteria Period , For supervised lenders this includes loss of status as an entity subject to Continued on next page 13-21 M26-1, Revised September 16, 1996 13.07 Basis for Withdrawing Lender's Automatic Processing Authority, Continued Withdrawal for Indefinite Period (continued) examination and supervision by a Federal or State regulatory agency. , For nonsupervised lenders this includes no approved underwriter, failure to maintain $50,000 working capital, and/or failure to file required financial statements. OR Any of the causes for debarment set forth in 38 CFR 44.305. During the probationary period for newly-approved nonsupervised automatic lenders, automatic authority may be withdrawn: , Based upon poor underwriting or consistently careless processing , At any time during the probationary period if recommended by station. Withdrawal for Automatic authority may be withdrawn for 60 days based on: 60 Days Loan submissions show deficiencies in credit underwriting after repeatedly being called to the lender's attention. Examples: , Use of unstable sources of income to qualify borrower , Ignoring significant adverse credit items affecting applicant's creditworthiness OR Employment or deposit verifications were handcarried by applicants or otherwise improperly permitted to pass through the hands of a third party. OR Loan submissions were consistently incomplete after repeatedly being called to the lender's attention. OR Continued instances of disregard of VA requirements after repeatedly being called to the lender's attention. Withdrawal for Automatic authority may be withdrawn for 180 days based on: 180 Days Loans conflict with VA credit standards and would not have been made by a lender acting prudently. OR Failure to disclose to VA significant obligations or other information so material to the veteran's ability to repay the loan that undue risk to the 13-22 Continued on next page September 16, 1996 M26-1, Revised 13.07 Basis for Withdrawing Lender's Automatic Processing Authority, Continued Withdrawal for 180 Days (continued) Government results. OR Employment or deposit verifications were handcarried by the applicant or otherwise mishandled, resulting in submission of significant misinformation to VA. OR Substantiated complaints are received that the lender misrepresented VA requirements to veterans to the detriment of their interests , E.g., veteran was dissuaded from seeking a lower interest rate based on lender's incorrect advice that such options were excluded by VA requirements. OR Closing documents show instances of improper charges to the veteran after the impropriety of such charges was called to the lender's attention by VA, or the lender refuses to refund such charges after notification by VA. OR Other instances of lender actions prejudicial to the interests of veterans such as deliberate delays in scheduling loan closings. Withdrawal for Automatic authority may be withdrawn for 1 to 3 years based on: 1 to 3 Years Failure to properly disburse loans. , E.g., loan disbursement checks returned due to insufficient funds. OR Involvement by the lender in the improper use of a veteran's entitlement. Examples: , Knowingly permitting the veteran to violate occupancy requirements , Lender involvement in the sale of a veteran's entitlement, etc Continued on next page 13-23 M26-1, Revised September 16, 1996 13.08 Authority to Withdraw Lender's Automatic Processing Authority Authority of A station may withdraw the automatic authority of nonsupervised lenders without Station operations in other jurisdictions for 60 days. , The basis for withdrawal must be one of those listed in section 13.07 as a basis for withdrawal for 60 days, 180 days, or 1 to 3 years. Discuss the basis of the action with Central Office Loan Policy staff (264) prior to providing the 30-day notice of intent to withdraw automatic processing privileges to the lender Central Office Central Office will process all cases involving withdrawal of automatic authority for: Jurisdiction , More than 60 days, or , Supervised lenders, or , Multijurisdictional lenders, or , Cases described under the "Withdrawal for Indefinite Period" heading in section 13.07 Stations will make their recommendations to Central Office (264) in writing with all necessary documentation and evidence. Include: , Statement of deficiencies uncovered , Summary of attempts to get the lender to conform to applicable VA policies , The loan files involved , If numerous, submit representative loan files and a list of remaining cases, detailing deficiencies in each case , The lender's file , Available information on the station's guaranty claims experience with the lender. 13.09 Notice and Hearing Rights for Withdrawal of Lender's Automatic Authority Procedures For cases within your station's authority, give 30 days notice of intent to withdraw to enable the lender to close or obtain prior approval for a loan on Continued on next page 13-24 September 16, 1996 M26-1, Revised 13.09 Notice and Hearing Rights for Withdrawal of Lender's Automatic Authority, Continued Procedures (continued) which processing has begun. The lender has 15 days from receipt of the notice to submit information in opposition to the withdrawal. Although there is no right to a formal hearing, if the lender's submission raises a dispute over facts material to the withdrawal, the lender will be afforded the opportunity for a hearing. , A hearing officer or panel will be appointed by the Under Secretary for Benefits. , Hearing procedures set forth in section 13.04 may be generally followed, as appropriate. , If requested, make a transcribed record of the proceedings available at cost to the lender , Unless the requirement for a transcript is waived by mutual agreement. , A request to defer the effective date of withdrawal until after the hearing will be approved by the Under Secretary for Benefits only if it is in the best interest of the Government. 