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Streamlining and Consolidation of the Sections 514, 515, 516, and 521 Multi-Family Housing (MFH) Programs
Note: EPA no longer updates this information, but it may be useful as a reference or resource.
[Federal Register: June 2, 2003 (Volume 68, Number 105)]
[Proposed Rules]
[Page 32871-32954]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jn03-36]
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DEPARTMENT OF AGRICULTURE
Rural Housing Service
7 CFR Part 3560
RIN 0575-AC13
Streamlining and Consolidation of the Sections 514, 515, 516, and
521 Multi-Family Housing (MFH) Programs
AGENCY: Rural Housing Service, USDA.
ACTION: Proposed rule.
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SUMMARY: The Rural Housing Service (RHS), formerly Rural Housing and
Community Development Service (RHCDS), a successor Agency to the
Farmers Home Administration (FmHA), proposes to streamline and
reengineer its regulations and to utilize private sector process and
techniques in the administration of the origination, management,
servicing, and preservation of its Multi-Family Housing (MFH) programs.
These programs include the section 515 Rural Rental Housing (RRH) loan
program, the section 514/516 Farm Labor Housing loan and grant program,
and the section 521 Rental Assistance (RA) program.
This action is to reduce regulations, assure quality housing for
residents, improve customer service, and improve the Agency's ability
to achieve effectiveness and flexibility in managing the MFH portfolio.
This streamlining will result in a reduction to the Code of Federal
Regulations (CFR) coverage of the MFH programs by 90 percent. To
explain how this was accomplished, the rewrite of the 1930-C regulation
is offered as an example. This regulation alone covers 366 pages of
CFR. The extensive language currently describes in detail, the form and
format for conducting internal MFH supervisory activities by Agency
personnel. This regulation has been replaced in the proposed rule with
a four-page chapter. This was accomplished by using the authority of
the regulation to develop a new handbook, which will provide direction
on conducting monitoring actions. The handbook will incorporate many
ideas that were obtained from the streamlining process into the
streamlining of Agency supervisory efforts and will clarify and
standardize the monitoring requirements, thereby reducing burden on
borrowers and management agents.
DATES: Written or e-mail comments on this proposed rule must be
received on or before August 1, 2003.
ADDRESSES: Written comments may be submitted, in duplicate, to the
Branch Chief, Regulations and Paperwork Management Branch, Support
Services Division, U.S. Department of Agriculture, Stop 0742, 1400
Independence Avenue SW., Washington, DC 20250-0742. Comments may be
submitted via the Internet by addressing them to
``comments@rus.usda.gov'' and must contain the word ``Streamlining'' in
the subject. All comments will be available for public inspection at
3rd floor, 300 E Street, SW., Washington, DC 20546 during normal
working hours.
FOR FURTHER INFORMATION CONTACT: Sue Harris-Green, Deputy Director,
Multi-Family Housing Direct Loan Division, Rural Housing Service, U.S.
Department of Agriculture, Room 1241, South Building, Stop 0781, 1400
Independence Avenue, SW., Washington, DC 20250-0781; Telephone: (202)
720-1660.
SUPPLEMENTARY INFORMATION:
Classification
This proposed rule has been determined to be significant and was
reviewed by the Office of Management and Budget (OMB) under Executive
Order (E.O.) 12866.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' It is the determination of RHS
that the proposed action does not constitute a major Federal action
significantly affecting the quality of the environment and in
accordance with the National Environmental Policy Act of 1969, Pub. L.
91-190, an Environmental Impact Statement is not required.
Regulatory Flexibility Act
The proposed rule has been reviewed with regard to the requirements
of the Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned
has determined and certified by signature on this document that this
rule will not have a significant economic impact on a substantial
number of small entities since this rulemaking action does not involve
a new or expanded program nor does it require any more action on the
part of a small business than required of a large entity.
Executive Order 13132, Federalism
The policies contained in this rule do not have any substantial
direct effect on states, on the relationship between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government. Nor does this
rule impose a substantial direct compliance costs on state and local
governments. Therefore, consultation with the states is not required.
Civil Justice Reform
This proposed rule has been reviewed under E.O. 12988, Civil
Justice Reform. If this proposed rule is adopted: (1) Unless otherwise
specifically provided, all state and local laws that are in conflict
with this rule will be preempted: (2) no retroactive effect will be
given this rule except as specifically prescribed in the rule; and (3)
administrative proceedings of the National Appeals Division of the
Department of Agriculture (7 CFR part 11) must be exhausted before
bringing suit.
Unfunded Mandate Reform Act
Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub. L.
104-4, establishes requirements for federal agencies to assess the
effects of their regulatory actions on state, local, and tribal
governments and the private sector. Under section 202 of the UMRA,
federal agencies generally must prepare a written statement, including
cost-benefit analysis, for proposed and final rules with ``federal
mandates'' that may result in expenditures to state, local, or tribal
governments, in the aggregate, or to the private sector, of $100
million or more in any one year. When such statement is needed for a
rule, section 205 of the UMRA generally requires a federal Agency to
identify and consider a reasonable number of regulatory alternatives
and adopt the least costly, more cost effective or least burdensome
alternative that achieves the objectives of the rule.
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for state, local and tribal
governments or the private sector. Therefore, this rule is not subject
to the requirements of sections 202 and 205 of the UMRA.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995, the Agency
will seek Office of Management and Budget (OMB) approval of the
reporting and recordkeeping requirements contained in this proposed
regulation.
Title: Direct Multi-Family Housing Loans and Grants.
Type of Request: New Information Collection.
Abstract: Through public and private partnerships, RHS enables
limited profit and nonprofit sponsors to develop rental housing for
low-, very low- and moderate-income rural residents across rural
America. In addition, loans and grants are made to house farmworkers,
[[Page 32873]]
one of the most under-housed segments of our society. The $11.8 million
portfolio of 444,000 units and nearly 17,400 projects often provides
the only decent, safe, and sanitary affordable rental housing available
in rural areas.
The information collected is used by the Agency to manage, plan,
evaluate, and account for Government resources. The reports are
required to ensure the proper and judicious use of public funds.
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 0.61 hours per response.
Respondents: Limited for profit and nonprofit developers, public
bodies and rural tenant households.
Estimated Number of Respondents: 500,000.
Estimated Number of Responses per Respondent: 4.3.
Estimated Number of Responses: 2,166,709.
Estimated Total Annual Burden on Respondents: 1,318,434 hours.
Copies of this information collection can be obtained from Tracy
Givelekian, Regulations and Paperwork Management Branch, at (202) 692-
0039.
Comments are invited on: (a) Whether the proposed collection of
information is necessary for the proper performance of the functions of
the Agencies, including whether the information will have practical
utility; (b) the accuracy of the Agencies' estimate of the burden of
the proposed collection of information, including the validity of the
methodology and assumptions used; (c) ways to enhance the quality,
utility, and clarity of the information to be collected; and (d) ways
to minimize the burden of the collection of information on those who
are to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology.
All responses to this notice will be summarized, included in the
request for OMB approval, and will become a matter of public record.
Comments should be submitted to Tracy Givelekian, Regulations and
Paperwork Management Branch, Support Services Division, Rural Housing
Service, U.S. Department of Agriculture, STOP 0742, 1400 Independence
Avenue, SW., Washington, DC 20250-0742. A comment is best assured of
having its full effect if it is received within 30 days of publication
of this rule.
Programs Affected
The programs affected by this regulation are listed in the Catalog
of Federal Domestic Assistance under number 10.405--Farm Labor Housing
Loans and Grants; 10.415--Rural Rental Housing Loans; and 10.427--Rural
Rental Assistance Payments.
Intergovernmental Consultation
These loans are subject to the provisions of E.O. 12372 which
require intergovernmental consultation with state and local officials.
RHS conducts intergovernmental consultations for each loan in a manner
delineated in RD Instruction 1940-J (available in any RD office and on
the Internet at http://rdinit.usda.gov/regs/). 
Background Information
An Overview
Most communities in rural America have a scarcity of decent rental
housing affordable to very low-income families. In addition, migrant
farm workers and farm laborers, whose incomes are extremely limited,
face some of the worst housing conditions in the nation. Despite
improvements in housing quality, especially in the number of rural
units with complete plumbing facilities, there are about 2.7 million
families who live in substandard housing. According to 1990 census
data, rural renters were more than twice as likely to live in
substandard housing as people who owned their own homes. With lower
median incomes and higher poverty rates than homeowners, many renters
are simply unable to find decent housing that is affordable. RHS's
rental housing programs are some of the few resources that enable the
very low-income renters in rural America to access decent, safe,
sanitary and affordable housing. In many of America's rural
communities, there are simply no other safe and sanitary alternatives
for very low-income people.
Through public and private partnerships, RHS enables limited profit
and nonprofit developers to build rental housing for low-income and
very low-income tenants across rural America. The $11.8 billion
portfolio of 444,000 units and nearly 17,400 projects often provides
the only decent, affordable rental housing available in rural areas.
The program provides affordable rental housing to very low income and
low-income rural families, to handicapped and to elderly residents. The
average tenant has an adjusted income of $8,105.
This direct loan program employs a public-private partnership by
providing subsidized loans at an interest rate of 1 percent to
developers to construct or renovate affordable rental complexes in
rural areas. This 1 percent loan keeps the debt service on the property
sufficiently low to support below-market rents affordable to low-income
tenants. Many of these projects also utilize low-income housing tax
credit proceeds. This program is typically used in conjunction with RHS
section 521 Rental Assistance, which provides project-based rental
assistance payments to property owners to subsidize tenants' rents to
an affordable level. With rental assistance, tenants pay 30 percent of
income towards their rent (including utilities). Some 515 projects also
utilize HUD's Section 8 project-based assistance, which enables
additional very low-income families to be served.
Goals of the Regulatory Streamlining Process
This proposed rule is a result of RHS's pledge to make its programs
more customer-friendly, streamline the processes, reduce costs to the
taxpayer, and increase the Agency's level of customer service. This
goal was accomplished through the input and commitment that resulted
from numerous stakeholder meetings with recognized leaders in the
multi-family industry. These leaders included borrowers, management
agents identified by industry groups and tenant representatives.
Representatives of state housing finance agencies, accounting firms and
the USDA Office of Inspector General also participated. Through these
meetings, we were able to draw a vast amount of expertise and knowledge
to meet the following objectives of MFH streamlining and consolidation:
Assure affordable safe, decent and sanitary housing for very low and
low-income residents of rural America.
? Consolidate and simplify 13 regulations into one regulation
for rural rental housing, farm labor housing and rental assistance.
? Develop an efficient loan application process that supports
the creation of partnerships and leveraging with local, state and other
federal entities.
? Clarify our existing policies and procedures to reflect the
best practices within the Agency and within the multi-family field.
? Improve efficiency and service to our customers, correcting
past problems and addressing concerns raised by our stakeholders so
that particularly complex processes, such as preservation, work better.
? Make much of the farm labor housing review and approval
processes the same as those for rural rental housing.
? Create a series of handbooks available to the field staff
and to our
[[Page 32874]]
applicants, borrowers and partners that will give clear guidance on
policies, such as project budget approvals, determining project
feasibility, and servicing actions.
Streamlining and Consolidation
The Proposed Regulation
RHS has undertaken a major redevelopment and consolidation of Rural
Development regulations affecting the sections 514, 515, 516, and 521
Multi-Family Housing (MFH) programs. The result of the streamlining and
consolidation is a proposed rule that revises and consolidates Agency
regulations affecting the section 514, 515, 516, and 521 Multi-Family
Housing (MFH) Programs. This rule consolidates the policies outlined in
13 separate regulations and a number of administrative notices into one
regulation and moves the procedural guidance to program handbooks. A
list of the regulations being consolidated follows:
? 7 CFR part 1806, subpart A--Real Property Insurance.
? 7 CFR part 1930, subpart C--Management and Supervision of
Multi-Family Housing Borrowers and Grant Recipients.
? 7 CFR part 1944, subpart D--Farm Labor Housing Loan and
Grant Policies, Procedures, and Authorizations.
? 7 CFR part 1944, subpart E--Rural Rental and Rural
Cooperative Housing Loan Policies, Procedures and Authorizations.
? 7 CFR part 1951, subpart D--Final Payment on Loans.
? 7 CFR part 1951, subpart K--Predetermined Amortization
Schedule System (PASS) Account Servicing.
? 7 CFR part 1951, subpart N--Servicing Cases Where
Unauthorized Loan or Other Financial Assistance Was Received--Multi
Family-Housing.
? 7 CFR part 1955, subpart A--Liquidation of Loans Secured By
Real Estate and Acquisition of Real and Chattel Property.
? 7 CFR part 1955, subpart B--Management of Property.
? 7 CFR part 1955, subpart C--Disposal of Inventory Property.
? 7 CFR part 1956, subpart B--Debt Settlement Farm Loan
Programs and Multi-Family Housing.
? 7 CFR part 1965, subpart B--Security Servicing for Multiple
Housing Loans.
? 7 CFR part 1965, subpart E--Prepayment and Displacement
Prevention of Multi-Family Housing Loans.
These changes have two clear benefits. First, the consolidated
streamlined regulation makes information easier to access. Answers to
policy questions are found in one document that has been shortened from
over 1,500 pages to approximately 180 pages. Similarly, answers to
process and implementation questions are found in three handbooks.
These handbooks provide ``how-to'' guidance on loan origination, asset
management, and loan servicing. Agency staff, property owners, property
managers, and residents can look for most of their answers to day-to-
day questions in the handbooks where they will find plain English
explanations and examples. If the regulatory basis for a procedure is
in question, that information can be easily found in the streamlined
regulation. The increased ease of finding information should help
improve public understanding of the rules and eliminate inconsistencies
in interpretation.
Second, the division of policy and procedure gives the agency more
flexibility to update and revise program procedures. For example, as
automation changes the way program reporting occurs, relevant
procedures can be updated in the handbooks without going through a
complex process of changing the regulation. This will make the agency
more responsive to changes in the business environment, an important
initiative as the Federal Government strives to have more of its
business conducted on-line and through electronic submissions.
The paperwork burden reduction resulting from the proposed rule
would be approximately 25 percent. This estimate is derived from the
Paperwork Burden Report that RHS prepared.
The Proposed Handbooks
As stated above, the Agency is developing three separate handbooks
that will present the reader with the administrative guidance on
matters. One handbook will be devoted entirely to General Requirements
and Loan Origination Requirements. It will instruct the reader on
procedures and provide information on matters such as what forms must
be filed, where to submit loan requests and the agency's internal
processing procedures. The same principles will be followed in the
publication of the Asset Management Handbook and the Project Servicing
Handbook respectively. The handbooks will not be published in the
Federal Register but will be available to the public at no cost.
RHS is currently developing the proposed Handbooks while
aggressively analyzing all existing burden imposed upon the public to
obtain and retain MFH program assistance. The Handbooks will be
available on RHS's Web site at http://www.rurdev.usda.gov/rhs/index.html.
Access to the Handbooks will also be available through the
local RHS servicing office.
Current Regulations and Notices
Current regulations may be found on RHS's Web site at
http://rdinit.usda.gov/regs/index.html or in the Code of
Federal Regulations.
Exhibits
Many of the exhibits that are part of the current regulations may
be found in the three companion handbooks to 7 CFR part 3560: Loan
Origination, Asset Management, and Project Servicing. The Loan
Origination Handbook will provide RHS multifamily housing staff with
the guidance needed to originate loans and grants efficiently and
effectively. The Asset Management Handbook will provide RHS multifamily
housing staff with guidance about the Agency's procedures for
overseeing borrowers' performance in meeting their responsibilities
under the program. The Project Servicing Handbook will provide Loan
Servicers with guidance about the Agency's procedures for servicing
actions involving borrowers receiving loans or grants for multifamily
housing projects. As an example, Exhibit A-13 of 7 CFR part 1944,
subpart E will be found in Attachment 6-B to Chapter 6 of the Loan
Origination Handbook and Exhibit B-1 of 7 CFR part 1930, subpart C will
be found in Exhibit 3-1 of Chapter 3 of the Asset Management handbook.
Changes to the Rule With Significant Impact
Reserve Requirements for Project Improvements
This proposed rule will require an annual minimum of 1 percent of
total development cost to be put in a reserve account, with a maximum
reserve requirement up to the level needed to assure resources being
available to maintain the housing at Agency standards.
Current regulations include standards for physical condition,
maintenance, and reserve levels to address the physical condition of
the property. However, projects are experiencing physical maintenance
problems due to their average age. One of the sources of this problem
is that project reserves are inadequate to cover ongoing capital needs.
Current regulations require that borrowers contribute initially 1
percent annually of total development costs toward a reserve for
project
[[Page 32875]]
improvements until a total of 10 percent is reached. While borrowers
are permitted to request adjustments to their reserve contributions,
there is no systematic provision for reevaluating reserves over the
life of the project. A recent study found that while an average MFH
project has accumulated $5,000 in reserves per unit at the end of 10
years and maintained at that level thereafter, the full cost of
rehabilitation is likely to be close to $16,000 per unit. When
rehabilitation is needed and the reserve is inadequate to meet the
need, the project owner usually applies for a subsequent loan, which,
if received, requires that rents be increased. In recent years, RHS has
been experiencing a growing number of requests for subsequent loans and
rent increases to cover costs of rehabilitation, while funding for such
loans has been limited.
Increasing the reserve requirements would be appropriate to address
the physical needs and the life expectancy of most MFH projects. It
will help reduce the need for subsequent loans or servicing actions,
and improve the long-term physical condition of projects and help
protect the MFH portfolio from defaults. In existing projects where RHS
is taking servicing actions, the proposed rule would help ensure that
each project's physical needs are addressed in current servicing
actions and, thus, reduce the need for attention at a later date. Such
servicing actions include write-downs of existing loans. Thus, it is
possible that the proposed rule would result in additional write-downs
as a means of addressing the need for the project improvements. To
date, RHS has written-down only a limited number of MFH loans. Further,
the additional reserve requirement will be reflected in project costs,
which means that rents will increase, and the amount of rental
assistance payments needed to maintain existing contracts for such
assistance will increase.
Investment Earnings on Reserve Account Funds
RHS has found that most project owners are putting their reserve
funds in accounts that earn no or minimal income. The average reserve
account has been earning only 2 percent interest annually. Project
owners indicate that, under current regulations and tax rules, they
have few options for investing these funds and face a strong
disincentive for investing them in a manner that maximizes their
return. The disincentive is due to Internal Revenue Service (IRS) rules
that treat income earned on reserve accounts as investment income for
the owner and, thus, taxable, rather than project income.
The proposed rule makes two changes to address these limitations.
First, it allows a greater number of investment options. These options
include relatively conservative investment vehicles that are used by
other public agencies and are not expected to pose a significant
increased risk to the funds. This change would give owners more
flexibility for investing their reserve funds and is expected to result
in greater returns on these funds and thus more income to be put toward
better project operations and capital improvements. The increase in
interest income would lower the amount needed from tenant rents and
rental assistance to meet project needs.
Second, the rule addresses the issue of ``phantom income,'' the
interest income earned on reserve accounts. This income is committed to
the project but not accessible to the owner. To ease the burden of
paying taxes on this ``phantom income,'' the rule allows owners, with
RHS' approval, to withdraw up to 25 percent of the annual interest
income earned on the reserves to cover the tax expense. The 25 percent
allowance was determined to be a reasonable estimate of the tax rate
for the average investor. It was decided to use a single rate for all
owners to simplify the administration of this feature. RHS also
consulted with OIG and the American Institute of Certified Public
Accountants (AICPA) in arriving at the 25 percent figure.
Prepayment Policies and Procedures
The agency, borrowers, and tenant advocates agreed that the
prepayment request process is a difficult and confusing process. Agency
staff in the National Office recognized that they were spending a great
deal of time providing technical assistance to Field Offices in
responding to prepayment requests. Borrowers commented that the process
was unduly burdensome to borrowers who were within their rights to
request prepayment. Tenant advocates pointed out that tenants are
virtually excluded from the process because the process complexity
makes it difficult for tenants to take action. Discussion of these
concerns at the stakeholders meetings indicated that RHS needed to
clarify many of the policies toward prepayment and where possible, make
policy changes that would help simplify the process. Consequently, the
proposed rule includes changes to agency policy regarding tenant
notification and projects on the waiting list for incentives.
Tenant Notifications
Stakeholders suggested changes to the content and timing of tenant
notifications to provide tenants with the information they need to
participate in the prepayment process. The proposed rule replaces the
requirement for one early tenant notification with a series of
notifications aimed at keeping the tenants informed of the Agency's and
the borrower's decisions throughout the process.
Waiting List
One of the most common complaints heard about the prepayment
process is its open-ended nature. Borrowers who are approved for
incentives and agree to stay in the program in exchange for incentives
may have to wait years before the funds for the incentives become
available. The current waiting list includes requests for incentives
dating back to 1996. The proposed rule establishes a maximum time on
the waiting list of 15 months and allows borrowers three choices at the
end of that time: (1) Stay on the waiting list and continue waiting for
the incentives, (2) withdraw from the list and continue operating the
property for program purposes, or (3) offer to sell the property to a
nonprofit organization. This last option may allow some properties,
eventually to prepay if they complete the process involved in offering
the project for sale and fail to receive a bona fide offer. However,
this option responds to the reality that the agency may not always have
the resources to keep borrowers in the program indefinitely and that
costly legal battles are likely if they do not allow the borrowers
other options. Currently, the prepayment waiting list contains
approximately 15 properties that have exceeded the 15-month time
period. However, this number would be expected to grow appreciably over
the next few years without a significant increase in funding for
incentives to accommodate the anticipated increase in number of
projects meeting the 20-year statutory restrictions on use.
Further, it is believed that many borrowers have not applied for
prepayment incentives and joined the waiting list because of the
extended time period they must currently remain on the list. If the 15-
month maximum time period is implemented, a greater number of these
borrowers may seek prepayment with the expectation that they will be
allowed to exercise one of the three options at the end of the 15-month
time period. If borrowers do prepay and convert their apartment
complexes to market rate units, RHS
[[Page 32876]]
will take measures to protect the tenants at these properties by
providing them a letter of priority entitlement (LOPE) that gives them
priority in agency-financed housing elsewhere. However, if alternative
vacant RHS financed rental housing is not available in the market, the
impacted tenants face displacement or rent overburden if they remain in
place.
Incentives
The proposed rule clarifies the Agency's policy on incentives and
adds several requirements to help ensure that the limited amount of
funding available for incentives, as discussed in the overview section
of this analysis, is used efficiently to benefit the program. For
example, the proposed rule outlines the process a borrower must follow
when requesting permission to prepay and be eligible to receive
incentives.
In addition, the proposed rule clarifies that third-party equity
loans are an option for borrowers who are seeking equity loans through
the prepayment process. The use of third-party equity funding stretches
RHS incentive funds by providing resources from alternative funding
sources. However, it should be noted that debt costs from other sources
might be higher than financing received under the Section 515 program.
For example, Section 515 funding is lent at an effective 1 percent
interest rate and amortized for 50 years, whereas, third-party funds
may be lent at rates ranging from interest free to market rate
depending upon the source of the funds, with amortization periods
ranging from fully deferred to 30 years. All proposed third-party
incentive loans must be underwritten and reviewed to the same standard
as RHS Section 515 lending to ensure that no project is made
financially unfeasible as a result of a third party loan.
Initial Operating Capital
Under current regulations, borrowers are required to pay the
equivalent of 2 percent of the cost of developing a project into an
account for initial operating costs. They earn no interest on this
account, which also receives funds from other sources including rental
income. If, within 2 years, the project is operating successfully and
there is sufficient capital in the operating account to maintain the
financial soundness of the account, the borrower may take out up to the
full amount of his /her contribution. While on deposit in the operating
account, the borrower receives no return on investment for the funds.
After 2 years, any portion of the contribution that is still in the
account must remain there for meeting ongoing operating capital needs.
During the stakeholder meetings, borrowers expressed concern that
the current regulation does not allow them sufficient time to recover
their contribution, even when a project is functioning well and no
longer needs the additional capital. RHS determined that the 2-year
limit was originally due to difficulties in tracking the funds within
the projects overall budget, and that its new ADP system, MFIS III, has
the capacity to provide better tracking and disclosure of these funds.
Therefore, RHS has included a provision in the proposed rule that would
extend the time limit for the recovery of initial operating capital
from 2 to 7 years. In selecting 7 years for the new limit, RHS received
input from field staff and industry groups indicating that the
prospects for recovery after 7 years were minimal, either because
financial soundness could not be established or the owner was willing
to leave his/her contribution in the account.
This change would allow more borrowers to fully recover the
payments they made to initial operating capital accounts. It is
uncertain how many borrowers would benefit from the change and how many
dollars these borrowers would be allowed to recover from these
accounts. Because of the limitation on recovery from only financially
sound accounts, it is unlikely that there would be immediate, negative
impacts on the performance of the MFH programs. However, it should be
noted that by allowing borrowers to recover funds from initial
operating capital accounts, these funds would not be available for
ongoing capital needs. The potential withdrawal of initial operating
capital is not considered to have significant impacts on rents and,
thus, costs to the Government and tenants. While it would tend to make
it more difficult to avoid rent increases, it is far outweighed by
other changes in the proposed rule, specifically, the raising of
reserve requirements and additional earnings on reserve accounts.
Other Changes to the Rule
Conventional Rents for Comparable Units
RHS has developed the concept ``Conventional Rents for Comparable
Units'' (CRCU). This is one of the most comprehensive policy issues
that 7 CFR part 3560 will introduce. The concept is applicable to loan
origination, budgets, loan servicing, replacement reserve set-asides,
preservation, and other program areas. In essence, rents will be capped
at conventional rents for comparable units in the area where the
housing is located. Comparable units would be those equivalent to RHS
financed units in terms of quality and amenities. If no such units are
located in the same community, units from a similar community could be
used for comparison. Comparable units also means that the units the
Agency finances would meet a standard of economical development, i.e.,
modest in size, facilities and design, yet compatible with the
community.
RHS will continue to require that rents be based on the project's
operating costs. However, under the proposed rule, RHS would not
approve project proposals, servicing actions, or prepayment incentives
that involve rents above the CRCU, except in exceptional circumstances,
where such rents are determined to be in the best interest of the
Government and the tenants of the project.
By placing an upper limit on rents, RHS expects to protect the
Government from investing in projects that may be wasteful or
fraudulent, and to ensure that projects are competitive so that vacancy
and other market-driven problems can be avoided. In this way, the CRCU
should improve the long-term viability of MFH projects, limit the costs
of RA, and reduce the risk of defaults.
However, the proposed rule maintains flexibility for serving areas
where MFH projects provide the only decent, safe and sanitary rental
housing in a local housing market, or where a significant amount of the
substandard housing rents for less than the cost of operating an MFH
project. In such cases, RHS may base the CRCU on rents outside the
local community. It may also grant an exemption for exceptional
circumstances.
CRCU will create a definitive underwriting standard. It will apply
to leveraging other low-interest loan funds or paying for additional
owner contributions (up to 3 percent return on investment (ROI) over
required contribution); improving project design and amenities (within
the definition of economical development); and adjusting reserves or
other serving actions. In areas where rents are below CRCU, Rental
Assistance (RA) costs and loan levels may increase. However, it will
also ensure ``marketable units'' should the Agency lose RA.
The Agency is asking public input on whether exclusions to CRCU may
be needed in certain areas of the country where conventional rents may
not be adequate to fund operation and maintenance, debt service and
replacement reserve expenses plus an
[[Page 32877]]
aged upon owner's return on investment.
Cost Reasonableness Basis for Evaluation of Project Proposals
The proposed rule also includes changes related to evaluating the
cost reasonableness of project proposals. Under current regulations,
the agency has applied a policy of cost containment when evaluating
whether the costs of the proposed design for new projects are
reasonable. While this policy has effectively held down construction
costs for new projects, agency field staff and borrowers report that
lower-cost project design features are not always cost-effective over
the long term. They report that while certain design features reduce
initial construction costs, they actually cost more over the life of
the project because the components used require higher levels of
maintenance and more frequent replacement.
Projects with these design features experience higher routine
maintenance costs, higher expenditures of project reserves, and a
greater need for subsequent financing for rehabilitation. The result is
an upward pressure on project rents and increased use of rental
assistance payment assistance. To the extent a project cannot support
the rent increases needed to cover these costs, the project faces an
increased risk of financial failure or compliance violations due to
physical deficiencies.
Currently, RHS has no process for conducting life cycle analyses.
The proposed requirement for a life cycle cost analysis will be used
for new and existing facilities. The requirement is intended to assure
quality construction as well as long-term viability of complexes.
Reserve levels would be set based on life cycle costs to provide
necessary resources when needed to replace essential building
components. Existing loan agreements are to be modified as needed by an
addendum properly executed by the borrower. Under the proposed rule,
the agency would change its policy for evaluating project proposals to
consider the life cycle costs of proposed project designs. Under this
policy, the agency may approve a proposed project design that is not
the lowest cost if a life cycle cost analysis prepared by the project
architect reveals that the design achieves the lowest overall cost over
the life of the project. Industry standards will be used for the
analysis. To assure that new projects are affordable and appropriate to
the local housing market, the proposed rule restricts the agency from
approving project designs that would cause rents to exceed the market
standard (except in exceptional circumstances where such costs are
determined to be in the best interest of the Government and the
tenants). Examples of two design features that may cost more initially
but decrease operating expenses over the life of the project are brick
exteriors and increased thermal standards. In the past, many projects
were built using a popular exterior plywood siding. These buildings are
now requiring replacement of the original siding. Similar buildings
that utilized brick as an exterior finish or partial finish are not
having similar expenses, therefore, decreasing demands on the reserve
accounts. Thermal standards in RHS financed projects often exceed local
codes. By building RHS projects more energy efficient, tenant and owner
utility expenses are kept lower, thereby, decreasing the need for rent
increases or tenant utility allowance increases. By avoiding the
additional rent and utility allowance increases, tenant rent overburden
is avoided, as is additional drain on scarce rental assistance
resources.
Because this change will allow for more costly designs, the agency
expects the size of initial loans and initial rents to grow slightly.
However, higher up-front costs would be offset by lower long-term
costs. The agency expects that new projects receiving funding under
this policy will have lower maintenance and rehabilitation needs,
leading to lower project rents and lower use of agency rental
assistance over the life of the project. Lower maintenance expenses,
resulting in rents essentially the same as projects built under cost
containment guidelines, would offset the increased debt service due to
higher construction costs. This change will also lower demand for
subsequent loans from the agency in a time when additional loan funds
are increasingly scarce.
Management Certification
Under current regulations, RHS must approve the management
agreement between the borrower and the management entity for a project.
This approval is designed to ensure that the management agent is also
accountable for meeting program requirements. However, the agency has
found that this policy results in a time-consuming approval process
because these agreements frequently include complex contractual
language that is difficult to evaluate. Further, OIG has found that
many management agreements and plans lack the specificity to accurately
describe how project and management agency costs are prorated between
expenses paid by the project and those that are paid by the management
fee.
The proposed rule eliminates agency approval of management
agreements and requires borrowers to submit a management certification
in an agency-approved format. In submitting this document, borrowers
certify that their agreement with the management entity for the project
obligates that entity to comply with program requirements, establishes
sanctions for failure to comply with these requirements, including
termination of the agent, and specifies penalties for false
certifications. This change eliminates the administrative burden on RHS
for approving management agreements, while strengthening the agency's
ability to hold borrowers and their agents accountable for their
management responsibilities. In addition, revisions to management fee
policy, discussed below, allow for a more definitive method to
differentiate between project and management agent expenses.
Management Plan
Under current regulations, borrowers are also required to obtain
RHS' approval of the management plans for their projects. The purpose
of this policy is to provide the agency assurance that the borrower and
management entities have adequate systems in place to comply with
program requirements. However, experience has shown that these plans
are time consuming to process. The requirement to obtain agency
approval for updates only adds to the burden for agency staff and
borrowers. This policy also leaves the agency in an awkward position
when borrowers with sound projects have changed their operations, but
not updated their management plan. OIG has reported audit findings
where borrowers and management agents have not been operating the
properties in conformance with the executed management plan. While this
is true, when examined, it has been found that the practice the agent
and owner have engaged in is not improper, just not documented
correctly in the management plan. The OIG has agreed that had the
practice been correctly disclosed in the management plan, the practice
would not have been listed as an audit finding. OIG has worked with the
RHS during the stakeholder process and subsequently to eliminate this
particular area of confusion. The result of the change will be that RHS
will not be required to micromanage borrower and management agent
business practices when the practice is one that is beneficial to the
tenants and the project. Additionally, fewer OIG
[[Page 32878]]
findings will result, requiring less OIG and RHS staff time to resolve.
The proposed rule eliminates agency approval of project management
plans and requires instead that borrowers submit a management plan that
addresses a specified list of operational areas. RHS staff would review
the plan to see if the required areas have been covered in the plan but
will not approve the plan. The plan will be used to monitor project
performance, but discrepancies between project operations and the plan
will not constitute a violation of program requirements unless the
discrepancies affect program performance. This change reduces the
administrative burden on RHS staff and borrowers. It also provides
borrowers with greater flexibility to make sound changes in project
operations without creating a performance concern.
Management Fees
Current program regulations require that management fees for
projects be reasonable and competitive. However, OIG staff found that
the management fees approved for projects varied significantly, ranging
from as low as $25 per unit per month to $55 per unit per month across
States. This led OIG to question whether the higher fees found in some
instances was reasonable. As with management plans, the OIG expressed
concern that current regulations were neither clear nor consistent
concerning what services were to be included in the management fee. In
some States, many of the maintenance services provided by management
company staff were included in the management fees and in other States,
the charges were not. Another example is that in some States, insurance
and tax costs for project employees were included in management fees
while in other States the costs were billed directly to the project.
Comments by agency staff at stakeholder meetings revealed that the
variations were often due to differences in field office
interpretations about the bundle of services covered by the management
fee. They noted that services not covered by the fee were paid for as a
line item on the budget. When management fees plus other fees for
services were accounted for, management compensation was consistent.
Together with representatives of the property management industry
and OIG, RHS developed the bundle of management services that is a part
of this regulatory change. By moving to a standardized grouping of
services that is to be included in the management fee, RHS and OIG
believe that the change will greatly improve consistency between areas
of the country and RHS offices. As stated in the previous paragraph, as
these services were all being provided previously but charged to the
project on different lines of the operating budget, the grouping of
these expenses in a different manner would neither increase nor
decrease the overall cost to the project or the rents being charged.
The proposed rule and accompanying handbooks address the
inconsistencies in fees by establishing a standard bundle of services
covered by the management fee and a framework for setting standard
adjustments for project characteristics that warrant slightly higher
fees, such as for a new management agent taking over a troubled
property. However, the proposed rule should improve RHS' ability to
document that the management fees for projects are reasonable. It
should also ensure consistency between RHS field offices in
interpretation of services included in fees. Additionally, the number
of OIG findings should be reduced, requiring less OIG and RHS staff
time to resolve.
Standards for Physical Conditions at Projects
Current regulations establish the borrower's responsibility to
maintain their projects in decent, safe, and sanitary condition.
However, the OIG raised concerns about consistency in the
implementation of this standard.
Therefore, the proposed rule establishes specific standards for
physical conditions that clarify the conditions that constitute decent,
safe, sanitary housing. These standards do not represent a change in
agency policy. Rather, they make agency expectations explicit and thus
improve the agency's ability to enforce physical standards, thereby
improving the quality of living conditions for tenants and better
preserving the security for agency loans.
Recertifications of Tenant Eligibility
Recertifications are used to document a tenant's income for the
purpose of determining eligibility to live in an MFH unit and qualify
for rental assistance payments. Current regulations require both an
annual recertification and an interim recertification whenever the
tenant's income changes. Stakeholders indicated that the
recertification process is time consuming for tenants, borrowers, and
the agency.
The proposed rule simplifies the process by eliminating the
requirements for an interim recertification for tenant income changes
that have an impact on the rent of $25 or less. RHS arrived at the $25
threshold by comparing the cost of re-certifying a tenant with the
benefit either the Government or the tenant would receive as a result
of increased or decreased rent. Based on consultation with industry
groups and OIG, RHS determined that the cost to re-certify a tenant was
about $150. Assuming that any change would apply for only 6 months of
the year, the $150 figure was converted to a monthly figure of $25,
which became the threshold. The regulations allow a tenant to request a
recertification any time their income decreases. This provision was
included in order not to negatively impact tenants with the lowest
income for which the $25 per month figure may constitute a significant
portion of income for which the $25 per month figure may constitute a
significant portion of income.
While a detailed analysis of how the impact of the $25 threshold
might be distributed between the Government and tenants was not
completed, recent OIG audits have indicated the current recertification
process produces approximately the same amount of rent increases as
rent decreases, and thus results in little or any overall change in
rental assistance payments.
The proposed rule also adds a requirement for electronic reporting
of information, including tenants' income. The faster transmission of
this information provides RHS with more time for analyzing the
information. Consequently, the proposed rule extends by 10 days the
period for submitting recertifications, giving borrowers more time to
comply with agency requirements, thus improving customer service while
maintaining program performance.
Lease Protection
The proposed rule would require that leases for rental units that
receive rental assistance include a clause that specifies that the
tenant's contribution to rent will not increase if rental assistance is
terminated due to actions by the borrower/owner. This requirement is
not contained in current regulations. RHS estimates that there have
been two to four incidents a year in which a borrower/owner has
attempted to make up for the loss of rental assistance payments due to
a default on his/her part, by raising tenants' rents. Such action
usually occurs in a contentious situation, with the borrower/owner
already in default and uncooperative. Consequently, requiring that the
lease include a clause specifically prohibiting such action may not
resolve all cases. However, it would provide tenants with
[[Page 32879]]
a regulatory and lease citation that could be used in bringing court
proceeding against an abusive borrower/owner. Further, it would provide
RHS with an additional instance of non-compliance with regulations that
could be used against the owner in a liquidation action or criminal or
civil court case. However, it is uncertain whether cases could be
resolve more quickly at less cost to the Government.
While the proposed rule offers some additional protection to
tenants and imposes some additional responsibility on borrower/owners,
it is difficult to place a monetary value on these impacts. Each case
is likely to be different, and the resolutions uncertain. The low
incidence, however, suggests that the impacts would not be significant
in value.
Application Process for Rental Subsidies
Rental subsidies provide critical funds for housing very low-income
tenants. Projects that receive RHS' rental assistance, including
interest subsidy and rental assistance payments, depend on the
continued availability of these subsidies to maintain in-place tenants
in their units.
Under the current regulations, borrowers must complete full rental
assistance requests to renew expiring subsidies. Stakeholders noted
that the agency gathers sufficient information through the budget
approval process to assess project needs for rental assistance.
Therefore, the proposed rule states that expiring subsidies will be
renewed, at the existing number of units; to the extent sufficient
funds are available. To indicate that rental assistance units are
needed, the borrower must fill in a single check box on the project
budget form (which must be filed annually) instead of completing a
separate form as currently required. These changes relieve borrowers of
the burden of applying and the agency the burden of reviewing the
requests. The review can instead be accomplished as part of the budget
approval process. The change has no effect on project or program
budgets, as it does not change the agency determination about rental
subsidies, it simply streamlines the process.
Budget Approval
RHS requires its borrowers to submit an annual budget, which is
used in setting rents. Approximately 92 percent of these budgets arrive
for approval at the same time because most owners operate on a calendar
year basis and their schedules for developing budgets is about the
same. Budget approval is a time-consuming process that taxes RHS staff
resources in times of high volume and forces borrowers to operate for
extended periods of time with unapproved budgets while the review
process is underway. Current regulations require that all budgets be
reviewed in the same way, regardless of whether they represent no real
change from the previous year or contain significant and potentially
controversial changes. The proposed rule establishes an expedited
review for those budgets that are within a certain threshold requiring
little or no increase in rents. The threshold will be based on data to
be obtained from the MFIS III ADP system on area-wide norms for
projects within RHS' MFH portfolio as well as commercially-available
family income and expense surveys. Details on how the threshold will be
computed will be contained in a handbook rather than the proposed rule.
This will facilitate making any necessary adjustments in the threshold
to meet changing conditions.
The new process could improve program performance by allowing RHS
to focus its review on those budgets that contain significant changes
while expediting approval of those with little or no change. However,
it is unlikely that the new process would have measurable budget
impacts, such as reduced rental assistance costs or fewer defaults,
because the decisions RHS makes on whether or not to approve a budget
will most likely be the same under the new process as under the
existing system. Those decisions will, however, be reached in a more
efficient manner.
