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We audited the U.S. Department of Housing and Urban Development (HUD), Office of Native American Programs’ sale of defaulted loan notes and real estate-owned (REO) properties on tribal trust and other restricted lands. We performed this audit as a result of congressional interest in the Section 184 program and work performed during prior HUD, Office of Inspector General, audits. The objective of our audit was to determine whether HUD appropriately marketed, sold, and tracked defaulted loan notes and REO Section 184 tribal trust land properties.

HUD appropriately marketed and sold Section 184 properties on restricted lands. However, its systems and controls for managing its portfolio of defaulted loan notes and REO Section 184 tribal trust land properties had weaknesses. This condition occurred because HUD prioritized its limited resources to focus on processing and guaranteeing new loans rather than defaulted loan notes and REO properties on trust land. As a result, HUD may continue to experience delays in selling defaulted loan notes and REO properties. These weaknesses could lead to unnecessarily vacant, abandoned, and blighted properties on trust lands, which could have a negative impact on the Loan Guarantee Fund.

We recommend that the Deputy Assistant Secretary for Native American Programs (1) consider conducting an analysis of staffing resources needed to manage the REO and notes sales on tribal trust properties program and adjust staffing accordingly; (2) revise HUD’s internal policies and procedures to include detailed written policies and procedures for the marketing, preservation, and sale of defaulted loan notes and REO properties on tribal trust and other restricted lands; and (3) work with the Office of the Chief Information Officer to develop an electronic solution, such as a new module in Native Advantage or one similar to the Federal Housing Administration’s P260 tracking system, to track the sale of defaulted loan notes and REO properties on tribal trust and other restricted lands. While the solution is being developed, HUD should put controls into place to ensure that manual systems used to track defaulted loans and REO properties are complete and accurate.