13.10 False Lender Certification on Loan Submissions What is it? The certification a lender must sign for each loan submission is described in paragraph 5.17c of the Lender's Handbook. Any lender who knowingly and willfully makes a false certification may be subject to civil money penalties under the provisions of 38 CFR 36.4337(k) and (l). Station If it appears that a lender certification is false, prepare a report setting forth: Responsibilitie, The evidence supporting the finding of a false certification and of liability s , A description of the claims or statements which form the basis for Continued on next page 13-25 M26-1, Revised September 16, 1996 13.10 False Lender Certification on Loan Submissions, Continued Station Responsibilities (continued) assessing liability AND , Any mitigating circumstances that may relate to the certification. Submit this report to Central Office (264) for confirmation of the findings and a determination of the amount of liability to be assessed against the lender. Central Office Central Office (264), along with the Office of the Inspector General, will review the Responsibilitieinformation provided. s If the Under Secretary for Benefits confirms that a false certification has been made, a report of findings will be forwarded to the Office of General Counsel. General Counsel will decide whether there is adequate evidence to show that the lender is liable. If so, General Counsel will serve a complaint on the lender stating: , The allegations of a false certification and of liability , The amount being assessed by the Secretary and the basis for the amount assessed , Instructions on how to satisfy the assessment and how to file an answer to request a hearing, including a specific statement of the lender's right to request a hearing by filing an answer and to be represented by counsel AND , That failure to file an answer within 30 days of the complaint will result in the imposition of the assessment without the right to appeal the assessment to the Secretary Hearing A lender hearing on an assessment of liability made pursuant to a finding of a Procedure knowing or willful false certification will be governed by the procedures set forth at 38 CFR 42.8 through 42.47 Continued on next page 13-26 May 5, 1997 M26-1, Revised Change 1 13.10 False Lender Certification on Loan Submissions, Continued Additional Any assessment made under the provisions of 38 CFR 36.4337 may be in addition Remedies to other remedies available to VA, including, but not limited to: , Debarment and suspension pursuant to 38 U.S.C. 3704 and 38 CFR part 44 , Loss of automatic processing authority pursuant to 38 U.S.C. 3702 OR , Proceedings under the Program Fraud Civil Remedies Act of 1986, Public Law 99-509. 13.11 Withdrawal of LAPP (Lender Appraisal Processing Program) Authority Authority The Loan Guaranty Officer (LGO) is authorized to withdraw the special privilege of LAPP authority: , When proper cause exists , For an indefinite or specified period of time , After consultation with Central Office (262). Determinations regarding withdrawal of LAPP authority for multijurisdictional lenders must be made in Central Office. Procedures Be familiar with the regulations at 38 CFR 36.4344 and M26-2, chapter 7. Give 30 days written notice of intent to withdraw. The lender has 15 days from receipt of the notice to submit information to the LGO in opposition to the withdrawal. Although there is no right to a formal hearing at this stage of processing, the LGO will review the lender's submission and make a recommendation to the station Director to sustain, modify, or rescind withdrawal. Provide the lender a written decision with the right to appeal to the Under Secretary for Benefits Continued on next page 13-27 M26-1, Revised May 5, 1997 Change 1 13.11 Withdrawal of LAPP (Lender Appraisal Processing Program) Authority, Continued Procedures (continued) If the lender's submission raises a dispute over facts material to the withdrawal, the lender will be afforded the opportunity for a hearing. , A hearing officer or panel will be appointed by the Under Secretary for Benefits. , Hearing procedures set forth in section 13.04 may be generally followed, as appropriate. 