Annual Financial Reporting
Under the current regulations, the agency requires that for all
projects of 25 units or more, the owner contract with a CPA perform an
audit in accordance with generally accepted government auditing
standards (GAGAS). Because a large percentage of the Agency's portfolio
consists of projects with between 16 and 24 units, audited financial
statements have not been prepared for a substantial number of projects
financed by the Agency. In addition, the current audit guide currently
does not require the auditor to provide information that is of specific
importance to the agency, such as information on Identity-of-Interest
transactions.
Under the proposed regulation, large MFH projects, defined as
projects with 16 or more units, will be required to submit a GAGAS
audit prepared by an independent CPA. The audit guide, which is
currently being revised, will provide specific instructions on how the
auditor should handle compliance issues. The audit must be completed
using ``agreed upon procedures'' that help meet certain performance
standards. It must be initiated by the borrower using an engagement
letter, which will either:
? Reference the Audit guide, which will specify the program
compliance issues that the Agency wants the CPA to address, and
guidelines for testing compliance; or
? State the list of compliance issues that the Agency wants
the CPA to address.
Small projects, defined as projects with fewer than 16 units, must
submit annual financial statements that are prepared in a manner
consistent with the agency's audit guide and that is accompanied by a
certification signed by the borrower. The annual financial statements
may be prepared by a CPA or other individual with the training and
experience to prepare the report. The information presented in the
annual financial statements must be prepared in a manner consistent
with the requirements of the audit guide.
In response to OIG concerns, the agency is proposing to implement
these changes to the annual financial reporting system to ensure that a
higher percentage of projects are prepared by CPAs, that GAGAS
principles are followed in the preparation of these audits, and that
the auditors are made aware of specific concerns of the agency, to
ensure that project funds are spent appropriately.
Special Servicing, Enforcement, Liquidation, and Other Actions
In response to stakeholder, OIG and agency staff comments, the
agency made a number of changes to strengthen agency servicing. None of
the changes to the regulation on servicing constitute changes in
policy; rather they address a lack of clarity in existing rules and
incorporate policies that previously existed only in administrative
notices. As such, the changes are not anticipated to have either a
negative or positive budget impact.
For example, the proposed rule clarifies the definition of
``default'' by spelling out specific actions that an owner may take or
fail to take that would cause the agency to determine that the loan is
at risk. The proposed rule also simplifies the submission requirements
for transfers of project ownership. Other changes serve to simplify
servicing actions in an effort to enhance the agency's flexibility to
address servicing issues.
[[Page 32880]]
These changes would allow swifter and more consistent action to
address troubled projects. For example, focusing action for the agency
and the borrower. This would help to avert more serious problems in the
long term and allow agency staff to concentrate their efforts on other
portfolio management issues.
Management and Disposition of Real Estate Owned Properties
The proposed rule consolidates current regulations regarding real
estate owned (REO) property and clarifies the specific requirements
that apply to multifamily housing properties. Current regulations
address many different types of REO properties acquired by USDA,
including MFH properties. Often, the guidance provided is generic or
relates to non-MFH properties. The proposed rule would provide specific
guidance to MFH properties, taking into consideration the physical
condition of the property, occupancy status of the property by eligible
program tenants, and determinations of whether the property is still
needed under the program.
The proposed rule also adds flexibility to the agency's
requirements for selling the property. The change allows the sale to be
conducted taking into account local market conditions. It also provides
the field offices several options in selling REO properties, giving
them authority that previously rested with the national office. With
more options and flexibility, processing and sales times will be
reduced.
Farm Labor Housing
The proposed regulation consolidates separate program regulations
for the Farm Labor Housing Program along with separate regulations for
the other MFH programs. It does, however, maintain separate subparts
for off-farm labor housing and on-farm labor housing. This was
necessary to preserve the distinction between off-farm labor housing
consisting of multi-unit housing operated by nonprofit corporations or
public bodies who receive loans or both loans and grants under the 514
and 516 programs, and on-farm labor housing consisting of single or
small multi-family housing operated by farm operators who receive only
loans. Several statutory changes to the Farm Labor Housing Program have
been made over the past 4 years. The current regulations have been
modified to incorporate those changes prior to the drafting of this
proposed rule. As those changes are currently in place, they are not
addressed again in this analysis. No further program changes other than
regulation consolidation are included.
Office of Rental Housing Preservation
Recent changes to the 1949 Housing Act required the establishment
of an Office of Rental Housing Preservation within RHS for handling
matters relating the preservation on the agency's MFH portfolio. RHS
recently established this office within its Multi-Family Housing
Portfolio Management Division. The office has a Director of the Office
and a Senior Loan Specialist. Additional positions within the office
are to be filled.
The Office of Rental Housing Preservation has already taken steps
to enhance the agency's consistency in the review of prepayment
requests and the offer of incentives by making a single entity
responsible for coordinating all preservation actions. The proposed
rule recognizes the establishment of this office and defines its
responsibility to coordinate, direct and monitor the RHS' multifamily
housing preservation activities. This addition to the rule complies
with the statute and clarifies the role of the national office in the
preservation process.
Unauthorized Assistance
When tenants receive unauthorized assistance through their own
error, the agency has a duty to try to recapture the assistance. Under
current regulations, much of this responsibility is put on project
owners. The process is both time consuming and burdensome. Furthermore,
project owners as well as RHS, have only limited ability to collect
unauthorized assistance and, in many cases, the cost of pursuing
unauthorized assistance has outweighed the funds collected.
Recognizing these circumstances, the proposed rule relieves project
owners of the responsibility of recovering unauthorized assistance due
to tenant error once the tenant has moved out. It also provides for RHS
to determine whether or not unauthorized assistance should be pursued.
These changes give the agency greater flexibility to apply resources
cost effectively toward cases that most deserve to be pursued, and
relieve project owners of the burden of pursuing tenants who no longer
live in their projects. The proposed rule also brings RHS into
compliance with the Debt Collection Improvement Act by allowing the use
of collection agencies and offsets to collect unauthorized assistance
from project owners and tenants.
Changes in Definitions
Basic Rent
Under the current regulations, basic rent is determined on the
basis of operating the project with payments of principal and interest
on a loan to be repaid over a 30-year or longer period at 1 percent per
annum and covering budgeted project expenses. Basic rent also means
basic occupancy charge. This definition does not take into
consideration conventional rents for comparable units, and in effect,
does not put any limitation on operating costs and rents.
The definition under the proposed regulation is similar to the
definition shown above. However, it also takes into consideration, if
appropriate, a return on the borrower's equity in a project. Further,
the proposed definition states that basic rent must not exceed
conventional rents for comparable units at the time the rent is
established. This will prevent project rents from becoming excessively
high and will cap the amount of RA that the agency is required to
provide.
Disability
Agency regulations currently have separate definitions for the
terms ``Individual with disability'' and ``Individual with handicap.''
The definition of the term ``Individual with disability'' is, in large
part, taken from section 501(b) of the Housing Act of 1949. The
definition of the term ``Individual with handicaps'' is taken from the
Fair Housing Act. Other civil rights laws, such as the Americans with
Disabilities Act and Section 504 of the Rehabilitation Act of 1973,
utilized the term ``disability'' rather than handicap; however, they
define it in the same manner as the Fair Housing Act defines handicap.
Rather than having two separate terms, the Agency will only use the
term ``Disability'' and it will be considered equivalent to the term
``Handicap.'' If a person meets either the Housing Act of 1949's
definition of handicap or the Fair Housing Act's definition of
handicap, they will be considered to be disabled.
Participation With Other Funding or Financing Sources
7 CFR 3560.66 encourages participation from public and private
sources. The section 515 policy of restricting rental assistance to
basic rents that do not exceed what they would have been had the Agency
provided full financing is still maintained. Because the Agency is
delivering financing at 1 percent, this provision would be difficult
for an applicant to meet under the most aggressive leveraging or other
low-interest loan funds financing package. Therefore, the Agency is
inviting comment as to whether it would serve
[[Page 32881]]
the public to expand the underwriting standard of CRCU to guide the
Agency in determining basic rent guidelines for Rental Assistance.
30-Year Term and 50-Year Amortization Period
Though not a new issue or policy, the reform regulations require
that new loans have a 30-year term with a 50-year amortization
schedule. The new regulation will make clear that, at end of 30 years,
the borrower has the option to pay-off the residual balloon with no
restrictive use on the property, and the Agency has the option to
refinance (or not) for the facility's remaining economic life. In
effect, loans will have a 30-year use restriction, versus the current
50-year, with additional use restrictions only should the Agency
refinance.
Conforming Household Income Calculation to Industry Standards
By changing the calculation of tenant household income and assets
to be consistent with other funding sources in the MFH industry, RHS
has made a significant contribution to reducing paperwork burden to the
public. No longer will a separate calculation have to be made for a MFH
loan when a separate calculation was already executed for Low-Income
Housing Tax Credit (LIHTC) or another affordable housing program.
Tenant income and assets will be calculated in accordance with 24 CFR
813.106 and 24 CFR 813.102, which are regulations published by the U.S.
Department of Housing and Urban Development.
Electronic Submission of Certifications/Recertifications
The proposed rule adds a requirement for electronic reporting of
information, including tenants' income. The faster transmission of this
information provides RHS with more time for analyzing the information.
Consequently, the proposed rule extends by 10 days the period for
submitting recertifications, giving borrowers more time to comply with
agency requirements, thus improving customer service while maintaining
program performance.
Regulatory Crosswalk
The following is a crosswalk that shows where the content of the 13
regulations that are being consolidated can be found in 7 CFR part
3560.
BILLING CODE 3410-XV-P
[[Page 32882]]
[GRAPHIC]
[TIFF OMITTED]
TP02JN03.003
[[Page 32883]]
[GRAPHIC]
[TIFF OMITTED]
TP02JN03.004
[[Page 32884]]
[GRAPHIC]
[TIFF OMITTED]
TP02JN03.005
[[Page 32885]]
[GRAPHIC]
[TIFF OMITTED]
TP02JN03.006
[[Page 32886]]
[GRAPHIC]
[TIFF OMITTED]
TP02JN03.007
BILLING CODE 3410-XV-C
[[Page 32887]]
List of Subjects in 7 CFR Part 3560
Accounting, Accounting servicing, Administrative practice and
procedure, Aged, Farm labor housing, Foreclosure, Grant programs--
Housing and community development, Government acquired property,
Government property management, Handicapped, Insurance, Loan programs--
Agriculture, Loan programs--Housing and community development, Low and
moderate income housing, Low and moderate income housing--Rental,
Migrant labor, Mortgages, Nonprofit organizations, Public housing, Rent
subsidies, Reporting and recordkeeping requirements, Rural areas, Rural
housing, Sale of government acquired property, Surplus government
property.
Therefore, chapter XXXV, title 7, Code of Federal Regulations is
proposed to be amended as follows:
CHAPTER XXXV--RURAL HOUSING SERVICE, DEPARTMENT OF AGRICULTURE
1. Part 3560, consisting of subparts A through P, is added to read
as follows:
PART 3560--DIRECT MULTI-FAMILY HOUSING LOANS AND GRANTS
Subpart A--General Provisions and Definitions
Sec.
3560.1 Applicability and purpose.
3560.2 Civil rights.
3560.3 Environmental requirements.
3560.4 Compliance with other federal requirements.
3560.5 State, local or tribal laws.
3560.6 Borrower responsibility and requirements.
3560.7 Delegation of responsibility.
3560.8 Administrator's exception authority.
3560.9 Reviews and appeals.
3560.10 Conflict of interest.
3560.11 Definitions.
3560.12-3560.49 [Reserved]
3560.50 OMB control number.
Subpart B--Direct Loan and Grant Origination
3560.51 General.
3560.52 Program objectives.
3560.53 Eligible use of funds.
3560.54 Restrictions on the use of funds.
3560.55 Applicant eligibility requirements.
3560.56 Processing section 515 housing proposals.
3560.57 Designated places for section 515 housing.
3560.58 Site requirements.
3560.59 Environmental requirements.
3560.60 Design requirements.
3560.61 Loan security.
3560.62 Technical, legal, insurance, and other services.
3560.63 Loan limits.
3560.64 Initial operating capital contribution.
3560.65 Reserve account.
3560.66 Participation with other funding or financing sources.
3560.67 Rates and terms for section 515 loans.
3560.68 Permitted return on investment (ROI).
3560.69 Supplemental requirements for congregate housing and group
homes.
3560.70 Supplemental requirements for manufactured housing.
3560.71 Construction financing.
3560.72 Loan closing.
3560.73 Subsequent loans.
3560.74 Loan for final payments.
3560.75-3560.99 [Reserved]
3560.100 OMB control number.
Subpart C--Borrower Management and Operations Responsibilities
3560.101 General.
3560.102 Housing project management.
3560.103 Maintaining housing projects.
3560.104 Fair housing.
3560.105 Insurance and taxes.
3560.106-3560.149 [Reserved]
3560.150 OMB control number.
Subpart D--Multi-Family Housing Occupancy
3560.151 General.
3560.152 Tenant eligibility.
3560.153 Calculation of household income and assets.
3560.154 Tenant selection.
3560.155 Assignment of rental units and occupancy policies.
3560.156 Lease requirements.
3560.157 Occupancy rules.
3560.158 Changes in tenant eligibility.
3560.159 Termination of occupancy.
3560.160 Tenant grievances.
3560.161-3560.199 [Reserved]
3560.200 OMB control number.
Subpart E--Rents
3560.201 General.
3560.202 Establishing rents and utility allowances.
3560.203 Tenant contributions.
3560.204 Security deposits and membership fees.
3560.205 Rent and utility allowance changes.
3560.206 Conversion to Plan II (Interest Credit).
3560.207 Annual adjustment factors for Section 8 units.
3560.208 Rents during eviction or failure to recertify.
3560.209 Rent collection.
3560.210 Special servicing note rate rents (SNRs).
3560.211-3560.249 [Reserved]
3560.250 OMB control number.
Subpart F--Rental Subsidies
3560.251 General.
3560.252 Authorized rental subsidies.
3560.253 Allocation and prioritization of Agency rental assistance.
3560.254 Eligibility for rental assistance.
3560.255 Requesting rental assistance.
3560.256 Rental assistance payments.
3560.257 Assigning rental assistance.
3560.258 Terms of agreement.
3560.259 Transferring rental assistance.
3560.260 Rental subsidies from non-Agency sources.
3560.261 Improperly advanced rental assistance.
3560.262-3560.299 [Reserved]
3560.300 OMB control number.
Subpart G--Financial Management
3560.301 General.
3560.302 Accounting, bookkeeping, budgeting, and financial
management systems.
3560.303 Housing project budgets.
3560.304 Initial operating capital.
3560.305 Return on investment.
3560.306 Reserve account.
3650.307 Reports.
3560.308 Annual financial reports.
3560.309-3560.349 [Reserved]
3560.350 OMB control number.
Subpart H--Agency Monitoring
3560.351 General.
3560.352 Agency monitoring scope, purpose, and borrower
responsibilities.
3560.353 Scheduling of on-site monitoring reviews.
3560.354 Borrower response to monitoring review notifications.
3560.355-3560.399 [Reserved]
3560.400 OMB control number.
Subpart I--Servicing
3560.401 General.
3560.402 Loan payment processing.
3560.403 Account servicing.
3560.404 Final loan payments.
3560.405 Borrower organizational structure or ownership interest
changes.
3560.406 Multi-family housing ownership transfers or sales.
3560.407 Sales or other disposition of security property.
3560.408 Lease of security property.
3560.409 Subordinations or junior liens against security property.
3560.410 Consolidations.
3560.411-3560.449 [Reserved]
3560.450 OMB control number.
Subpart J--Special Servicing, Enforcement, Liquidation, and Other
Actions
3560.451 General.
3560.452 Monetary and non-monetary defaults.
3560.453 Workout agreements.
3560.454 Special servicing actions related to housing operations.
3560.455 Special servicing actions related to loan accounts.
3560.456 Liquidation.
3560.457 Negotiated debt settlement.
3560.458 Special property circumstances.
3560.459 Special borrower circumstances.
3560.460-3560.499 [Reserved]
3560.500 OMB control number.
Subpart K--Management and Disposition of Real Estate Owned (REO)
Properties
3560.501 General.
3560.502 Tenant notifications and assistance.
3560.503 Disposition of REO property.
3560.504 Sales price and bidding process.
3560.505 Agency loans to finance purchases of REO properties.
3560.506 Conversion of single family type REO property to multi-
family housing use.
[[Page 32888]]
3560.507-3560.549 [Reserved]
3560.550 OMB control number.
Subpart L--Off-Farm Labor Housing
3560.551 General.
3560.552 Program objectives.
3560.553 Loan and grant purposes.
3560.554 Use of funds restrictions.
3560.555 Eligibility requirements for off-farm labor housing loans
and grants.
3560.556 Application requirements and processing.
3560.557 [Reserved]
3560.558 Site requirements.
3560.559 Design and construction requirements.
3560.560 Security.
3560.561 Technical, legal, insurance and other services.
3560.562 Loan and grant limits.
3560.563 Initial operating capital.
3560.564 Reserve accounts.
3560.565 Participation with other funding or financing sources.
3560.566 Loan and grant rates and terms.
3560.567 Establishing the profit base on initial investment.
3560.568 Supplemental requirements for seasonal off-farm labor
housing.
3560.569 Supplemental requirements for manufactured housing.
3560.570 Construction financing.
3560.571 Loan and grant closing.
3560.572 Subsequent loans.
3560.573 Rental assistance.
3560.574 Rental structure and changes.
3560.575 Occupancy restrictions.
3560.576 Tenant priorities for labor housing.
3560.577 Financial management of labor housing.
3560.578 Servicing off-farm labor housing.
3560.579-3560.599 [Reserved]
3560.600 OMB control number.
Subpart M--On-Farm Labor Housing
3560.601 General.
3560.602 Program objectives.
3560.603 Loan purposes.
3560.604 Restrictions on use of funds.
3560.605 Eligibility requirements.
3560.606 Application requirements and processing.
3560.607 [Reserved]
3560.608 Site and construction requirements.
3560.609 [Reserved]
3560.610 Security.
3560.611 Technical, legal, insurance and other services.
3560.612 Loan limits.
3560.613 [Reserved]
3560.614 Reserve accounts.
3560.615 Participation with other funding sources.
3560.616 Rates and terms.
3560.617 [Reserved]
3560.618 Supplemental requirements for on-farm labor housing.
3560.619 Supplemental requirements for manufactured housing.
3560.620 Construction financing.
3560.621 Loan closing.
3560.622 Subsequent loans.
3560.623 Housing management and operations.
3560.624 Occupancy restrictions.
3560.625 Maintaining the physical asset.
3560.626 Affirmative Fair Housing Marketing Plan.
3560.627 Response to resident complaints.
3560.628 Establishing and modifying rental charges.
3560.629 Security deposits.
3560.630 Financial management.
3560.631 Agency monitoring.
3560.632--3560.649 [Reserved]
3560.650 OMB control number.
Subpart N--Housing Preservation
3560.651 General.
3560.652 Prepayment and restrictive-use categories.
3560.653 Prepayment requests.
3560.654 Tenant notification requirements.
3560.655 Rural Housing Service requested extension.
3560.656 Incentive offers.
3560.657 Processing and closing incentive offers.
3560.658 Borrower rejection of the incentive offer.
3560.659 Sale or transfer to nonprofit organizations and public
bodies.
3560.660 Acceptance of prepayments.
3560.661 Sale or transfers.
3560.662 Restrictive-use provisions and agreements.
3560.663 Post-prepayment responsibilities for loans subject to
continued restrictive-use provisions.
3560.664--3560.669 [Reserved]
3560.700 OMB control number.
Subpart O--Unauthorized Assistance
3560.701 General.
3560.702 Unauthorized assistance sources and situations.
3560.703 Identification of unauthorized assistance.
3560.704 Unauthorized assistance determination notice.
3560.705 Recapture of unauthorized assistance.
3560.706 Offsets.
3560.707 Program participation and corrective actions.
3560.708 Unauthorized assistance received by tenants.
3560.709 Demand letter.
3560.710--3560.749 [Reserved]
3560.750 OMB control number.
Subpart P--Appraisals
3560.751 General.
3560.752 Appraisal use, request, release, and review.
3560.753 Agency appraisal standards and requirements.
3560.754 Non-completion of appraisal assignment.
3560.755--3560.799 [Reserved]
3560.800 OMB control number.
Authority: 42 U.S.C. 1480
Subpart A--General Provisions and Definitions
Sec. 3560.1 Applicability and purpose.
(a) This part sets forth requirements, policies, and procedures for
multi-family housing direct loan and grant programs to serve eligible
very-low, low- and moderate-income households. The programs covered by
this part are authorized by title V of the Housing Act of 1949 and are:
(1) Section 515 Rural Rental Housing, which includes congregate
housing, group homes, and Rural Cooperative Housing. Section 515 loans
may be made to finance multi-family units in rural areas as defined in
Sec. 3560.11.
(2) Sections 514 and 516 Farm Labor Housing loans and grants.
Housing under these programs may be built in any area with a need and
demand for housing for farm workers.
(3) Section 521 Rental Assistance. A project-based tenant rent
subsidy which may be provided to Rural Rental Housing and Farm Labor
Housing facilities.
(b) The programs covered by this part provide economically designed
and constructed rural rental, cooperative, and farm labor housing and
related facilities operated and managed in an affordable, decent, safe,
and sanitary manner.
Sec. 3560.2 Civil rights.
(a) All actions taken by recipients of loans and grants will be
conducted without regard to race, color, religion, sex, familial
status, marital status, national origin, age, or disability. These
actions include any actions in the sale, rental, or advertising of the
dwellings, in the provision of brokerage services, or in residential
real estate transactions involving RHS assistance. It is unlawful for a
borrower or grantee or an agent of a borrower or grantee:
(1) To refuse to make accommodations in rules, policies, practices,
or services that would provide a person with a disability an
opportunity to use or continue to use a dwelling unit and all public
and common use areas; or
(2) To refuse to provide a reasonable accommodation at the
borrower's expense that would not cause an undue financial or
administrative burden, or to refuse to allow an individual with a
disability to make reasonable modifications to the unit at their own
expense with the understanding that the owner may require the tenant to
return the unit to its original condition when the unit is vacated by
the tenant making the modifications (see Sec. 3560.104(c)).
(b) Any tenant or prospective tenant seeking occupancy in or use of
a multi-family housing project or related facility for which a loan or
grant has been provided by the Rural Housing Service and who believes
they are being discriminated against because of race, color, religion,
sex, familial status,
[[Page 32889]]
marital status, national origin, age, or disability may complain to the
Secretary of Agriculture, U.S. Department of Agriculture, Washington,
DC 20250, or the Secretary of Housing and Urban Development, U.S.
Department of Housing and Urban Development, Washington, DC 20410.
(c) Borrowers or grantees that fail to comply with the requirements
of title VIII of the Civil Rights Act are subject to sanctions
authorized by law.
Sec. 3560.3 Environmental requirements.
The Rural Housing Service (RHS) will consider environmental impacts
of proposed housing as equal with economic, social, and other factors.
By working with applicants, federal agencies, Indian tribes, State and
local governments, interested citizens, and organizations, RHS will
formulate actions that advance program goals in a manner that protects,
enhances, and restores environmental quality. Loan and grant processing
and servicing actions taken by RHS under this part are subject to an
environmental review conducted in accordance with 7 CFR part 1940,
subpart G.
Sec. 3560.4 Compliance with other federal requirements.
RHS is responsible for ensuring that the application is in
compliance with all applicable federal requirements, including the
following specific requirements:
(a) Intergovernmental review. 7 CFR part 3015, subpart V, or any
successor regulation, including the Agency supplemental administrative
instruction, RD Instruction 1940-J, available in any Rural Development
office.
(b) National flood insurance. The National Flood Insurance Act of
1968, as amended by the Flood Disaster Protection Act of 1973; the
National Flood Insurance Reform Act of 1994; and 7 CFR part 1806,
subpart B.
(c) Clean Air Act and Water Pollution Control Act Requirements. For
any contract, all applicable standards, orders or requirements issued
under section 306 of the Clean Air Act; section 508 of the Clean Water
Act, Executive Order 11738, and 40 CFR part 32.
(d) Historic preservation requirements. The provisions of 7 CFR
part 1901, subpart F.
(e) Lead-based paint requirements. The provisions of 7 CFR part
1924, subpart A.
Sec. 3560.5 State, local or tribal laws.
Applicants must comply with all applicable State and local laws,
and laws of federally-recognized Indian tribes to the extent they are
not inconsistent with this part.
Sec. 3560.6 Borrower responsibility and requirements.
(a) Borrower responsibilities and requirements specified in this
part may be carried out by an individual or entity designated by the
borrower to act on behalf of the borrower such as a resident manager or
management agent. Ultimate accountability to the Agency, however, is
with the borrower whether or not the borrower designated another person
or entity to act on the borrower's behalf.
(b) Borrowers who have not executed a loan agreement, and who were
not required to execute a loan agreement by the regulations in effect
at the time of their loan closing are exempt from the requirements of
subparts D through G of this part, as long as the borrower is not in
default of any applicable requirement, security instrument, payment, or
any other agreement with the Agency. Such borrowers must provide
evidence of tenant income eligibility in accordance with Sec.
3560.152(a), except in Farm Labor Housing where the tenant is not
paying shelter cost.
Sec. 3560.7 Delegation of responsibility.
The Rural Housing Service Administrator may delegate, on an
individual or other basis, any decision-making responsibility for RHS
programs, unless otherwise noted.
Sec. 3560.8 Administrator's exception authority.
The RHS Administrator may make an exception to any provision of
this part or address any omissions provided that the exception or other
action is consistent with the applicable statute and is in the best
financial interest of the Federal government. Exception requests
presented to the RHS Administrator must have the concurrence of a Rural
Development State Office or a Deputy Administrator in the RHS National
Office.
Sec. 3560.9 Reviews and appeals.
Rural Housing Service decisions may be appealed pursuant to 7 CFR
part 11.
Sec. 3560.10 Conflict of interest.
To reduce the potential for employee conflict of interest, all RHS
activities will be conducted in accordance with 7 CFR part 1900,
subpart D.
Sec. 3560.11 Definitions.
Unless otherwise noted, terms listed in this part shall be defined
as follows:
Administrator. The head of the Rural Housing Service (RHS) who
reports directly to the Under Secretary for Rural Development in the
U.S. Department of Agriculture.
Agency. The Rural Housing Service within the Rural Development
mission area of the U.S. Department of Agriculture.
Amortization. Payment of debt in regular, periodic installments of
principal and interest, as opposed to interest only payments.
Assistance. Financial assistance in the form of a loan, grant,
interest credit, or rental assistance.
Association of farmers. Two or more farmers acting as a single
legal entity. Association members may include the individual members of
farming partnerships or corporations.
Basic rent. The rent necessary to cover expenses in a housing
project's approved budget and the required loan payment set in the
borrower's promissory note reduced by the interest credit agreement.
Borrower. An individual, partnership, cooperative, trust, public
agency, private or public corporation, or other entity which has
received a loan from the Agency.
Caretaker. An individual employed by a borrower or a management
agent to handle routine interior and exterior maintenance and upkeep of
a multi-family housing project.
Congregate housing. A housing program authorized by section 515 of
the Housing Act of 1949 which provides housing for elderly persons,
individuals with disabilities, and families who require some
supervision and central services but are otherwise able to care for
themselves.
Consumer cooperative. A corporation organized under the cooperative
laws of a State or Federally recognized Indian tribe which will own and
operate the housing on a cooperative basis solely for the benefit of
its members.
Conventional rents for comparable units (CRCU). Market rents for
comparable rental units in non-government assisted conventional housing
in the same geographic area as the RHS project.
Current appraisal. An appraisal of a multi-family housing project's
value which is no more than 1 year old.
Daily Interest Accrual System (DIAS). A system where interest is
charged daily on outstanding principal. Level loan payments are made by
the borrower. The amount of interest due on any date is equal to the
unpaid daily interest that has accrued.
Default. Failure by a borrower to meet monetary or non-monetary
obligations or terms of a loan, grant, or other agreement with the
Agency within 30 days of the date such obligation is due
[[Page 32890]]
or required to be paid or performed, or within time periods specified
in notices of compliance violations.
Delinquent account. An account with a payment more than 10 days
past due from the payment due date under the terms of a note or loan
agreement.
Disability. The term disability is considered equivalent to the
term handicap. Eligibility requirements for fully accessible units are
contained in Sec. Sec. 3560.154(g)(1)(i) and 3560.155(b). A person is
considered to have a disability if either of the following two
situations occur:
(1) As defined in section 501(b) of the Housing Act of 1949. The
person is the head of household (or his or her spouse) and is
determined to have an impairment which:
(i) Is expected to be of long-continued and indefinite duration;
(ii) Substantially impedes his or her ability to live
independently; and
(iii) Is of such a nature that such ability could be improved by
more suitable housing conditions, or if such person has a developmental
disability as defined in section 102(7) of the Developmental Disability
and Bill of Rights Act (42 U.S.C. 6001(7)).
(2) As defined in the Fair Housing Act; the Americans with
Disabilities Act; and Section 504 of the Rehabilitation Act of 1973.
The person has a physical or mental impairment which substantially
limits one or more of such person's major life activities; a record of
such impairment; or being regarded as having such an impairment. The
term does not include current, illegal use of or addiction to a
controlled substance. As used in this definition, physical or mental
impairment includes:
(i) Any physiological disorder or condition, cosmetic
disfigurement, or anatomical loss affecting one or more of the
following body systems: neurological; musculoskeletal; special sense
organs; respiratory, including speech organs; cardiovascular;
reproductive; digestive; genito-urinary; hemic and lymphatic; skin; and
endocrine; or
(ii) Any mental or psychological disorder, such as mental
retardation, organic brain syndrome, emotional or mental illness, and
specific learning disabilities. The term ``physical or mental
impairment'' includes, but is not limited to, such diseases and
conditions as orthopedic, visual, speech and hearing impairments,
cerebral palsy, autism, epilepsy, muscular dystrophy, multiple
sclerosis, cancer, heart disease, diabetes, Human Immunodeficiency
Virus infection, mental retardation, emotional illness, drug addiction
(other than addiction caused by current, illegal use of a controlled
substance), and alcoholism.
(iii) Major life activities means functions such as caring for
one's self, performing manual tasks, walking, seeing, hearing,
speaking, breathing, learning, and working.
(iv) Has a record of such an impairment means has a history of, or
has been misclassified as having, a mental or physical impairment that
substantially limits one or more major life activities.
(v) Is regarded as having an impairment means:
(A) Has a physical or mental impairment that does not substantially
limit one or more major life activities but that is treated by the
borrower or management agent as constituting such a limitation;
(B) Has a physical or mental impairment that substantially limits
one or more major life activities only as a result of the attitudes of
others toward such impairment; or
(C) Has none of the impairments described in this definition but is
treated by another person as having such an impairment.
Domestic farm laborer. An individual or an immediate family member
residing with an individual who, consistent with the requirements in
Sec. 3560.575(b)(2), receives a substantial portion of his or her
income from farm labor employment (not self-employed) in the United
States, Puerto Rico, or the Virgin Islands and either is a citizen of
the United States or resides in the United States, Puerto Rico or the
Virgin Islands after being legally admitted for residence.
Due diligence on hazardous substances. Due diligence is the process
of inquiring into the environmental conditions of real estate, in the
context of a real estate transaction to determine the presence of
contamination from hazardous substances, and to determine the impact
such contamination may have on the market value of the property.
Elderly person. A person who is at least 62 years old. The term
also means a person with a disability as separately defined in this
paragraph, regardless of age.
Elderly household or individual with a handicapped household. A
household in which the tenant or co-tenant of the household is 62 years
old or older or is an individual with a disability. An elderly
household may include persons younger than 62 years old and the
household of an individual with a handicap may include persons without
disabilities.
Engagement. An Agency defined financial review of a housing
project's financial status which a borrower will contract with a
certified public accountant to perform. An engagement will result in
annual financial reports for use by the Agency as described in Sec.
3560.308.
Familial status. A classification granted to an individual who has
not attained the age of 18 years domiciled with persons having legal
custody of such individual or with persons having the written
permission of the persons having legal custody. The protection against
discrimination afforded by familial status shall apply to any person
who is pregnant or is in the process of securing legal custody of any
individual who has not attained the age of 18 years.
Family farm corporation or partnership. A private corporation or
partnership involved in agricultural production in which at least 90
percent of the stock or interest is owned and controlled by persons
related by blood, which shall include parents, siblings, and children,
or law. If more than three separate households are supported by the
farming operation, the family farm corporation or partnership must be:
(1) Legally organized and authorized to own and operate a farm
business within the State,
(2) Legally able to carry out the purposes of the loan, and
(3) Prohibited from the sale or transfer of 90 percent of the stock
or interest to other than family members by either the articles of
incorporation, bylaws or by agreement between the stockholders or
partners and the corporation or partnership.
Farm labor. Services in connection with cultivating the soil,
raising or harvesting any agriculture or aquaculture commodity; or in
catching, netting, handling, planting, drying, packing, grading,
storing, or preserving in the unprocessed stage any agriculture or
aquaculture commodity; or delivering to storage, market, or a carrier
for transportation to market or to processing any agricultural or
aquacultural commodity in its unprocessed stage.
Farm labor contractor. A person--other than an agricultural
employer, a member of an agricultural association, or an employee of an
agricultural employer or agricultural association--who recruits,
solicits, hires, employs, furnishes, or transports any year-round or
seasonal migrant farm laborer for money or other valuable
consideration.
Farm labor housing. On-farm or off-farm housing for farm laborers
authorized by section 514 and section 516 of the Housing Act of 1949.
[[Page 32891]]
Farmer. A person involved in day to day on-site operations of a
farm as defined in 7 CFR 1941.4, and who devotes a substantial amount
of personal time to operation of a ``family farm,'' as defined in 7 CFR
1941.4.
Farm owner. An individual who meets the requirements as defined in
7 CFR part 1941, subpart A.
Foreclosure. A proceeding in or out of court to extinguish all
rights, title, and interest of the owners of property in order to sell
the property to satisfy a lien against it.
General overhead. Includes general operation items necessary for
the contractor to be in business. They may include, but are not limited
to the following: Tools and minor equipment; worker's compensation and
employer's liability; unemployment tax; Social Security and Medicare;
manager's, clerical, and estimator's salaries; pension and bonus plans;
main office insurance, rental, utilities, miscellaneous expenses;
general liability insurance; legal, accounting, and data processing;
automotive and light truck expense; vehicle expenses; depreciation of
overhead capital expenditures; and office equipment maintenance.
General requirements. Include items that are required in the
construction contract for the contractor to provide for the specific
project. They do not include items that pertain to a specific trade nor
overhead expenses of the contractor's general operation. Items may
include, but are not limited to, the following: Field supervision;
field engineering; field office, sheds, toilets, phone; performance and
payment or latent defects bonds; cost certification; building permits;
site security; temporary utilities; property insurance; and cleaning or
rubbish removal.
Grantee. An entity that has received a grant from the Agency.
Group home. Housing that is occupied by elderly persons or
individuals with disabilities who share living space within a rental
unit and in which a resident assistant may be required.
Home base state. The state which a farm laborer claims as their
domicile.
Household. The tenant or co-tenant and the persons or dependents
living with a tenant or co-tenant, but not including a resident
assistant.
Household furnishings. Basic durable items such as stoves,
refrigerators, drapes, drapery rods, tables, chairs, dressers and beds.
Housing project. A property with two or more affordable, decent,
safe and sanitary rental units and related facilities operated under
one management plan and financed with funds appropriated under the
authority of sections 515, 514, or 516 of the Housing Act of 1949.
Identity-of-Interest (IOI). A relationship between applicants,
borrowers, grantees, management agents, or suppliers of materials or
services described under, but not limited to, any of the following
conditions:
(1) There is a financial interest between the applicant, borrower,
grantee and a management agent or the supplying entity;
(2) One or more of the officers, directors, stockholders or
partners of the applicant, borrower, or management agent is also an
officer, director, stockholder, or partner of the supplying entity;
(3) An officer, director, stockholder, or partner of the applicant,
borrower, or management agent has a 10 percent or more financial
interest in the supplying entity;
(4) The supplying entity has or will advance funds to an applicant,
borrower, or management agent;
(5) The supplying entity provides or pays on behalf of the
applicant, borrower, or management agent the cost of any materials or
services in connection with obligations under the management plan or
management agreement;
(6) The supplying entity takes stock or a financial interest in the
applicant, borrower, or management agent as part of the consideration
to be paid them; or
(7) There exists or come into being any side deals, agreements,
contracts or understandings entered into thereby altering, amending, or
canceling any of the management plan, management agreement documents,
organization documents, or other legal documents pertaining to the
property, except as approved by the Agency.
Indian tribe. The term Indian tribe means any Indian tribe, band,
group, and nation, including Alaskan Indians, Aleuts, and Eskimos, and
any Alaskan Native Village, of the United States, which is considered
an eligible recipient under the Indian Self-Determination and Education
Assistance Act (Pub. L. 93-638) or under Chapter 67 of Title 31 prior
to repeal of such chapter.
Interest credit. A form of assistance available to eligible
borrowers that reduces the effective interest rate of the loan.
Land lease. A written agreement between a land owner and a borrower
stipulating the terms for possession and use of land for a specified
period of time.
Lease. A contract setting forth the rights and obligations of a
tenant or cooperative member and a property owner, including charges
and terms under which a tenant or cooperative member will occupy or use
the housing or related facilities.
Legal or qualified alien. Legal or qualified alien refers to any
person lawfully admitted to the country who meets the criteria in
section 214 of the Housing and Community Development Act of 1980, 42
U.S.C. 1436a.
Letter of Priority Entitlement (LOPE). A letter issued by the
Agency providing a tenant with priority entitlement to rental units in
other Agency-financed housing projects for 120 days from the date of
the LOPE.
Leveraged participation loan. A loan made in conjunction with an
Agency loan by a lender other than the Agency to finance a multifamily
housing project.
Life cycle cost. The Life Cycle Cost has 2 purposes:
(1) To determine the expected usable life (utility) of a building
component or furnishing and
(2) To determine which building components or furnishings are the
most cost efficient over the life of the building. Cost efficient is
not to be construed to mean the least initial cost.
Life Cycle Cost Analysis.
(1) Life cycle cost analysis is the comparison of different
materials to examine anticipated useful life and the cost of using a
specific material or building component. The analysis has multiple
uses, such as:
(i) To conduct a cost efficiency comparison between products,
(ii) For developing component replacement time tables, and
(iii) For estimating future component replacement costs.
(2) Life cycle cost analysis can be accomplished through various
methods, such as: insurance actuary tables or Agency documentation of a
component's life expectancy.
(3) Life cycle cost analysis is conducted by a design professional.
For Agency financed projects, a life cycle cost analysis is to be
conducted for specific components:
(i) Drives and parking,
(ii) Roofing system and roofing material,
(iii) Exterior finishes, and
(iv) Energy source items.
Limited Liability Company (L.L.C.). An unincorporated organization
of one or more persons or entities established in accordance with
applicable state laws and whose members may actively participate in the
organization without being personally liable for the debts,
[[Page 32892]]
obligations or liabilities of the organization.
Limited partnership. An ownership arrangement consisting of general
and limited partners; general partners manage the business, while
limited partners are passive and liable only for their own capitol
contributions.
Loan agreement. A written agreement between the Agency and the
borrower which sets forth the borrower's responsibilities with respect
to Agency financing.
Low-income household. A household that has an adjusted income that
is greater than the Department of Housing and Urban Development's (HUD)
established very-low income limit, but that does not exceed the HUD
established low-income limit (generally 80 percent of median income
adjusted for household size for the county where the property is or
will be located).
Low-Income Housing Tax Credit (LIHTC). A federal tax credit allowed
for investment in qualified low-income housing administered by the
Internal Revenue Service (IRS) under section 42 of the Internal Revenue
Code.
Management agent. A firm or individual employed or designated by a
borrower to act on the borrower's behalf in accordance with a written
management agreement.
Management agreement. A written agreement between a borrower and a
management agent setting forth the management agent's responsibilities
and fees for management services.
Management fee. The compensation provided to a management agent for
services provided in accordance with a management agreement.
Management plan. A detailed description of the policies and
procedures to be followed by the borrower in managing a multi-family
housing project.
Maximum debt limit. The maximum amount that the Agency will lend or
grant for a multi-family housing project based on the appraised value
or total development cost excluding costs ineligible for payment from
loan or grant funds, whichever is less, reduced by all funding
available to the borrower from sources other than the Agency,
multiplied by 95, 97, or 102 percent depending upon the applicant
entity and their use of the low-income housing tax credit, in
accordance with Sec. 3560.63(b).
Member or co-member. A stockholder or other person who has executed
documents or stock pertaining to a cooperative housing type of living
arrangement and has made a commitment to upholding the cooperative
concept.
Migrants or migrant agricultural laborers. Individuals performing
agriculture work and their family dependents who establish a temporary
residence at one or more locations away from their home base state,
excluding day-haul agricultural workers whose travels are limited to
work areas within one day of their residence.
Minor. An individual under 18 years of age who is a dependent of a
tenant or an individual age 18 or older who is a full-time student and
a dependent of a tenant.
Moderate-income household. A household that has an adjusted income
that is greater than the HUD-established low-income limit but does not
exceed the low-income limit by more than $5,500.
Mortgage. A legal document pledging a described property for
repayment of a loan under certain terms or conditions.
Net recovery value. The value realized from the Government's
acquisition of security property in a default situation after
subtracting all costs, actual or anticipated, from acquiring, holding,
and disposing of the security property.
New construction. A multi-family housing project being constructed
to be occupied for the first time.
NOFA. A ``Notice of Funding Availability'' issued by the Agency to
inform interested parties of the availability of assistance and other
matters pertinent to the program.
Nonprofit organization. A private organization that:
(1) Is organized under State or local laws;
(2) Has no part of its net earnings inuring to the benefit of any
member, founder, contributor, or individual; and
(3) Is neither controlled by, nor under the direction of,
individuals or entities seeking to derive profit or gain from the
organization although a nonprofit organization may be sponsored or
created by a for-profit entity provided--
(i) The for-profit entity is not an entity whose primary purpose is
the development or management of housing, such as a builder, developer,
or real estate management firm,
(ii) The for-profit entity does not have the right to appoint more
than one-third of the membership of the organization's governing body,
(iii) The board members appointed by the for-profit entity are not
permitted to appoint the remaining two-thirds of the board members, and
(iv) The local nonprofit organization is free to contract for goods
and services from vendors of its own choosing;
(4) Has documentation of tax exempt status under section 501(c)(3)
or (4) of the Internal Revenue Code of 1986, from the Internal Revenue
Service;
(5) Does not include a public body as one of its members; although
a state or local government chartered organization may qualify as a
local nonprofit organization;
(6) Has standards of financial accountability that conform to 24
CFR 84.21;
(7) Has among its purposes the provision of decent housing that is
affordable to very-low, low, and moderate-income persons, as evidenced
in its charter, articles of incorporation, resolutions or by-laws;
(8) Maintains accountability to low-income community residents by--
(i) Maintaining at least one-third of its Board of Director's
membership for residents of low-income neighborhoods, other low-income
community residents, or elected representative of low-income
neighborhood organizations, and
(ii) Providing a formal process for low-income program
beneficiaries to advise the organization in its decisions regarding the
design, siting, development, and management of affordable housing;
(9) Has a capacity for developing and operating affordable rural
housing as demonstrated by hiring experienced key staff members who
have successfully completed similar projects, or by contracting with a
consultant with housing experience and a plan to train appropriate key
staff members of the organization; and
(10) Has a history of serving the community within which housing to
be assisted is to be located as demonstrated by being able to show 1
year of the organization's service in the community or 1 year of
service to the community by members of the organization's governing
board, prior to receiving an Agency loan or grant or by demonstrating
that its parent organization has at least 1 year of service to the
community.
Nonprofit organization of farm workers. A nonprofit organization
which is incorporated with the State, Puerto Rico, or the Virgin
Islands, which has local representation in the membership and whose
membership is composed of at least 51 percent farm workers.
Note. The rent necessary to cover expenses in a housing project's
approved budget and the required loan payment set in the borrower's
promissory note.
Occupancy agreement. A contract establishing the rights and
obligations of the cooperative member and the cooperative, including
the amount of the monthly occupancy charge and the
[[Page 32893]]
other terms under which the member will occupy the housing.
Occupancy charge. The amount of money charged a cooperative member
to cover their proportional share of the cooperative's operating costs
and cash requirements.
Office of the General Counsel (OGC). The USDA Office of the General
Counsel, including the Regional Attorney, Associate Regional Attorney,
or Assistant Regional Attorney.
Office of Inspector General (OIG). The USDA Office of Inspector
General.
Overage. That portion of a tenant's net rent contribution that
exceeds basic rent up to note rate rent. Full overage is an amount
equal to the difference between the note rate rent for a unit and the
basic rent.
Patronage capital refund. Amounts received by a cooperative in
excess of operating costs and expenses which have been assigned to
members' patronage capital accounts each year of membership in the
cooperative.
Plan I. A type of interest subsidy available to borrowers prior to
October 27, 1980. Budgets and rental rates developed for Plan I loans
are based on a 3 percent loan amortization.
Plan II. A type of interest subsidy available to borrowers
operating on a limited profit basis. Budgets and rental rates developed
for Plan II loans are based on both the loan being amortized at the
interest rate shown on the promissory note and at a 1 percent
subsidized rate.
Predetermined Amortization Schedule System (PASS). A system where
loan payments are applied based on an amortization schedule.
Prepayment. Payment in full of the outstanding balance on an Agency
loan prior to the note's maturity date.
Program requirements. All provisions related to multi-family
housing contained in the loan document, grant agreement, statute,
regulation, handbook, or administrative notice.
Promissory note. A legal document containing conditions (interest
rate and timing) for repayment of indebtedness.
Real estate owned (REO) property. The real estate owned by the
Agency acquired through voluntary conveyance, foreclosure or other
court action.
Related facilities. Facilities in a multi-family housing project
that are related to the housing and are in addition to rental units,
(e.g., community rooms or buildings, cafeterias, dining halls,
infirmaries, child care facilities, assembly halls, and essential
service facilities such as central heating, sewerage, lighting systems,
clothes washing facilities, trash disposal and safe domestic water
supply).
Renovation. Renovation is when the remodeling of a property is of a
complex nature involving structural repairs; or when two or more of the
life cycle cost components are included in the remodeling of a
property. Examples: changing the use of a building, replacing wall or
floor system members, altering a building that has shifted due to
settlement, remodeling an entire property that includes new roofing and
siding.
Rent. The amount established as a charge for occupancy in a rental
unit of Agency-financed multi-family housing. The following terms are
used to describe rents for various program purposes.
(1) Note rate rent is the rental charge established to cover
expenses in the housing project's approved budget and the required loan
payment set at the interest rate shown in the promissory note.
(2) Basic rent is the rental charge established to cover expenses
in the housing project's approved budget and the required loan payment
contained in the promissory note reduced by the interest credit
agreement.
(3) HUD contract rent is the rental charge established for housing
receiving project-based Section 8 rental subsidies in accordance with
24 CFR part 880 or part 884, as applicable.
(4) Low-income housing tax credit (LIHTC) rent is the rental charge
established in accordance with LIHTC requirements.
Rental assistance (RA). The portion of the approved shelter cost
paid by the Agency to compensate a borrower for the difference between
the approved shelter cost and the tenant contribution.
Rental assistance obligation. The number of rental assistance units
and dollar amounts of rental assistance specified in a rental
assistance agreement between the Agency and a borrower for a multi-
family housing project.
Rental assistance units. Dwelling units in a multi-family housing
project qualified for rental assistance. There are three types of
rental assistance units.
(1) New construction units are units provided in conjunction with
initial loans for construction or substantial rehabilitation of the
multi-family housing projects.
(2) Replacement units are Agency-funded rental assistance units
which replace units with expiring rental assistance agreements or which
replace Section 8 units which have expired under the Section 8
contract.
(3) Servicing units are units provided to an operational multi-
family housing project provided as an incentive to avert prepayment of
a loan or as part of a debt forgiveness package.
Repair and replacement. Repair and replacement is the restoration
of minor building materials, elements, components, equipment and
fixtures. Examples: painting, carpeting, appliances, cabinets, and
other fixtures.
Resident assistant. A person residing in a rental unit who is
essential to the well-being and care of an elderly person or an
individual with a disability, but who:
(1) Is not obligated for the tenant's financial support;
(2) Would not be living in the unit except to provide the needed
services;
(3) May be a family member, but is not a dependent of the tenant
for tax purposes;
(4) Is not subject to the eligibility requirements of a tenant; and
(5) Is not considered a household member in the determination of
household income.
Resident or site manager. The individual employed by the borrower
and who is responsible for the day-to-day operations of the housing.
Retired domestic farm laborer or domestic farm laborer with a farm
labor-related disability. An individual who is at least 55 years of age
and who has spent the last 5 years prior to retirement as a domestic
farm laborer or spent the majority of the last 10 years prior to
retirement as a domestic farm laborer or an individual with a
disability as separately defined in this paragraph and who was a
domestic farm laborer prior to becoming disabled.
Return on Investment (ROI). The annual amount of profit an owner
operating on a limited or full profit basis may withdraw from a
project, as established in the loan agreement. The amount is calculated
as a percentage of the owner's investment in the project.
Rural area. (1) Any open country, or any place, town, village, or
city which is not (except in the cases of Pajaro, in the state of
California, and Guadalupe, in the State of Arizona) part of or
associated with an urban area and which:
(i) Has a population not in excess of 2,500 inhabitants, or
(ii) Has a population in excess of 2,500 but not in excess of
10,000 if it is rural in character, or
(iii) Has a population in excess of 10,000 but not in excess of
20,000 and:
(A) Is not contained within a standard metropolitan statistical
area; and
(B) Has a serious lack of mortgage credit for lower and moderate-
income families, as determined by the Secretary and the Secretary of
Housing and Urban Development.
[[Page 32894]]
(2) For purposes of this part, any area classified as ``rural'' or
a ``rural area'' prior to October 1, 1990, and determined not to be
``rural'' or in a ``rural area'' as a result of data received from or
after the 1990 decennial census shall continue to be so classified
until the receipt of data from the decennial census in the year 2000,
if such area has a population in excess of 10,000, but not in excess of
25,000, is rural in character, and has a serious lack of mortgage
credit for lower and moderate-income families. Notwithstanding any
other provision of this paragraph, the city of Plainview, Texas, shall
be considered a rural area for purposes of this part, and the city of
Altus, Oklahoma, shall be considered a rural area for purposes of this
part until the receipt of data from the decennial census in the year
2000.
Rural Cooperative Housing (RCH). A housing program authorized under
section 515 of the Housing Act of 1949, in which a consumer
cooperative, organized and operating on a nonprofit basis, may own and
operate a multi-family housing development.
Rural Housing Service (RHS). The Agency within the Rural
Development mission area of the U.S. Department of Agriculture or its
successor agency which administers programs authorized by sections 514,
515, 516, and 521 of the Housing Act of 1949, as amended.
Rural Rental Housing (RRH). A housing program authorized by section
515 of the Housing Act of 1949 to provide rental housing in rural areas
for persons of very low, low and moderate income.
Seasonal housing. Housing operated on a seasonal basis, typically
for migrants or migrant agricultural laborers as opposed to year round.
Security deposit. A one-time fee charged a tenant prior to
occupancy of a unit to cover possible loss or damage to the housing
unit caused by the tenant.
Self-employed. A person who meets the IRS definition of self-
employed at 26 CFR 1.401-10.
Service agreement. A written agreement between a borrower and a
service provider establishing the specific service to be provided to a
multi-family housing project, the cost of the service, and the length
of time the service will be provided.
Service plan. A written plan describing how services will be
provided to a multi-family housing project and which, at a minimum,
must specify the services to be provided, the frequency of the
services, who will provide the services, how tenants will be advised of
the availability of services, and the staff needed to provide the
services.
Service provider. A person who signs a written agreement with a
borrower to provide services to a multi-family housing project.
Servicing note rent (SNR). A rental rate charged at a Plan II
project experiencing vacancies that is less than note rent but higher
than basic rent.
Shelter costs. Basic or note rate rent plus the utility allowance,
when used, or the occupancy charge plus the utility allowance. If the
utility costs are included in the rent, the rent will equal shelter
costs.
Sources and Uses Comprehensive Evaluation (SAUCE). A computer
software program used by the Agency to analyze the total funds provided
to a multi-family housing project to ensure that the Agency is not
providing excess assistance.
Tenant or co-tenant. An individual who signs a lease and occupies
or will occupy a rental unit in a multi-family housing project. The
term tenant or co-tenant also refers to a member of cooperative housing
occupying or planning to occupy a dwelling unit in cooperative housing.
Tenant contribution. The net or gross amount due from a tenant to
pay for occupancy of a rental unit in a multi-family housing project.
(1) Net tenant contribution equals the amount of rent paid by a
tenant from the tenant's own resources.
(2) Gross tenant contribution equals the amount of rent plus the
utility allowance paid by tenants from their own resources.
Total development cost (TDC). The cost of constructing, purchasing,
improving, altering, or repairing multi-family housing and related
facilities, buying household furnishings (for sections 514/516 only),
and purchasing or improving the necessary land, including
architectural, engineering, or legal fees, and charges and other
technical and professional fees and charges, but excluding fees,
charges, or commissions such as payments to brokers, negotiators, or
other persons for the referral of prospective applicants or
solicitations of loans. Although a developer's fee is part of the
project's development cost for purposes of tax credit calculations
basis, such fees are not eligible for payment from Agency loan or grant
funds and are not included in determining the Agency authorized
development cost.
Utility allowance. An amount determined by a borrower as the amount
to be considered a tenant's portion of utility cost in the calculation
of a tenant's total shelter cost when utility costs are not included in
the rent.
Very low-income household. A household that has an adjusted income
that does not exceed the HUD established very low-income limit
(generally 50 percent of median income adjusted for household size in
the county where the property is or will be located).
Workout agreement. An agreement between a borrower and the Agency
listing actions to be taken over a period of time to prevent or correct
a compliance violation or to cure a monetary or non-monetary default.
Sec. Sec. 3560.12-3560.49 [Reserved]
Sec. 3560.50 OMB control number. [Reserved]
Subpart B--Direct Loan and Grant Origination
Sec. 3560.51 General.
This subpart contains the Agency's loan origination requirements
for multi-family housing direct loans for Rural Rental Housing, Rural
Cooperative Housing, and Farm Labor Housing. Additional requirements
for farm labor housing loans and grants are contained in subpart L for
Off-Farm Labor Housing and subpart M for On-Farm Labor Housing.
Sec. 3560.52 Program objectives.
The Agency uses appropriated funds to finance the construction,
rehabilitation of program properties, or purchase and rehabilitation of
multi-family housing and related facilities to serve eligible persons
in rural areas. The Agency encourages the use of such financing in
conjunction with funding or financing from other sources.
Sec. 3560.53 Eligible use of funds.
Funds may be used for the following purposes.
(a) Construct housing. Funds may be used to construct multi-family
housing.
(b) Purchase and rehabilitate buildings. Funds may be used to
purchase and rehabilitate buildings that have not been previously
financed by the Agency.
(1) Rehabilitation must meet the definition of either moderate or
substantial rehabilitation as defined in 7 CFR part 1924, subpart A.
(2) The building to be rehabilitated must be structurally sound and
the improvements to the building must be necessary to meet the
requirements of decent, safe, and sanitary living units.
(3) The total development cost (TDC) for the purchase and
rehabilitation of existing buildings must not be more than the
estimated TDC for construction
[[Page 32895]]
of a similar type and unit size property in the same area.
(c) Subsequent loans. Funds may be used to provide subsequent loans
in accordance with the provisions of Sec. 3560.73.
(d) Purchase and improve sites. Funds may be used to purchase and
improve the site on which multi-family housing will be located,
provided that the amount of loan funds used to purchase the site does
not exceed the appraised market value of the site immediately prior to
purchase.
(e) Develop and install necessary systems. Funds may be used to
install streets, a water supply, sewage disposal, heating and cooling
systems, electric, gas, solar, or other power sources for lighting and
other features necessary for the housing. If such facilities are
located off-site, loan funds may only be used if the following
additional requirements are met:
(1) The loan applicant will hold title to the facility or have a
legal right to use the facility for a period of at least 50 percent
longer than the term of the loan or grant and the title or right is
transferable to any subsequent owner of the housing.
(2) The facilities will either be provided for the exclusive use of
the proposed housing project, or Agency funds are limited to the
prorated part of the total cost of the facility according to the use
and benefit to the multi-family housing project. If entities other than
the housing project financed by the Agency use the facilities on a
reimbursable fee basis, the loan applicant must agree, in writing, to
apply any fees collected in excess of operating expenses to their
Agency loan account as an extra loan payment.
(f) Landscaping and site development. Funds may be used to provide
landscaping and site development related to a multi-family housing
project such as lighting, walks, fences, parking areas, and driveways.
(g) Tenant-related facilities. Funds may be used to develop tenant-
related facilities appropriate to the size, economics, and prospective
tenants of a multi-family housing project, such as a community room,
development of space for education and training purposes for tenants,
central laundry facility, outdoor seating, space for passive
recreation, tot lots, and a small emergency care infirmary. In
congregate housing and group homes, funds may be used for central
cooking and dining areas.
(h) Management-related facilities. Funds may be used to develop
management-related facilities appropriate to the size and economics of
a multi-family housing project such as a maintenance workshop, storage
facilities, office, and living quarters for a resident manager and
other personnel.
(i) Purchase and install equipment and appliances. Funds may be
used to purchase and install equipment and appliances affixed to the
property as customary and appropriate for the area in which the housing
is located.
(j) Household furnishings (Section 514/516). For farm labor housing
sections 514 and 516 only, funds may be used to purchase household
furnishings.
(k) Initial operating capital. Loan funds equal to 2 percent of
total development cost or appraised value, whichever is less, may be
used by a state or political subdivision thereof, Indian tribe,
consumer cooperative, or any public or private nonprofit borrower who
is not receiving LIHTC, to make the initial operating capital
contribution required by Sec. 3560.64. Other borrowers must use their
own resources to make the required initial operating capital
contribution and may not use loan funds for that purpose.
(l) Builder's profit, overhead and general requirements. Subject to
the following limits, funds may be used for builder's profit, overhead
and general requirements.
(1) Up to 10 percent of the construction contract may be used for
builder's profit.
(2) Up to 4 percent of the construction contract may be used for
general overhead.
(3) Up to 7 percent of the construction contract may be used for
general requirements.
(m) Legal, technical and professional services. Funds may be used
for the costs of legal, technical, and professional services related to
the borrower's multi-family housing project, including appraisals,
environmental documentation, and due diligence reports.
(n) Permit and application fees. Funds may be used for required
multi-family housing permits and application fees.
(o) Reimbursement to nonprofit organizations and public bodies.
Funds may be used to reimburse a nonprofit organization or public body
for costs that are reasonable and typical for the area, up to 2 percent
of total development costs for section 515, or up to 4 percent of total
development costs for off-farm labor housing, of:
(1) Development and packaging of a loan application and a multi-
family housing proposal, and
(2) Legal, technical, and professional fees incurred in the
formation of the loan application and multi-family housing proposal; or
(3) Technical assistance from another nonprofit organization to
assist in the organization's formation and in the development and
packaging of a loan application and multi-family housing proposal.
(p) Educational programs. Funds may be used for educational
programs related to owning and managing a cooperative housing project
for the board of directors of a housing cooperative during the first
year of the housing operation. Such funds will be available from the
initial operating account. The amount of the funds disbursed will be
subject to RHS approval and availability of financial resources from
the project.
(q) Interest and customary charges. Funds may be used for interest
accrued and customary charges necessary to obtain interim financing.
(r) Purchase housing from an interim lender. Funds may be used to
purchase multi-family housing from an interim lender that holds fee
simple title to Agency-financed housing upon which construction
commenced and a letter of commitment had been issued by the Agency but
the original applicant for whom funds were obligated will not or cannot
continue with construction of the housing. In order for the purchase to
take place, there must be no outstanding unpaid obligations in
connection with the housing.
(s) Uniform Relocation Assistance and Real Property Acquisition Act
of 1970. Funds may be used for necessary costs incurred to comply with
the Uniform Relocation Assistance and Real Property Acquisition Act of
1970.
(t) Demonstration programs. With the RHS Administrator's approval,
funds may be used to construct demonstration housing involving
innovative units and systems which do not meet existing published
standards, rules, regulations, or policies but meet the intent of
providing affordable, decent, safe, and sanitary rural housing, and are
consistent with the requirements of title V of the Housing Act of 1949.
(u) Conversion of section 502 properties. In accordance with Sec.
3560.506, loan funds may be used to finance the conversion of real
estate owned units originally financed under section 502 of the Housing
Act of 1949, to multi-family housing authorized by section 515 of the
Housing Act of 1949.
Sec. 3560.54 Restrictions on the use of funds.
(a) Ineligible uses of funds. Funds may not be used for:
(1) Housing intended to serve temporary and transient residents,
with the exception of housing to serve
[[Page 32896]]
migrant farm workers in accordance with Sec. 3560.554;
(2) Special care facilities or institutional-type homes;
(3) Facilities which are not in compliance with the design
requirements specified in Sec. 3560.60;
(4) Any costs associated with space in a housing project that is
leased for commercial use or any commercial facilities except essential
service-type facilities when otherwise not conveniently available;
(5) Specialized equipment for training and therapy;
(6) Operating capital for a central dining facility or any items
which do not become affixed to the real estate security with the
exception of household furnishings for farm labor housing units
financed under sections 514 and 516;
(7) Compensation to a loan applicant for value of land contributed
in excess of the equity contribution requirements in Sec. 3560.63(c);
(8) Refinancing of an applicant's debt except when the debt
involves interim financing or when refinancing is necessary to obtain a
release of an existing lien on land owned by a nonprofit organization;
(9) Payment of any fee, charge, or commission to a broker or anyone
else as a developer's fee or for referral of a prospective loan
applicant or solicitation of a loan;
(10) Payment to any officer, director, trustee, stockholder,
member, or agent of an applicant; or
(11) Purchasing land for a site in excess of what is needed, except
when:
(i) The applicant cannot acquire an alternate site or cannot
acquire the needed land as a separate parcel;
(ii) The applicant agrees to sell the excess land as soon as
practical and to apply the proceeds to the loan; and
(iii) Program site density requirements are met in accordance with
the site requirements established under Sec. 3560.58.
(b) Obligations incurred before loan approval. Funds may not be
used for expenses incurred by an applicant prior to approval except
when all the following conditions are met:
(1) The debts were incurred for eligible purposes;
(2) Contracts, materials, construction, and any land purchased meet
Agency standards and requirements;
(3) Payment of the debts will remove any attached liens and any
basis for liens that may attach to the property on account of such
debts; and
(4) The appropriate level of environmental review in accordance
with 7 CFR part 1940, subpart G has been completed.
Sec. 3560.55 Applicant eligibility requirements.
Applicants for off-farm labor housing loans and grants should also
refer to Sec. 3560.555, and applicants for on-farm labor housing loans
should refer to Sec. 3560.605.
(a) General. To be eligible for Agency assistance, applicants must
meet the following requirements:
(1) Be a U.S. citizen or qualified alien(s); a corporation; a state
or local public Agency; an American Indian tribe as defined in Sec.
3560.11; or a limited liability company (LLC), nonprofit organization,
consumer cooperative, trust, partnership, or limited partnership in
which the principals are U.S. citizens or qualified aliens;
(2) Be unable to obtain similar credit elsewhere at rates that
would allow for rents within the payment ability of eligible residents;
(3) Possess the legal and financial capacity to carry out the
obligations required for the loan or grant;
(4) Be able to maintain, manage, and operate the housing for its
intended purpose and in accordance with all Agency requirements;
(5) With the exception of applicants who are a nonprofit
organization, housing cooperative or public body, be able to provide
the borrower contribution from their own resources (this contribution
must be in the form of cash, or land, or a combination thereof);
(6) Have or be able to obtain a minimum of 2 percent of the total
development costs for use as initial operating capital (for nonprofit
organizations, cooperatives, or public bodies, this amount may be
financed through Agency funds); and
(7) Not be suspended, debarred, or excluded based on the ``List of
Parties Excluded from Federal Procurement and Nonprocurement
Programs.'' The list is available to Federal agencies from the U.S.
Government Printing Office. Non-federal parties should contact the
Superintendent of Documents, U.S. Government Printing Office,
Washington, DC 20402, (202) 512-1800.
(8) Not delinquent on Federal debt or a Federal judgment debtor,
with the exception of those debtors described in Sec. 3560.55(b).
(b) Additional requirement for applicants with prior debt. If an
applicant has a prior or existing Agency debt, the following additional
requirements must be met.
(1) The applicant must be in compliance with any existing loan or
grant agreements and with all legal and regulatory requirements or must
have an Agency-approved workout agreement and be in compliance with the
provisions of the workout agreement. The Agency may require that
applicants with monetary or non-monetary deficiencies be in compliance
with an Agency-approved workout agreement for a minimum of 6
consecutive months before becoming eligible for further assistance.
(2) The applicant must be in compliance with the Civil Rights Act
of 1964 and all applicable civil rights laws.
(c) Additional requirements for nonprofit organizations. In
addition to the eligibility requirements of paragraphs (a) and (b) of
this section, nonprofit organizations must meet the following criteria:
(1) The applicant must have received a tax-exempt ruling from the
IRS designating the applicant as a 501(c)(3) or 501(c)(4) organization.
(2) The applicant must include as part of its organization purposes
the provision of decent, safe, and sanitary housing that is affordable
to very-low, low- and moderate-income persons.
(3) No part of the applicant's earnings may benefit any of its
members, founders, or contributors.
(4) The applicant must be legally organized under state and local
law.
(5) The applicant's membership should be composed of:
(i) At least one-third representatives of the low-income community.
(ii) No more than one-third representatives of the public sector.
(d) Additional requirements for limited partnerships. In addition
to the applicant eligibility requirements of paragraphs (a) and (b) of
this section, limited partnership loan applicants must meet the
following criteria:
(1) The general partners must be able to meet the equity
contribution requirements if the partnership is not able to do so at
the time of loan request.
(2) The general partners must maintain a minimum 5 percent
financial interest in the residuals or refinancing proceeds in
accordance with the partnership organizational documents.
(3) The partnership must agree that new general partners can be
brought into the organization only with the prior written consent of
the Agency.
(e) Additional requirements for Limited Liability Companies (LLCs).
In addition to the applicant eligibility requirements of paragraphs (a)
and (b) of this section, LLC loan applicants must meet the following
criteria.
(1) One member who holds at least a 5 percent financial interest in
the LLC must be designated the authorized agent to act on the LLC's
behalf to bind the LLC and carry out the management functions of the
LLC.
[[Page 32897]]
(2) No new members may be brought into the organization without
prior consent of the Agency.
(3) The members must commit to meet the equity contribution
requirements if the LLC is not able to do so at the time of loan
request.
Sec. 3560.56 Processing section 515 housing proposals.
Processing requirements for farm labor housing proposals are found
in subpart L for Off-Farm and subpart M for On-Farm.
(a) Notice of Funding Availability (NOFA) responses.
(1) The Agency will publish an annual NOFA with deadlines and other
information related to submission of new construction multi-family
housing proposals, including expansion of existing multi-family housing
in designated places selected in accordance with Sec. 3560.57.
(2) To be eligible for funding consideration, multi-family housing
proposals must be submitted in accordance with the NOFA and must
provide information requested in the NOFA for the Agency to score and
rank the proposals.
(3) Multi-family housing proposals needing rental subsidies must
include requests for Agency rental assistance or a description of any
non-Agency rental subsidy to be used with the proposal and must provide
information required by Sec. 3560.260(c).
(4) The Agency will consider housing proposals requesting rental
assistance in rank order to the extent rental assistance is available.
When there is no rental assistance available, the Agency will consider
only those housing proposals in rank order which do not require rental
assistance.
(b) Preliminary proposal assessment. The Agency will make a
preliminary assessment of the application using the following criteria
and will reject those applications which do not meet all of these
criteria:
(1) The proposal was received by the submission deadline specified
in the NOFA;
(2) The proposal is complete as specified in the NOFA;
(3) The proposal is for an authorized purpose; and
(4) The applicant meets Agency eligibility requirements.
(c) Scoring and ranking project proposals. The Agency will score
and rank each housing proposal which meets the criteria of paragraph
(b) of this section.
(1) The following criteria will be used to score housing proposals
as more completely established in the NOFA:
(i) The presence and extent of leveraged assistance in the proposal
for the units that will serve tenants meeting Agency income limits at
basic rents comparable to what the rent would be if the Agency provided
full financing.
(ii) The proposal will provide rental units in a colonia, tribal
land, Rural Economic Area Partnership (REAP) community, Enterprise Zone
or Empowerment Community (EZ/EC) or in a place identified in the state
Consolidated Plan or a state needs assessment as a high need community
for multi-family housing.
(iii) The proposal supports Agency initiatives announced in the
NOFA.
(iv) The proposal uses a donated site which meets the following
conditions:
(A) The site is donated by a state, unit of local government,
public body or a nonprofit organization;
(B) The site is suitable for the housing proposals and meets Agency
requirements;
(C) Site development costs do not exceed what they would be to
purchase and develop an alternative site;
(D) The overall cost of the multi-family housing is reduced by the
donation of the site; and
(E) A return on investment is not paid to the borrower for the
value of the donated site nor is the value of the site considered as
part of the borrower's contribution.
(2) The Agency will rank housing proposals based on their scoring.
(i) When proposals have an equal score, preference will be given to
Indian tribes as defined in Sec. 3560.11 and local nonprofit
organizations or public bodies whose principal purposes include low-
income housing that meet the conditions of Sec. 3560.55(c) and the
following conditions.
(A) Is exempt from Federal income taxes under section 501(c)(3) or
501(c)(4) of the Internal Revenue Code;
(B) Is not wholly or partially owned or controlled by a for-profit
or limited-profit type entity;
(C) Whose members, or the entity, do not share an identity of
interest with a for-profit or limited-profit type entity;
(D) Is not co-venturing with another entity; and
(E) The entity or its members will not be receiving any direct or
indirect benefits pursuant to LIHTC.
(ii) A drawing will be held in the event of a tie score, first for
proposals from applicants who meet the conditions of paragraph
(c)(2)(i) of this section and next for proposals from applicants for
which paragraph (c)(2)(i) of this section is not applicable. Each
proposal will be numbered in the order in which it is drawn.
(3) The Agency will request initial loan applications from parties
who submitted the housing proposals with the highest ranking, taking
into consideration available funds. The Agency will notify non-selected
parties with the reasons for their non-selection, and the process that
may be used to seek a review of the non-selection decision.
(d) Processing initial loan applications. The Agency will review
all initial loan applications submitted in accordance with Agency
requirements to further evaluate the eligibility and feasibility of the
housing proposals. This determination will include:
(1) A review of the preliminary plans and cost estimates;
(2) A market feasibility review;
(3) An Agency site visit to gather preliminary environmental
information and determine that the proposed site meets the site
requirements of Sec. 3560.58;
(4) A review of the Affirmative Fair Housing Marketing Plan;
(5) An analysis of current credit reports; and
(6) A review of Civil Rights Impact Analysis in accordance with 7
CFR part 2006, subpart P.
(7) Completion of the appropriate level of environmental review in
accordance with 7 CFR part 1940, subpart G.
(e) Processing order of initial loan applications. The Agency will
process initial loan applications in rank order, taking into account
available funds. If any initial loan applications are withdrawn,
rejected, or delayed for a period of time that will not permit funding
in the current funding cycle, the Agency will process, in rank order,
the next initial loan application as funding levels permit.
(f) Other assistance. During each stage of loan application
processing, loan applicants must notify the Agency of all other
assistance, including other Federal Government assistance proposed or
approved for use in connection with the loan application.
(g) Proposal withdrawal or rejection. An applicant may withdraw a
housing proposal, an initial loan application, or a final loan
application at any time during the Agency review process with a written
request. The Agency may reject a housing proposal, an initial loan
application, or a final loan application at any time during the Agency
review process when an applicant fails to provide information requested
by the Agency within the time frame specified by the Agency.
(h) Final applications. Applicants, with initial loan applications
that are selected by the Agency for further processing, must submit a
final
[[Page 32898]]
application, with any additional information requested by the Agency,
to confirm and document a housing proposal's eligibility and
feasibility. The Agency will notify applicants with initial loan
applications that are not selected for further processing of their non-
selection, the reasons for their non-selection, and the process that
may be used to seek a review of the non-selection decision.
(i) Rural cooperative housing proposals. Rural cooperative housing
loan proposals will be solicited through a NOFA and will be assessed
and processed in the same manner described in paragraphs (a) through
(h) of this section.
Sec. 3560.57 Designated places for section 515 housing.
(a) Establish a list of designated places. The Agency will
establish a list of designated places from which loan proposals will be
accepted. The list is updated each fiscal year and is available when
the Notice of Funding Availability (NOFA) is published. The NOFA
provides information on obtaining the list. This list will be developed
from a list of rural places which the Agency identifies as having the
greatest need for multifamily housing based on the following factors:
(1) Qualification as a rural area as defined in Sec. 3560.11;
(2) Lack of mortgage credit;
(3) Demonstrated need for multi-family housing based on:
(i) The incidence of poverty;
(ii) The existence of substandard housing;
(iii) The lack of affordable housing; and
(iv) The following high need areas:
(A) Places identified in the state Consolidated Plan or similar
state plan or needs assessment report;
(B) Indian reservations or communities located within the
boundaries of tribal allotted or trust land; and
(C) EZ/EC or REAP communities.
(b) Establishing partnership designated place list. The Agency, in
states with an active leveraging program and formal partnership
agreement with the state agency, may establish a partnership designated
place list consisting of places identified by the partnership as high
need areas based on criteria consistent with the Agency's and the
state's authorizing statutes. The partnership agreement and partnership
designated place list must have the concurrence of the Administrator.
(c) Administrator's discretion. The Administrator may add to the
list of designated places any place that is determined to have a
compelling need for multi-family housing, for example, a place that has
had a substantial increase in population not reflected in the most
recent Census data, or a place that has experienced a loss of
affordable housing because of natural disaster.
(d) Restrictions on loans in certain designated places.
(1) Initial loan applications will not be requested and final loan
applications will not be closed for housing proposals in designated
places where any of the following conditions exist.
(i) The Agency has selected another multi-family housing proposal
in the designated place for processing.
(ii) A previously funded Agency, HUD, low-income housing tax credit
or other similar assisted multi-family housing in the designated place
has not been completed or has not reached projected occupancy levels.
(iii) Existing assisted multi-family housing in the designated
place is experiencing high vacancy levels.
(iv) A special note rate rent or other loan servicing tool is
pending or in effect for other assisted housing in the designated
place, or
(v) The need in the market area is for additional rental assistance
and not additional rental units.
(2) Exceptions to the provisions in Sec. 3560.57(d)(1) may be
made:
(i) When a group home is proposed for persons with disabilities in
an area where the existing multi-family housing is insufficient or
unavailable for their needs; or
(ii) There is a compelling need for additional multi-family
housing, for example when the units that have been approved or are
under development represent only a small portion of the total units
needed in the community.
Sec. 3560.58 Site requirements.
(a) Location.
(1) New construction section 515 loans will be made only in
designated places selected by the Agency in accordance with the
requirements of Sec. 3560.57.
(2) Agency-financed multi-family housing must be located in
residential areas as part of established rural communities, except as
permitted in Sec. 3560.58(b), and for farm labor housing units
financed under sections 514 and 516, which may be developed in any area
where a need for farm labor housing exists.
(3) Communities in which Agency-financed multi-family housing is
located must have adequate facilities and services to support the needs
of tenants.
(4) Housing complexes will not be located in areas where there are
undesirable influences such as high activity railroad tracks; adjacent
to or near industrial sites; bordering sites or structures which are
not decent, safe, or sanitary; or bordering sites which have potential
environmental concerns such as processing plants. Sites which are not
an integral part of a residential community and do not have reasonable
access, either by location or terrain, to essential community
facilities such as water, sewerage removal, schools, shopping,
employment opportunities, medical facilities, are not acceptable.
Consistent with Federal law and Departmental Regulation, the Agency
must conduct an environmental assessment and a civil rights impact
analysis before a site can be accepted. Sites may be found as
unacceptable if any of the above concerns exist.
(b) Structures located in central business areas. The Agency will
consider financing construction or the purchase and substantial
rehabilitation of an existing structure located in the central business
area of a rural community. With prior consent from the Agency, a
portion of such a structure may be designated for commercial use on a
lease basis. RHS funds may not be used to finance any cost associated
with the commercial space.
(c) Site development costs and standards. The cost of site
development must be less than or comparable to the cost of site
development at other available sites in the community and the site must
be developed in accordance with 7 CFR part 1924, subpart C and any
applicable standards imposed by a state or local government.
(d) Densities. Allowable site densities will be determined based on
the following criteria:
(1) Compatibility and consistency with the community in which the
multi-family housing is located;
(2) Impact on the total development costs; and
(3) Size sufficient to accommodate necessary site features.
(e) Flood or mudslide-prone areas.
(1) The Agency will not approve sites subject to 100-year floods
when non-floodplain sites exist. The environmental review process will
assess the availability of a reasonable site outside the 100-year
floodplain.
(2) Sites located within the 100 year floodplain are not eligible
for federal financial assistance unless flood insurance is available
through the National Flood Insurance Program (NFIP). The Agency will
complete FEMA Form 81-93, Standard Flood Hazard Determination, to
document the site's location in relation to the
[[Page 32899]]
floodplain and the availability of insurance under NFIP.
Sec. 3560.59 Environmental requirements.
Under the National Environmental Policy Act, the Agency is required
to assess the potential impact of the proposed action on protected
environmental resources. Measures to avoid or at least mitigate adverse
impacts to protected resources may require a change in the site or
project design. Therefore, a site cannot be approved until the Agency
has completed the environmental review in accordance with 7 CFR part
1940, subpart G, or any successor regulation. Likewise, the applicant
should be informed that the environmental review must be completed and
considered before the Agency can make a commitment of resources to the
project.
Sec. 3560.60 Design requirements.
(a) Standards. All Agency-financed multi-family housing will be
constructed in accordance with 7 CFR part 1924, subpart A and will
consist of two or more rental units plus appropriate related
facilities. Single family structures may be used for group homes and
cooperative housing. Also, manufactured homes may be used to create
multi-family housing and single family housing originally financed
through section 502 of the Housing Act of 1949 may be converted to
multi-family housing. Maintenance requirements are listed in Sec.
3560.103(a)(3).
(b) Residential design. All multi-family housing must be
residential in character, except as provided for in Sec. 3560.58(b),
and must meet the needs of eligible residents.
(c) Economical construction, operation and maintenance. Taking into
consideration life-cycle costs, all housing must be economical to
construct, operate, and maintain and must not be of elaborate design or
materials.
(1) Economical construction means construction that results in
housing of at least average quality with amenities that are reasonable
and customary for the community and necessary to appropriately serve
tenants.
(2) Economical operating and maintenance means housing with
operational and maintenance costs that allow a basic rent structure
less than or consistent with conventional rents for comparable units in
the community or in a similar community.
(3) In meeting the Agency objective of economical construction,
operation and maintenance, housing proposals must:
(i) Contain costs without jeopardizing the quality and
marketability of the housing;
(ii) Employ life cycle cost analysis acceptable to the Agency to
determine the types of materials which will reduce overall costs by
lowering operation and maintenance costs, even though their initial
costs may be higher; and
(iii) Provide assurances that costs will be reduced when the Agency
determines that housing costs are not economical. If assurances cannot
be provided, funding may be withdrawn.
(4) The housing proposal will give maximum consideration to energy
conservation measures and practices.
(d) Accessibility. All housing will meet the following
accessibility requirements.
(1) For new construction of multi-family housing, at least 5
percent of the units (but not less than one) must be constructed as
fully accessible units to persons with disabilities. The Uniform
Federal Accessibility Standards (UFAS), as defined in 36 CFR part 1190,
will be followed. When calculating how many accessible units are
required, always round up to the next whole number to ensure the 5
percent requirement is met.
(2) For existing properties that do not have fully accessible
units, the 5 percent requirement will apply when making substantial
alterations as defined by UFAS. The UFAS defines substantial alteration
as alteration to any building or facility is to be considered
substantial if the total cost for a twelve month period amounts to 50
percent or more of the full and fair cash value of the building * * *
UFAS further defines full and fair cash value as the assessed valuation
of a building or facility as recorded in the assessor's office of the
municipality and as equalized at one hundred percent (100%) valuation,
or the replacement cost, or the fair market value. The 5 percent rule
will also apply to repair or renovation work on a single unit. For
instance, if a unit is damaged by fire and extensive repair is
necessary, to the extent possible the unit is to be converted to a
fully accessible unit.