13.12 Sanctions Based on Unfair Sales Contract Provisions or Marketing Practices Sanctions VA may refuse to appraise property for VA-guaranteed financing (i.e., impose Available sanctions) if the parties in interest are identified with previous sales involving VA- guaranteed financing and the contract of sale or methods or practices pursued in the marketing of such properties were unfair, unethical, or prejudicial to the veteran- purchasers. Whenever appropriate, provide a reasonable opportunity for the builder or other program participant to correct the problem(s) prior to imposing sanctions. Impose or recommend debarment, suspension, or an LDP (subject to their specific rules and limitations) where there has been a general or continued employment of unfair contractual practices or sales methods accompanied by a disregard for the consequences to the purchasers. , These sanctions may also be appropriate where special factors such as an attempt to defraud VA, the veteran, or the lender, or a substantial financial injury to the veteran which the selle-r has not remedied accompany an unfair contractual feature or sales method. Continued on next page 13-28 May 5, 1997 M26-1, Revised Change 1 13.12 Sanctions Based on Unfair Sales Contract Provisions or Marketing Practices, Continued Review of [Lenders are required to review the provisions of each sales contract or purchase Sales agreement on a proposed construction case and determine whether it is acceptable Contracts and does not contain unfair contractual provisions. The closing of the loan denotes the lender has determined the contract is acceptable.]. Examples of Unfair Contract Provisions or Unfair contract provisions or features include, but are not limited to, the following: Features Example Unfair Contract Provisions or Features 1 Provisions allowing the downpayment or earnest money of the purchaser to be forfeited or retained as liquidated damages if the purchaser cannot obtain VA financing. Inclusion in a lump-sum contract of an "escalator clause" which 2 obligates the purchaser to pay a higher price in the event of increased costs for labor, material, or other items prior to delivery of title , Unless accompanied by a proviso which gives the purchaser the option of canceling the contract and obtaining a refund of the moneys paid if the increased price is not acceptable to the veteran. Continued on next page 13-31 13-29 Page 13-30 is blank September 16, 1996 M26-1, Revised 13.12 Sanctions Based on Unfair Sales Contract Provisions or Marketing Practices, Continued Examples of Unfair Contract Provisions or Features (continued) Example Unfair Contract Provisions or Features Provisions which infringe upon the usual or customary freedom or right 3 of an owner to sell a property, except as allowed under 38 CFR 36.4308(e) and 36.4350(b)(5) , e.g., a provision that the purchaser will give a stated real estate agency an exclusive listing if he or she resells the property within 2 years after acquisition, or will give the seller or another a first option to buy other than in a cooperative housing project or as provided in 38 CFR 36.4350(b)(5). A requirement that purchasers waive or release any claim or right for 4 nonperformance by the builder under the contract. , This does not prevent a builder from obtaining a statement from the purchaser at closing that he or she has inspected the house and has not observed any unsatisfactory construction , Nor does it prevent the builder from obtaining a release from the purchaser in settlement of a bona fide dispute. Omission of a description sufficient to identify accurately the property 5 sold. Omission of a provision specifying whether the builder or the veteran is 6 to be charged with any special assessments or improvement bonds , Includes those payable in the future, for improvements included in the plans and specifications or commenced or completed at the time of closing, such as streets, sidewalks, curbs, gutters, and sewers. 7 Omission of a date for completion of proposed construction or failure to give the veteran the option of canceling the contract and obtaining a refund of the deposit if the dwelling is not completed on a specified date or within a reasonable time afterwards. 8 Failure of a contract covering proposed construction to obligate the seller to complete the dwelling in substantial accordance with identified and definite plans and specifications. Continued on next page 13-31 M26-1, Revised September 16, 1996 13.12 Sanctions Based on Unfair Sales Contract Provisions or Marketing Practices, Continued Examples of Unfair Marketing Practices Unfair marketing practices include, but are not limited to, the following: Example Unfair Marketing Practices 1 Enforcement of unfair contractual provisions. Requiring purchasers to execute so-called "contracts" which legally 2 bind the purchasers but do not bind the seller to deliver the property when completed to the purchasers , i.e., limiting a seller's liability to the refund of the earnest money deposit. Advertising that a property or project is "VA guaranteed" or "VA 3 approved" or "VA inspected" in such a way as to lead veterans to believe that VA guarantees the construction and workmanship. , "VA financing available," "Eligible for VA financing" or similar advertising is acceptable. Delaying tactics on the part of the builder to postpone completion of 4 the property or the closing of the sale after completion in an effort to induce the veteran to agree to a modification of a firm contract such as , The substitution of inferior materials, , The omission of appliances , An increase in price. Failure of the seller or agent of the seller of proposed or newly 5 constructed property to place in a special trust account deposits or downpayments received from veteran-purchasers as required by 38 