(3) The variety of bedroom sizes of fully accessible units will be
comparable to the variety of bedroom sizes of units which are not fully
accessible. Borrowers will not, however, be required to exceed the 5
percent requirement simply to have an accessible unit of each bedroom
size. In addition, accessible units should be distributed throughout
the complex so not to segregate the units in one location.
(4) All multi-family housing must meet:
(i) The accessibility requirements as contained in section 504 of
the Rehabilitation Act of 1973;
(ii) The requirements of the Fair Housing Amendments Act of 1988;
(iii) The requirements of the Americans with Disabilities Act of
1990, as applicable; and
(iv) All other Federal, State, and local requirements. When
architectural standards differ, the most stringent standard will be
followed.
Sec. 3560.61 Loan security.
(a) General. Each loan made by the Agency will be secured in a
manner that adequately protects the financial interest of the Federal
Government throughout the period of the loan based on a value-in-use
appraisal consistent with the requirements of subpart P of this part.
(b) Lien position.
(1) The Agency will seek a first or parity lien position on Agency-
financed property in all instances. The Agency may accept a junior lien
position if the Federal government's interests are adequately secured.
(2) The Agency will seek a first or parity lien on revenue from
rent; Agency, HUD, state or private rental subsidy payments; chattels;
assignments; and operating and reserve accounts. The Agency will accept
a junior lien position if the Federal Government's interests are
adequately secured.
(c) Liability. Personal liability will be required of all
individual borrowers. Personal liability will not be required for the
members or stockholders of any corporation or trust or any partners in
a limited partnership.
(d) Housing and land ownership. Applicants must own the multi-
family housing and related land for which the loan is being requested,
or become the owner when the loan is closed or have a leasehold
interest in the land. Use of leased land for MFH projects is limited to
loan applicants who are nonprofit bodies, states, political
subdivisions, public bodies, public agencies, and American Indian
tribes where land is not available for purchase. If an applicant is not
the owner of the housing and the related land, the following conditions
must be met prior to or at loan closing.
(1) A recorded mortgage on the improvements is given as collateral.
(2) The amount of the loan against the collateral does not exceed
its estimated market value.
(3) The unexpired term of the lease on the date of loan closing is
at least 50 percent longer than the term of the loan and rent charged
for the lease does not
[[Page 32900]]
exceed the rate being paid for similar leases in the area.
(4) The applicant's leasehold interest is not subject to summary
foreclosure or cancellation.
(5) The lease permits:
(i) The Agency to foreclose the mortgage and to transfer the lease;
(ii) The Agency to bid at a foreclosure sale or to accept voluntary
conveyance of the security in lieu of foreclosure;
(iii) The Agency to occupy the property, sublet the property, or
sell the leasehold for cash or credit if the leasehold is acquired
through foreclosure, if the Agency accepts voluntary conveyance in lieu
of foreclosure, or if the borrower abandons the property; and
(iv) The applicant, in the event of default or inability to
continue with the lease and the loan, to transfer the leasehold subject
to the mortgage to a transferee that will assume the property ownership
obligations.
Sec. 3560.62 Technical, legal, insurance, and other services.
(a) Legal services. Applicants must have written contracts for any
legal services that are to be paid out of Agency loan funds.
(b) Title clearance. Applicants must obtain title clearance in
accordance with the provisions of 7 CFR part 1927, subpart B applicable
to title clearance, which would include title insurance or title
opinion, unless the loan applicant is leasing the property or is an
organization or an individual with special title or loan closing
problems, in which case title clearance and related legal services will
be obtained in accordance with procedures approved by the Agency.
(c) Architectural services. Applicants must obtain a written
contract for architectural services in accordance with the provisions
of 7 CFR part 1924, subpart A.
(d) Insurance. Applicants must have property and liability coverage
at loan closing as well as flood insurance, if needed. Fidelity
coverage must be in force as soon as there are assets within the
organization and it must be obtained before any loan funds or interim
financing funds are made available to the borrower. At a minimum,
applicants must meet the property, liability, flood, and fidelity
insurance requirements in Sec. 3560.105.
(e) Surety bonding. Applicants must comply with the surety bonding
provisions of 7 CFR part 1924 subpart A.
Sec. 3560.63 Loan limits.
(a) Determining the security value. The security value for an
Agency loan is the lesser of the total development cost (exclusive of
any developer's fee as provided by paragraph (d)(2) of this section) or
the housing project's value as determined by a value-in-use appraisal
conducted in accordance with subpart P of this part, minus any prior or
parity liens on the housing project. For purposes of determining
security value:
(1) Total development cost must be calculated excluding costs not
considered allowable under Sec. 3560.54(a), and excluding costs
related to compliance with the Uniform Relocation Assistance and Real
Property Acquisition Act of 1970.
(2) The value-in-use appraisal shall be obtained by the Agency and
conducted in accordance with subpart P of this part.
(b) Limitations on loan amounts. The Agency will not make any loans
without adequate security. The following limitations will be set on
loan amounts.
(1) For all loan applicants who will receive benefits from the low-
income housing tax credit program, the amount of Agency financing for
the housing will not exceed 95 percent of the security value available
for the Agency loan.
(2) For all loan applicants who will not receive low-income housing
tax credit benefits and who are comprised solely of nonprofit
organizations, consumer cooperatives, or state or local public
agencies, the amount of the loan will be limited to the security value
available for the Agency loan, plus the 2 percent initial operating
capital and any necessary relocation costs incurred.
(3) For all other loan applicants who will not receive low-income
housing tax credit benefits, the loan amount will be limited to no more
than 97 percent of the security value available for the Agency loan.
(c) Equity contribution. Loan applicants, with the exception of
nonprofit organizations, consumer cooperatives, or state or local
public agencies who will not be receiving tax credits, must make an
equity contribution from their own resources.
(1) Loan applicants who will receive benefits from the low-income
housing tax credit program must make an equity contribution in the
amount of 5 percent of the Agency loan. The maximum Agency loan will be
determined in accordance with Sec. 3560.63(b).
(2) Loan applicants who will not receive benefits from the low-
income housing tax credit program and are not nonprofit organizations,
consumer cooperatives, or state or local public agencies must make an
equity contribution in the amount of 3 percent of the Agency loan. The
maximum Agency loan will be determined in accordance with Sec.
3560.63(b).
(d) Review of assistance from multiple sources. The Agency will
analyze Federal government and other assistance provided to any multi-
family housing project to establish the maximum loan amount and to
assure that the assistance is not more than the minimum necessary to
make the housing affordable, decent, safe, and sanitary to potential
tenants.
(1) Determining minimum assistance. For purposes of determining
minimum assistance, the total amount paid for builder's profit,
overhead, and general requirements may not exceed 21 percent of the
construction contract. Unless specified differently in a Memorandum of
Understanding between the Agency and the state agency that allocates
low-income housing tax credits, limits will be those specified in Sec.
3560.53(l).
(2) Developer's fee. While, in accordance with Sec. 3560.54(a)(9),
payment of a developer's fee is not an eligible use of Agency loan
funds, the Agency will include in total development costs a developer's
fee paid from other sources when analyzing the Federal government
assistance to the housing. The Agency may recognize a developer's fee
paid from other sources on construction or rehabilitation of up to 15
percent of the total development costs authorized for low-income
housing tax credit purposes, or by another Federal government program.
Likewise for transfer proposals that include acquisition costs, the
developer's fee on the acquisition cost may be recognized up to 8
percent of the acquisition costs only when authorized under a Federal
government program providing assistance. The developer's fee is not
included in determining the Agency's maximum debt limit and loan
amount.
(e) Limits on equity loans. For equity loans to avert prepayment,
the amount of the Agency equity loan will be limited to no more than
the difference between 90 percent of current value of the property when
appraised as conventional unsubsidized multi-family housing and all
current unpaid balances.
(f) Cost overruns.
(1) All applicants must agree in writing to provide funds at no
cost to the housing and without pledging the housing as security to pay
any cost for completing planned construction after the maximum debt
limit is reached.
(2) After loan approval, the Agency will only approve cost
increases for housing proposals involving new construction or major
rehabilitation when the additional costs will not cause
[[Page 32901]]
the maximum debt limit to be exceeded and the cost increases were
caused by:
(i) Unforeseen factors beyond the borrower's control;
(ii) Design changes required by the Agency, state, or the local
government; or
(iii) Financing changes approved by the Agency.
Sec. 3560.64 Initial operating capital contribution.
Borrowers are required to make an initial operating capital
contribution to the general operating account in the amount of at least
2 percent of the total development cost or appraised value, whichever
is less.
(a) Borrowers that are nonprofit organizations, consumer
cooperatives, or state or local public agencies and are not receiving
low-income housing tax credits, may use loan funds for their initial
operating capital contribution. All other borrowers must fund the
initial operating capital contribution from their own resources.
(b) Borrowers must provide to the Agency for approval a list of
materials and equipment to be funded from the general operating account
for initial operating expenses. As specified in Sec. 3560.304(b),
initial operating capital may be used only to pay for approved budgeted
expenses. If total initial operating expenses exceed 2 percent, the
additional amount must be paid by the borrower from its own resources,
except that borrowers meeting the provisions of Sec. 3560.64(a) who do
not have sufficient resources for this purpose may request Agency
assistance. Withdrawals from the reserve account will not be approved
for such expenses.
(c) Borrowers must provide the Agency with documentation of their
initial operating capital contribution deposited into the general
operating account prior to the start of construction or loan closing,
whichever comes first, and such funds thereafter, may only be used for
authorized budgeted purposes.
(d) If the conditions specified in Sec. 3560.304(c) are met, funds
contributed as initial operating capital may be returned to the
borrower.
Sec. 3560.65 Reserve account.
To meet major capital expenses of a housing project, borrowers must
establish and fund a reserve account which meets requirements of Sec.
3560.306. At a minimum, the borrower must agree to make monthly
contributions to the reserve account in amounts that will equal an
annual contribution of 1 percent of the multi-family housing's total
development cost.
Sec. 3560.66 Participation with other funding or financing sources.
(a) General requirements. The Agency encourages the use of funding
or financing from other sources in conjunction with Agency loans. When
the Agency is not the sole source of financing for multi-family
housing, the following conditions must be met.
(1) The Agency will enter into a participation (or intercreditor)
agreement with the other participants that clearly defines each party's
relationship and responsibilities to the others.
(2) The rental units that will serve tenants eligible for housing
under the Agency's income standards must meet Agency standards and the
number of units that will serve the Agency's tenants are at least equal
to the units financed by the Agency.
(3) All rental units must be operated and managed in compliance
with the requirements of the Agency and the other sources. To the
extent these requirements overlap, the most stringent requirement must
be met. The Agency may negotiate the resolution of overlapping
requirements on a case-by-case basis; however, at a minimum, Agency
requirements must be met.
(4) If the number of units subject to the low-income housing tax
credit (LIHTC) rent and income restrictions is greater than the number
of units projected to receive Agency rental assistance (RA) or similar
tenant subsidy, the market feasibility documentation must clearly
reflect a need and demand by LIHTC income-eligible households
financially able to afford the projected rents without such a subsidy
for the units not receiving RA or similar tenant subsidy.
(b) Rental assistance. The Agency may provide rental assistance
with multi-family housing loans participating with other sources of
funding under the following conditions:
(1) The Agency's loan equals at least 25 percent of the housing's
total development cost.
(2) The rental assistance is provided only to those rental units
where the basic rents do not exceed what basic rents would have been
had the Agency provided full financing.
(3) The provisions of subpart F of this part are met.
(c) Security requirements. The security requirements of Sec.
3560.61 must be met for all Agency-financed multi-family housing
participating with other sources of funding.
(d) Reserve requirements. Reserve account requirements will be
determined on a case-by-case basis, taking into consideration the
reserve requirements of the other participating lenders, so that the
aggregate fully funded reserve account is consistent with the
requirements of Sec. 3560.65. Reserve requirements and procedures for
reserve account withdrawals must be agreed upon by all lenders and
included in the intercreditor or participation agreement.
(e) Design requirements. Housing and related facilities must be
planned and constructed in accordance with 7 CFR part 1924, subparts A
and C. Agency loan funds may only be used for common facilities such as
those described in Sec. 3560.53(g). If housing includes common
facilities other than those listed in Sec. 3560.53(g), the following
conditions must be met:
(1) The non-Agency-financed common facility's operating and
maintenance costs must be paid through collection of a user fee from
residents who use the facility;
(2) The non-Agency-financed common facility must be designed and
operated with appropriate safeguards for the health and safety of
tenants; and
(3) The facility must be fully available and accessible to all
tenants.
Sec. 3560.67 Rates and terms for section 515 loans.
Rates and terms for farm labor housing loans are found in subpart L
for Off-Farm and subpart M for On-Farm.
(a) Interest. Loans will be closed at the lower of the interest
rate in effect at the time of loan approval or the interest rate that
is in effect at time of loan closing.
(b) Interest credit. The Agency will provide interest credit to
subsidize the interest on the Agency loan to a payment rate of 1
percent for all of the Agency's initial and subsequent loans.
(c) Amortization period and term.
(1) Except for manufactured housing, loans will be amortized over a
period not to exceed the lesser of the economic life of the housing
being financed or 50 years and paid over a term not to exceed 30 years
from the date of loan. The Agency may make a loan to the borrower to
finance the final payment of a loan in accordance with Sec. 3560.74.
(2) Loans for manufactured housing will be amortized and paid over
a term not to exceed 30 years as specified in Sec. 3560.70(c).
Sec. 3560.68 Permitted return on investment (ROI).
(a) Permitted return. Borrowers operating on a limited profit basis
will be permitted a return not to exceed 8 percent of their required
initial investment determined at the time of loan approval in
accordance with Sec. 3560.63(c).
[[Page 32902]]
(b) Calculation of permitted return. The permitted return will be
based on the borrower's contributions from their own resources, which,
when added to the Agency loan amount and all sources of funding or
financing, do not exceed the security value of the multi-family housing
project as specified in Sec. 3560.63(a).
(1) Proceeds received by the borrower from the syndication of low-
income housing tax credit and contributed to the multi-family housing
project may be considered funds from the borrower's own resources for
the portion of the proceeds which exceeds:
(i) The allowable developer's fee determined by the state agency
administering the low-income housing tax credit, and
(ii) The borrower's expected contribution to the transaction, as
determined by the state agency administering the low-income housing tax
credit.
(2) A building site contributed by the borrower will be appraised
by the Agency to determine its value. A return may not be allowed on
the amount above the equity contribution required by Sec. 3560.63(c)
if the value as determined by the Agency, when added to the loan and
grant amounts from all sources, exceeds the security value of the
multi-family housing project as specified in Sec. 3560.63(a).
(c) Return on additional investment. The initial investment may
exceed the equity contribution required by Sec. 3560.63(c) and a
return allowed on the investment if the additional return does not
increase basic rents and rental assistance costs above what basic rents
and rental assistance costs would have been with the Agency financing
95 or 97 percent of the total development cost.
Sec. 3560.69 Supplemental requirements for congregate housing and
group homes.
(a) General. Congregate housing and group homes must be planned and
developed in accordance with 7 CFR part 1924, subparts A and C.
(b) Design criteria. Congregate housing and group homes must be
designed to accommodate all special services that will be provided.
(c) Services. Congregate housing and group home loan applicants, as
part of their loan request, must submit a plan to make affordable
services available to residents to assist the residents in living
independently. The plan must address the availability of this
assistance from service providers throughout the term of the loan.
(1) For congregate housing, the resident services plan must address
how the following services will be provided or made available:
(i) One cooked meal per day, seven days per week;
(ii) Transportation to and from the property;
(iii) Assistance in housekeeping;
(iv) Personal services;
(v) Recreational and social activities; and
(vi) Access to medical services.
(2) For group homes, the resident services plan must address how
access to the following services will be provided or made available:
(i) A common kitchen in which to prepare meals;
(ii) Transportation;
(iii) Nearby recreational and social activities which may be
coordinated by the resident assistant, if applicable; and
(iv) Medical services as necessary.
(d) Necessary items. Borrowers must ensure items such as tables,
chairs, and cookware necessary to furnish common areas are made
available to congregate housing or group homes. The 2 percent initial
operating capital may be used to purchase these items.
(e) Association with other organizations. Congregate housing and
group homes may coordinate services or training with another
organization, such as a workshop for the developmentally disabled.
However, the housing facility must be a separate entity and not
dependent on the other organization.
(f) Market feasibility documentation. Market feasibility
documentation for congregate housing and group homes is subject to the
following requirements:
(1) Must address the need for housing with services and include
information concerning alternative service providers;
(2) Must contain demographic information pertaining to the
population that is to be served by the congregate housing or group home
project; and
(3) May consider an expanded market area that includes
nondesignated places, but the facility must be located in a designated
place.
(g) Rental assistance for group homes. A unit in a group home
consists of a space occupied by a specific tenant household, which may
be an apartment unit, a bedroom, or a part of a bedroom. Agency rental
assistance will be made available to tenants sharing a unit so long as
the total rent for the unit does not exceed conventional rents for
comparable units in the area or a similar area.
Sec. 3560.70 Supplemental requirements for manufactured housing.
(a) Design requirements. Manufactured housing must meet the
requirements of 7 CFR part 1924, subpart A applicable to manufactured
housing.
(b) Eligible properties. The manufactured housing must include two
or more housing units. The applicant will become the first owner
purchasing the manufactured homes for purposes other than resale. The
following exceptions may be made to this provision:
(1) A housing proposal may include the purchase of the real
property with existing manufactured housing which will be redeveloped
with the placement of new manufactured homes.
(2) A housing proposal may include the rehabilitation of existing
manufactured housing only if the units to be rehabilitated are
currently financed by the Agency. The proposal will include the results
of the applicant's consultation with the manufacturers to determine if
the proposed rehabilitation work will affect the structural integrity
of the unit and, if so, the statement will include an explanation as to
how.
(c) Terms. The maximum loan amount will be determined in accordance
with the requirements of Sec. 3560.63. The amortization period and
term of loans for manufactured housing will not exceed the lesser of
the economic life of the housing being financed or 30 years.
(d) Security. A mortgage or deed of trust will be taken on the
entire property purchased or improved with the loan. The encumbered
property must be covered under a standard real estate title insurance
policy or attorney's title opinion that identifies the housing as real
property and insures or indemnifies against any loss if the
manufactured home is determined not to be part of the real property.
The property must be taxed as real estate by the jurisdiction where the
housing is located if such taxation is permitted under applicable law
when the loan is closed.
(e) Special warranty requirements. The general contractor or
dealer-contractor, as applicable, must provide a warranty in accordance
with the provisions of 7 CFR part 1924, subpart A.
(1) The warranty must establish that the manufactured homes,
foundations, positioning and anchoring of the units to their permanent
foundations, and all contracted improvements, are constructed in
conformity with applicable approved plans and specifications.
(2) The warranty must include provisions that the manufactured
homes sustained no hidden damage during transportation and, for double-
wide
[[Page 32903]]
units, that the sections were properly joined and sealed.
(3) The general contractor or dealer contractor must warrant that
the manufacturer's warranty is in addition to and does not diminish or
limit all other warranties, rights, and remedies that the borrower or
lender may have.
(4) The seller of the manufactured homes must deliver to the
borrower the manufacturer's warranty with an additional copy for RHS.
The warranty must identify the units by serial number.
Sec. 3560.71 Construction financing.
(a) Construction financing plan. Prior to loan approval, applicants
must submit to the Agency for its concurrence a plan for the
construction financing and securitization of the loan.
(b) Interim financing. Interim financing is required by the Agency
for any construction, except as noted in paragraph (c) of this section.
(1) The Agency reserves the right to review and approve the interim
financing arrangements proposed by the applicant.
(2) When interim financing is used, the Agency will obligate the
funds and provide an interim financing letter to the lender that will
confirm the procedures and conditions for the construction financing.
The take-out loan will be closed and the interim lender paid off when
the conditions of the interim financing letter have been met.
(3) The applicable provisions of 7 CFR part 1924, subpart A will be
used to monitor the construction.
(4) An environmental review must be completed in accordance with 7
CFR part 1940, subpart G, prior to issuance of the interim financing
letter.
(c) Multiple advances. When interim financing is not available or
when it is in the best interest of the Federal Government, the Agency
may provide for multiple advances of the funds to cover the cost of
construction.
(1) The Agency will review and approve the multiple advances
proposed by the borrower.
(2) When multiple advances are used, the Agency will close the loan
prior to any advancement of funds and the relevant provisions of 7 CFR
part 1924, subpart A will be used to monitor the construction.
Sec. 3560.72 Loan closing.
(a) Requirements. Loans will be closed in accordance with 7 CFR
part 1927, subpart B and any state supplements. In all cases, the
borrower must:
(1) Provide evidence that an Agency-approved accounting system is
in place;
(2) Execute a restrictive-use contract acceptable to the Agency
that establishes the borrower's obligation to operate the housing for
program purposes for the term of the Agency loan;
(3) Provide evidence that construction financing arrangements are
adequate;
(4) Provide evidence that all the funds from other sources as
proposed in the application are available and that there have been no
changes in the Sources and Uses Comprehensive Evaluation (SAUCE).
(5) Provide evidence of the title to all security required by the
Agency;
(6) Provide a certification that all construction in the case of
interim financing has been or, in the case of multiple advances, will
be paid;
(7) Provide, in the case of interim financing, a dated and signed
statement from the owner's architect certifying to substantial
completion of the housing project;
(8) Provide a certification that all construction in the case of
interim financing has been or, in the case of multiple advances, will
be in accordance with the plans and specifications concurred in by the
Agency;
(9) Provide evidence, if applicable, that the conditions of the
interim financing letter have been met; and
(10) Attend a pre-occupancy conference with the Agency.
(b) Cost certification. In all cases, the borrower must report
actual construction costs. Whenever the State Director determines it
appropriate, and in all situations where there is an identity of
interest as defined in 7 CFR 1924.4(i), the borrower, contractor and
any subcontractor, material supplier, or equipment lessor having an
identity of interest must each provide certification as to the actual
cost of the work performed in connection with the construction
contract. The construction costs must also be audited in accordance
with Governmental Auditing Standards, by a CPA. In some cases, the
Agency will contract directly with a CPA for the cost certification.
Funds which were included in the loan for cost certification and which
are ultimately not needed because Agency contracts for the cost
certification will be returned on the loan. Agency personnel will
utilize Exhibit M (7 CFR part 1924, subpart A) to assist in the
evaluation of the cost certification process.
(c) Notification of loan cancellation. Loans may be canceled after
approval and before loan closing. The Agency will notify all parties of
the cancellation and the reasons for the cancellation in accordance
with 7 CFR part 1927, subpart B.
Sec. 3560.73 Subsequent loans.
(a) Applicability. The Agency may make a subsequent loan to a
borrower to complete, improve, repair, or make modifications to multi-
family housing initially financed by the Agency or for equity for
preservation purposes. Loan requests to add units to comply with
accessibility requirements may be processed as a subsequent loan;
however, loan requests to add units to meet market demand will be
processed as an initial loan request and must compete under the NOFA.
(b) Application requirements and processing. Upon receipt of a
subsequent loan request, the Agency will inform the applicant what
information is required based on the nature and purpose of the loan
request. Subsequent loan requests do not have to compete for funding
against initial loan proposals.
(c) Amortization and payment period. Subsequent loans will be
amortized over a period not to exceed the lesser of the economic life
of the housing being financed or 50 years and paid over a term not to
exceed the lesser of the economic life of the housing or 30 years from
the date of the loan.
(d) Equity contribution. Applicants for subsequent loans must make
contributions on the loans in the same proportion as outlined in Sec.
3560.63(c). Loan applicants will not be given consideration for any
increased equity value that the property may have since the initial
loan.
(1) Excess initial investment on an initial loan may be credited
toward the required investment on a subsequent loan.
(2) An initial operating capital contribution to the general
operating account as described in Sec. 3560.64 is required for a
subsequent loan approved under the conditions set in Sec. 3560.63(f)
to complete housing construction but is not required for a subsequent
loan to repair or improve existing housing.
(e) Environmental requirements. Subsequent loans are subject to the
completion of an environmental review in accordance with 7 CFR part
1940, subpart G.
(f) Design requirements. All improvements, repairs, and
modifications will be in accordance with 7 CFR part 1924, subparts A
and C.
(g) Architectural services. The applicant must obtain architectural
services when any of the following conditions exist.
(1) Enclosed space is being added.
[[Page 32904]]
(2) The improvements involve materials or systems that have an
impact on the health and safety of the occupants.
(3) When required by state law.
(4) When the Agency determines that the work being performed
requires architectural services.
(h) Restrictive-use requirements. Subsequent loans are subject to
restrictive-use provisions as outlined in Sec. 3560.662(a) and
borrowers must execute a restrictive-use contract in accordance with
Sec. 3560.72(a)(2).
(i) Designation changes from rural to nonrural. If the designation
of an area changes from rural to nonrural after the initial loan is
made, a subsequent loan may be made only to make necessary improvements
and repairs to the property or for equity when needed to avert
prepayment.
(j) Agency's discretion. The Administrator may approve a subsequent
loan in a place that is not on the list of designated places as a
servicing action, for example, to replace units destroyed by a natural
disaster.
Sec. 3560.74 Loan for final payments.
(a) Use. The Agency may finance final payments for borrowers
holding existing loans for which the Agency approved an amortization
period that exceeded the term of the loan.
(b) Requirements. The Agency may finance final payments if
documentation regarding the market area shows that a need for low-
income rental housing still exists for that area and one of the
following conditions has been met.
(1) It is more cost efficient and serves the tenant base more
effectively to maintain existing multi-family housing than to build
another property in the same location; or
(2) The multi-family housing has been maintained to such an extent
that it can be expected to continue providing affordable, decent, safe
and sanitary housing for 20 years beyond the date of the loan to
finance a final payment; and
(3) Funds are available.
(c) Term. The term of Agency loans to finance final payments will
not exceed 20 years from the date of the initial loan final payment.
Sec. Sec. 3560.75-3560.99 [Reserved]
Sec. 3560.100 OMB control number. [Reserved]
Subpart C--Borrower Management and Operations Responsibilities
Sec. 3560.101 General.
This subpart sets forth borrower obligations regarding management
and operations of multi-family housing projects financed by the Agency.
As noted in Sec. 3560.6, the borrower requirements listed in this
subpart must be complied with by the borrower. The borrower may
designate in writing a person to act as the borrower's authorized
agent.
Sec. 3560.102 Housing project management.
(a) General. Borrowers hold final responsibility for housing
project management and must ensure that operations comply with the
terms of all loan or grant documents, Agency requirements and
applicable local, state and federal laws and ordinances.
(b) Management plan. Borrowers must develop and maintain a
management plan for each housing project covered by their loan or
grant. The management plan must establish the systems and procedures
necessary to ensure that housing project operations comply with Agency
requirements.
(1) At a minimum, management plans must address the following
items:
(i) Maintenance systems, including procedures for routine
maintenance, capital item repair and replacement, and effective energy
conservation practices;
(ii) Personnel policies, job descriptions, staffing plans, training
procedures for on-site staff;
(iii) Front-line management functions to be performed by off-site
staff.
(iv) Plans and procedures for providing supplemental services
including laundry, vending, and security;
(v) Plans for accounting, record keeping and meeting Agency
reporting requirements;
(vi) Procurement procedures;
(vii) Rent and occupancy charge collection procedures, and
procedures for requesting and implementing changes in rents, utility
allowances, or occupancy charges;
(viii) Plans and procedures for marketing rental units and
maintaining compliance with the Affirmative Fair Housing Marketing Plan
in accordance with Sec. 3560.104;
(ix) Unit leases and leasing policies and procedures, including
procedures for maintaining and purging waiting lists, determining
applicant eligibility, certifying and recertifying income, tenant
selection, and occupancy policies such as security deposit amounts,
occupancy rules, termination of leases or occupancy agreements and
eviction;
(x) Plans for allowing tenant participation in property operations
and for fostering tenant relationships with management; and
(xi) Procedures for applicant and tenant appeals.
(xii) Describe how management will make known to tenants and
applicants that management will provide reasonable accommodations under
the Americans with Disabilities Act and regulations implemented
thereunder at the borrower's expense unless to do so would cause an
undue financial or administrative burden, how such requests are to be
made, and who within management will have the authority to approve or
disapprove a request for an accommodation.
(2) Loan or grant applicants must submit a management plan before
the Agency will give final approval to the loan or grant application.
The plan must address the required items identified in paragraph (b)(1)
of this section in sufficient detail to enable the Agency to monitor
housing project performance.
(3) If the Agency determines that a proposed management plan does
not address the items in paragraph (b)(1) of this section in sufficient
detail or contains policies that would violate Agency requirements,
loan or grant agreements, or applicable local, state and Federal laws
and ordinances, the Agency will provide written notice to the applicant
indicating the deficiencies and a time period for submitting an
acceptable plan. Approval of the management plan does not indicate that
the Agency has determined the plan complies with state or local
requirements.
(c) Management plan effective period. A management plan approved by
the Agency remains in effect as long as it accurately reflects housing
project operations and the housing project is in compliance with the
Agency requirements.
(1) Borrowers must submit an updated management plan to the Agency
if operations change or are no longer consistent with the management
plan on file with the Agency.
(2) When there are no changes in operations, borrowers must submit
a certification to the Agency every 3 years stating that operations are
consistent with the management plan and the plan is adequate to assure
compliance with the loan and grant documents and Agency requirements or
applicable local, state and Federal laws.
(3) If the Agency determines that operations are in compliance with
Agency requirements, loan or grant agreements, or applicable local,
state, and Federal laws, but are not consistent with the management
plan, the Agency will require the borrower to:
(i) Revise the management plan to accurately reflect housing
operations;
(ii) Take actions to ensure the management plan is followed; or
(iii) Advise the Agency in writing of the action taken.
[[Page 32905]]
(4) When a housing project is being transferred from one borrower
to another, the transferee must submit a management plan that addresses
the required items identified in paragraph (b)(1) of this section in
sufficient detail to enable the Agency to give final approval of the
transfer.
(d) Housing projects with compliance violations. Upon receiving
notice of compliance violations in accordance with Sec. 3560.354,
borrowers must submit to the Agency:
(1) Revisions to the management plan establishing the changes in
housing operations that will be made to restore compliance; or
(2) If the borrower determines the compliance violations were due
to a failure to follow the management plan, the borrower must certify
to the Agency that the management plan is adequate to assure compliance
with the applicable requirements of this part and submit a written
description of the actions they will take to ensure the management plan
is followed.
(3) If the Agency discovers continued discrepancies between a
management plan and housing project operations or compliance
violations, the Agency may require the borrower to install a different
management agent acceptable to the Agency as described in paragraph (e)
of this section.
(e) Acceptable management agents. Borrowers must obtain Agency
approval of the agent proposed to manage a housing project prior to
entering into any formal agreement with the agent and prior to allowing
the agent to assume responsibility for housing project operations.
Borrowers that plan to self-manage a housing project also must receive
Agency approval before assuming responsibility for housing operations.
(1) Borrowers must submit a written request for Agency approval of
the proposed management agent at least 45 days prior to the date the
agent is to assume responsibility for operations. This request must
include a profile of the proposed management agent that provides
sufficient information to allow the Agency to evaluate whether the
agent is acceptable.
(2) The Agency will deny approval of any proposed management agent
that cannot provide evidence of at least two years of experience and
satisfactory performance in directing and overseeing the management of
similar federally-assisted multi-family housing.
(3) The Agency may issue approval of a management agent that does
not meet the requirements of Sec. 3560.102(e)(2) if the management
agent can provide evidence that indicates the ability to successfully
manage a multi-family housing project in accordance with Agency
requirements.
(4) If a borrower enters into an agreement with a management agent
or begins to self-manage prior to receiving Agency approval, the Agency
will place the borrower in non-monetary default status and, if not a
self-management situation, will require the borrower to immediately
terminate the contract with the management agent.
(5) With Agency consent, borrowers may self-manage housing on a 30-
day temporary basis or may enter into a 30-day temporary agreement with
a management agent if management services are needed to ensure proper
operation of a housing complex prior to completion of the Agency
management agent approval process. Such 30 day temporary agreements may
be renewable for additional 30-day periods with Agency approval.
(f) Self-management. Borrowers may self-manage a housing project
but must receive Agency approval before assuming responsibility for
housing operations. Borrowers that plan to self-manage must meet all
requirements of Sec. 3560.102, except for paragraph (h).
(g) Identity-of-interest disclosure. Borrowers and management
agents must disclose to the Agency all identity-of-interest
relationships which they have with firms and must receive Agency
approval to use such firms prior to entering into any contractual
relationships with such entities that involve Agency funds.
(1) This disclosure must include any identity-of-interest
relationships between:
(i) The borrower and the management agent;
(ii) The borrower or management agent and the providers of supplies
and services to the housing project; and
(iii) The borrower or the management agent and employees of any of
the above.
(2) Failure to disclose such relationships may subject the
borrower, the management agent, and the other firms or employees found
to have an identity of interest relationship to suspension, debarment,
or other remedies available to the Agency.
(3) After disclosure of an identity-of-interest relationship:
(i) The borrower, management agent, and supplier of goods and
services must provide documentation proving that use of identity-of-
interest firms is in the best interest of the housing project;
(ii) Any supplier of goods and services must certify in writing to
the Agency that the individual or organization has a viable, on-going
trade or business qualified and licensed, if appropriate, to do the
work for which a contract is being proposed;
(iii) The borrower, management agent, and supplier of goods and
services must agree, in writing, that all records related to the
housing project will be made available to the Agency, OIG, GAO, or a
representative of the Agency, upon request; and
(iv) The Agency will deny the use of an identity-of-interest firm
when the Agency determines such use is not in the best interest of the
Federal government or the tenants.
(h) Management agreement. Borrowers contracting with a management
agent must execute a management agreement that establishes:
(1) The management agent's responsibility to comply with Agency
requirements and local, state, and Federal laws;
(2) That the management fee is payable out of the housing project's
general operating account consistent with the requirements of paragraph
(i) of this section; and
(3) The Agency's authority to terminate the agreement for failure
to operate the housing project in accordance with Agency requirements
or local, state, or Federal laws.
(i) Management fees. Management fees will be an allowable expense
to be paid from the housing project's general operating account only if
the fee is approved by the Agency as a reasonable cost to the housing
project and documented on the management certification. Management fees
must be developed in accordance with the following:
(1) The management fee may compensate the management entity only
for the specifically identified bundle of services to be provided to
the housing project.
(2) Management fees may consist of a base per occupied unit fee,
add-on fees for specific housing project characteristics, and incentive
fees to encourage superior performance. Management entities may be
eligible to receive the full base per occupied unit fee for any month
or part of a month during which the unit is occupied.
(i) Periodically, the Agency will develop and publish for public
comment a range of base per occupied unit fees that will be paid in
each state. The Agency will develop the fees based on a review of
housing industry data. The final base for occupied unit fees for each
state will be made available to all borrowers.
(ii) Periodically, the Agency will develop and publish for public
comment the amount and qualifications
[[Page 32906]]
to receive add-on fees and incentive fees. The final set of
qualifications will be made available to all borrowers.
(j) Management certification.
(1) As a condition of approval of the management agent and the
management fee, the borrower and the management agents must execute an
Agency-approved certification establishing an allowable management fee
to be paid out of the housing project's general operating account and
certifying that:
(i) The borrower and management agent agree to operate the housing
project in accordance with the Agency-approved management plan;
(ii) The borrower and the management agent will comply with Agency
requirements, loan or grant agreements, applicable local, state and
Federal laws and ordinances, and contract obligations, will certify
that no payments have been made to anyone in return for awarding the
management contract to the management agent, and will agree that such
payments will not be made in the future;
(iii) The borrower and the management agent will comply with Agency
notices or other policy directives that relate to the management of the
housing project;
(iv) The management agreement between the borrower and management
agent complies with the requirements of this section;
(v) The borrower and the management agent will comply with Agency
requirements regarding management fees as specified in paragraph (i) of
this section, and allocation of management costs between the management
fee and the housing project financial accounts specified in Sec.
3560.302(c)(3);
(vi) The borrower and the management agent will not purchase goods
and services from entities that have an identity-of-interest (IOI) with
the borrower or the management agent until the IOI relationship has
been disclosed to the Agency according to paragraph (g) of this
section, not denied by the Agency under paragraph (d)(3) of this
section, and it has been determined that the costs are as low as or
lower than arms-length, open-market purchases; and
(vii) The borrower and the management agent agree that all records
related to the housing project are the property of the housing project
and that the Agency, OIG, or GAO may inspect the housing records and
the records of the borrower, management agent, and suppliers of goods
and services having an identity-of-interest with the borrower or with a
management agent acting as an agent of the borrower upon demand.
(2) A certification will be executed each time a management agent
is proposed and a management agreement is executed or renewed. Any
amendment to a management certification must be approved by the Agency
and the borrower.
(k) Procurement. The borrower and the agents of the borrower must
obtain contracts, materials, supplies, utilities, and services at a
reasonable cost and seek the most advantageous terms to the housing
project. Any discounts, rebates, fees, proceeds, or commissions
obtainable with respect to purchases, service contracts, or other
transactions must be credited to the housing project.
Sec. 3560.103 Maintaining housing projects.
(a) Physical maintenance.
(1) The purposes of physical maintenance are the following:
(i) Provide decent, safe, and sanitary housing; and
(ii) Maintain the security of the property.
(2) Borrowers are responsible for the long-term, cost-effective
preservation of the housing project.
(3) At all times, borrowers must maintain housing projects in
compliance with local, state and federal laws and regulations and
according to the following Agency requirements for affordable, decent,
safe, and sanitary housing. Agency design requirements are discussed in
Sec. 3560.60.
(i) Utilities. The housing project must have an adequate and safe
water supply, a functional and safe waste disposal system, and must be
free of hazardous waste material.
(ii) Drainage and erosion control. The housing project must have
drainage that effectively protects the housing project from water
damage from standing water and erosion. Units, basements or crawl
spaces must be free of water seepage.
(iii) Landscaping and grounds. The housing project must be
landscaped attractively. Lawns, plants and shrubs must be maintained
and must allow air to windows, vents and sills. Recreation areas must
be maintained in a safe and clean manner and trash collection areas
must be adequately sized, screened, and maintained.
(iv) Drives, parking services and walks. The housing project must
have drives, parking lots, and walks that are free of holes and
deterioration. Walks with changes in height between slabs of
approximately 1/2 inch or greater will be considered unacceptable.
(v) Exterior signage. All signs at the housing project, including
those related to the housing project name, buildings, parking spaces,
unit numbers and other informational directions must be visible and
well-kept. Sign requirements must conform to Sec. 3560.104(d).
(vi) Fences and retaining walls. The housing project must have
fence lines that are free of trash, weeds, vines, and other vegetation.
Fences must be free of holes and damaged or loose sections. The bases
of all retaining walls must be erosion free and drainage weep holes
must be cleaned out to prevent excessive pressure behind the retaining
wall.
(vii) Debris and graffiti. The housing project, including common
areas, must be free of trash, litter, and debris. Public walkways,
walls of buildings and common areas must be free of graffiti.
(viii) Lighting. The housing project must have functional exterior
lighting and functional interior lighting in common areas which permits
safe access and security.
(ix) Foundation. The housing project must have a foundation that is
free of evidence of structural failure, such as uneven settlement
indicated by horizontal cracks or severe bowing of the foundation wall.
Structural members must not have evidence of rot or insect or rodent
infestation.
(x) Exterior walls and siding. The housing project must have walls
that are free from deterioration which allows elements to infiltrate
the structure, eaves, gables, and window trim that are free from
deterioration, exterior wall coverings that are intact, securely
attached, and in good condition. Brick veneers must be free of missing
mortar or bricks.
(xi) Roofs, flashing, and gutters. The housing project must have
gutters and downspouts that are securely attached, clean, and finished
or painted properly with splash blocks or extenders that direct water
flow away from the building. The housing project must have a roof that
is free of leaks, defective covering, curled or missing shingles and
which is not sagging or buckling. Fascia and soffits must be intact.
(xii) Windows, doors, and exterior structures. The housing project
must have screens that are free of tears, breaks and rips and windows
that are unbroken. Window thermopane seals must be unbroken and
caulking on the exterior of windows and doors must be continuous and
free of cracks. Doors must be weather tight, free of holes, and provide
security with functional locks. Porches, balconies and exterior stairs
must be free of broken, missing, or rotting components.
(xiii) Common area accessibility. The housing project must have
accessible, designated handicapped parking spaces with handicapped
space signs properly posted. Common areas must be
[[Page 32907]]
accessible through walks, ramps, porches, and thresholds. The laundry
room must have accessible appliances and mailboxes must be at an
accessible level. Elevators or mechanical lifts must be functional and
kept in good repair.
(xiv) Common area signage. The following must be posted in common
areas: ``Justice for All'' poster, equal housing opportunity poster,
current affirmative fair housing marketing plan, the tenant grievance
and appeal procedure, housing project occupancy rules, office hours and
phone number, and emergency hours and phone number.
(xv) Flooring. If a housing project has carpeting, the carpet must
be clean, without excessive wear, and seams that are secure and
stretched properly. If the housing project has resilient flooring, the
flooring must be clean, unstained, free of tears and breaks, and seams
that are secure.
(xvi) Walls, floors, and ceilings. The housing project must have
walls, floors, and ceilings that are free of holes, evidence of current
water leaks, and free of material that appears in danger of falling.
The housing project must have wallboard joints that are secure and free
of cracks.
(xvii) Doors and windows. The housing project must have doors that
are free of holes, secure, unbroken and easily operable hardware,
deadbolt locks which are in place and secure, and, if doors are metal,
free of rust. The housing project must have windows which are easily
operated, free of bent blinds or torn curtains, and window interiors
must be free of evidence of moisture damage.
(xviii) Electrical, air conditioning and heating. The housing
project must have heating and cooling units that are free of bare wires
and which are functioning properly, including thermostats. The housing
project must not have uncovered outlets or other evident safety
hazards, switches which work improperly, or light fixtures which are
broken and inoperable.
(xix) Water heaters. The housing project must have water heaters
which are operating properly, free of leaks, supply adequate hot water,
and are fitted with temperature and pressure relief valves.
(xx) Smoke alarms. The housing project must have smoke alarms which
are properly located according to local code and which operate
properly.
(xxi) Emergency call system. If a housing project has an emergency
call system, the switches must be located in the bathroom and bedroom,
furnished with a pull cord, with the down position set to ``ON'', and
must operate properly.
(xxii) Insect or vermin infestation. The housing project must have
all units free of visible signs of insects or rodents and must be free
of signs of insect or rodent damage.
(xxiii) Range and range hood. The housing project must have range
units in which all elements are operable, electrical connections are
secure and insulated, doors and drawers which are secure, control knobs
and handles which are in place and secure, and housing which is sound
and the finish is free of chips, damage or signs of rust. The range
hood fan and light must be operable.
(xiv) Refrigerator. The housing project must have refrigerators in
which the cooler and freezer are operating properly, the shelves and
door containers are secure and free of rust, door gaskets are in good
condition and functioning properly, and the housing is sound and the
finish is free of chips, damage, or signs of rust.
(xv) Sinks. The housing project must have sinks in which the
fittings work properly and are free of leaks, plumbing connections
under the cabinet which are free of leaks, the finish is free of chips,
damage or signs of rust, the strainer is in good condition and in
place, and which are secured to a wall, counter or vanity top.
(xvi) Cabinets. The housing project must have cabinets and vanities
which are secure to walls or floor and have faces, doors and drawer
fronts that are in good condition and free of breaks and peeling.
Shelving must be in place, fastened securely and free of warps. The
housing project must have counter tops which are secure and free of
burn marks or chips, bottoms under sinks which are free of evidence of
warping, breaks, or being water soaked. Kitchen counter, vanity tops,
and back splashes must be properly caulked.
(xvii) Water closets. The housing project must have the base of the
water closets at the floor properly caulked. The tanks must be free of
cracks or leaks and have a lid which fits and is in good condition. The
seats must be secure and in good condition, and the flushing mechanisms
must be in good condition and operating properly. The stools must be
free of cracks and breaks and be securely fastened to the floor.
(xviii) Bathtub and shower stalls. The housing project must have
tubs or shower stalls which are free of cracks, breaks, and leaks, and
a strainer in good condition and in place. The housing project must
have walls and floors of the bathtubs which are properly caulked, tops
and sides of shower stalls must be properly caulked, and the finish is
free of chips, damage or signs of rust.
(4) Borrowers must correct or repair any conditions that do not
meet these standards, including any deficiencies identified by the
Agency as a result of monitoring activities. Failure to make such
corrections or repairs constitutes a non-monetary default under Sec.
3560.452(c).
(b) Maintenance systems. Borrowers must establish the following
maintenance systems and must describe these systems in their management
plan.
(1) A system for routine maintenance, including:
(i) Regular maintenance tasks that can be prescheduled or planned;
and
(ii) Tasks performed on a regular basis to maintain compliance with
the standards established in paragraph (a)(3) of this section.
(2) A system for responsive maintenance including:
(i) A process for responding to requests for maintenance from
tenants;
(ii) A process for responding to unexpected malfunctions of
equipment or damages to building systems such as a furnace breakdown or
a water leak; and
(iii) A ``work order'' process for managing and tracking responses
to maintenance requests and the performance of maintenance tasks.
(3) A system for preventive maintenance including:
(i) Maintenance of mechanical systems, building exteriors,
elevators, and heating and cooling systems which require specially
trained personnel; and
(ii) Maintenance that supports energy-efficient operation of the
housing project.
(4) A system for correcting deficiencies identified by periodic
inspections, which must include:
(i) A move-in inspection;
(ii) A move-out inspection; and
(iii) An annual inspection of occupied units.
(c) Capital budgeting and planning.
(1) Borrowers must develop a capital budget as part of their annual
housing project budget required under Sec. 3560.303. The capital
budget must include anticipated expenditures on the long-term capital
needs of the housing project to assure adequate maintenance and
replacement of capital items.
(2) Borrowers must prepare and submit a capital needs assessment to
reflect anticipated ``life-cycle'' needs of the housing project for
replacement of capital equipment and systems. The cost for preparation
of a capital needs assessment will be approved by the Agency as an
eligible housing project expense provided the capital needs
[[Page 32908]]
assessment is reasonable in cost and meets Agency requirements.
(3) Borrowers must also prepare and submit capital needs assessment
to the Agency for approval as a part of a request to:
(i) Transfer ownership of a housing project;
(ii) Reamortize an Agency loan;
(iii) Write-down an Agency loan;
(iv) Substantially rehabilitate a housing project;
(v) Significantly change housing project operations; or
(vi) Receive a preservation incentive.
(4) As a part of the annual budget process, borrowers may request
an increase in the amount to be contributed and held in the housing
project reserve account to fund the needs identified in an Agency-
approved capital needs assessment.
(5) At any time, borrowers may request and the Agency may approve
amendments to loan or grant documents to increase the amount of funds
to be contributed and held in a reserve account to cover the cost of
capital improvements based on the needs identified in an Agency
approved capital needs assessment. Borrowers must assure improvements
are performed as specified in the capital needs assessment.
Sec. 3560.104 Fair housing.
(a) General. Borrowers must comply with the requirements of the
Fair Housing Amendments Act of 1988, and this section to meet their
fair housing responsibilities.
(b) Affirmative Fair Housing Marketing Plan.
(1) Borrowers with housing projects that have four or more rental
units must prepare and maintain an Affirmative Fair Housing Marketing
Plan (AFHMP) as defined in 24 CFR part 200, subpart M.
(2) Loan or grant applicants must submit an AFHMP for Agency
approval prior to loan closing or grant approval. Plans must be updated
by the borrower whenever components of the plan change.
(3) Borrowers must post the approved AFHMP for public inspection at
the housing project site, rental office, or at any other location where
tenant applications are received.
(4) When developing the plan, the following items must be
considered by the borrower:
(i) Direction of marketing activities. The plan should be designed
to attract applications for occupancy from all potentially eligible
groups of people in the housing marketing area, regardless of race,
color, religion, sex, age, familial status, national origin, or
disability. The plan must show which efforts will be made to reach very
low-income or low-income groups who would least likely be expected to
apply without special outreach efforts.
(ii) Marketing program. The applicant or borrower should determine
which methods of marketing such as radio, newspaper, TV, signs, etc.,
are best suited to reach those very low-income or low-income groups who
are in the market area but who are least likely to apply for occupancy.
Marketing must not rely on ``word of mouth'' advertising.
(A) Advertising.
(1) Frequency. The borrower should advertise availability of
housing units in advance of their availability to allow time to receive
and process applications. Advertising by newsprint or electronic media
should occur at least annually to promote project visibility, even if
there is an adequate waiting list.
(2) Posters, brochures, etc. Any radio, TV or newspaper
advertisement, pamphlets, or brochures used must identify that the
complex is operated on an equal housing opportunity basis. This must be
done through the use of the equal housing opportunity statement,
slogan, or logo type. Copies of the proposed material must be sent when
requesting approval of the plan.
(B) Community contacts. Community leaders and special interest
groups such as community, public interest, religious organizations for
the disabled must be contacted. Owners and managers of projects with
fully accessible apartments must adopt suitable means to ensure that
information regarding the availability of accessible units reaches
eligible persons with disabilities. In addition, owners and managers of
elderly housing must ensure that information regarding eligibility
reaches people who are less than 62 years old but who are eligible
because they are disabled. Appropriate contacts are with physical
rehabilitation centers, hospitals, workshops for the disabled,
commissions on aging, and veterans organizations.
(C) Rental staff. All staff persons responsible for renting the
units must have had training provided on Federal, state, and local fair
housing laws and regulations and in the requirements of fair housing
marketing and in those actions necessary to carry out the marketing
plan. Copies of instructions to the staff regarding fair housing and a
summary of the training they have received must be attached to the plan
when requesting approval.
(iii) Marketing records. Records must be maintained by the borrower
reflecting efforts to fulfill the plan. These records will be reviewed
by the Agency during civil rights compliance reviews. Plans will be
updated as needed.
(c) Accommodations and communication. The borrower must take
appropriate steps to ensure effective communication with applicants,
tenants, and members of the public with disabilities. At a minimum, the
following steps must be taken.
(1) Furnish appropriate auxiliary aids (electronic, mechanical, or
personal assistance) where necessary, to afford an individual with
disabilities an equal opportunity to participate in and enjoy the
benefits of Agency financed housing.
(i) In determining what auxiliary aids are necessary, the borrower
must give primary consideration to the requests of individuals with
disabilities.
(ii) The borrower is not required to provide individually
prescribed devices, readers for personal use or study, or other devices
of a personal nature.
(2) Where a borrower communicates with applicants and tenants by
telephone, telecommunication devices for deaf persons or equally
effective communication systems must be available for use.
(3) The borrower must implement procedures to ensure that
interested persons, including persons with impaired vision or hearing,
can obtain information concerning the existence and location of
accessible services, activities, and facilities in the housing project
and community.
(4) The borrower is required to provide reasonable accommodations
at the borrower's expense unless doing so would cause an undue
financial or administrative burden. Examples of reasonable
accommodations may include such items as the installation of grab bars,
ramps, and roll-in showers. Reasonable accommodations may also include
the modification of rules or policies such as permitting a disabled
tenant to have a two-bedroom unit to accommodate a resident assistant
or to permit a disabled tenant to have a companion animal. The decision
whether the requested accommodation is reasonable or unreasonable or
whether to provide the accommodation would cause an undue financial or
administrative burden lies with the borrower and would be for the
borrower to defend should a complaint subsequently be filed. Borrowers
may wish to consult with their legal counsel prior to denying a
request. If the borrower takes the position that providing an
accommodation would cause an undue financial or
[[Page 32909]]
administrative burden, the borrower must permit the tenant to make
reasonable modifications at the tenant's expense. Requests for
reasonable accommodations must be handled in accordance with the
management plan.
(d) Housing sign requirements.
(1) A permanent sign identifying the housing project is required
for all housing projects approved on or after September 13, 1977.
Permanent signs are recommended for all housing projects approved prior
to September 13, 1977. The sign must meet the following requirements:
(i) Must be located at the primary site entrance and be readable
and recognizable from the roadside;
(ii) Must be located near the site manager's office when the
housing project has multiple sites. Portable signs must be placed where
vacancies exist at other site locations of a ``scattered site'' housing
project;
(iii) May be of any shape;
(iv) Must be not less than 16 square feet of area for housing
projects with 8 or more rental units (smaller housing projects may have
smaller signs);
(v) Must be made of durable material including its supports;
(vi) Must include the housing project name;
(vii) Must show rental contact information including but not
limited to the office location of the housing project and a telephone
number where applicant inquiries may be made;
(viii) Must show either the equal housing opportunity logotype (the
house and equal sign, with the words equal housing opportunity
underneath the house); the equal housing opportunity slogan ``equal
housing opportunity'; or the equal housing opportunity statement, ``We
are pledged to the letter and spirit of U.S. policy for the achievement
of equal housing opportunity throughout the nation. We encourage and
support an affirmative advertising and marketing program in which there
are no barriers to obtaining housing because of race, color, religion,
sex, handicap, familial status, or national origin.'' If the logotype
is used, the size of the logo must be no less than 5 percent of the
total size of the project sign.
(ix) May display the Agency or Department logotype; and
(x) Must comply with state and local codes.
(2) Accessible parking spaces must be reserved for individuals with
disabilities by a sign showing the international symbol of
accessibility. The sign must be mounted on a post at a height that is
readily visible from an occupied vehicle. In snow areas, the sign must
be visible above piled snow. If there is an office, the designated
parking space must be van accessible.
(3) When the continuous unobstructed ingress or egress disabled
accessibility route to a primary building entrance is other than the
usual or obvious route, the alternate route for disabled accessibility
must be clearly marked with international accessibility symbols and
directional signs to aid a disabled person's ingress or egress to the
building, through an accessible entrance, and to the accessible common
use and public and living areas.
Sec. 3560.105 Insurance and taxes.
(a) General. Borrowers must purchase and maintain property
insurance on all buildings included as security for an Agency loan.
Also, borrowers must furnish fidelity coverage, liability insurance,
and any other insurance coverage required by the Agency in accordance
with this paragraph to protect the security of the asset. Failure to
maintain adequate insurance coverage or pay taxes may lead to a non-
monetary default under Sec. 3560.452(c).
(b) General insurance requirements. All insurance policies must
meet the requirements established by the loan documents and this
section.
(1) At loan closing, prior to loan approval, applicants must
provide documentary evidence that insurance requirements have been met
and must maintain such evidence throughout the life of the loan or
terms of the grant.
(2) Insurance companies must meet the requirements of paragraph (e)
of this section.
(3) Insurance coverage amount, terms, and conditions must meet the
requirements of paragraph (f) of this section.
(4) The borrower must maintain insurance in accordance with
requirements of their loan or grant documents and this section until
the loan is repaid or the terms of the grant expire.
(5) The Agency must be named as co-payee on all property insurance
policies.
(c) Borrower failure or inability to meet insurance requirements.
The Agency will take the following actions in cases where a borrower is
unwilling or unable to meet the Agency's insurance requirements.
(1) The Agency will obtain insurance for Agency financed property
if the borrower fails to do so. If borrowers refuse to pay the
insurance premium, the Agency will pay the insurance premium and charge
the premium payment amount and all costs associated with procurement of
the required insurance to the borrower's Agency account and will place
the borrower in default as described in Sec. 3560.452(c).
(2) If borrowers habitually fail to pay premiums in a timely
manner, the Agency will require borrowers to escrow amounts appropriate
to pay insurance premiums.
(3) If insurance that meets the Agency's specified requirements is
not available (e.g. flood or hurricane insurance), the Agency may
accept the insurance policy that most nearly conforms to established
requirements.
(4) If the best insurance policy a borrower can obtain at the time
the borrower receives the loan or grant contains a loss deductible
clause greater than that allowed by paragraph (f)(8) of this section,
the insurance policy and an explanation of the reasons why more
adequate insurance is not available must be submitted to the Agency
prior to loan or grant approval.
(d) Credits, refunds, or rebates. Borrowers must credit any refund
or rebate from an insurance company to the project's general operating
account or reserve account.
(e) Insurance company requirements. All insurers, insurance agents,
and brokers must meet the following requirements:
(1) Be licensed or authorized to do business in the state or
jurisdiction where the housing project is located;
(2) Be deemed reputable and financially sound as determined by the
Agency; and
(3) Not have any identity-of-interest relationships with the
borrower, management agent, or partners, directors or officers of the
borrower entity.
(f) Property insurance. The following conditions apply to property
insurance purchased for Agency-financed housing projects.
(1) At a minimum, borrowers must obtain the following types of
property insurance.
(i) Hazard insurance. A policy which generally covers loss or
damage by fire, smoke, lightning, windstorms, hail, earthquake,
explosion, riot, civil commotion, aircraft, and vehicles. These
policies may also be known as ``Fire and Extended Coverage,''
``Homeowners,'' ``All Physical Loss,'' or ``Broad Form'' policies.
(ii) Flood insurance. This coverage is required for properties
located in Special Flood Hazard Areas (SFHA) as defined in 44 CFR part
65, as determined by the Federal Emergency Management Agency (FEMA).
[[Page 32910]]
(iii) Builder's risk insurance. A policy which insures dwellings
under construction.
(iv) Elevators, boiler, and machinery coverage. This coverage is
required for properties that operate elevators, steam boilers,
turbines, engines, or other pressure vessels.
(2) For property insurance, the minimum coverage amount must equal
the ``Total Estimated Reproduction Cost of New Improvements,'' as
reflected in the housing project's most recent appraisal. At a minimum,
property insurance coverage must be adequate to cover the lesser of the
depreciated replacement value of essential buildings or the unpaid
balance of all secured debt, unless such coverage is financially
unfeasible for the housing project.
(i) If the cost of the minimum level of property insurance coverage
exceeds what the housing project can reasonably afford, the borrower,
with Agency concurrence, must obtain the maximum amount of property
insurance coverage that the housing project can afford.
(ii) If the coverage amount is less than the depreciated
replacement value of all essential buildings, borrowers must obtain
coverage on one or more of the most essential buildings, as determined
by the Agency.
(iii) When required, the coverage amount for flood insurance must
equal the outstanding loan balance or the maximum coverage allowed by
FEMA's ``National Flood Insurance Program.''
(3) Except for flood insurance, property insurance is not required
if the housing project:
(i) Has a depreciated replacement value of $2,500 or less; or
(ii) Is in a condition which the Agency determines makes insurance
coverage not economical.
(4) Policies for several buildings or properties located on
noncontiguous sites are acceptable if the insurer provides proof that
each secured building or property related to the housing project is as
fully protected as if a separate policy were issued.
(5) Borrowers must notify the Agency and their insurance company
agents of any loss or damage to insured property and collect the amount
of the loss.
(6) When the Agency is in the first lien position and an insurance
settlement represents a satisfactory adjustment of a loss, the
insurance settlement will be deposited in the housing project's general
operating account unless the settlement exceeds $5,000. If the
settlement exceeds $5,000, the funds will be placed in the reserve
account for the housing project.
(i) Insurance settlement funds which remain after all repairs,
replacements, and other authorized disbursements have been made retain
their status as housing project funds.
(ii) If the indebtedness secured by the insured property has been
paid in full or the insurance settlement is in payment for loss of
property on which the Agency has no claim; a loss draft which includes
the Agency as co-payee may be endorsed by the Agency without recourse
and delivered to the borrower.
(7) When the Agency is not in the first lien position and the
insurance settlement represents satisfactory adjustment of the loss,
the Agency will release the settlement funds to the primary mortgagee
upon agreement of all parties to the provisions contained in agreements
between the Agency and the primary lienholder.
(8) Deductible clause amounts must be accounted for in the reserve
account unless the deductible amount does not exceed:
(i) $1,000 on any housing project with an insurable value under
$200,000; or
(ii) One-half of one percent (0.0050) of the insurable value, up to
$5,000 on housing project with insurance values over $200,000.
(g) Liability insurance. The borrower must carry comprehensive
general liability insurance with coverage amounts that meet or exceed
Agency requirements. This coverage must insure all common areas,
commercial space, and public ways in the security premises. Coverage
may also include borrower exposure to certain risks such as errors and
omissions, environmental damages, or protection against discrimination
claims. The insurer's limit of liability per occurrence for personal
injury, bodily injury, or property damage under the terms of coverage
must be at least $1 million.
(h) Fidelity coverage. Borrowers must provide fidelity coverage on
any personnel entrusted with the receipt, custody, and disbursement of
any housing monies, securities, or readily salable property other than
money or securities. Borrowers must have fidelity coverage in force as
soon as there are assets within the organization and it must be
obtained before any loan funds or interim financing funds are made
available to the borrower. In addition, the following conditions apply
to fidelity insurance.
(1) Fidelity insurance coverage must be documented on a bond form
acceptable to the Agency.
(2) Fidelity coverage policies must declare in the insuring
agreements that the insurance company will provide protection to the
insured against the loss of money, securities, and property other than
money and securities, through any criminal or dishonest act or acts
committed by any employee, whether acting alone or in collusion with
others, not to exceed the amount of indemnity stated in the declaration
of coverage. The fidelity insurance policy, at a minimum, must include
an insuring agreement that covers employee dishonesty.
(3) Blanket crime insurance coverage or fidelity bonds are
acceptable types of fidelity coverage.
(4) At a minimum, borrowers must provide an endorsement, listing
all of the borrower's Agency financed properties and their locations
covered under the policy or bond as evidence of required fidelity
insurance. The policy or bond may also include properties or operations
other than Agency financed properties on separate endorsement listings.
(5) Individual or organizational borrowers must have fidelity
coverage when they have employees with access to the multi-family
housing complex assets. Borrowers who use a management agent with
exclusive access to housing assets must require the agent to have
fidelity coverage on all principals and employees with access to the
housing assets. If active management reverts to the borrower, the
borrower must obtain fidelity coverage, as a first course of business.
(6) Fidelity coverage is not required under the following
circumstances.
(i) The borrower is an individual or a general partnership and the
individual or general partner will be responsible for the financial
activities of the housing project.
(ii) In the case of a land trust where the beneficiary is
responsible for management, the beneficiary will be treated as an
individual.
(iii) A limited partnership (or its general partners) unless one or
more of its general partners perform financial acts within the scope of
the usual duties of an ``employee.''
(7) The premium for fidelity coverage of employees and general
partners at a housing project is an eligible operating account expense.
(i) The premium of a management agent's fidelity coverage for the
agent's principals and employees will be the management agent's
business expense (i.e., it is included within the management fee).
(ii) When a housing project employee is covered under the
``umbrella'' of the management agent's fidelity coverage, the portion
of the premium covering the employee must be reflected in the
management plan.
(8) Borrowers must review fidelity coverage annually and adjust it
as
[[Page 32911]]
necessary to comply with the requirements of this section.
(i) Taxes. The borrower is responsible for paying all taxes and
assessments on a housing project before they become delinquent.
Annually, borrowers must certify to the Agency that all taxes are
current.
(1) An exception to the above may be made if the borrower has
formally contested the amount of the property assessment and escrowed
the amount of taxes in question in a manner approved by the Agency.
(2) Failure to pay taxes and assessments when due will be
considered a default. If a borrower fails to pay outstanding taxes and
assessments, the Agency will pay the outstanding balance and charge the
tax or assessment amount, assessed penalties, and any additional
incurred costs to the borrower's Agency account.
(3) The Agency will require borrowers who have demonstrated an
inability to pay taxes in a timely manner to escrow amounts sufficient
to pay taxes.
Sec. Sec. 3560.106-3560.149 [Reserved]
Sec. 3560.150 OMB control number. [Reserved]
Subpart D--Multi-Family Housing Occupancy
Sec. 3560.151 General.
This subpart contains borrower and tenant requirements and Agency
responsibilities related to occupancy of Agency-financed multi-family
housing projects. Occupancy eligibility requirements apply to the
following:
(a) Family housing projects, including farm labor housing;
(b) Elderly housing projects;
(c) Mixed housing projects for both family and elderly households;
and
(d) Congregate housing or group homes for persons with special
needs.
Sec. 3560.152 Tenant eligibility.
(a) General requirements. Except as specified in paragraph (b) of
this section, households eligible for occupancy in Agency-financed
housing must either:
(1) Be a United States citizen or legal or qualified alien as
defined in Sec. 3560.11, and either.
(2) Qualify as a very low-, low-, or moderate-income household; or
(3) Be eligible under the requirements established to qualify for
housing benefits provided by sources other than the Agency, such as HUD
Section 8 assistance or LIHTCs, when a household receives such housing
benefits.
(b) Exception. Households with incomes above the moderate-income
level may occupy housing projects with an Agency loan approved prior to
1968 with a loan agreement that does not restrict occupancy by income.
(c) Requirements for elderly housing, elderly units in mixed
housing, congregate housing, and group homes. In addition to the
requirements of paragraph (a) of this section, the following occupancy
requirements apply to elderly housing, elderly units in mixed housing,
and congregate housing or group homes.
(1) For elderly housing, elderly units in mixed housing, and
congregate housing the following provisions apply.
(i) Households must meet the definition of an elderly household in
Sec. 3560.11 to be eligible for occupancy in elderly or congregate
housing.
(ii) If non-elderly persons are members of a household where the
tenant or co-tenant is an elderly person, the non-elderly persons are
eligible for occupancy in the tenant's or co-tenant's rental unit.
(iii) Applicants who will agree to participate in the services
provided by a congregate housing project may be given occupancy
priority.
(2) For group homes, the following provisions apply.
(i) Occupancy may be limited to a specific group of tenants, such
as elderly persons or persons with developmental disabilities, or
mental impairments, if such an occupancy limitation is contained in the
borrower's management plan.
(ii) Tenants must meet the requirements of paragraph (a) of this
section and must be able to demonstrate a need for the special services
provided by the group home.
(iii) Tenants cannot be required to be a part of an ongoing
training or rehabilitation program.
(iv) Tenants must be selected from the market area prior to
considering applicants from other areas.
(d) Ineligible tenant waiver. The Agency may authorize the borrower
in writing, upon receiving the borrower's written request with the
necessary documentation, to rent vacant units to ineligible persons for
temporary periods to protect the financial interest of the Government.
Likewise, this provision may extend to a cooperative. This authority
will be for the entire project for periods not to exceed 1 year. Within
the period of the lease, the tenant may not be required to move to
allow an eligible applicant to obtain occupancy, should one become
available. The Agency must make the following determinations.
(1) There are no eligible persons on a waiting list.
(2) The borrower provided documentation that a diligent but
unsuccessful effort to rent any vacant units to an eligible tenant
household has been made. Such documentation may consist of
advertisements in appropriate publications, posting notices in several
public places, and other places where persons seeking rental housing
would likely make contact; holding open houses, making appropriate
contacts with public housing agencies and organizations, Chambers of
Commerce, and real estate agencies.
(3) The borrower agrees to publish a notice in the local newspaper
to inform the public of the borrower's intent to temporarily rent
apartments to all persons without regard to age or income restrictions.
(4) The borrower agrees to continue with aggressive efforts to
locate eligible tenants and submit monthly reports of their marketing
efforts to the Agency.
(5) The borrower is temporarily unable to achieve or maintain a
level of occupancy sufficient to prevent financial default and
foreclosure and the Agency's approval of the waiver will be for a
limited duration.
(6) That the lease agreement will not be more than 12 months and at
its expiration will convert to a month-to-month lease. The monthly
lease will require that the unit be vacated upon 30 days notice when an
eligible applicant is available.
(7) Tenants residing in RRH units who are ineligible because their
adjusted annual income exceeds the maximum for the RRH project will be
charged the RHS approved note rate rental rate for the size of unit
occupied in a Plan II RRH project. In projects operated under Plan I,
ineligible tenants will be charged rental surcharge of 25 percent of
the approved note rate rental rate.
(8) Tenants residing in off-farm LH units who are ineligible
because their adjusted annual income exceeds the maximum for the area
will be charged the lesser of the LH project's note rate rent or the
prevailing market rent rate for the project. For on-farm tenants, rent
determination may be subject to local discretion within limitations
contained in subpart L of this part. Excess rent shall be remitted to
the Agency for credit to the Rural Housing Insurance Fund.
(e) Tenant certification and verification. Tenants and borrowers
must execute an Agency-approved tenant certification form establishing
the tenant's eligibility prior to occupancy. In addition, tenant
households must be recertified and must execute a tenant certification
form at least annually or whenever a change in household status
[[Page 32912]]
results in a net tenant contribution change that is greater than $25
per month. Borrowers must make modifications to tenant certifications
for changes with a $25 or less impact on the net tenant contribution,
if the tenant requests that such a change be made.
(1) Tenant requirements.
(i) Tenants must provide borrowers with the necessary income and
other household information required by the Agency to determine
eligibility.
(ii) Tenants must authorize borrowers to verify information
provided to establish their eligibility or determination of tenant
contribution.
(iii) Tenants must report all changes in household status that may
affect their eligibility to borrowers.
(iv) Tenants who fail to comply with tenant certification and
recertification requirements will be considered ineligible for
occupancy and will be subject to unauthorized assistance claims, if
applicable, as specified in subpart O of this part.
(2) Borrower requirements.
(i) Borrowers must verify household income and other information
necessary to establish tenant eligibility for the requested rental unit
type, in a format approved by the Agency, prior to a tenant's initial
occupancy and prior to annual or other recertifications.
(ii) Borrowers must review all reported changes in household status
and assess the impact of these changes on the tenant's eligibility or
net tenant contribution.
(iii) Borrowers must submit initial or updated tenant certification
forms to the Agency within 10 days of the effective date of an initial
certification or any changes in a tenant's status. The effective date
of an initial or updated tenant certification form will always be a
first day of the month.
(iv) Since tenant certifications are used to document interest
credit and rental assistance eligibility and are a basic responsibility
of the borrower under the loan documents, borrowers who fail to submit
annual or updated tenant certification forms within the time period
specified in paragraph (e)(2)(iii) of this section will be charged
overage, as specified in Sec. 3560.203(c). Unauthorized assistance, if
any, will be handled in accordance with subpart O of this part.
(v) Borrowers must submit tenant certification forms to the Agency
using a format approved by the Agency.
(vi) Borrowers must retain executed tenant certification forms and
any supporting documentation in the tenant file for at least 3 years or
until the next Agency monitoring visit or compliance review, whichever
is longer.
(3) The Agency maintains the right to independently verify tenant
eligibility information.
Sec. 3560.153 Calculation of household income and assets.
(a) Annual income will be calculated in accordance with 24 CFR part
5.
(b) Adjusted income will be calculated in accordance with 24 CFR
part 5.
(c) Net assets will be calculated in accordance with 24 CFR part 5.
Sec. 3560.154 Tenant selection.
(a) Application for occupancy. Borrowers must use tenant
application forms that collect sufficient information to properly
determine household eligibility and to enable the Agency to monitor
compliance with the Fair Housing Act and title VI of the Civil Rights
Act of 1964 during compliance reviews. At a minimum, borrowers must use
application forms that collect the following information:
(1) Name of the applicant and present address;
(2) Number of household members and their ages;
(3) Annual income information calculated in accordance with Sec.
3560.153(a);
(4) Adjustments to income calculated in accordance with Sec.
3560.153(b);
(5) Net assets calculated in accordance with Sec. 3560.153(c);
(6) Indication of a need for a unit accessible to individuals with
disabilities and any disability adjustments to income;
(7) Certification by the applicant that the unit will serve as the
household's primary residence, and a certification that the applicant
is a U.S. citizen or a legal or qualified alien as defined in Sec.
3560.11; and
(8) Signature of the applicant and date.
(9) Race, ethnicity, and sex designation. This designation shall be
placed on the application form beneath the signature and date section.
The following disclosure notice shall be used (verbatim) and the race,
ethnicity, and sex designation shall be collected in the following
manner on the application form:
The information regarding race, ethnicity, and sex designation
solicited on this application is requested in order to assure the
Federal Government, acting through the Rural Housing Service, that
the Federal laws prohibiting discrimination against tenant
applications on the basis of race, color, national origin, religion,
sex, familial status, age, and disability are complied with. You are
not required to furnish this information, but are encouraged to do
so. This information will not be used in evaluating your application
or to discriminate against you in any way. However, if you choose
not to furnish it, the owner is required to note the race,
ethnicity, and sex of individual applicants on the basis of visual
observation or surname.
Please identify your ethnicity, your race and your sex as
follows:
List the Race and Ethnicity Categories as Found on the Agency Tenant
Certification Form
(10) Taxpayer identification number.
(b) Additional information. Applicants are to be provided a list of
any additional information that must be submitted with the application
for the application to be considered complete (an application will be
considered complete without verification of the applicant information).
(c) Application submission. Borrowers must establish and maintain a
specific place and time when tenant applications may be submitted.
Information on the place and times for tenant application submission
must be documented in the housing project's management plan and
Affirmative Fair Housing Marketing Plan.
(d) Selection of eligible applicants. Applicants may be determined
ineligible for occupancy based on selection criteria other than Agency
requirements only if such criteria is contained in the borrower's
Agency approved management plan. Borrower established selection
criteria may not contain arbitrary or discriminatory rejection
criteria, but may consider an applicant's past rental and credit
history and relations with other tenants.
(e) Recordkeeping. Borrowers must retain all tenant application
forms for at least 3 years. The Agency may require borrowers to submit
application information for Agency review.
(f) Waiting lists.
(1) When an applicant has submitted an application form the
borrower must place the applicant on the waiting list. All
applications, whether complete, eligible, or ineligible, will be placed
on the list. The waiting list will document the final disposition of
all applications (rejected, withdrawn, or placed in a unit).
(2) The date and time a complete application was submitted will be
recorded on the waiting list and will establish priority for selection
from the list. If an applicant submits an incomplete application (see
paragraph (a)(8) of this section), they must be notified in writing
within 10 days of the items that are needed for the application to be
considered complete and that priority will not be established until the
additional items are received.
[[Page 32913]]
(3) The race and the ethnicity of each applicant shall be recorded
on the waiting list. This information shall be collected for
statistical purposes only and must not be used when making eligibility
determinations or in any other discriminatory manner. The information
shall be recorded using the race and ethnicity codes that are utilized
on the Agency tenant certification form available in the servicing
office.
(4) Selections from the waiting list shall be made in the following
priority order:
(i) Very low-income applicants;
(ii) Low-income applicants; and
(iii) Moderate-income applicants.
(g) Priorities and preferences for admission.
(1) Eligible applicants that meet the following conditions must be
given priority for occupancy over all other tenants regardless of
income. Such applicants, however, will be ranked among themselves by
income level, giving priority first to very low-income households, then
to low-income households, and finally to moderate-income households.
(i) Persons who require the special design features of a unit
accessible to individuals with disabilities will have priority only for
units with these features.
(ii) In congregate housing facilities, persons who agree to use the
services provided by the facility will have priority over other
applicants.
(2) Eligible applicants that meet any of the following conditions
must be given priority over other applicants in their same income
category.
(i) The applicant has a Letter of Priority Entitlement (LOPE)
issued in accordance with Sec. 3560.660(d).
(ii) The applicant was displaced from Agency-financed housing but
was not issued a LOPE.
(iii) The applicant was displaced in a Federally declared disaster
area.
(3) Borrowers receiving Section 8 project-based assistance may
establish preferences in accordance with HUD regulations. The use of
such preferences must be documented in the project's management plan.
(h) Notices of ineligibility or rejection. Borrowers must provide
written notification to applicants who are determined to be ineligible
or who are rejected for occupancy. Notices of ineligibility or
rejection must give specific reasons for the ineligibility
determination or rejection and, in accordance with Sec. 3560.160, the
notice must advise the applicant of ``the right to respond to the
notice within ten calendar days after receipt'' and of ``the right to a
hearing in accordance with Sec. 3560.160 which is available upon
request.'' When an applicant is rejected based on the information from
a credit bureau report, the source of the credit bureau report must be
revealed to the applicant in accordance with the Fair Credit Reporting
Act.
(i) Purging waiting list. Procedures used by borrowers to purge
waiting list must be documented in the project's management plan and
must be based on the length of the waiting list or the extent of time
an applicant will be expected to wait for housing.
(j) Criminal activity. Borrowers may deny admission for criminal
activity or alcohol abuse by household members in accordance with the
provisions of 24 CFR 884.216(b).
Sec. 3560.155 Assignment of rental units and occupancy policies.
(a) General. Available rental units are assigned in accordance with
the requirements of this section and the priorities and preferences
outlined in Sec. 3560.154.
(b) Rental units accessible to individuals with disabilities. If a
rental unit accessible to individuals with disabilities is available
and there are no applicants that require the features of the unit,
borrowers may rent the unit to a non-disabled tenant subject to the
inclusion of a lease provision that requires the tenant to vacate the
unit within 30 days of notification from management that an eligible
individual with disabilities requires the unit and provided:
(1) The accessible unit has been marketed as an accessible unit,
(2) Outreach has been made to organizations representing the
disabled, and
(3) Marketing of the unit as an accessible unit continues after it
has been rented to a tenant who is not in need of the special design
features.
(c) Transfer of existing tenants within a housing project. When a
rental unit becomes available for occupancy and an eligible tenant in
the housing project is either over housed or under housed as provided
for in paragraph (e) of this section, the borrower must use the
available unit for the over housed or under housed tenant, if suitable,
prior to selecting an eligible applicant from the waiting list.
(d) Applicant placement. When a specific rental unit type becomes
available for occupancy, borrowers must select eligible applicants
suitable for the available unit according to the priorities established
in Sec. 3560.154.
(e) Occupancy policies. Borrowers must establish occupancy policies
for each housing project. The borrower's occupancy policies must
establish a minimum threshold of one person per bedroom for each rental
unit. Households living in a rental unit with more bedrooms than
persons in the household will be considered over housed and must be
relocated in accordance with paragraph (c) of this section. Households
under housed as defined by the project's occupancy standards must be
relocated in accordance with paragraph (c) of this section. Borrowers
with no one-bedroom units in a housing project may make an exception to
this requirement in their occupancy policies. In addition, a borrower's
occupancy policies must establish:
(1) Reasonable standards for determining when a tenant household is
considered under housed. The standards will describe the maximum number
of persons that may occupy units of a given size based on occupancy
guidelines provided by the Agency or another governmental source; and
(2) The order in which eligible applicants and existing tenants
will be housed or rehoused.
(f) Agency concurrence. The Agency must concur with a borrower's
occupancy rules prior to initial occupancy of the housing project. All
modifications to occupancy rules must be posted for tenant comment in
accordance with Sec. 3560.160 and receive Agency concurrence prior to
implementation.
Sec. 3560.156 Lease requirements.
(a) Agency concurrence. Borrowers must use a lease approved by the
Agency. The lease must be consistent with Agency requirements and the
requirements of all programs participating in the housing project.
Prior to submitting the lease to the Agency for approval, borrowers
must have their attorney certify that the lease complies with state and
local laws, Agency requirements, and the requirements of all programs
participating in the housing project. If there are conflicting
requirements the borrower shall notify the Agency of the conflict and
request guidance. Borrowers must execute their Agency approved lease
with each tenant household prior to tenant occupancy of a rental unit.
(b) Lease requirements.
(1) All leases must be in writing.
(2) Initial leases must be for a 1-year period.
(3) If the tenant is not subject to occupancy termination according
to Sec. 3560.158 and Sec. 3560.159, a renewal
[[Page 32914]]
lease or lease extension must be for a 1-year period.
(4) In areas with a concentration of non-English speaking
populations, leases (including the occupancy rules) must be available
in both English and the non-English language.
(5) Leases must give the address of the management agent to which
tenants may direct complaints.
(6) Leases must include a statement of the terms and conditions for
modifying the lease.
(c) Required items and provisions.
(1) Leases must include the following clauses:
(i) A requirement that tenants move out of the housing project
within 30 days of being notified by the borrower that they are no
longer eligible for occupancy unless the conditions cited in Sec.
3560.158(c) exist;
(ii) A requirement that tenants notify borrowers regarding changes
in their income or assets, their qualifications for adjustments to
income, their citizenship status, or the number of persons living in
the unit;
(iii) A requirement that tenants notify borrowers of extended
tenant absences, typically four weeks or more;
(iv) A requirement that tenants make restitution when unauthorized
assistance is received and a statement advising tenants that submission
of false information could result in legal action.
(v) A requirement that tenants agree to fulfill the tenant income
verification and certification requirements established under Sec.