U.S.C. 3706. , On existing properties, the failure to place downpayments or earnest money deposits in a trust fund or in escrow when required by law or by local practice. , When it is not required or not customary for these deposits to be "isolated," the failure or inability of the seller to return the deposit when and if required under the contract. Continued on next page 13-32 September 16, 1996 M26-1, Revised 13.12 Sanctions Based on Unfair Sales Contract Provisions or Marketing Practices, Continued Examples of Unfair Marketing Practices (continued) Example Unfair Marketing Practices 6 Failure of the seller of proposed or newly constructed property to state in the sales agreement, when applicable, that the property was or will be constructed under FHA compliance inspection procedures pursuant to section 203(i) or 221(d)(2) of the National Housing Act. Questionable For questionable contract features or marketing practices not listed in this section, Contract the relevant facts, including research on customary practices in the locality (if Provisions or necessary), should be submitted to Central Office (264) for a determination of Marketing whether the feature or practice is unfair or unduly prejudicial. Practices Application to This section is not ordinarily applicable to the sale of individual existing (previously Existing occupied) dwellings. Dwellings , However, there may be some cases in which it would be proper to apply the provisions to sales of existing property. 13.13 Sanctions Based on Violations of Equal Housing Opportunity Laws Equal Housing Stations may recommend or impose sanctions (subject to the rules and limitations Opportunity applicable to the particular sanction) against program participants for violations of Laws and statutory provisions and regulations governing equal opportunity in housing. These Regulations laws and regulations include the following: Equal Credit Opportunity Act (ECOA). ECOA prohibits lenders from discriminating against credit applicants on the basis of: , Race, color, religion, national origin, sex, or marital status , Age (provided that the applicant has the capacity to enter into a binding contract) Continued on next page 13-33 M26-1, Revised September 16, 1996 13.13 Sanctions Based on Violations of Equal Housing Opportunity Laws, Continued Equal Housing Opportunity Laws and Regulations (continued) , All or part of the applicant's income derives from any public assistance program , The applicant has in good faith exercised any full right under the Consumer Credit Protection Act. It applies to applicants for nearly all types of credit, including home loans, and all aspects of the credit transaction, including: , The solicitation and taking of applications , Information gathering and dissemination , Credit investigation , Standards of creditworthiness , Credit terms , Credit denial , Loan servicing and collections. ECOA applies to classes of applicants as well as individual applicants; e.g., a lender may not ask pregnant applicants about their prospects for continued employment over a certain period unless the same question is asked of male applicants. VA must comply with ECOA in its role as a processor of prior approval loans, and be watchful for violations by lenders when reviewing loan submissions. VA may impose sanctions against a lender for ECOA violations or refer the case to the Department of Justice for prosecution if appropriate. The Fair Housing Act. The Act prohibits discrimination on the basis of race, color, religion, sex, handicap, familial status or national origin , In the sale, rental, or advertising of dwellings , In the provision of brokerage services , In the availability of residential real estate-related transactions. The Act mandates executive departments and agencies to affirmatively administer their programs and activities relating to housing to further the purposes of the law. Section 527 of the National Housing Act. This section prohibits discrimination on account of sex in the making of federally-related mortgage loans. It also requires all persons making such loans to consider, without prejudice, the combined income of husband and wife when determining sufficient income to support a loan to a married couple or either member thereof Continued on next page 13-34 September 16, 1996 M26-1, Revised 13.13 Sanctions Based on Violations of Equal Housing Opportunity Laws, Continued Equal Housing Opportunity Laws and Regulations (continued) VA Regulations at 38 CFR 36.4363. This regulation requires builders or other parties requesting VA appraisals of individual existing housing not previously occupied, newly constructed housing, or a proposed subdivision, to certify that they will not decline to sell the property appraised to a prospective purchaser because of his or her race, color, religion, sex or national origin. Any veteran obtaining a VA guaranteed loan is also required to certify that he or she will not decline to sell the home in the future based on these discriminatory factors (on VA Form 26-1820, Report and Certification of Loan Disbursement 13.14 Discrimination Complaints What is a It is a complaint made to VA regarding a discriminatory act or acts committed Discrimination against the complainant, which arose from operations of VA's home loan program. Complaint? It can