3560.152; and
(vi) A requirement that, during acceleration and foreclosure
proceedings, the tenant contribution will remain as if any interest
credit and rental subsidy in effect prior to acceleration were still in
place and available and the terms of the lease remain in effect until
the date the acceleration or foreclosure action is resolved.
(2) Leases for tenants who hold a LOPE issued according to Sec.
3560.655(d) and are temporarily occupying a unit for which they are not
eligible must include a clause establishing the tenant's responsibility
to move when a suitable unit becomes available in the housing project.
(3) Leases must contain a clause permitting escalation in the
tenant contribution when there is an Agency-approved change in basic or
note rate rents prior to the expiration of the lease. The escalation
clause also must specify that the tenant contribution may be changed
prior to expiration of the lease if the change is due to changes in
tenant status, as documented on the tenant certification form, or the
tenant's failure to properly recertify.
(4) Leases must specify that no change in the tenant contribution
will occur due to monetary or non-monetary default, loan prepayment, or
when rental assistance or interest credit, other than Federal
assistance, is suspended, canceled, or terminated due to the borrower's
fault.
(5) Leases must include a statement that the housing project is
financed by the Agency and that the Agency has the right to further
verify information provided by the applicant.
(6) Leases must state that the housing project is subject to:
(i) Title VI of the Civil Rights Act of 1964;
(ii) Title VIII of the Fair Housing Act;
(iii) Section 504 of the Rehabilitation Act of 1973;
(iv) The Age Discrimination Act of 1975; and
(v) The Americans with Disabilities Act.
(7) Leases must establish the tenant's responsibility according to
the housing project's occupancy rules to move to the next available
appropriately sized rental unit if the household becomes over housed or
under housed in the unit they occupy.
(8) Leases must include provisions that establish when a guest will
be considered a member of the household and be required to be added to
the tenant certification.
(9) Leases must include a provision stating that tenancy continues
until the tenant's possessions are removed from the housing either
voluntarily or by legal means, subject to state and local law.
(10) Leases for rental units receiving rental assistance must
include clauses that specify that the tenant's monthly tenant
contribution and a description of the circumstances under which the
tenant's contribution may change.
(11) Leases for tenants living in Plan II interest credit rental
units must include provisions establishing the net monthly tenant
contribution.
(12) Leases, including renewals, must include the following
language.
It is understood that the use, or possession, manufacture, sale,
or distribution of an illegal controlled substance (as defined by
local, state, or Federal law) while in or on any part of this
apartment complex or cooperative is an illegal act. It is further
understood that such action is a material lease violation. Such
violations (hereafter called a ``drug violation'') may be evidenced
upon the admission to or conviction of the use, possession,
manufacture, sale, or distribution of a controlled substance (as
defined by local, state, or Federal law) in any local, state, or
Federal court.
The landlord may require any lessee or other adult member of the
tenant household occupying the unit (or other adult or non-adult
person outside the tenant household who is using the unit) who
commits a drug violation to vacate the leased unit permanently,
within timeframes set by the landlord, and not thereafter to enter
upon the landlord's premises or the lessee's unit without the
landlord's prior consent as a condition for continued occupancy by
the remaining members of the tenant's household. The landlord may
deny consent for entry unless the person agrees to not commit a drug
violation in the future and is either actively participating in a
counseling or recovery program, complying with court orders related
to a drug violation, or has successfully completed a counseling or
recovery program.
The landlord may require any lessee to show evidence that any
non-adult member of the tenant household occupying the unit, who
committed a drug violation, agrees not to commit a drug violation in
the future, and to show evidence that the person is either actively
seeking or receiving assistance through a counseling or recovery
program, complying with court orders related to a drug violation, or
has successfully completed a counseling or recovery program within
timeframes specified by the landlord as a condition for continued
occupancy in the unit. Should a further drug violation be committed
by any non-adult person occupying the unit the landlord may require
the person to be severed from tenancy as a condition for continued
occupancy by the lessee.
If a person vacating the unit, as a result of the above
policies, is one of the lessees, the person shall be severed from
the tenancy and the lease shall continue among any other remaining
lessees and the landlord. The landlord may also, at the option of
the landlord, permit another adult member of the household to be a
lessee.
Should any of the above provisions governing a drug violation be
found to violate any of the laws of the land the remaining
enforceable provisions shall remain in effect. The provisions set
out above do not supplant any rights of tenants afforded by law.
(13) Leases for rental units accessible to individuals with
disabilities occupied by those not needing the accessibility features
must establish the tenant's responsibility to move to another unit when
an appropriate unit becomes available or when the unit is needed by an
eligible individual with disabilities. Additionally, the lease clause
must require the borrower to provide tenants written notification of
the date by which they must move to another unit in the project.
(14) If loan prepayment occurs and the housing project is subject
to restrictive use provisions, leases and renewals must be amended to
include a clause specifying the tenant protections required under
subpart N of this part.
(15) All leases must contain the following information and
provisions:
[[Page 32915]]
(i) The name of the tenant, any co-tenants, and all members of the
household residing in the rental unit;
(ii) The identification of the rental unit;
(iii) The amount and due date of monthly net tenant contributions,
any late payment penalties, and security deposit amounts;
(iv) The utilities, services, and equipment to be provided for the
tenant;
(v) The tenant's utility payment responsibility;
(vi) The certification process for determining tenant occupancy
eligibility and contribution;
(vii) The limitations of the tenant's right to use or occupancy of
the dwelling;
(viii) The tenant's responsibilities regarding maintenance and
consequences if the tenant fails to fulfill these responsibilities;
(ix) The agreement of the borrower to accept the tenant net
contribution prior to payment of other charges that the tenant owes and
a statement that borrowers may seek legal remedy for collecting other
charges accrued by the tenant;
(x) The maintenance responsibilities of the borrower in buildings
and common areas, according to state and local codes, Agency
regulations, and Federal fair housing requirements;
(xi) The responsibility of the borrowers at move-in and move-out to
provide the tenant with a written statement of rental unit's condition
and provisions for tenant participation in inspection;
(xii) The provision for periodic inspections by the borrower and
other circumstances under which the borrower may enter the premises
while a tenant is renting;
(xiii) The tenant's responsibility to notify the borrower of an
extended absence, typically four consecutive weeks or more;
(xiv) A provision that tenants may not assign the lease or sublet
the property;
(xv) A provision regarding transfer of the lease if the housing
project is sold to an Agency-approved buyer;
(xvi) The procedures that must be followed by the borrower and the
tenant in giving notices required under terms of the lease including
lease violation notices;
(xvii) The good-cause circumstances under which the borrower may
terminate the lease and the length of notice required;
(xviii) The disposition of the lease if the housing project becomes
uninhabitable due to fire or other disaster, including rights of the
borrower to repair building or terminate the lease;
(xix) The procedures for resolution of tenant grievances consistent
with the requirements of Sec. 3560.160;
(xx) The terms under which a tenant may, for good cause, terminate
their lease, with 30 days notice, prior to lease expiration (e.g., when
a tenant is required to move to another location for employment or due
to a job loss, severe illness, death of spouse, or other reasons
customary or mandatory in the community, or when a tenant has received
notification that a borrower will be prepaying an Agency loan); and
(xxi) The signature and date clause indicating that the lease has
been executed by the borrower and the tenant.
(d) Prohibited provisions. Borrowers are prohibited from including
any of the following clauses in the lease:
(1) Clauses prohibiting families with children under 18;
(2) Clauses requiring prior consent by tenant to any lawsuit that
borrowers may bring against the tenant in connection with the lease;
(3) Clauses authorizing borrowers to hold any of a tenant's
property until the tenant fulfills an obligation;
(4) Clauses in which tenants agree not to hold borrowers liable for
anything they may do or fail to do;
(5) Clauses in which tenants agree that borrowers may bring suit
against the tenant without notice;
(6) Clauses in which tenants agree that borrowers may evict the
tenant or sell their possessions whenever borrowers determine that a
breach or default has occurred;
(7) Clauses authorizing the borrower's attorneys to appear in court
on behalf of the tenant, and to waive the tenant's right to a trial by
jury;
(8) Clauses authorizing the borrower's attorney to waive the
tenant's right to appeal or to file suit; and
(9) Clauses requiring the tenant to agree to pay legal fees and
court costs whenever the borrower takes action against the tenant, even
if the court finds in favor of the tenant.
(e) Housing projects and units receiving HUD assistance.
(1) In housing projects receiving Section 8 project-based
assistance, borrowers may use the HUD model lease.
(2) For units occupied by Section 8 certificate and voucher
holders, borrowers may use:
(i) A standard HUD-approved lease;
(ii) A HUD-approved lease that includes a number of modifications
from the standard HUD-approved lease; or
(iii) An Agency-approved lease may be used if acceptable by HUD or
the local housing authority.
(f) State and local requirements. Borrowers must use a lease that
is consistent with state and local requirements.
(1) If any lease provision is in violation of state or local law,
the lease may be modified to the extent needed to comply with the law,
but any changes must be consistent with the provisions established in
paragraph (c) of this section.
(2) Leases must include a procedure for handling tenant's abandoned
property, as provided by state or local law.
Sec. 3560.157 Occupancy rules.
(a) General. The purpose of a borrower's occupancy rules is to
outline the basis for the tenant and management relationship. Prior to
Agency approval of occupancy rules, borrowers must provide written
certification from their attorney that the housing project's occupancy
rules are consistent with applicable federal, state, and local laws, as
well as Agency requirements, and the requirements of all programs
participating in the housing project. Borrowers must obtain Agency
approval of the occupancy rules prior to initial occupancy and obtain
Agency approval prior to the implementation date of any subsequent
modifications to the rules.
(b) Requirements. The occupancy rules must be in writing and posted
for easy tenant access. A copy of these rules must be attached to the
tenant's lease upon initial occupancy. At a minimum, the occupancy
rules must address:
(1) The tenant's rights and responsibilities under the lease or
occupancy agreement;
(2) The rent payment or occupancy charge policies;
(3) The policies regarding periodic inspection of units;
(4) The system for responding to tenant complaints;
(5) The maintenance request and work order procedures;
(6) The housing services and facilities available to tenants or
members;
(7) The office locations, hours, and emergency telephone numbers;
(8) The restrictions on storage and prohibitions on non-functional
vehicles in the housing project area;
(9) Other requirements related to a subsidy provided to a tenant
from non-Agency sources; and
(10) When a guest becomes a member of the tenant household.
(c) Modification of occupancy rules. The Agency must concur with
any modification to the occupancy rules prior to implementation. Proper
notice must be given to each tenant at least 30 days in advance of
implementation of
[[Page 32916]]
such rules in accordance with Sec. 3560.160.
(d) Federal, state and local requirements. The occupancy rules must
be consistent with federal, state and local law.
(e) Pets. All housing projects should establish reasonable written
pet rules. No rules may be promulgated that would prevent occupancy by
a household member who requires a service or companion animal. In
elderly housing, borrowers must not prohibit tenants from keeping
domestic animals in their rental units as pets.
(f) Tenant organizations. Borrowers must not infringe on the rights
of tenants to organize an association of tenants. Borrowers (or a
designated management representative) should be available and willing
to work with a tenant organization.
(g) Community rooms. Borrowers may not place unreasonable
restrictions on tenants that desire to use a community room.
Sec. 3560.158 Changes in tenant eligibility.
(a) General requirements. Tenants must continue to meet the
requirements of Sec. 3560.152 to remain eligible for occupancy.
(b) Tenants no longer eligible. Tenants who are no longer eligible
for occupancy under the housing project's occupancy rules or Agency
requirements must vacate the property within 30 days of being notified
by the borrower that they are no longer eligible for occupancy or at
the expiration of their lease, whichever is greater, unless the
conditions specified in paragraph (c) of this section exist.
(c) Temporary continuation of tenancy. If conditions described in
Sec. 3560.454(b) or the following conditions exist, borrowers may
permit tenants who are no longer eligible for occupancy to continue to
reside at the housing project with prior approval of the Agency.
(1) The waiting list for the specific rental unit type has no
eligible applicants; or
(2) The required time period for vacating the rental unit would
create a hardship on the tenant household.
(d) Surviving and remaining household members.
(1) Members of a household may continue to reside in a housing
project after the departure or death of the tenant or co-tenant,
provided that:
(i) They are eligible with respect to adjusted income;
(ii) They occupied a rental unit in the housing project at the time
of the departure or death of the tenant or co-tenant;
(iii) They execute a tenant certification form establishing their
own tenancy; and,
(iv) They have the legal ability to sign a lease for the rental
unit, except where a legal guardian may sign when the tenant or member
is otherwise eligible.
(2) Surviving or remaining members of the household may remain in
the housing project, taking into consideration the conditions of
paragraph (d)(1) of this section, but must move to a suitably sized
rental unit within 30 days of its availability.
(3) After the death of a tenant or co-tenant in elderly housing,
the surviving members of the household, regardless of age but taking
into consideration the conditions of paragraph (d)(1) of this section,
may remain in the rental unit in which they were residing at the time
of the tenant's or co-tenant's death, even if the household is over
housed according to the housing project's occupancy rules as follows:
(i) Continued occupancy of the rental unit will not be allowed when
in either situation of paragraph (d)(1) or (d)(3) of this section, the
rental unit has accessibility features for individuals with
disabilities, the household no longer has a need for such accessibility
features, and the housing project has a tenant application from an
individual with a need for the accessibility features;
(ii) If the housing project does not have a tenant application from
an individual with a need for the accessibility features, the household
may remain in the rental unit with such features until the housing
project receives an application from an individual with a need for
accessibility features and shall be required to move within 30 days of
the housing project's receipt of a tenant application requiring
accessibility features; and
(iii) If a suitably sized unit is not available in the project
within 30 days, the tenant may remain in the unit with accessibility
features until the first available unit in the project becomes
available and then must move within 30 days.
Sec. 3560.159 Termination of occupancy.
(a) Tenants in violation of lease. Borrowers, in accordance with
lease agreements, may terminate or refuse to renew a tenant's lease
only for material non-compliance with the lease provisions, material
non-compliance with the occupancy rules, or other good causes. Such
terminations may only occur when the incidences related to the
termination are documented and there is documentation that the tenant
was given notice prior to the initiation of the termination action that
their activities would result in occupancy termination.
(1) Material non-compliance with lease provisions or occupancy
rules, for purposes of occupancy termination by a borrower, includes
actions such as:
(i) Violations of lease provisions or occupancy rules which are
substantial and repeated;
(ii) Non-payment or repeated late payment of rent or other
financial obligations due under the lease or occupancy rules beyond
agreed to grace periods; or
(iii) Admission to or conviction for use, attempted use,
possession, manufacture, selling, or distribution of an illegal
controlled substance when such activity occurred on the housing
project's premises by the tenant, a member of the tenant's household,
or any other person under the tenant's control at the time of the
activity.
(2) Good causes, for purposes of occupancy terminations by a
borrower, include actions such as:
(i) Actions by the tenant or a member of the tenant's household
which disrupt the livability of the housing by threatening the health
and safety of other persons or the right of other persons to enjoyment
of the premises and related facilities; or
(ii) Actions by the tenant or a member of the tenant's household
which result in substantial physical damage causing an adverse
financial effect on the housing or the property of other persons.
(b) Lease expiration or tenant eligibility. A tenant's occupancy in
an Agency-financed housing project may not be terminated by a borrower
when the lease agreement expires unless the tenant's actions meet the
conditions described in paragraph (a) of this section, or the tenant is
no longer eligible for occupancy in the housing. Borrowers must handle
terminations of occupancy due to a change in tenant eligibility status
in accordance with Sec. 3560.158. At a minimum, the occupancy
termination notice must include the following information:
(1) A specific date by which lease termination will occur;
(2) A statement of the basis for lease termination with specific
reference to the provisions of the lease or occupancy rules that, in
the borrower's judgment, have been violated by the tenant in a manner
constituting material non-compliance or good cause.
(3) A statement detailing the nature and frequency of the
violations with adequate information to allow the tenant to respond
with contrary evidence or with a corrective action plan;
[[Page 32917]]
(4) A statement specifying where and when, prior to the lease
termination date, a tenant may meet with the borrower to present
contrary evidence or to develop a corrective action agreement; and
(5) A statement explaining the conditions under which the borrower
may initiate judicial action to enforce the lease termination notice.
(c) Other terminations. If occupancy is terminated due to
conditions which are beyond the control of the tenant, such as a
condition related to required repair or rehabilitation of the building,
or a natural disaster, the tenants who are affected by such a
circumstance may request a Letter of Priority Entitlement (LOPE) from
the Agency. If tenants need additional time to secure replacement
housing, the Agency may, at the tenant's request, extend the LOPE
entitlement period.
(d) Criminal activity. Borrowers may terminate tenancy for criminal
activity or alcohol abuse by household members in accordance with the
provisions of 24 CFR 884.216(b).
Sec. 3560.160 Tenant grievances.
(a) General.
(1) The requirements established in this section are designed to
ensure that there is a fair and equitable process for addressing tenant
or prospective tenant concerns in the event that an action or inaction
by a borrower, including anyone designated to act for a borrower,
adversely affects the tenants of a housing project.
(2) Any tenant or prospective tenant seeking occupancy in or use of
a housing project for which a loan or grant has been provided by the
Agency and who believes they are being discriminated against because of
age, race, color, religion, sex, marital status, familial status,
disability, sexual preference or national origin may complain to the
Secretary of Agriculture, U.S. Department of Agriculture, Washington,
DC 20250 or the Secretary of Housing and Urban Development, U. S.
Department of Housing and Urban Development, Washington, DC 20410.
(b) Applicability.
(1) The requirements of this section apply to a borrower action
regarding housing project operations, or the failure to act, that
adversely affects tenants or prospective tenants.
(2) This section does not apply to the following situations:
(i) Rent changes authorized by the Agency in accordance with the
requirements of Sec. 3560.203(a);
(ii) Complaints involving discrimination which must be handled in
accordance with Sec. 3560.2(b) and paragraph (a)(2) of this section;
(iii) Housing projects where an association of all tenants has been
duly formed and the association and the borrower have agreed to an
alternative method of settling grievances;
(iv) Changes required by the Agency in occupancy rules or other
operational or management practices in which proper notice and
opportunity have been given according to law and the provisions of the
lease;
(v) Lease violations by the tenant that would result in the
termination of tenancy and eviction;
(vi) Disputes between tenants not involving the borrower; and
(vii) Displacement or other adverse actions against tenant as a
result of loan prepayment handled according to subpart N of this part.
(c) Borrower responsibilities. Borrowers must permanently post
tenant grievance procedures that meet the requirements of this section
in a conspicuous place at the housing project. Borrowers also must
maintain copies of the tenant grievance procedure at the housing
project's management office for inspection by the tenants and the
Agency upon request. Each tenant must receive an Agency summary of
tenant's rights when a lease agreement is signed. If a housing project
is located in an area with a concentration of non-English speaking
individuals, the borrower must provide grievance procedures in both
English and the non-English language.
(d) Reasons for grievance. Tenants or prospective tenants may file
a grievance with the borrower in response to a borrower action, or
failure to act, in accordance with the lease or Agency regulations that
results in a denial, significant reduction, or termination of benefits
or when a tenant or prospective tenant contests a borrower's notice of
proposed adverse action as provided in paragraph (e) of this section.
Acceptable reasons for filing a grievance may include:
(1) Failure to maintain the premises in such a manner that provides
decent, safe, sanitary, and affordable housing in accordance with Sec.
3560.103 and applicable state and local laws;
(2) Borrower violation of lease provisions or occupancy rules;
(3) Modification of the lease;
(4) Occupancy rule changes;
(5) Rent changes not authorized by the Agency according to Sec.
3560.205; or
(6) Denial of approval for occupancy.
(e) Notice of adverse action. In the case of a proposed action that
may have adverse consequences for tenants or prospective tenants such
as denial of admission to occupancy and changes in the occupancy rules
or lease, the borrower must notify the tenant or prospective tenant in
writing. The notice must give specific reasons for the proposed action.
The notice must also advise the tenant or prospective tenant of ``the
right to respond to the notice within ten calendar days after date of
the notice'' and of ``the right to a hearing in accordance with Sec.
3560.160 (f), which is available upon request.'' For housing projects
in areas with a concentration of non-English speaking individuals, the
notice must be in English and the non-English language.
(f) Grievances and responses to notice of adverse action. The
following procedures must be followed by tenants, prospective tenants,
or borrowers involved in a grievance or a response to an adverse
action.
(1) The tenant or prospective tenant must communicate to the
borrower any grievance or response to a notice within 10 calendar days
after occurrence of the adverse action or receipt of a notice of intent
to take an adverse action.
(2) Borrowers must offer to meet with tenants to discuss the
grievance within five calendar days of receiving the grievance. The
Agency encourages borrowers and tenants or prospective tenants to make
an effort to reach a mutually satisfactory resolution to the grievance
at the meeting.
(3) If the grievance is not resolved during an informal meeting to
the tenant or prospective tenant's satisfaction, the borrower must
prepare a summary of the problem and submit the summary to the tenant
or prospective tenant and the Agency. The tenant also may submit a
summary of the problem to the Agency.
(g) Hearing process. The following procedures apply to a hearing
process.
(1) Request for hearing. If the tenant or prospective tenant
desires a hearing, a written request for a hearing must be submitted to
the borrower within 10 calendar days after the receipt of the summary
of any informal meeting.
(2) Selection of hearing officer or hearing panel. In order to
properly evaluate grievances and appeals, the borrower and tenant must
select a hearing officer or hearing panel. If the borrower and the
tenant cannot agree on a hearing officer, then they must each appoint a
member to a hearing panel and the members selected must appoint a third
member. If within 30 days from the date of the request for a hearing
the tenant and borrower have not agreed upon the selection of a hearing
officer or hearing panel, the borrower must notify the Agency by mail
of the situation. The Agency will appoint a
[[Page 32918]]
person to serve as the sole hearing officer.
(3) Standing hearing panel. In lieu of the procedure contained in
paragraph (g)(2) of this section for each grievance or appeal
presented, a borrower may ask the Agency to approve a standing hearing
panel for the housing project.
(4) Examination of records. The borrower must allow the tenant the
opportunity, at a reasonable time before a hearing and at the expense
of the tenant, to examine or copy all documents, records, and policies
of the borrower that the borrower intends to use at a hearing unless
otherwise prohibited by law or confidentiality agreements.
(5) Scheduling of hearing. If a standing hearing panel has been
approved, a hearing will be scheduled within 15 calendar days after
receipt of the tenant's or prospective tenant's request for a hearing.
If a hearing officer or hearing panel must be selected, a hearing will
be scheduled within 15 days after the selection or appointment of a
hearing panel or a hearing officer. All hearings will be held at a time
and place mutually convenient to both parties. If the parties cannot
agree on a meeting place or time, the hearing officer or hearing panel
will designate the place and time.
(6) Escrow deposits. If a grievance involves a rent increase not
authorized by the Agency, or a situation where a borrower fails to
maintain the property in a decent, safe, and sanitary manner, rental
payments may be deposited by the tenant into an escrow account,
provided the tenant's rental payments are otherwise current.
(i) The escrow account deposits must continue until the complaint
is resolved through informal discussion or by the hearing officer or
panel.
(ii) The escrow account must be in a federally-insured institution
or with a bonded independent agent.
(iii) Failure to make timely rent payments into the escrow account
will result in a termination of the tenant grievance and appeals
procedure and all sums will immediately become due and payable under
the lease.
(iv) Receipts of escrow account deposits must be available for
examination by the borrower.
(7) Failure to request a hearing. If the tenant or prospective
tenant does not request a hearing within the time provided by paragraph
(f)(1) of this section, the borrower's disposition of the grievance or
appeal will become final.
(h) Requirements governing the hearing. The following requirements
will govern the hearing process.
(1) Subject to paragraph (f)(2) of this section, the hearing will
proceed before a hearing officer or hearing panel at which evidence may
be received without regard to whether that evidence could be used in
judicial proceedings.
(2) The hearing must be structured so as to provide basic due
process safeguards for both the borrower and the tenants or prospective
tenants, which must protect:
(i) The right of both parties to be represented by counsel or
another person chosen as their representative;
(ii) The right of the tenant or prospective tenant to a private
hearing unless a public hearing is requested;
(iii) The right of the tenant or prospective tenant to present oral
or written evidence and arguments in support of their grievance or
appeal and to refute the evidence of all witnesses on whose testimony
or information the borrower relies; and
(iv) The right of the borrower to present oral and written evidence
and arguments in support of the decision, to refute evidence relied
upon by the tenant or prospective tenant, and to confront and cross-
examine all witnesses in whose testimony or information the tenant or
prospective tenant relies.
(3) At the hearing, the tenant or prospective tenant must present
evidence that they are entitled to the relief sought, and the borrower
must present evidence showing the basis for action or failure to act
against that which the grievance or appeal is directed.
(4) The hearing officer or hearing panel must require that the
borrower, the tenant or prospective tenant, counsel, and other
participants or spectators conduct themselves in an orderly manner.
Failure to comply may result in exclusion from the proceedings or in a
decision adverse to the interests of the disorderly party and granting
or denial of the relief sought, as appropriate.
(5) If either party or their representative fails to appear at a
scheduled hearing, the hearing officer or hearing panel may make a
determination to postpone the hearing for no more than five days or may
make a determination that the absent party has waived their right to a
hearing under this subpart. If the determination is made that the
absent party has waived their rights, the hearing officer or hearing
panel will make a decision on the grievance. Both the tenant or
prospective tenant and the borrower must be notified of the
determination of the hearing officer or hearing panel.
(i) Decision. Hearing decisions must be issued in accordance with
the following requirements.
(1) The hearing officer or hearing panel has the authority to
affirm or reverse a borrower's decision.
(2) The hearing officer or hearing panel must prepare a written
decision, together with the reasons thereof based solely and
exclusively upon the facts presented at the hearing within 10 calendar
days after the hearing. The notice must state that the decision is not
effective for 10 days to allow time for an Agency review as specified
in paragraph (i)(3) of this section.
(3) The hearing officer or hearing panel must send a copy of the
decision to the tenant, prospective tenant, borrower, and the Agency.
(4) The decision of the hearing officer or hearing panel shall be
binding upon the parties to the hearing unless the parties to the
hearing are notified within 10 calendar days by the Agency that the
decision is not in compliance with Agency regulations.
(5) Upon receipt of written notification from the hearing officer
or hearing panel, the borrower and tenant must take the necessary
action, or refrain from any actions, specified in the decision.
Sec. Sec. 3560.161-3560.199 [Reserved]
Sec. 3560.200 OMB control number. [Reserved]
Subpart E--Rents
Sec. 3560.201 General.
This subpart sets forth the requirements for establishing and
collecting rents charged to occupants of multi-family housing projects
financed by the Agency.
Sec. 3560.202 Establishing rents and utility allowances.
(a) General. Rents and utility allowances for rental units in
Agency-financed housing projects are set by the borrower and must be
based on the operating and management expenses and other costs related
to the housing project including loan payment amounts due to the
Agency.
(b) Agency approval. All rents and utility allowances set by
borrowers are subject to Agency approval.
(c) Rents. As applicable, borrowers must establish the following
rents.
(1) Note rent. The borrower must establish a note rent to cover
expenses in the housing project's approved budget and the required loan
payment set at the interest rate shown in the promissory note.
(2) Basic rent. The borrower must establish a basic rent to cover
expenses
[[Page 32919]]
in the housing project's approved budget and the required loan payment
set in the promissory note reduced by the interest credit agreement.
(3) HUD contract rents. For housing receiving project-based Section
8 rental subsidies, the HUD contract rent will be established in
accordance with 24 CFR part 880 or part 884, as applicable, available
at any Agency servicing office.
(4) Low-income housing tax credit (LIHTC) rents. Borrowers who
receive LIHTCs may establish rents in accordance with LIHTC
requirements. However, borrowers are obligated to ensure that
sufficient annual funds are available to cover expenses in the housing
project's approved budget including the required payments on borrower's
Agency loan. Borrowers must not use housing project funds to make up
any difference between rents required under Agency program requirements
and the maximum allowed rents under the LIHTC program.
(d) Utility allowances. In projects where tenants pay the
utilities, borrowers must establish utility allowances for each size
and type of rental unit in the housing project based on estimated
utility costs. Borrowers must review utility allowances annually,
adjust for accuracy, and submit any utility allowance changes to the
Agency for approval. If no changes are needed, the borrower must notify
the Agency that no changes were made. Documentation to justify utility
allowances must be maintained in the housing project files.
(e) Funds contributed to reduce rents. If borrowers use funds
contributed from sources other than the Agency (e.g., state or local
grants, private contributions) to reduce general operating and
management expenses, housing project rents must be reduced to reflect
the funding being used to offset housing project expenses. When funds
contributed from sources other than the Agency are used for housing
project expenses, the borrower must certify to the Agency, in writing,
that the funds provided will not need to be repaid with Agency funds.
(f) Rents for resident manager, caretaker, or owner-occupied unit.
(1) If approved as a part of a management plan, a borrower may
occupy a rental unit in a housing project when they are acting as a
management agent or resident manager as specified in Sec. 3560.102(e).
(2) If the rental unit being occupied by a borrower or resident
manager is designated as a revenue-producing unit, borrowers must
calculate the rental charge to the borrower or resident manager in the
same manner as tenant contributions.
(3) If the rental unit being occupied by a borrower or resident
manager is designated as a non-revenue producing unit, borrowers must
treat the cost of providing the unit the same as other non-revenue
producing portions of the housing project.
Sec. 3560.203 Tenant contributions.
(a) Tenant contributions. A tenant's contribution to rent charged
for a rental unit in an Agency financed housing project is based on the
tenant's income, as calculated on the Agency's tenant certification
forms, and the availability of Agency or non-Agency rental subsidies.
(1) Gross tenant contributions. Borrowers must set gross tenant
contributions to rent at the highest of the following standards but
never more than the note rent:
(i) Thirty percent of monthly adjusted income;
(ii) Ten percent of gross monthly income;
(iii) An amount equal to the portion of an assistance payment
specifically designated to meet the household's shelter costs if the
household is receiving assistance payments from a public agency; or
(iv) The basic rent, unless RHS rental assistance is provided to
the household.
(2) Net tenant contributions. Borrowers must set net tenant
contributions to rent at an amount equal to the gross tenant
contribution less any utility allowance assigned to the rental unit
occupied by the tenant.
(3) Tenant contribution surcharge. Tenants in a Plan I housing
project with incomes above the eligibility standards set in Sec.
3560.152(a)(1) must pay a 25 percent surcharge in addition to note
rent.
(b) Adjustment of net tenant contribution. Borrowers must adjust
gross tenant contribution whenever there is a change in tenant
household status or income sufficient to generate a revised tenant
certification in accordance with Sec. 3560.152(e) or an Agency
approved rent or utility allowance change that affects the net tenant
contribution amount.
(c) Overage. If a tenant's net tenant contribution is higher than
basic rent, borrowers must remit to the Agency the rent collected in
excess of the basic rent and up to the note rent.
Sec. 3560.204 Security deposits and membership fees.
(a) General. Borrowers may collect security deposits when it is
reasonable and customary for the area in which the housing is located.
Borrowers must hold security deposits in a separate bank or bookkeeping
account in accordance with Sec. 3560.302(c)(3).
(b) Allowable amounts. Borrowers may charge security deposits that
are typical for the area in which the housing is located, as long as
the security deposit charged a tenant does not exceed that tenant's net
contribution for one month's rent or basic rent, whichever is greater.
(1) As noted in Sec. 3560.102(b)(1)(viii) and Sec.
3560.156(c)(15)(iii), borrowers must specify in the housing project's
management plan how the amount to be charged as a security deposit will
be established and must specify the amount to be charged to individual
tenants in the lease to be signed by the tenant.
(2) Borrowers may charge security deposits to households receiving
HUD assistance in accordance with HUD requirements.
(3) Members of a cooperative shall be required to pay a membership
fee no greater than one month's occupancy charge.
(4) Additional security deposits for pets may be charged as long as
the additional deposit is not greater than basic rent for 1 month. No
additional security deposit for pets is allowed where a service animal
is necessary for the normal function of a household member.
(5) Borrowers must not charge additional security deposits based on
disabilities of tenants or other personal characteristics.
(c) Payment plans. Borrowers must offer, for persons who are
eligible for rental assistance or Section 8 assistance, the option of
paying the security deposit on an installment payment plan. Should
installments not be met, the total charge may become due and payable in
full.
(d) Charges for damage or loss. Borrowers may charge tenants for
damage or loss caused or allowed by the tenant equal to the cost of the
damage or loss.
(1) Borrowers must consider routine turnover expenses a normal
operating expense and must not charge tenants a fee or withhold
security deposits to pay for such costs.
(2) Borrowers may withhold security deposits and may charge tenants
for damage or loss costs above security deposit amounts.
(e) State and local security deposit requirements. Borrowers must
follow all state and local laws and other requirements governing the
handling and disposition of security deposits.
[[Page 32920]]
(1) Resolution of any security deposit disputes must be handled in
accordance with state and local law.
(2) Any interest earned on security deposits will accrue in
accordance with state law.
(f) Unclaimed security deposits. Any funds in the housing project's
security deposit account unclaimed by a tenant must be deposited into
the housing project's general operating account.
Sec. 3560.205 Rent and utility allowance changes.
(a) General. Borrowers must fully document that changes to rents
and utility allowances are necessary to cover housing or utility costs
allowed under the approved budget for the housing. Any changes must
apply to all similar units in the housing project.
(b) Agency approval. Borrowers must submit a fully documented
request to the Agency to effect any rent or utility allowance change.
(1) Borrowers must obtain written consent or approval from the
Agency as specified in paragraph (e) of this section before
implementing any changes in the rents or utility allowances.
(2) If a borrower implements an unauthorized rent or utility
allowance charge, the Agency will require the borrower to roll back
rents to the last authorized rent charge, and the borrower must
reimburse tenants for any unauthorized rents collected.
(c) Timing of request for changes. Borrowers must submit rent and
utility allowance change requests in conjunction with the annual budget
submission as required under Sec. 3560.303(d). The effective dates of
any approved changes will coincide with the start of the housing
project's fiscal year or the start of the season for seasonally
occupied farm labor housing. However, the Agency will accept borrower
requests for rent or utility allowance changes anytime during the year
if a change is necessary to preserve the financial integrity of the
housing complex and the financial distress is due to circumstances
beyond the borrower's control.
(d) Tenant notification. Borrowers must notify tenants and solicit
their comments to proposed rent or utility allowance change requests
that are submitted to the Agency at the same time that the initial
request is made to the Agency.
(1) Tenants will be given 20 calendar days to provide their
comments to the borrower or to the Agency.
(2) Borrowers must deliver the proposed rent or utility allowance
change request notice to each tenant and post at least one copy of the
notice at the housing project site in a visible location frequented by
tenants.
(3) Within 5 calendar days following the end of the 20-day tenant
comment period, the borrower must send the Agency a summary of the
tenant comments received by the borrower along with any changes the
borrower proposes to make to the initial request for a rent change.
(e) Approval. If the Agency approves a rent or utility allowance
increase request on which the comments were solicited, the borrower
will deliver a notice announcing the rent or utility allowance change
to the tenants to be effective 30 calendar days from the date of the
notification.
(f) Denial of change request. The Agency may deny a rent or utility
allowance increase request in the following circumstances.
(1) The Agency determines that housing operating costs in the
proposed budget exceed reasonable costs.
(2) The borrower is out of compliance with Agency requirements
including any corrective action requirements agreed to in a workout
agreement developed according to subpart J of this part.
(3) Sufficient funds are being collected under existing rents to
meet approved expenses.
(4) Basic rents in Plan II housing or note rate rents in Plan I or
full profit housing would exceed conventional rents for comparable
units in the area or a similar area.
(g) Notice of denial. If the rent change will not be approved as
requested, the Agency will notify the borrower of the denial in
accordance with Sec. 3560.303(d).
Sec. 3560.206 Conversion to Plan II (Interest Credit).
The Agency encourages any borrower not on Plan II to convert to
Plan II to provide more favorable rent costs to very-low, low, and
moderate-income households.
Sec. 3560.207 Annual adjustment factors for Section 8 units.
(a) General. For rental units receiving project-based Section 8
assistance, the Agency will review rents annually without regard to
HUD's automatic annual adjustment.
(b) Establishing rents in housing with HUD rent assistance.
Borrowers will set note and basic rents for housing receiving HUD
project based Section 8 assistance, as specified in Sec.
3560.202(c)(3).
(1) Borrowers must notify the Agency of any HUD rent changes.
(2) If allowed by the interest credit agreement, the borrower will
remit the amount collected in excess of the basic rent up to the note
rent to the Agency as overage.
(3) When HUD contract rents exceed note rents, borrowers must
deposit HUD funds equal to the difference between the Agency approved
note rent and the HUD approved rent into the reserve account for the
housing project.
(c) Excess HUD rents. When permitted by the Agency interest credit
agreement, the Agency may reduce or cancel the interest credit on the
housing, if excess HUD rents deposited in the reserve account result in
the reserve account being funded beyond the fully funded level approved
by the Agency.
Sec. 3560.208 Rents during eviction or failure to recertify.
(a) Rents during eviction. Tenants being evicted for lease
violation must pay the rent established in their lease until their
lease is terminated. If the tenant is appealing the eviction and the
borrower refuses to accept rent payment during the appeal of the
eviction, the tenant must escrow required rent payments to safeguard
their occupancy.
(b) Rents when tenants fail to recertify. If a borrower can
document that a tenant received a notice specifying a tenant
recertification date and the tenant fails to comply by the specified
date or fails to cooperate with verification or other procedures
related to the tenant's recertification so that the tenant
recertification cannot be completed by the recertification date, the
borrower, within 10 days of the recertification date, shall give the
tenant and the Agency written notification that:
(1) Eviction proceedings are being initiated;
(2) Rental assistance and interest credit benefits being suspended;
and
(3) The tenant will be charged note rent until their lease is
terminated.
(c) Unauthorized assistance due to tenant recertification failure.
Any unauthorized assistance received because of the tenant's failure to
be recertified will be collected in accordance with the provisions of
subpart O of this part.
(d) Rents when borrowers fail to recertify tenants. If a borrower
cannot document that a tenant received a recertification notice, and a
tenant is not recertified within 12 months of the most recently
executed tenant certification, tenants shall continue to make net
tenant contributions to rent based on their most recent tenant
certification and the borrower must remit to the Agency full overage as
if the tenant was paying the note rent until the tenant is recertified.
[[Page 32921]]
(e) Unauthorized assistance due to borrower recertification
failure. Any unauthorized assistance received as a result of the
borrower's failure to recertify a tenant will be collected from the
borrower in accordance with the provisions of subpart O of this part
and may not be paid from housing project funds or funds collected from
the tenant.
Sec. 3560.209 Rent collection.
(a) General. Borrowers must collect rents on a monthly basis and
maintain a system for collecting and tracking rents.
(b) Fees for late rent payments. Borrowers may adopt a late fee
schedule for overdue rental payments. Late fee schedules must be
submitted to the Agency for approval as part of the housing project's
management plan, be in accordance with state and local law, and
consistent with the following requirements.
(1) A grace period of 10 days from the rental payment due date must
be allowed for all tenants.
(2) The late fee must not exceed the higher of $10 or an amount
equal to 5 percent of the tenant's gross tenant contribution.
(3) Tenants receiving housing benefits from sources other than the
Agency may be subject to the late rent fee requirements of the other
funding sources.
(c) Improperly advanced rents. Improperly advanced interest credit
or rental assistance is considered unauthorized assistance and is
subject to recapture in accordance with subpart O of this part.
Sec. 3560.210 Special servicing note rate rents (SNRs).
When a Plan II housing project is experiencing severe vacancies due
to market conditions, the Agency may allow the borrower to charge a
servicing note rent (SNR), which is less than note rent but higher than
basic rent, to attract or retain tenants whose income level would
require them to pay note rent. The requirements for requesting and
receiving an SNR are established under Sec. 3560.454.
Sec. Sec. 3560.211-3560.249 [Reserved]
Sec. 3560.250 OMB control number. [Reserved]
Subpart F--Rental Subsidies
Sec. 3560.251 General.
This subpart contains policies for borrower administration and
tenant use of rental subsidies in Agency financed multi-family housing
projects.
Sec. 3560.252 Authorized rental subsidies.
(a) General. The purpose of rental subsidies is to reduce amounts
paid by tenants for rent. Rental subsidies equal the difference between
the approved shelter costs and tenant contributions as calculated in
accordance with Sec. 3560.203(a)(1).