involve the guaranteed loan program, the direct loan program, VA's property management division, administration of VA's portfolio loans, or any other facet of VA's home loan program. It can be directed against lenders, builders, brokers, or any other industry participant, as well as VA fee personnel or VA employees. It can involve a wide range of VA home loan program activities; e.g., the selection of fee appraisers, the acceptance of purchase offers on acquired properties, etc. What Form Complaints must be written, either by letter or on VA Form 26-8827, Housing Must the Discrimination Complaint. Complaint be in? If a discrimination complaint is initially registered by telephone: , Note the complaint on VA Form 26-6715, Record of Telephone Conversation Continued on next page 13-35 M26-1, Revised September 16, 1996 13.14 Discrimination Complaints, Continued What Form Must the Complaint be in? (continued) , Send two copies of the complaint form to the complainant with a transmittal letter explaining that: , The complainant must file a written complaint by completing VA Form 26- 8827, Housing Discrimination Complaint, in detail , VA will assist in completing the complaint, if so requested , If VA does not receive a completed complaint form or written complaint within 30 days, the case will be considered closed. VA Form 26-6715 will be retained in the pending complaint file until the completed complaint form is received or 30 days elapses. Begin Processing the Complaint Upon receipt of a written complaint, follow these procedures: Step Action 1 Immediately forward a copy of the complaint to Central Office (264) 2 Simultaneously forward a copy of the complaint to the respondent with a request for a detailed written response within 10 workdays , A reasonable request for extension of the 10-workday period may be granted 3 Advise the complainant that the complaint has been received and is under investigation, and that the complainant will be notified of VA findings. Bear in mind that an investigation and report of findings and a recommended resolution of the complaint must be completed within 20 workdays of receipt of the written complaint. The LGO is responsible for the conduct of all discrimination complaint Conduct an investigations. Investigation , Portions of the investigation may be delegated to staff under the close monitoring and guidance of the LGO. 13-36 Continued on next page September 16, 1996 M26-1, Revised 13.14 Discrimination Complaints, Continued Conduct an Investigation (continued) All complaints and allegations will be considered valid until refuted by the subsequent development of facts. While the investigative methods used in developing the facts of a specific complaint are left to the discretion of the LGO, the following basic steps must be taken in each investigation: Step Action 1 Search the respondent's individual file to determine whether the respondent has been the subject of previous complaints. 2 Examine the respondent's general operating practices to provide a basis for determining whether the complainant was treated in a standard manner. 3 Interview all parties involved in the complaint. , Properly qualified staff - either Loan Guaranty personnel, Regional Counsel, or field examiners - will conduct the interviews. Post- Investigation Procedures Follow these steps upon completion of the investigation: Step Action 1 Evaluate the discrimination complaint. 2 Prepare a comprehensive report of findings and a recommended resolution of the complaint. Furnish Central Office (264) with the report and recommended 3 resolution within 20 workdays of receipt of the written complaint. , If the investigative report is unavoidably delayed, submit an interim report to arrive in Central Office (264) on or before the 20th workday following receipt of the written complaint. Include in the interim report: , A summary of the status of the investigation , Reasons for delay , A projected date for completion of the investigation. Continued on next page 13-37 M26-1, Revised September 16, 1996 M26-1, Revised September 16, 1996, Continued Post-Investigation Procedures (continued) Step Action Once a final report is submitted, Central Office will advise the station 4 of the appropriate disposition of the case. , Do not close a complaint, forward a final report to the complainant or respondent, or impose sanctions until the station receives instructions from Central Office. , This is because sanctions may be imposed pursuant to 38 CFR Part 44 and a hearing required, with the burden of proof on VA. Central Office will ensure the facts are well-developed and sufficient to document discrimination Implement the course of action specified by Central Office within 5 5 workdays following receipt of the Central Office notice and appropriately annotate the complaint. , In some instances Central Office may determine that the complaint and supporting documentation should be referred to the Department of Justice for consideration of criminal or civil action, or to the Department of Housing and Urban Development, the Federal Trade Commission, or another Federal agency. Central Office will provide appropriate instructions. Discrimination Complaint Maintain the following three types of files in the Loan Guaranty Division: Files 3 File Types Explanation A pending file , For complaints received by telephone, awaiting written confirmation , It contains each VA Form 26-6715 with a copy of the letter transmitting the VA Housing Discrimination Complaint form attached. A closed file , Only for those complaints registered by telephone and never confirmed in writing , When a completed complaint form has not been received within 30 workdays from the date of its transmittal, VA Form 26-6715 and the attached transmittal will be transferred from the pending to the closed file in accordance with RCS VB-1, part I, item No. 12-055.200. Continued on next page 13-38 September 16, 1996 M26-1, Revised 13-38 September 16, 1996 M26-1, Revised, Continued Discrimination Complaint Files (continued) 3 File Types Explanation Individual , A complainant's file will be established when the VA complaint files complaint form is returned or a written complaint is received. , Alphabetize all individual files by name. , Each file will contain VA Form 26-6715 and attached transmittal from the pending folder, the completed VA complaint form or written complaint, and all subsequent correspondence, documents, and materials related to the complaint, it's investigation, and ultimate resolution. , When the complaint has been closed, the originals of all material will be retained in the individual complainant's file in accordance with RCS VB-1, part I, item No. 12-055.100. Copies of the complaint and the correspondence with the complainant and respondent closing the case will be placed in the loan file, if any, and the appropriate program participant or fee personnel file (RCS VB-1, part I, item No. 12-224.000) maintained in Loan Guaranty Division; i.e., the lender, builder, appraiser, compliance inspector, or management broker file. Maintain a discrimination complaint log for quick reference and easy retrieval in accordance with RCS VB-1, part I, item No. 12-055.300. The log will contain five columns as follows: Column Item 1 Complainant's name , Enter the complainant's case number, if there is one, under the complainant's name. 2 Nature of complaint , Enter an abbreviated description of the basis of the complaint (race, sex, age, etc.) and the type of discrimination (low appraisal, loan denied, offer rejected, etc.) in the nature of complaint column. Continued on next page 13-39 M26-1, Revised September 16, 1996 M26-1, Revised September 16, 1996, Continued (continued) Column Item 3 Date received 4 Status of complaint 5 Date closed , The date closed will be the date the field station closes the complaint as directed by Central Office. 13-40 September 16, 1996 M26-1, Revised Exhibit 13-A Sample Letter Imposing Limited Denial of Participation CERTIFIED MAIL RETURN RECEIPT REQUESTED Dear Mx. XXXXXX: Effective (date of this notice), and continuing ("through" date sanction expires or "until VA determines all construction deficiencies have been resolved"), you are prohibited from participating as a (specify roles participant is excluded from) in the VA (specify loan guaranty and/or other applicable programs) anywhere within the jurisdiction of VA's Office. This includes describe territory by state, county, etc.). The cause of this limited denial of participation, under 38 CFR 44.705 (list specific letter and numerical references for the applicable sections), is (state exact regulatory language of applicable causes). The conduct leading to this determination includes: (1) (describe specific conduct or transactions) (2) (3) (Include this paragraph only in cases where a builder is excluded for an indeterminate period because of construction deficiencies.) Your limited denial of participation will be lifted by VA once you have resolved the construction deficiencies which led to the sanction. Should you wish to participate in VA's (loan guaranty and/or other programs) program in the future, you will be required to (specify corrections of existing construction deficiencies required and controls that must be put in place to ensure these deficiencies are not repeated in the future). Once VA is satisfied that all necessary corrective action has been taken, we will inform you of your right to participate in the (loan guaranty and/or other programs) program again. Continued on next page 13-41 M26-1, Revised September 16, 1996 M26-1, Revised September 16, 1996, Continued You have the right to request a conference regarding this limited denial of participation. If you choose to request a conference, you must submit a request in writing within 30 days of receipt of this letter. You have the right to have such conference held within 10 business days of VA's receipt of your request. The conference is an informal proceeding at which you may present any relevant information and materials to the presiding VA official. You may be represented by counsel at the conference if you choose. After consideration of the information and materials presented at such conference, the VA official shall advise you in writing of the decision to withdraw, modify or affirm the limited denial of participation. If you choose to request a conference, please direct your request to: Director VA Regional Office XXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXX Any questions you have regarding this matter should be directed to XXXXXXXXXX at XXX-XXX-XXXX. Sincerely yours, XXXXXXXXX 13-42