(b) Forms of rental subsidies.
(1) Rental subsidies may be in the form of:
(i) Agency rental assistance;
(ii) HUD section 8 assistance, including project-based, vouchers,
and certificates;
(iii) Private rental subsidies; or,
(iv) State or local government rental subsidies.
(c) Multiple rent subsidies.
(1) Multiple types of rent subsidies may be used in the same multi-
family housing project.
(2) Tenants with subsidies from sources other than the Agency may
be eligible for Agency rental assistance if the following conditions
are met.
(i) The tenant qualifies for Agency rental assistance.
(ii) The rental subsidy the tenant is receiving is not a HUD
voucher or certificate.
(iii) The rental subsidy being received by the tenant is less than
the full amount of Agency rental assistance for which the tenant would
qualify. In such cases, the Agency may provide the difference between
the subsidy received by the tenant and the amount of Agency rental
assistance for which the tenant qualifies.
(d) Agency rental assistance (RA). Agency RA is obligated to multi-
family housing projects on a rental unit basis. The obligation is
composed of a number of rental units and associated dollar amounts of
RA specified in a RA agreement with a borrower. The following types of
Agency RA may be obligated to a housing project.
(1) Renewal units. RA may be assigned to a housing project to
replace existing rental unit obligations because funds associated with
the units have been fully disbursed.
(2) New construction units. RA may be provided in conjunction with
initial Agency loans for construction or substantial rehabilitation of
multi-family housing projects.
(3) Servicing units. Additional RA may be provided to operational
multi-family housing projects as a part of the Agency's general loan
servicing or preservation activities.
Sec. 3560.253 Allocation and prioritization of Agency rental
assistance.
(a) Allocation of rental assistance. The Agency will establish
priorities for use, allocation and distribution of rental assistance in
7 CFR part 1940, subpart L.
(b) Priorities for rental assistance. In the absence of priorities
under 7 CFR part 1940, subpart L, the Agency will allocate its rental
assistance according to the following priorities:
(1) Renewal units;
(2) New construction units; and
(3) Servicing units.
Sec. 3560.254 Eligibility for rental assistance.
(a) Eligible housing. Housing projects eligible for Agency RA
include the following types of projects.
(1) Housing projects that operate under an Interest Credit Plan II
RA agreement.
(2) Housing projects financed with an Agency off-farm labor housing
loan or grant.
(3) Housing projects financed with a direct or insured Rural Rental
Housing loan approved prior to August 1,1968, and operated under an
interest credit agreement that identifies the housing project as a Plan
RA project.
(4) Housing projects financed from Agency and other sources if the
conditions of Sec. 3560.66 are met.
(b) Eligible units. Borrowers may not request RA for rental units
that are not habitable in accordance with Sec. 3560.103.
(c) Eligible households. Households eligible for rental assistance
are those:
(1) With very low- or low-incomes who are eligible to live in
multi-family housing;
(2) whose net tenant contribution to rent determined in accordance
with Sec. 3560.203(a)(2) is less than the basic rent for the unit;
(3) whose head of the household is a United States citizen or a
legal alien as defined in Sec. 3560.11;
(4) who meet the occupancy rules established by the borrower in
accordance with Sec. 3560.155(e); and,
(5) who have a signed, unexpired tenant certification form on file
with the borrower.
Sec. 3560.255 Requesting rental assistance.
(a) Submitting requests. Borrowers seeking an allocation of rental
assistance for multi-family housing must request the rental assistance
from the Agency as follows.
(1) Renewal rental assistance. To the extent sufficient funds are
available, the Agency will automatically renew expiring rental
assistance agreements at the existing number of units.
(2) New construction units. Loan applicants proposing to use Agency
rental assistance must include their request for rental assistance in
their loan proposal in accordance with Sec. 3560.56.
[[Page 32922]]
(3) Servicing units. Borrowers requesting rental assistance must
have tenants or eligible tenant applicants on a waiting list who are RA
eligible.
(b) Denial of requests.
(1) If a rental assistance request is denied due to the loan
applicant's or borrower's ineligibility, the Agency will send the loan
applicant or borrower written notification of the decision with an
explanation of the denial.
(2) If a rental assistance request to renew expiring rental
assistance agreements is denied because funding is not available, the
Agency will notify the borrower and the borrower must notify the
tenants of rent increases in accordance with their lease and state and
local law. Tenants losing rental assistance due to a lack of Agency
funding may quit the lease and vacate the housing without penalty in
accordance with the terms of their lease.
(3) Loan applicants or borrowers determined to be eligible for RA
as a result of an appeal or funding review will receive RA, if RA
funding is available, beginning with the month following the date of
the appeal or funding review decision or beginning in the first month
that RA funding becomes available.
Sec. 3560.256 Rental assistance payments.
(a) Borrower submission requirements. The borrower must submit
monthly requests for RA payments to the Agency based on occupancy as of
the first day of the month previous to the month in which the request
is being made.
(b) Basis of RA requests. Borrower requests for RA payments must be
based on the difference between the basic rent plus utility allowances
for each rental unit eligible for RA and the net tenant contribution of
the tenant.
(c) Payments to borrower. Prior to making RA payments to a
borrower, the Agency will deduct from the approved RA payment amount
any unpaid loan payments, late fees, and other amounts which the
borrower owes to the Agency.
(d) Utility payments to tenants. The borrower must pay tenants the
difference between the utility allowance and the tenant's net
contribution to rent when a tenant receiving RA is billed directly for
utilities and the utility allowance exceeds the net tenant contribution
to rent. Such utility payments to tenants must be made on a monthly
basis.
(e) Administrative errors. Borrowers are responsible for correcting
borrower errors made in regard to RA requests for payments. In
accordance with subpart O of this part, borrowers will be required to
repay the Agency for any unauthorized RA received or any unauthorized
use of RA except in cases of tenant error or fraud.
Sec. 3560.257 Assigning rental assistance.
(a) Priorities for rental assistance.
(1) Borrowers must use the following priorities when assigning
available rental assistance.
(i) First priority is to eligible very low-income tenants paying
the highest percentage of their adjusted annual income for Agency
approved shelter costs.
(ii) Second priority, if the housing project has vacant rental
units, is to very low-income applicants on the waiting list.
(iii) Third priority is to eligible low-income tenants paying the
highest percentage of their adjusted annual income for Agency approved
shelter costs.
(iv) Fourth priority, if the housing project has vacant rental
units, is to eligible low-income applicants on the waiting list.
(v) Fifth priority is to households which are residing in a rental
unit for which they do not qualify on the basis of an occupancy waiver
or other special approval situations.
(2) In order to provide rental assistance to the third, fourth, and
fifth priority categories, a borrower must fully document either that
there are no very low-income households on the housing project's
waiting list or that occupancy by low-income households is limited as
follows:
(i) For housing occupied on or after November 30, 1983, no more
than 5 percent of the units in the housing are occupied by low-income
households; or
(ii) For housing occupied before November 30, 1983, no more than 25
percent of the units in the housing are occupied by low-income
households.
(b) Continued eligibility. Tenants receiving rental assistance may
continue to do so as long as they remain eligible for occupancy and for
rental assistance under Sec. 3560.254(c), and as long as rental
assistance units are available.
(c) Assignment of rental assistance. Except as provided in Sec.
3560.454(c) and using the priorities given in paragraph (a) of this
section, borrowers must assign available rental assistance units as
soon as rental assistance units become available.
(1) When a rental assistance unit is assigned to an eligible
existing tenant on a day other than the first day of a month, the
Agency will not provide the borrower rental assistance for the newly
assigned existing tenant and the tenant will not pay reduced rental
charges until the first of the month following the assignment of the
rental assistance.
(2) When an eligible applicant moves into a rental assistance unit
on a day other than the first day of a month, they will pay a prorated
rent based on the number of days they occupy the rental assistance unit
and the amount of rental assistance they will be receiving.
(d) Incorrectly assigned rental assistance. Incorrectly assigned
rental assistance is viewed as unauthorized assistance and handled in
accordance with subpart O of this part.
Sec. 3560.258 Terms of agreement.
(a) Term of agreement. Rental assistance agreements will be
consistent with available funding. Rental assistance agreements expire
when the funds obligated for rental assistance units are fully
disbursed in accordance with the conditions of the agreement.
(b) Replacing expiring obligations. To the extent funds are
available for replacement units, the Agency will renew rental
assistance agreements for a 5 year obligation period.
Sec. 3560.259 Transferring rental assistance.
(a) Agency authority. The Agency may transfer rental assistance in
the following instances:
(1) To accompany the transfer of a housing project to a different
borrower;
(2) After a voluntary conveyance or a foreclosure sale;
(3) After a liquidation or prepayment;
(4) When some or all rental assistance units have not been used for
a 4-month period; and,
(5) Due to an unclosable loan.
(b) Transferring rental assistance for displaced tenants. The
Agency may transfer rental assistance from one housing project to
another eligible housing project to which a tenant is moving due to
displacement as a result of prepayment, liquidation, or a natural
disaster for that tenant's use. The tenant must begin using the rental
assistance within 4 months of the transfer or the RA will become
available for use by the next rental assistance eligible tenant in the
housing project.
Sec. 3560.260 Rental subsidies from non-Agency sources.
(a) General. The Agency may authorize the use of rental subsidies
from sources other than the Agency in Agency financed housing projects.
The Agency will make no commitment to providing Agency rental
assistance at the expiration of the rental subsidies from other
sources.
(b) HUD vouchers and certificates. When tenants receive rental
subsidies through section 8 vouchers or certifications issued by the
U.S. Department of Housing and Urban
[[Page 32923]]
Development (HUD), borrowers operating under Plan II must set rental
unit rents as follows.
(1) HUD certificates. For tenants with HUD certificates, the
borrower must set the rental unit rent at the basic rent or the net
tenant contribution, whichever is higher. The public housing authority
distributing the section 8 subsidy may set the utility allowance.
(2) HUD vouchers. For tenants with HUD vouchers, the borrower must
set the rental unit rent at the basic rent or the rent standard set by
the public housing authority, whichever is higher. The value of the
voucher exceeding basic rent up to the note rent will be remitted to
the Agency. The public housing authority distributing the HUD vouchers
may set the utility allowance.
(c) Loan proposals using non-Agency rental subsidy. Loan applicants
or borrowers proposing to use rental subsidy from sources other than
the Agency must provide:
(1) Documentation demonstrating that a market exists for households
eligible for the subsidy and the households are at income levels that
would benefit from the amount of rental subsidy that will be provided;
(2) A plan describing actions to be taken when the rental subsidy
expires to minimize the impact on tenants losing the rental assistance
and to avoid displacement; and
(3) A copy of the project-based rental assistance agreement to be
signed by the borrower and the provider of the rental assistance.
(d) Rental subsidy agreement. The borrower and the provider of
rental subsidies from sources other than the Agency must execute a
rental subsidy agreement and submit a copy of the agreement to the
Agency. At a minimum, the rental subsidy agreement between the borrower
and the source of the rental subsidy must include the following
provisions:
(1) A description of how the subsidy will be paid. The rental
subsidy payments may be paid directly to the tenants, to the borrower
on behalf of the tenants, or deposited to a separate account
established for the subsidy. The tenants must be advised of the amount
and source of the subsidy through the lease or a supplement to the
lease.
(2) The life of a project-based rental subsidy agreement with a
non-Agency source must be at least 5 years and sufficient funds must be
set aside to assure availability of the rental subsidy for this term.
The method of supplying the funds must be clearly established.
Sec. 3560.261 Improperly advanced rental assistance.
Improperly advanced RHS rental assistance resulting from tenant or
borrower error or fraud constitutes unauthorized assistance and the
provisions of subpart O of this part apply.
Sec. Sec. 3560.262-3560.299 [Reserved]
Sec. 3560.300 OMB control number. [Reserved]
Subpart G--Financial Management
Sec. 3560.301 General.
This subpart contains requirements for the financial management of
Agency-financed multi-family housing projects, including accounts,
budgets, reports, and engagements. Financial management systems and
procedures must cover all housing operations and provide adequate
documentation to ensure that program objectives are met.
Sec. 3560.302 Accounting, bookkeeping, budgeting, and financial
management systems.
(a) General. Borrowers must establish the accounting, bookkeeping,
budgeting and financial management procedures necessary to conduct
housing project operations in a financially safe and sound manner.
Borrowers must maintain records in a manner suitable for an audit or
engagement and must be able to report accurate operational results to
the Agency from these accounts and records.
(b) Acceptable methods of accounting.
(1) Borrowers may use a cash, accrual, or modified accrual method
of accounting, bookkeeping, and budget preparations.
(2) Borrowers must describe their accounting, bookkeeping, budget
preparation, and financial reporting procedures, including Agency-
approved engagements, in their management plan.
(3) Borrowers must notify the Agency of any changes in their
accounting, bookkeeping, budget preparation, and financial management
reporting systems through a revision of their management plan.
(c) Account requirements.
(1) As used in this paragraph, the term account is used
interchangeably to mean a bookkeeping account (ledger), or a bank
account.
(2) At a minimum, borrowers must maintain the accounts required by
their loan agreement or resolution.
(3) The following list identifies the financial accounts that are
required for each housing project. Accounts are to be funded in the
following priority order, except that paragraphs (c)(3)(iv) and (v) of
this section are funded directly by tenant security deposits or patron
capital receipts respectively:
(i) General operating account;
(ii) Real estate tax and insurance account (if not part of the
general operating account);
(iii) Reserve account;
(iv) Tenant security deposit account;
(v) Membership fee account for cooperative housing; and
(vi) For cooperative housing only, a patron capital account.
(4) Amounts escrowed for taxes and insurance may be kept in the
general operating account as long as the accounting system reflects the
amount escrowed.
(5) Regardless of the number or types of accounts established, the
borrower must meet the following requirements.
(i) All housing project funds must be held only in financial
institution accounts insured by an agency of the Federal Government,
backed by collateral provided by the bank, or held in securities
meeting the conditions in this subpart.
(ii) Funds maintained in an institution may not exceed the limit
established for federal deposit insurance. If funds exceed the amount
covered by federal deposit insurance, borrowers must obtain a
collateral pledge from the institution to cover all funds or must move
funds to an institution that will insure the funds.
(iii) All funds and proceeds in any account must be used only for
authorized purposes as described in Agency's regulations, loan or grant
documents and management plan regulations. Use of funds for non-program
purposes may constitute non-monetary default as described in Sec.
3560.452(c).
(iv) All funds received and held in any account, except the tenant
security deposit, membership fee, and patron capital accounts, must be
held in trust by the borrower for the loan obligation until used and
serve as security for the Agency loan or grant.
(v) Borrowers must be able to account for housing project funds
with accounting methods or practices that maintain the proprietary
identity of the funds for each project.
(vi) Each borrower must have access to at least one demand deposit
or checking account.
(vii) Housing project funds may not be pledged as collateral for
debts without Agency approval. If such a need arises for an eligible
program purpose, the borrower must obtain prior Agency approval.
(6) Tenant security deposits. Tenant security deposit accounts or
[[Page 32924]]
membership fee accounts and patron capital accounts must be maintained
in a separate account in trust for the tenants or members and handled
in a manner consistent with State and local laws.
(d) Documentation of separate accountability. Housing project funds
may be combined in one or more bank accounts for two or more housing
projects as long as the borrower's accounting system segregates and
tracks funds for each project separately.
(1) When borrowers request Agency approval of an accounting system
that combines funds from two or more housing projects, they must
demonstrate to the Agency that the accounting systems are structured to
segregate and maintain separate accountability for each housing
project. Such demonstration must include a statement issued by a
Certified Public Accountant stating that the accounting system is
structured to meet this principle of separate accountability.
(2) The accounting system and management plan must document the
method for prorating revenue and expenses that are not clearly
identifiable as being associated with a particular housing project.
(3) Funds for housing projects managed by the same management
company must not be co-mingled.
(e) Records.
(1) Borrowers must retain all housing project financial records,
books, and supporting material for three years after the issuance of
the audit or engagement and financial reports. Upon request, these
materials will immediately be made available to the Agency, its
representatives, the USDA Office of Inspector General (OIG), or the
General Accounting Office (GAO).
(2) Borrower accounts and records will be kept or made available in
a location with reasonable access for inspection, review, and copying
by the Agency, other authorized representatives of the USDA, OIG, or
GAO.
(3) Automated records may be used if they meet the conditions of
paragraph (f) of this section.
(f) Forms generated by automated systems.
(1) The forms and formats approved for use by borrowers may be
prepared on automated systems when they meet the requirements of this
paragraph.
(2) Forms may be automated if they meet the following requirements.
(i) The identical wording and nomenclature of an official form must
be included in the automated version of the form, including the Office
of Management and Budget (OMB) approval number.
(ii) The logic or mathematical calculation of an official form must
be the same in an automated version of the form.
(iii) The name or logo of the source of the automated form must be
visible on each output of the automated form.
(iv) Output size must be 8\1/2\ x 11 inches.
(v) Nominal spacing adjustment and colored paper are allowed.
(g) Farm Labor Housing. Borrowers with on-farm labor housing units
will be considered in compliance with this section by virtue of
completing the record keeping and reporting requirements outlined in
subpart M of this part.
Sec. 3560.303 Housing project budgets.
(a) General requirements.
(1) Using an Agency-approved format, borrowers must submit to the
Agency for approval a proposed annual housing project budget prior to
the start of the housing project's fiscal year. The capital budget
section of the annual project budget must include anticipated
expenditures on the project's long-term capital needs as specified in
Sec. 3560.103(c).
(2) Budget projections regarding income, expenses, vacancies, and
contingencies must be realistic given the housing project's history,
current circumstances, and market conditions.
(3) Borrowers must document that the operating expenses included in
the budget accurately reflect reasonable and necessary costs to operate
the housing project in a manner consistent with the objectives of the
loan and in accordance with the applicable Agency requirements.
(4) Borrower must submit supporting evidence to justify housing
project utility allowances.
(5) Upon Agency request, borrowers must submit any additional
documentation necessary to establish that applicable Agency
requirements have been met.
(b) Allowable and unallowable project expenses.
(1) Allowable expenses. Allowable expenses include those expenses
that are directly attributable to housing project operations and are
necessary to carry out successful operations.
(i) Housing project expenses must not duplicate expenses included
in the management fee.
(ii) With prior Agency approval, cooperatives and nonprofit
organizations may use housing project funds to asset management
expenses directly attributable to ownership responsibilities. Such
expenses may include:
(A) Errors and omissions insurance policy for the Board of
Directors.
(B) Board of Director review and approval of proposed RHS annual
operating budgets, including proposed repair and replacement outlays
and accruals.
(C) Board of Director review and approval of capital expenditures,
audited financial statements, and consideration of any management
comments noted.
(D) Long-term asset management reviews.
(2) Unallowable expenses. Housing project funds may not be used for
any of the following:
(i) Equity skimming as defined by title V of the Housing Act of
1949, section 543(a), 42 U.S.C.
(ii) Purposes unrelated to the housing project.
(iii) Reimbursement of inaccurate or false claims.
(iv) Settlement agreements, court ordered decrees, legal fees, or
other costs that result from the filing of civil rights complaints or
legal action alleging the borrower, or a representative of the
borrower, has committed a civil rights violation.
(v) Fines, penalties, and legal fees where the borrower or a
borrower's representative has been found guilty of violating laws,
including, but not limited to, civil rights, evictions, and building
codes.
(c) Priorities. The priority order of planned and actual budget
expenditures will be:
(1) Critical operating and maintenance expenses, including taxes
and insurance;
(2) Agency debt payments;
(3) Reserve account requirements;
(4) Other authorized expenditures; and
(5) Return on owner investment.
(d) Agency review and approval.
(1) The Agency will only approve housing project budgets that meet
the requirements of paragraphs (a), (b) and (c) of this section.
(2) If no rent increase is requested, borrowers must submit budget
documents for Agency approval 60 calendar days prior to the start of
the housing project's fiscal year.
(i) The Agency will notify borrowers if the budget submission is
incomplete.
(ii) The Agency will notify the borrower if the budget does not
meet the requirements of paragraphs (a), (b), or (c) of this section.
(3) If a rent increase is requested, the borrower must submit
budget documents to the Agency and notify
[[Page 32925]]
tenants of the requested rent increase at least 105 calendar days prior
to the start of the housing project's fiscal year.
(i) The Agency will notify borrowers if the budget submission is
incomplete.
(ii) The Agency will notify the borrower if the budget does not
meet the requirements of paragraphs (a), (b), or (c) of this section or
if the rent and utility allowance request has been denied in accordance
with Sec. 3560.205(f).
(iii) The rent increase is not approved until the Agency issues a
written approval.
(4) If the Agency denies the budget approval, the Agency will
notify the borrower in writing and indicate the deficiencies in the
budget submission.
(5) Upon notification of the deficiencies, borrowers will have 10
calendar days to submit additional documentation. The Agency will
notify the borrower if the budget has been accepted or rejected.
(6) If budget approval is denied, the borrower shall continue to
operate the housing project on the basis of the most recently approved
budget.
Sec. 3560.304 Initial operating capital.
(a) Purpose. To provide a source of capital for start-up costs,
such as the purchase of equipment, operating, maintenance, and debt
service expenses, borrowers are required to make an initial operating
capital contribution to the general operating account as described in
Sec. 3560.64.
(b) Authorized uses of initial operating capital. Initial operating
capital may be used only to pay for approved budgeted expenses.
(c) Withdrawal of initial operating capital. Initial operating
capital funds may be withdrawn by a borrower if:
(1) The initial operating capital was provided from the borrower's
own funds;
(2) The borrower requests the withdrawal after the second year of
housing project operations and prior to the 13th year of operations;
(3) The housing project has had a 90 percent occupancy rate for a
period of 12 months prior to the withdrawal request;
(4) The withdrawal will not affect the financial viability of the
housing project;
(5) Contributions to the reserve account are at authorized levels;
(6) The withdrawal request will not result in rent increases; and
(7) There are no outstanding deficiencies in management's physical
maintenance of the housing project.
Sec. 3560.305 Return on investment.
(a) Borrower's return on investment. Borrowers may receive a return
on their investment (ROI) in accordance with the terms of their loan
agreement and the following:
(1) If there is a positive net cash flow in housing project
operations, the ROI may be taken by the borrower immediately after the
housing project's fiscal year, provided that the balance of the reserve
account is equal to or greater than required deposits minus authorized
withdrawals. If the annual financial reports indicate that an ROI
should not have been taken, borrowers will be required to return any
unauthorized ROI.
(2) If there is negative cash flow in housing project operations,
the Agency may authorize the borrower to take the ROI only after the
Agency has reviewed the housing project's annual financial reports and
determines:
(i) Surplus cash exists in either the general operating account as
defined in Sec. 3560.306(d)(2) or the reserve account, if the balance
is greater than the required deposits minus authorized withdrawals.
(ii) The housing project has sufficient funds to address identified
capital or operational needs.
(b) Unpaid return on investment. An earned, but unpaid ROI for any
previous year may be requested by the borrower and authorized by the
Agency under the provisions of Sec. 3560.305(a)(2) provided the
current year's ROI has been paid first and a rent increase is not
required to generate funds to pay the unpaid ROI.
Sec. 3560.306 Reserve account.
(a) Purpose. To meet the major capital expense needs of a housing
project, borrowers must establish and maintain a reserve account.
(b) Financial management of the reserve account. Borrower
management of the reserve account is subject to the requirements of 7
CFR part 1902, subpart A regarding supervised bank accounts.
(c) Funding of the reserve account. Borrowers must make monthly
payments to the reserve account in the amount established in loan
documents, beginning with the first loan payment or a date specified in
loan documents. Borrowers must continue these payments until the
account reaches the total amount specified in the loan documents.
(d) Transfer of surplus general operating account funds.
(1) The general operating account will be deemed to contain surplus
funds when the balance at the end of the housing project's fiscal year,
after all payables, exceeds 10 percent of the operating and maintenance
expenses, including debt service to the Agency, transfers to reserves,
and a return to the borrower, including repayment of the borrower's
contribution to initial operating capital, if it has not been repaid.
If the borrower is escrowing taxes and insurance premiums, include the
amount that should be escrowed by year end and subtract such tax and
insurance premiums from operating and maintenance expenses used to
calculate 10 percent of the operating and maintenance expenses.
(2) If a housing project's general operating account has surplus
funds at the end of the housing project's fiscal year, the Agency may
require the borrower to reduce rents in the following year, use the
surplus funds to address capital needs, reduce the debt service on the
borrower's loan, or make a deposit in the housing project's reserve
account, if the reserve account is not fully funded.
(3) At the end of the borrower's fiscal year, if the borrower is
required to transfer surplus funds in the general operating account to
the reserve account, the transfer does not change the required
contributions to the reserve account in the following year. Funds
transferred to the reserve in this manner may be counted towards the
required contribution for the following year or years depending on the
amount of the required transfer of surplus funds.
(e) Resumption of payments. When the account balance falls below
the total amount specified in the loan or grant documents, borrowers
must resume making monthly payments to the reserve account and continue
until the required balance has been restored.
(f) Account requirements. Borrowers must establish and maintain the
reserve account according to Sec. 3560.64, Sec. 3560.302(c)(6), and
the following requirements.
(1) Reserve accounts must be deposited in interest-bearing accounts
or securities with rates equal to or greater than passbook savings or
checking accounts.
(2) Reserve accounts must be supervised accounts that require
Agency countersignatures on all withdrawals.
(g) Funds invested in securities. In addition to the requirements
specified in Sec. 3560.305(f), the following requirements apply when
reserve funds are invested in securities.
(1) Any securities in which reserves are invested must be backed by
the federal or state government, or an Agency of the federal or state
government, or be triple A rated tax-exempt bonds.
(2) The borrower must record the price actually paid for the
securities. When designated as a reserve deposit,
[[Page 32926]]
the price paid must equal the required contribution to reserves.
(3) Investors must be knowledgeable about industry practices and
consider the impact of typical fees and charges for purchases, sales
and maintenance of an account, when making investment decisions. Such
fees may be paid for out of reserves, only with the consent of the
Agency. Housing project funds may not be used to pay for a financial
advisor.
(h) Use of the reserve account.
(1) Borrowers must request Agency approval of reserve account
withdrawals prior to the withdrawal.
(2) Borrowers must inform the Agency of planned uses of reserve
accounts in their annual capital budget if known at budget planning
time.
(3) The Agency will indicate any conditions governing withdrawals
from a reserve account at the time it approves the withdrawal.
(4) In emergency situations, the Agency may specify special
procedures to provide an expedited approval process for the use of the
reserve account.
(5) The Agency may ``post-approve'' the use of reserve funds only
under extraordinary circumstances and only if the funds were used for
authorized purposes and their expenditure would have been approved by
the Agency had a request been submitted prior to the withdrawal.
(6) The Agency may approve the use of reserve funds for operating
costs when circumstances that are determined by the Agency to be beyond
the borrower's control have resulted in a shortfall in the housing
project's general operating account.
(i) Allowable uses. Allowable uses of reserve funds include the
following.
(1) Major capital improvements and replacements.
(2) Housing project operating expenses provided the requirement of
paragraph (h)(6) of this section has been met, including:
(i) Payments due on the loan, or
(ii) Payment of a return on investment at the end of the borrower's
fiscal year.
(3) With Agency approval, borrowers operating on a for-profit or a
limited profit basis may make an annual withdrawal from the reserve
account, equal to no more than 25 percent of the amounts earned on a
reserve account during the prior year.
(4) For other purposes, which in the judgment of the Agency will
promote the loan purposes, strengthen the security or facilitate,
improve, or maintain the housing and the orderly collection of the loan
without jeopardizing the loan or impairing the adequacy of the
security.
(j) Records. Borrowers must maintain records documenting all
expenses which were paid by withdrawals from the reserve account.
(k) Changes to reserve requirements.
(1) At a borrower's request, the Agency may permit the loan
agreement or loan resolution to be amended to adjust the required
funding of the reserve account to meet anticipated ``life-cycle''
capital needs, including equipment and facility replacement costs. Such
a request may be based on a capital needs assessment performed in
response to Sec. 3560.103(c)(2).
(2) Borrowers may use an Agency approved capital needs assessment
as the basis for requesting adjustments to the reserve account.
(3) The Agency may approve a change in the reserve account funding
level based on the findings of an approved capital needs assessment.
The approval to increase reserve account funding levels will take into
consideration the housing project's approved budget and the housing
project's ability to support increased reserve account deposits without
causing basic rents to exceed conventional rents for comparable units
in the area.
(l) Excess reserves. Amounts in the reserve account which exceed
the total required by the loan or grant agreement must be used, at the
direction of the Agency, to:
(1) Pay for expenses specified in a long-term capital plan;
(2) Make payments on the Agency loan;
(3) Reduce rents by a transfer to the general operating account;
(4) Fund preservation incentives authorized in subpart N of this
part; or
(5) Cover other expenditures determined to be related to the
purpose of the housing project and in the best interest of the Federal
Government.
(m) Procurement. The requirements of Sec. 3560.102(c), (d) and
(i), and all other Agency requirements relating to procurement,
bidding, identity-of-interest, cost-reasonableness, and construction
management apply to any work or services paid out of reserve funds.
Structural repairs and other significant work on major building systems
such as heating or air conditioning must be done in accordance with the
requirements of 7 CFR part 1924, subpart A.
Sec. 3560.307 Reports.
(a) Required reports. Borrowers must submit required reports using
Agency-approved formats.
(b) Quarterly and monthly reports. The Agency may require quarterly
or monthly reports to monitor financial progress when closer
supervision is warranted.
Sec. 3560.308 Annual financial reports.
(a) General. Borrowers must submit annual financial reports that
meet the requirements of this section. The annual financial reports to
be submitted are the Multi-Family Housing (MFH) Project Budget with
actual expenditures and the MFH Balance Sheet. Annual financial reports
are due to the Agency within 90 days of the end of the borrower's
fiscal year.
(1) Borrowers with 16 or more units in their housing project must
base their annual financial reports on an engagement report completed
according to agreed upon procedures established by the Agency as
specified in paragraph (c) of this section. Borrowers must include the
engagement report with their annual financial reports submitted to the
Agency.
(2) Borrowers with less than 16 units in their housing project must
submit annual financial reports using Agency-approved formats and
certify that the housing meets the performance standards established in
paragraph (d) of this section. Borrowers may use a CPA to prepare this
report.
(b) Housing projects with common management. In housing projects
managed by a common management entity, operate under a common
accounting system and procedures, and have a common managing general
partner, the Agency may designate a sample of the housing projects for
annual financial reports that meet the requirements of paragraph (a)(1)
of this section. For the housing projects not included in the sample,
the borrower must submit annual financial reports that meet the
requirements of paragraph (a)(2) of this section.
(c) Engagement requirements. Borrowers required to submit annual
financial reports based on an engagement performed by a CPA must meet
the following requirements.
(1) Borrowers must submit the results of an engagement that
examines specific records using agreed upon procedures established by
the Agency and that describes the borrower's performance in meeting the
standards described in paragraph (d) of this section.
(2) The engagement will be initiated by the borrower using the
Agency's engagement letter, which will specify the engagement program
and establish the reporting requirements for the engagement.
(3) The engagement must be conducted by a Certified Public
Accountant (CPA) in accordance with American Institute of Certified
Public
[[Page 32927]]
Accountant (AICPA) Standards and Agency requirements.
(4) All engagement reports must be prepared for use by the Agency.
(d) Performance standards. Borrowers must ensure that:
(1) Required accounts are properly maintained and tracked
separately;
(2) Payments from operating accounts are disclosed and accurately
represented on financial reports;
(3) The reserve amount is at the authorized level and there are no
encumbrances;
(4) Tenant security deposit accounts are fully-funded and are
maintained in separate accounts and meet State and local requirements;
(5) Payment of owner return was consistent with the terms of the
applicable loan agreement;
(6) The borrower has maintained proper insurance in accordance with
the requirements of Sec. 3560.105(b); and
(7) All financial records are adequate and suitable for
examination.
(e) Other financial reports.
(1) Nonprofit and public borrower entities must submit audits in
accordance with 7 CFR part 3052.
(2) The Agency may require additional opinions of financial
condition and compliance, such as audits, to assure the security of the
asset, determine whether the housing project is being operated at a
reasonable cost, or to detect fraud, waste, or abuse.
(3) Any audits independently obtained by the borrower also must be
submitted to the Agency for review.
(f) Full audit expense approval. For 2 years from the effective
date of these regulations, the Agency will approve as a housing project
expense, additional reasonable costs of obtaining a full audit.
Sec. Sec. 3560.309-3560.349 [Reserved]
Sec. 3560.350 OMB control number. [Reserved]
Subpart H--Agency Monitoring
Sec. 3560.351 General.
This subpart contains policies for Agency monitoring of operations
and management at multi-family housing projects.
Sec. 3560.352 Agency monitoring scope, purpose, and borrower
responsibilities.
(a) Scope of Agency monitoring activities. The Agency will review
reports, records, and other materials related to the housing project,
including borrower financial reports, housing project records, and
other communications. The Agency also will review material related to a
housing project submitted by a tenant or other source. To assess
conditions such as a housing project's physical condition, record
keeping procedures, and operations and management activities, including
borrower compliance with Federal, state, and local laws and Agency
requirements, the Agency will conduct periodic on-site monitoring
reviews of a housing project.
(b) Purpose of Agency monitoring activities. Agency monitoring
activities are designed to assess borrower and tenant compliance with
Agency requirements, and to:
(1) Ensure housing projects are managed in accordance with the
goals and objectives of the Agency's multi-family housing programs and
are maintained in accordance with Agency requirements for affordable,
decent, safe, and sanitary housing;
(2) Preserve the value of the Agency-financed housing projects;
(3) Detect waste, fraud, and abuse in housing project operations or
management and to ensure the cost of operations and management are
necessary and reasonable costs;
(4) Verify compliance with Affirmative Fair Housing Marketing
requirements, title VI of the Civil Rights Act of 1964, the Civil
Rights Act of 1968, as amended, section 504 of the Rehabilitation Act
of 1973, the Fair Housing Amendments Act of 1988, the Age
Discrimination Act of 1975, Americans with Disabilities Act, other
applicable Federal laws, and Agency requirements related to occupancy
and tenant eligibility.
(c) Borrower responsibilities. The borrower is responsible for
cooperating fully and promptly with Agency monitoring activities.
Agency monitoring activities do not diminish borrower operation and
management responsibilities and do not relieve borrowers from any
Agency requirements including, but not limited to, borrower
requirements to comply with:
(1) The terms of all agreements with the Agency, including the loan
or grant agreement, assurance agreement, loan resolution, promissory
note, mortgage, interest credit agreement, rental assistance agreement,
mitigation measures contained in the environmental review document, and
workout agreement;
(2) The requirements contained in this part;
(3) The requirements of title VI of the Civil Rights Act of 1964,
the Civil Rights Act of 1968, as amended; section 504 of the
Rehabilitation Act of 1973, the Fair Housing Amendments Act of 1988,
the Age Discrimination Act of 1975, Americans with Disabilities Act,
and
(4) Applicable federal, state, and local laws.
Sec. 3560.353 Scheduling of on-site monitoring reviews.
Generally, the Agency will provide the borrower prior notice of an
on-site monitoring review and will conduct the on-site monitoring
review in the presence of the borrower. However, the Agency may visit a
housing project, without prior notice, to observe physical conditions,
operations and management activities, or other borrower or tenant
activities. In addition, the Agency may conduct on-site reviews without
the presence of the borrower, the management agent, or other designated
representative of the borrower.
Sec. 3560.354 Borrower response to monitoring review notifications.
The Agency will notify borrowers, in writing, whenever Agency
monitoring activities result in deficiency findings or compliance
violation. The monitoring review notification will describe the
deficiencies findings or compliance violations and will specify a time
period by which corrective action must be taken by the borrower. The
notification will offer borrowers an opportunity to discuss the
reported deficiency findings or compliance violations with the Agency
and will explain enforcement actions that the Agency may take if
corrective action is not taken within the time period specified in the
monitoring review notification. When civil rights non-compliance is
found, the State Civil Rights Coordinator or Manager (SCRC/M) will be
notified. If voluntary compliance cannot be obtained, appropriate
enforcement or remedial action will be taken.
Sec. Sec. 3560.355-3560.399 [Reserved]
Sec. 3560.400 OMB control number. [Reserved]
Subpart I--Servicing
Sec. 3560.401 General.
(a) Purpose. This subpart contains actions the Agency may take to
service and collect loans or other debts owed by multi-family housing
borrowers. The loan servicing and other actions set forth are designed
to protect Agency and tenant interests and assist borrowers in meeting
program objectives.
(b) General servicing policies. Borrowers must repay loans or other
amounts due to the Agency according to provisions specified in
promissory notes, loan agreements and resolutions, mortgages, deeds-of-
trust, assumption agreements, reamortization agreements,
[[Page 32928]]
or other agreements executed between the borrower and the Agency.
(c) Special servicing actions. The Agency will not agree to any
proposal for loan servicing or debt collection action other than
actions consistent with this section, debt instruments, and other
agreements. When payments due to the Agency from a borrower are more
than 30 days past due, the Agency may initiate the special servicing
actions described in subpart J of this part.
Sec. 3560.402 Loan payment processing.
(a) Predetermined Amortization Schedule System (PASS) requirements.
All loans, except the loans specified in paragraph (c) of this section,
must be closed and serviced using the Predetermined Amortization
Schedule System (PASS).
(b) Required conversion to PASS. Borrowers with Daily Interest
Accrual System (DIAS) accounts must convert to PASS whenever a loan
servicing action on the account involves a change in the loan rates or
terms or whenever a subsequent loan to the borrower is closed.
(c) Exceptions. Seasonal farm labor housing loans and on-farm labor
housing loans may be closed on DIAS, monthly, or annual payment
schedules.
Sec. 3560.403 Account servicing.
(a) Payment due dates. Loan or other payments due to the Agency are
due on the first day of each month unless otherwise established in the
debt instrument or other agreement executed with the Agency.
(b) Payment application order. Loan payments will be applied to the
borrower's account in the following order of priority.
(1) Amortized audit receivables. (i.e., amounts due to the Agency,
over a period of time, as a result of a finding from an audit or other
monitoring activity.)
(2) Unamortized audit receivables. (i.e., amounts due to the
Agency, in a lump sum payment, as a result of a finding from an audit
or other monitoring activity.)
(3) Late fees. (i.e., amounts due to the Agency as a result of late
payments.)
(4) Amortized recoverable costs. (i.e., amounts due to the Agency,
over a period of time, as a result of Agency payments made on behalf of
a borrower for housing project related expenses such as taxes or
insurance premiums.)
(5) Unamortized recoverable costs. (i.e., amounts due to the
Agency, in a lump sum payment, as a result of Agency payments made on
behalf of a borrower for housing project related expenses such as taxes
or insurance premiums.)
(6) Overage. (i.e., amounts due to the Agency as a result of a
tenant's net tenant contribution being higher than basic rent.)
(7) Interest. (i.e., amounts due to the Agency as a result of
scheduled interest on a loan and as a result of interest charged on
unpaid delinquent principal amounts.)
(8) Principal. (i.e., amounts due to the Agency as the loan
principal.)
(9) Advance payments. (Any funds remaining after disbursement of a
payment to all other payment priorities will be applied to the
borrower's account as an advance regular payment unless a borrower
specifically designates, in writing, another application.)
(c) Late fees. If payments on a borrower's account, under PASS, are
more than $15 delinquent after the close of business on the 10th day
after the payment due date, a late fee will be charged to the
borrower's account.
(1) Late fees charged to a borrower's account will equal 6 percent
of the total regular payments due as specified in any promissory notes,
assumption agreements, or reamortization agreements related to the
borrower's account.
(2) Late fees are a borrower expense and must not be paid from
housing project funds.
(3) The Agency may waive late fees for circumstances beyond a
borrower's control and when a waiver is determined by the Agency to be
in the best financial interest of the Federal government.
(d) Interest on unpaid overdue principal. On the first day of the
month following a payment due date, the Agency will charge interest at
the note rate on any unpaid principal payment due according to the
loan's amortization schedule (i.e., interest will be charged on
delinquent principal). The interest charged on the unpaid principal
payment due will be charged to the borrower in addition to the
scheduled interest due on payments according to the loan's amortization
schedule.
Sec. 3560.404 Final loan payments.
(a) Payoff statements. At the borrower's request, the Agency will
provide a statement indicating the pay off amount necessary to pay the
borrower's account in full.
(b) Final payments. A borrower's final loan payment must include
repayment of all outstanding obligations to the Agency.
(1) Any supervised funds being held by the Agency will be applied
to the borrower's account or, at the borrower's option, will be
returned to the borrower following acceptance of final payment on all
outstanding obligations.
(2) If a balance due remains on a borrower's account after Agency
acceptance of a final payment, due to borrower error or fraud or Agency
error, the Agency will initiate collection action in accordance with
the unauthorized assistance collection procedures described in subpart
O of this part.
(c) Final payment loans. Borrowers with loans for which the Agency
approved an amortization period that exceeded the term of the loan may
request a loan to finance the final payment in accordance with the
requirements of Sec. 3560.73.
(d) Loan prepayment requests. If prepayment of an Agency loan is
requested, the applicable preservation requirements of subpart N of
this part, including the execution of any appropriate restrictive-use
agreements, must be met prior to the Agency's acceptance of a final
loan payment under the prepayment request.
(e) Payment forms. Final payments may be made by cashier's check,
certified check, money order, bank draft, or other withdrawal
instruments approved by the Agency.
(1) If borrowers use forms of payment requiring special handling,
the borrower is responsible for the cost of the special handling.
(2) When payment is provided in a form that is not the equivalent
of cash, the Agency will consider the payment to be received at the
time the payment has been converted to cash and funds have been
transferred to the Agency.
(f) Release of security instruments. The Agency will release
security instruments, subject to applicable restrictive-use agreements
referenced in subpart N of this part, when full payment of all
outstanding obligations to the Agency has been received, accepted, and
the funds have been transferred to the Agency.
(1) If the Agency and the borrower agree to settle an account for
less than the full amount owed, the Agency will release security
instruments when the borrower has paid in full all agreed upon
obligations.
(2) Recording costs for the release of the security instruments
will be the responsibility of the borrower, except where state law
requires the mortgagee to record or file the satisfaction.
(g) Special circumstances--Refund of entire principal. If the
entire principal of the loan is refunded after the loan is closed, the
borrower must pay interest from the date of the note to the date of
receipt of the refund.
[[Page 32929]]
Sec. 3560.405 Borrower organizational structure or ownership interest
changes.
(a) General. The requirements of this section apply to changes in a
borrower entity's organizational structure or to a change in a borrower
entity's controlling interest.
(1) If 100 percent of a borrower entity's ownership interest is
transferred, within a 12-month period, the change will be considered a
housing project transfer and the provisions of Sec. 3560.406, which
covers transfers or sales of housing projects, will apply.
(2) Persons who exercise substantial influence over the oversight
or operations of a multi-family housing project, regardless of their
ownership status have a controlling interest in the housing project.
(b) Agency requirements. Borrowers must notify the Agency prior to
the implementation of any changes in a borrower entity's organizational
structure. The Agency must give its consent prior to the implementation
of changes in a borrower entity's controlling interest.
(1) Borrowers must submit written requests for Agency consent to
the Agency at least 45 days prior to the anticipated effective date of
the proposed organizational change. The request must document that the
proposed changes will not adversely affect the program purposes or
security interest of the Agency and will not adversely affect tenants.
(2) If the controlling interest change involves a transfer of
interest to an entity not previously holding an ownership interest in
the borrower entity, the request for consent must include a written
certification, executed by the party receiving the ownership interest,
certifying that the recipient of the ownership interest agrees to
assume responsibilities and obligations required of a borrower as
established in Agency program requirements including requirements in
the promissory note, loan agreement, or other document related to
Agency loans held by the borrower entity.
(3) The Agency will not take a consent request for a controlling
interest change under consideration if the borrower's request fails to
meet the requirements specified in paragraph (b)(2) of this section.
(c) Documentation of organizational structures and ownership
interest. Borrowers must annually document their organizational
structure and ownership.
(1) Documentation must be submitted with the annual financial
reports required by Sec. 3560.307 and must reflect any changes made
during the 12-month period preceding the submission of the annual
financial reports.
(2) If no changes in a borrower entity's organizational structure
or ownership were made during the 12-month period prior to submission
of the annual financial reports, borrowers are not required to submit
documentation, but must submit a statement certifying that no changes
have been made in the documents on file with the Agency.
(3) Organizational structure and ownership documentation must
include the following items:
(i) A current organization description reflecting all approved
changes in the organizational structure of the borrower entity and
listing the names, addresses, and tax identification numbers of all
parties with an ownership interest in the borrower entity; and
(ii) A written statement by the borrower certifying that the
changes in the borrower entity's organizational structure or ownership
interests were completed in compliance with state and local laws and in
accordance with organizational requirements of the borrower entity.
Sec. 3560.406 Multi-family housing ownership transfers or sales.
(a) General. The provisions of this section apply to ownership
transfers or sales (e.g., title transfers) involving an Agency financed
housing project. The provisions cover situations where Agency loans are
being assumed as a part of a housing project transfer or sale.
(b) Agency consent requirements. Agency consent must be obtained
prior to an ownership transfer or sale and Agency consent will only be
given when the transfer or sale is in the best interest of the Federal
Government. Any ownership transfer or sale without the consent of the
Agency will be considered a default and will be handled in accordance
with subpart J of this part.
(1) Priority consideration will be given to ownership transfers or
sales needed to remove a hardship to the borrower that was caused by
circumstances beyond the borrower's control.
(2) Ownership transfers or sales with an assumption of debt at an
amount less than the borrower's debt amount will only be approved by
the Agency when all persons in the borrower entity who are transferring
their ownership interest or are involved in the selling of the property
are not part of the transferee organization.
(c) Consent request requirements. Borrowers must submit written
requests for Agency consent to an ownership transfer or sale of a
housing project to the Agency at least 45 days prior to proposed
ownership transfer or sale date. The consent request must document that
the proposed transfer or sale meets the requirements of paragraph (d)
of this section and must include the following items.
(1) A statement disclosing any identity-of-interest between the
borrower and the party to which the housing project ownership is being
transferred or sold.
(2) A statement certifying that the housing project's financial
accounts are funded at required levels, less authorized withdrawals,
and that payments due for operation and maintenance expenses, tax
assessments, insurance premiums, any required tenant security deposit
accounts, and other obligations incurred as a part of the housing
project operations are paid in full with no overdue balances or a
statement explaining the housing project's financial situation and the
reasons for overdue payments or under funded accounts.
(3) A proposed housing project budget covering the partial year, if
applicable, and first full year operation following the ownership
transfer or housing project sale.
(4) A written statement, signed by the proposed transferee or
buyer, certifying that the transferee or buyer will assume the borrower
responsibilities and obligations specified in Agency program
requirements including requirements in a promissory note, loan
agreement or other documents related to Agency loans held by the
borrower entity.
(5) A certification from the borrower and the proposed transferee
or buyer that the borrower does not and will not have a reversionary
interest in the housing project.
(d) Requirements for ownership transfers or sales. An ownership
transfer or sale of a housing project with an assumption of Agency
loans by the transferee or buyer must comply with the following
conditions.
(1) The transferee or buyer must be an eligible borrower under the
requirements established by subpart B of this part.
(2) The transferee or buyer must agree to set basic rents at the
housing project covered by the assumed loans at levels that do not
exceed conventional rents for comparable units in the area.
(3) The value of the housing project covered by the loans to be
assumed, at the time of an ownership transfer or sale, must be
sufficient to ensure that all Agency loans being assumed and all
subsequent loans being offered as a part of the transfer or sale can be
secured to
[[Page 32930]]
a level that fully protects the Agency's interest.
(i) If the total value of the loans being offered as a part of an
ownership transfer or sale is $100,000 or less, the value of the
housing may be determined through either: An Agency review of
monitoring reports conducted in accordance with the requirements in
subpart H of this part or an ``as-improved'' value-in-use appraisal
paid for by the borrower and conducted in accordance with subpart P of
this part.
(ii) If the total value of the loans being offered as a part of an
ownership transfer or sale exceeds $100,000, the value of the housing
project must be determined through an ``as-improved'' value-in-use
appraisal obtained by the Agency and conducted in accordance with
subpart P of this part.
(iii) The Agency may approve a loan write-down, in accordance with
Sec. 3560.455, prior to an ownership transfer or sale to reduce the
amount of debt being assumed by the transferee or buyer.
(4) Prior to Agency approval of an ownership transfer or sale, an
environmental review, as required under the National Environmental
Policy Act and in accordance with 7 CFR part 1940, subpart G, must be
conducted on all property related to the ownership transfer or sale. If
contamination from hazardous substances or petroleum products is found
on the property, the finding must be disclosed to the Agency and the
transferee or buyer and must be taken into consideration in the
determination of the housing project's value.
(5) The reserve requirements for the housing project will be
reviewed by the Agency and adjusted, if necessary, to adequately cover
the capital needs of the property based on a life cycle cost analysis
provided the requirements of Sec. 3560.303 are met.
(6) The borrower and transferee must disclose to the Agency all
terms, conditions, or other considerations related to the ownership
transfer or sale. All side or other agreements must be disclosed and
all sources and uses of funds related to the ownership transfer or sale
must be disclosed.
(7) An agreement must be signed between the borrower and the
transferee listing all repairs known by the borrower to be necessary to
bring the housing project into compliance with Agency requirements for
decent, safe, and sanitary housing as listed in subpart C of this part.
(i) The agreement must include repairs required to correct
compliance violations cited in a compliance violation notice issued by
the Agency.
(ii) The agreement must specify whether each repair listed will be
completed by the borrower prior to the ownership transfer or by the
transferee in accordance with a workout agreement developed in
accordance with the requirements of Sec. 3560.453 and executed between
the transferee or buyer and the Agency.
(8) A civil rights compliance review, as required by 7 CFR part
1901, subpart E, will be conducted by the Agency prior to the ownership
transfer or sale.
(9) A transferee must ensure that tenant certifications in
compliance with subpart D of this part for all occupied rental units
are on file with the Agency.
(10) A transferee must comply with insurance and bonding
requirements established in subpart C of this part at the time of the
transfer.
(11) A transferee must agree to submit financial reports to the
Agency according to subpart G of this part.
(12) A transferee must establish that there are no liens,
judgments, or other claims against the housing project other than those
by the Agency and those to which the Agency has previously agreed.
(e) Equity payments. The Agency will withhold any equity payment
due to the borrower, as part of a ownership transfer or sale, if any of
the following conditions exist.
(1) The borrower's indebtedness to the Agency has not been paid in
full or is not being assumed by the transferee. The Agency will require
that all or part of an equity payment be applied against other Agency
loans owed by the borrower if payments on the other loans are not
current.
(2) Any non-Agency prior liens against a housing project are not
paid in full.
(3) Any housing project financial accounts are not funded at
required levels, less authorized withdrawals, or any payments due for
operation and maintenance expenses, tax assessments, insurance
premiums, tenant security deposits or other obligations incurred as a
part of housing project operations are not paid in full.
(4) Any management deficiencies cited in a compliance violation
notice issued by the Agency to the borrower have not been corrected or
the housing project is not operating under an approved management plan
or, if applicable, an approved management agreement.
(5) Any operation and maintenance deficiencies cited in compliance
violation notices issued by the Agency have not been corrected or are
not scheduled for correction in a workout agreement developed in
accordance with the requirements of Sec. 3560.453.
(6) The borrower entity is, at the time of the ownership transfer
or sale, cited by the Agency or other federal, state, or local agencies
for violations of Fair Housing or Equal Opportunity requirements.
(7) The borrower entity is, at the time of the ownership transfer
or sale, cited by the Agency or any other entity involved in the
financing of the housing project for misappropriation of funds.
(f) Equity payment funding sources. If a full equity payment to the
transferor is not paid at the time of the ownership transfer or sale or
has not been paid through an Agency equity loan to the borrower, the
transferee must certify that equity payments due to the borrower will
be paid from sources other than housing project funds and must identify
the sources of such payments.
(g) Restrictive-use requirement. Transferees assuming Agency loans,
including loans approved prior to December 21, 1979, will be required
to execute a restrictive-use agreement that contains the language
specified in Sec. 3560.662(b) or (c). The restrictive-use agreement
will require the housing project to be used for program purposes for a
specified period of time beyond the date that the ownership transfer or
sale is closed. When an equity loan is involved at the time of
transfer, the restrictions will be for 30 years.
(h) Subsequent loans. The Agency may approve a subsequent loan in
conjunction with an ownership transfer or sale of a housing project.
(1) Subsequent loans on a housing project proposed in conjunction
with an ownership transfer or sale must be requested and processed in
accordance with the Agency loan origination requirements in subpart B
of this part.
(2) The Agency may amortize the subsequent loan over a period not
to exceed the remaining economic life of the housing or 50 years,
whichever is less.
(3) The Agency may extend the term of the existing loan to a period
not to exceed 30 years or the remaining economic life of the housing,
whichever is less.
(i) Loan assumption interest rates. The interest rate for Agency
loans assumed in conjunction with an ownership transfer or sale will be
determined as follows.
(1) The interest rate for all loans, except farm labor housing
loans, will be set at the lower of:
(i) The note rate of the existing Agency loan;
[[Page 32931]]
(ii) The Agency note rate on the day the transfer is approved; or,
(iii) The Agency note rate on the day the transfer is closed.
(2) The interest rate on farm labor housing loans will be the rate
specified in the note, except that loans transferred to public bodies,
nonprofit organizations of farm workers, and broadly-based nonprofit
corporations for farm labor housing purposes may be at a one percent
interest rate regardless of the rate specified in the note if the
Agency determines that such a reduction is necessary to maintain
affordable rental rates for tenants.
(j) Loan assumption terms. The amount of the loan balance that may
be assumed through an ownership transfer or sale must not exceed the
market value of the housing project determined according to Sec.
3560.406(d)(3)(i).
(1) The Agency may reamortize a loan assumed through an ownership
transfer or sale over a period not to exceed the remaining economic
life of the housing or 50 years, whichever is less.
(2) The Agency may extend the term of the loan to a period not to
exceed 30 years or the remaining economic life of the housing,
whichever is less.
(3) When loans assumed through an ownership transfer or sale are
amortized on an annual payment basis, the loans will be converted, at
the time of the transfer or sale, to a monthly payment amortization and
will be made subject to PASS. When on- or off-farm labor housing
projects are involved in an ownership transfer or sale, the related
loans may be transferred on a DIAS basis or converted to PASS if the
Agency determines that such a conversion will not be detrimental to the
operation of the farm labor housing.
(k) Processing ownership transfers or sales.
(1) At the time of the transfer, the Agency will require the
borrower to transfer all equipment, related facilities, and housing
project financial accounts to the transferee including the operation
and maintenance account, reserve account, tenant security deposit
account, tax and insurance escrow accounts.
(i) Any funds remaining in a rental assistance contract not
dispersed by the transferor will be assigned to the transferee unless
the rental assistance is not needed for tenants or another form of
rental subsidy is to be used.
(ii) Any rental assistance determined to be unnecessary will be
reassigned to other housing projects in accordance with the provisions
of subpart F of this part.
(2) The Agency will require that appropriate loan documents are
executed by the transferee. The Agency may require such documents to be
referenced in security instruments (e.g., mortgage or deed of trust).
(3) If all of a borrower's outstanding Agency debt is not assumed
or paid off at the time of the transfer or sale, the Agency will not
release a borrower from liability unless the Agency determines that the
borrower is unable to pay the remaining debt from assets taken as
security through the debt settlement procedure in accordance with Sec.
3560.457.
(l) Ownership transfers or sales under special rates, terms, and
conditions. Housing projects may be transferred or sold to entities
that do not meet borrower eligibility requirements for the type of
loans being assumed. However, such a transfer or sale will only be
considered when it is determined by the Agency to be in the best
interest of the Federal government and the objectives of the original
loan can no longer be met. The following special rates, terms, and
conditions will apply to such situations.
(1) The transferee makes a down payment of at least 10 percent of
the remaining loan balance to be assumed.
(2) The transferee has the ability to pay the Agency debt.
(3) The balance of Agency indebtedness assumed will be scheduled
for repayment for no more than 15 years.
(4) Monthly or annual installments will be amortized over the term
of the loan and the interest rate will be at a rate of interest at
least one percent higher than the interest rate offered to eligible
borrowers as specified in paragraphs (i)(1) or (2) of this section.
Sec. 3560.407 Sales or other disposition of security property.
(a) General. Borrowers must obtain Agency approval prior to selling
or exchanging all or a part of, or an interest in, property serving as
security for Agency loans. Agency approval also must be requested and
received prior to the granting or conveyance of rights-of-way through
property serving as security property. An environmental review must be
completed in accordance with 7 CFR part 1940, subpart G, before the
Agency approves all such sales or other dispositions of security
property.
(b) Request requirements. Requests for Agency approval of
transactions related to security property must document that the
following conditions will be met.
(1) The borrower's ability to repay the Agency debt will not be
impaired;
(2) The transaction will not interfere with the successful
operation of the housing project or prevent the borrower from carrying
out the purpose for which the loan was made.
(3) The monetary or other consideration offered in the transaction
is equal to or greater than the market value of the security property
being disposed of or the rights being granted, except that right-of-way
easements may be granted or conveyed with minimal or no consideration
being offered if:
(i) The value of the security property will not be reduced;
(ii) The suitability of the security property for the intended
purpose will not be impaired; and
(iii) The easement is granted to allow the borrower to develop
additional lots or units that will be integrated into the housing
project or for enhancement of streets, utilities or other services
provided by a public body.
(4) The property that will remain as security for Agency loans,
after any transaction related to security property, will fully secure
the borrower's debt to the Agency.
(5) Borrowers must report to the Agency the total of all proceeds
derived from the sale or other disposition of property serving as
security for Agency loans. The proceeds from the disposition of the
security property will be used for purposes approved by the Agency.
Sec. 3560.408 Lease of security property.
(a) General. Borrowers must obtain Agency approval prior to
entering into a lease agreement related to any property serving as
security for Agency loans. An environmental review must be completed in
accordance with 7 CFR part 1940, subpart G, before the Agency can give
lease approval for real property serving as security for Agency loans.
(b) Leases to public housing authorities. Borrowers may not lease
all or part of their housing facilities to a housing authority. Lease
agreements in place prior to the effective date of this regulation may
be continued provided that leases are in a form acceptable to the
housing authority and are on terms that will enable the borrower to
comply with Agency program requirements, to meet Agency program
objectives, and make loan and other required payments to the Agency on
an Agency approved schedule.
(c) Lease of a portion of the security property. The Agency may,
subject to the applicable provisions governing loan purposes found in
of Sec. 3560.53, Sec. 3560.553 and Sec. 3560.603, approve the
leasing of facilities related to a housing project (e.g., central
kitchens, recreation facilities, laundry rooms, and community rooms)
when the borrower
[[Page 32932]]
will continue to operate the facilities for the purposes for which the
loan was made. Agency approval is not required for leases with a term
of less than 30 days. The Agency will only approve a lease with a term
over 30 days if the following conditions are met.
(1) The lease is in the best interest of the borrower, the tenants,
and the Federal Government.
(2) The amount of the consideration agreed to in the lease is
adequate to pay all prorated operating and maintenance expenses, a
prorated share of the annual reserve deposit, and the prorated part of
the loan amortization at the note rate of interest.
(3) All compensation and considerations, whether payments, a share
of proceeds, or improvements to the property paid for by the lessee,
must be disclosed to the Agency. No payments or compensation for
entering into a lease shall flow to the borrower or any identity-of-
interest related to the borrower.
(4) The lease provides at its termination for the restoration of
the leased space to its original condition or a condition acceptable to
the owner and the Federal Government.
(5) Consent to the lease will not exceed 3 years at a time unless
the Agency determines that a longer lease is advantageous to the
borrower, the tenants, and the Federal Government.
(6) When another lienholder's mortgage requires that lienholder's
consent to a lease, the borrower must obtain written consent from the
lienholder before the Agency will consider approving the lease.
(d) Mineral leases. The Agency will handle mineral leases according
to the requirements of 7 CFR part 3550.
Sec. 3560.409 Subordinations or junior liens against security
property.
(a) General. Borrowers must obtain Agency consent prior to entering
into any financial transaction that will require a subordination of the
Agency security interest in the property (i.e., granting of a prior
interest to another lender.) An environmental review must be completed
in accordance with 7 CFR part 1940, subpart G, before the Agency can
consent to a subordination or junior lien against the property.
(1) If a lien is placed against property serving as security for an
Agency loan without prior Agency consent, the Agency will declare the
borrower to be in default and will pursue liquidation of the borrower's
loans in accordance with the procedures specified in Sec. 3560.457,
unless an agreement can be reached between the borrower and the Agency
to work out removal of the lien or post approve the lien.
(2) Subordinations or junior liens need not encompass the entire
site, (e.g., a subordination or junior lien requested to permit an
interim lender to advance construction funds may only cover the portion
of the site proposed for construction.)
(3) The subordination or junior lien must be for a specific amount.
(4) The subordination or junior lien must not adversely impact the
Agency's ability to service the loan according to the requirements of
this part.
(b) Consent request requirements. Borrowers proposing to have the
Agency subordinate its interest to another lender or to give a creditor
a junior lien against property serving as security for an Agency loan
must submit a consent request to the Agency. The consent request must
document the following.
(1) The action will enable the borrower to obtain financial
resources for improvements or repairs on the security property that are
consistent with the purposes of the Agency loan secured by the
property.
(2) The action will not adversely impact the borrower's financial
condition and the borrower's ability to repay the Agency loan being
secured by the property.
(3) The action will not result in basic rents at the security
property that exceed conventional rents for comparable units in the
area.
(4) The terms and conditions of the credit to be secured by the
subordination or junior lien are not expected to adversely affect the
borrowers ability to meet the terms and conditions of the Agency loan
secured by the property.
(5) The proposed use of the funds obtained through the granting of
a subordination or junior lien will not adversely affect the borrower's
ability to meet Agency program requirements or to operate and manage
the housing project in a manner consistent with program objectives.
(6) The creditor receiving the ``subordination'' of interest in the
property or the junior lien will agree that a foreclosure or acceptance
of a deed-in-lieu of foreclosure will not be initiated without at least
30 days prior notice to the Agency.
(7) The subordination or junior lien is not being secured with any
funding from housing project financial accounts.
(8) The ``subordination'' of interest or junior lien will not cause
the debt from all sources to exceed the value of the security property.
(9) The transaction related to the placement of a ``subordination''
of interest or junior lien against the property serving as security for
an Agency loan is in the best interest of the Federal Government.
(c) Required conditions for subordinations and junior liens.
Subordinations of interest in or junior liens against property serving
as security for an Agency loan may be approved by the Agency only if
they improve a borrower's financial condition and allow for
improvements or repairs that are consistent with the purposes of the
Agency loan secured by the property.
(1) Farm Labor Housing loans on farm tracts may be subordinated for
essential farm improvements and operations.
(2) Any proposed development must be planned and performed
according to 7 CFR part 1924, subpart A, or in a manner directed by the
other lienholder that meets the objectives of 7 CFR part 1924, subpart
A.
(d) Other liens against a property or other assets.
(1) Borrowers must not enter into any agreements to place a lien on
a housing project or any equipment related to a housing project without
prior Agency approval and unless the following conditions are met:
(i) The transaction will not adversely affect the Agency's security
position;
(ii) The lien is not related to a non-program eligible action;
(iii) The items to be acquired by the funding related to the lien
is needed for the operation of the property; and
(iv) The financing arrangements are otherwise sound.
(2) In cases where the above criteria are met, borrowers must
complete and provide the Agency a copy of the financing statement, loan
document, or contract, as applicable, as well as a security agreement
acceptable to the Agency.
Sec. 3560.410 Consolidations.
(a) General. With Agency approval, loans, loan agreements, or loan
resolutions may be consolidated to reduce the administrative burden
(i.e., record keeping, budgeting), to improve the cost effectiveness
and efficiencies of housing project operations, and to effectively
utilize facilities common to housing projects.
(b) Loan consolidations. Loan consolidations will only be
considered when
(1) Multiple loans to the one borrower entity are being transferred
to a different borrower entity in accordance with Sec. 3560.406, or
(2) One borrower entity has an initial loan and one or more
subsequent loans for the same housing project and all the
[[Page 32933]]
loans were closed on the same date and with the same rates and terms.
(c) Loan agreement or loan resolution consolidations. Loan
agreements or loan resolutions may be consolidated, even if the loans
related to the agreement or resolution are not consolidated, to allow
borrowers to comply with reporting, accounting, and other Agency
requirements as a single housing project.
(1) The loan agreements or loan resolutions may only be
consolidated when they are related to loans made for the same purposes,
to the same borrower, and operating under the same type of interest
credit, if applicable.
(2) All of a borrower's loan accounts must be current after the
loan agreement or loan resolution consolidation is processed, unless
otherwise approved by the Agency.
Sec. Sec. 3560.411-3560.449 [Reserved]
Sec. 3560.450 OMB control number. [Reserved]
Subpart J--Special Servicing, Enforcement, Liquidation, and Other
Actions
Sec. 3560.451 General.
This subpart contains special servicing, enforcement, liquidation,
and other actions which the borrower may request or the Agency may
implement when compliance violations, monetary defaults, or non-
monetary defaults cannot be resolved through regular servicing.
(a) Agency obligations. The Agency is under no obligation to offer
or agree to any special servicing actions.
(b) Relationship to workout agreements. Special servicing actions
may be implemented either as a part of a workout agreement, developed
in accordance with Sec. 3560.453, or as an action approved by the
Agency separate from a workout agreement unless indicated otherwise in
this subpart.
Sec. 3560.452 Monetary and non-monetary defaults.
(a) General. Borrowers are in default when they have received a
compliance violation notice, issued in accordance with Sec. 3560.354,
and have failed to correct the compliance violation identified in the
compliance violation notice within the time period specified in the
notice. Compliance violations include, but are not limited to,
violations of promissory note provisions, loan or grant agreement
provisions, regulatory, or other Agency requirements, including
requirements imposed on a borrower through a workout agreement
developed in accordance with Sec. 3560.453.
(b) Monetary defaults. A monetary default exists when any amount
due to the Agency under a promissory note, loan or grant agreement,
workout agreement, or other agreement is past due.
(c) Nonmonetary defaults. A nonmonetary default exists when a
borrower fails to correct a compliance violation, other than a monetary
amount past due, within the time period specified in a compliance
violation notice issued in accordance with Sec. 3560.354. Nonmonetary
defaults include, but are not limited to, failure to:
(1) Operate and manage a housing project in accordance with the
Agency approved management plan or Agency requirements;
(2) Maintain the physical condition of a housing project in a
decent, safe, and sanitary manner and in accordance with Agency
requirements;
(3) Keep general operating expense, reserve, and other financial
accounts related to a housing project at required funding levels;
(4) Occupy rental units with eligible tenants, unless granted an
exception by the Agency;
(5) Charge correct rents or to correctly calculate net tenant
contributions, utility allowances, or rental assistance payments or to
properly administer the Agency rental assistance assigned to the
housing project;
(6) Submit required annual financial reports to the Agency within
time periods specified in Sec. 3560.308;
(7) Submit management plans, leases, occupancy rules, and other
required materials to the Agency in accordance with Agency
requirements; and,
(8) Comply with applicable Federal laws including laws related to
civil rights, fair housing, disabilities, and environmental conditions.
(d) Default notice. When borrowers are in default, the Agency will
notify borrowers, in writing, that they are in default. The default
notice will identify the compliance violation that led to the default,
will specify actions necessary to cure the default, and will establish
a date by which the default must be cured to preclude Agency initiation
of enforcement actions, liquidation, or other actions.
(e) Agency action. If a borrower fails to cure a default within the
time period specified in the default notice, the Agency may initiate
the enforcement actions described in Sec. 3560.456 or liquidation as
described in Sec. 3560.457. Also, Agency compliance violation notices
and related default notices may be referred to Federal, state, and
local agencies with jurisdictions related to the violations for
handling, in accordance with their requirements.
Sec. 3560.453 Workout agreements.
(a) General.
(1) Prevention or resolution of compliance violations or default
cures are a borrower's responsibility.
(2) A borrower may develop and submit to the Agency for approval a
workout agreement that proposes actions to be taken over a period of
time to prevent or correct a compliance violation or to cure a monetary
or non-monetary default.
(3) A borrower developed workout agreement may propose, but is not
limited to, the following actions:
(i) A combination of one or more of the special servicing actions
outlined in Sec. Sec. 3560.454 and 3560.455;
(ii) A change in operations and management at a housing project; or
(iii) A commitment of additional financial resources to the housing
project with the amount and source of the additional resources to be
committed to the housing project specifically identified.
(b) Workout agreement approval.
(1) The Agency is under no obligation to approve a workout
agreement as submitted by a borrower or to act with forbearance when a
housing project is in monetary or non-monetary default.
(2) Borrower developed workout agreements may not be implemented
until the borrower receives written approval from the Agency.
(3) The Agency will only approve a workout agreement if the Agency
determines that the actions proposed are likely to prevent or correct
compliance violations or cure a default and approval is in the best
interest of the Federal Government and tenants.
(4) The Agency will only approve a workout agreement if the
proposed actions are consistent with the borrower's management plan. If
proposed actions are not consistent with the borrower's management
plan, applicable revisions to the borrower's management plan must be
approved before approval of the workout agreement is given.
(c) Workout agreement required content.
(1) Workout agreements submitted to the Agency for approval must be
in writing and signed by the borrower. Workout agreements must describe
proposed actions in sufficient detail to demonstrate the likelihood of
the actions to prevent or correct compliance violations or cure
defaults.
(2) At a minimum, workout agreements must include the following.
[[Page 32934]]
(i) The name and address of the housing project, project number,
borrower's tax identification number, and other information necessary
to identify the housing project.
(ii) A description of the potential or actual compliance violation
or default situation, including an explanation of related causes, such
as cash flow concerns, budget revisions, deferred maintenance,
vacancies, or violations of statutes.
(iii) A definition and description of the housing project's market
area, including information on housing availability, rents, and vacancy
rates in the market area.
(iv) A description of the proposed actions to prevent or correct
compliance violations or to cure defaults along with a date specific
schedule indicating when interim and final actions will be taken to
correct the compliance violation or cure the default.
(v) A description of financial and other resources necessary to
prevent or correct the compliance violation or cure the default
including an identification of the sources for such resources.
(d) Workout agreement budgets. Budget revisions submitted as a part
of a workout agreement for a housing project experiencing cash flow
problems must prioritize cash disbursements in the following order:
(1) Health and safety violations;
(2) Critical operating needs, such as utilities, taxes, and
insurance;
(3) Debt service payments to the Agency;
(4) Reserve account requirements;
(5) Other authorized expenditures; and
(6) Return on owner investment.
(e) Workout agreement terms and cancellation.
(1) Workout agreements shall be in effect for no longer than a 2-
year time period, beginning on the date of Agency approval. If an
approved workout agreement calls for actions that extend beyond a 2-
year period, borrowers must submit an updated and, if necessary,
revised workout agreement to the Agency for approval. The updated
workout agreement must be submitted to the Agency, 30 days prior to the
expiration of the workout agreement in effect.
(2) The Agency may cancel a workout agreement at any time if the
borrower fails to comply with the terms of the agreement.
Sec. 3560.454 Special servicing actions related to housing
operations.
(a) Changing rents or revising budgets. The Agency may approve a
borrower request for a rent change, rent incentives, or a revised
budget, at any time during a housing project's fiscal year.
(b) Occupancy waivers. If the Agency determines that a housing
project with high vacancies could be kept operationally and financially
viable by allowing the borrower to accept as tenants persons with
incomes above the income eligibility standards specified in Sec.
3560.152(a), the Agency, in writing, may grant the borrower an
occupancy waiver to allow such persons as tenants. Occupancy waivers
will be in effect only during the time period specified by the Agency
when the waiver is granted. In addition, borrowers must rent to all
eligible applicants on the housing projects waiting list prior to
accepting persons with incomes above the Agency standards as tenants.
(c) Additional rental assistance (RA). If the Agency determines
that a housing project with high vacancies could be kept operationally
and financially viable by increasing the amount of RA allocated to the
housing project, the Agency, subject to available funds, may offer the
housing project RA as a means of preventing or correcting compliance
violation or curing a default.
(d) Servicing Note Rate (SNR) rents. When a Plan II housing project
is experiencing severe vacancies due to market conditions, the Agency
may approve a rent less than the note rate rent to attract and keep
tenants whose incomes, according to the formula in Sec. 3560.203,
would require them to pay the note rate rent. The reduced rent is
called a Servicing Note Rent (SNR) and, as noted in Sec. 3560.210,
approval of a SNR may affect approvals of loan proposals submitted to
the Agency for the market area where the SNR is in effect.
(1) A SNR rent may only be requested as a part of a proposed
workout agreement and must include documentation of market conditions,
the housing project's vacancy rates, evidence of marketing efforts, and
other concerns necessitating the request for an SNR.
(2) Borrowers must forego the annual return to owner for each
housing project's fiscal year that a SNR is in effect for all or part
of a fiscal year at a housing project.
(3) SNR's may be increased, decreased, or terminated any time
during a housing project's fiscal year when market conditions, vacancy
rates, or other concerns that necessitated the SNR warrant a change.
(4) In addition to any state lease law requirements that might be
related to the implementation of a SNR, the borrower must notify each
tenant of any change in rents or utility allowances that result from
approval of an SNR, in accordance with Sec. 3560.205(c) and must
submit the appropriate budget changes to the Agency for approval.
(e) Termination of management agreement. If the Agency determines
that a compliance violation or loan default was caused, in full or in
part, by actions or inactions of the housing project's management
agent, the Agency will require the borrower to terminate the management
agreement with that agent, or in the case of a borrower managed housing
project, to enter an agreement with a third-party non-identity of
interest management agent, unless the borrower and the Agency agree on
a written plan to prevent reoccurrence of the violation. Housing
project funds may not be used to pay a management fee to a management
agent after the Agency has directed the borrower to terminate a
management agreement with that agent, except during an Agency approved
transition period.
Sec. 3560.455 Special servicing actions related to loan accounts.
(a) General. To prevent or correct a compliance violation or to
prevent or cure a default in a situation that cannot be resolved
through regular servicing, the Agency may approve a deferral of loan
payments or a loan restructuring. Nothing herein precludes the Agency
from initiating appropriate legal action to correct a compliance
violation if the Agency determines such action is more in the
Government's interest than entering into a special servicing agreement
as provided for in this section.
(1) Loan payment deferrals. As part of a workout agreement, the
Agency may agree to accept less than full monthly payment installments
due on an Agency loan for a specified period of time, not to exceed the
effective period of the workout agreement.
(2) Loan restructuring. Methods of restructuring a loan may include
reamortizations or writedowns. If a loan restructuring results in a
larger principal balance from the inclusion of cost items or interest,
borrowers must execute a restrictive-use agreement, in accordance with
Sec. 3560.662, regardless of whether the restructuring is with or
without revised rates and terms.
(b) Loan reamortizations. A loan reamortization is a restructuring
of loan terms and conditions over a period of time which does not
exceed the remaining useful life of the housing project.
(1) Loan reamortizations will only be approved when they are in the
best
[[Page 32935]]
interest of the Federal Government and tenants and when the following
conditions are met.
(i) The Agency determines that the borrower will be unable to meet
their obligations without a reduction in monthly payment installments;
and
(ii) The Agency is satisfied that the security, including the
potential income for debt service, will be adequate to protect the
Agency's interest over the term of the reamortization and that the
reamortization will not adversely affect the Federal Government's lien
priority.
(2) When the reamortization will extend the term of the repayment
period more than 5 years beyond the scheduled final payment date, the
borrower must obtain an ``as-is'' value-in-use appraisal of the housing
project conducted in accordance with subpart P of this part. The Agency
will not approve a reamortization unless the appraisal indicates the
security is adequate for the principal and interest being reamortized.
(3) The Agency may approve reamortization of a loan at the existing
note rate, or the current interest rate at the time of reamortization
closing or approval, whichever is less.
(4) Loan reamortization may be used to:
(i) Restructure loan repayments to prevent or correct a compliance
violation or cure a default caused by circumstances beyond the
borrower's control in situations where the borrower is otherwise in
compliance with Agency requirements;
(ii) Repay principal, outstanding interest, overage, and advances
made by the Agency for recoverable cost items when less than full
payments were authorized under the provisions of an Agency approved
workout agreement;
(iii) Restructure a borrower's loan payments in conjunction with an
incentive package developed in accordance with Sec. 3560.656 to
prevent prepayment of the loan;
(iv) Restructure an existing loan in conjunction with a subsequent
loan for rehabilitation;
(v) Bring a delinquent account current in the case of a loan
transfer and assumption when all equity available has been used to pay
delinquent amounts and a delinquency balance remains; or,
(vi) Restructure remaining debt when a portion of the property
serving as loan security is sold and there is a need to reestablish the
financial stability of the housing project.
(c) Loan writedowns. A loan writedown is a reduction of a
borrower's debt approved by the Agency.
(1) Loan writedowns will only be approved when they are in the best
interest of the Federal Government and when the following conditions
exist:
(i) Sound management of the housing project is evident or unsound
management practices are proposed for correction in accordance with an
Agency approved workout agreement;
(ii) The housing project's financial stability is being affected by
conditions beyond the borrower's control, such as market weaknesses,
unforeseen site problems, or natural disasters; and
(iii) There are no previous writedowns of indebtedness associated
with the housing project.
(2) Prior to Agency approval for a loan writedown, the borrower
must obtain an ``as-is'' value-in-use appraisal of the housing project
conducted in accordance with subpart P of this part. The Agency will
not approve a loan write-down unless the appraisal indicates the
Federal Government's interests are secured at the proposed writedown
level.
(3) Loan writedowns may be used to allow for a loan transfer and
assumption for less than the total amount of outstanding debt.
Sec. 3560.456 Liquidation.
Prior to any servicing action which might lead to the acquisition
of real property by the Agency, the Agency must complete a due
diligence report to assess any potential contamination of the property
from hazardous substances, hazardous wastes, or petroleum products. The
borrower must cooperate with the Agency in the development of this
report.
(a) Acceleration. When a borrower is in monetary or non-monetary
default, the Agency will accelerate the loan unless the Agency decides
other enforcement measures are more appropriate.
(1) If the borrower does not pay the full account balance and meet
the other terms of the acceleration notice within in the time period
set forth in the acceleration notice, the Agency will foreclose or
acquire the security property through deed in lieu of foreclosure.
(2) The Agency will suspend interest credit and rental assistance
immediately following the issuance of an acceleration notice.
(3) The Agency will not accept partial payment of an accelerated
loan unless required by state law.
(b) Voluntary liquidation. After acceleration, borrowers may
voluntarily liquidate through either of the following mechanisms:
(1) The Agency will accept a deed in lieu of foreclosure to the
security property when it is in the best interest of the Federal
Government.
(2) Prior to an acceptance of a deed in lieu of foreclosure, the
borrower must satisfy all junior liens on the property and pay all real
estate taxes or assessments which are or will become a lien on the
property. If the borrower provides the Agency with evidence that
borrower has insufficient funds to satisfy the junior liens and pay
taxes and assessments, the Agency will pay what cannot be paid by the
borrower if it is in the best interest of the Federal Government.
(3) If a junior lienholder makes an offer in the amount of at least
the net recovery value, the Agency may assign the note and mortgage to
such lienholder after all appeal rights have expired.
(4) The borrower is responsible for all expenses associated with
liquidation and acquisition and will not be released from liability
until the account is satisfied in full.
(c) Foreclosure.
(1) The Agency will initiate foreclosure when a borrower is in
monetary or non-monetary default and foreclosure is in the best
interest of the Federal Government.
(2) When a junior lienholder foreclosure does not result in payment
in full of the Agency debt but the property is sold subject to the
Agency lien, the Agency will liquidate the account as an unauthorized
transfer.
(d) Acquisition of chattel properties.
(1) The Agency will accept voluntary conveyance of chattel property
only when the borrower can convey ownership free of other liens and the
Agency has agreed to release the borrower from further liability on the
account.
(2) If the Agency decides to accept an offer of voluntary
conveyance of chattel property, the borrower must provide an itemized
listing of each chattel property item being conveyed and provide title
to vehicles or other equipment, where applicable.
Sec. 3560.457 Negotiated debt settlement.
(a) Borrower proposals to settle debt. A borrower who cannot pay
the full amount of loan payments may propose an offer to settle an
outstanding debt for less than the full amount of that debt. The Agency
may approve a negotiated debt settlement only in cases where a default
is evident and doing so is in the best interest of the Federal
Government and tenants.
(b) Required information. Borrowers requesting debt settlement must
submit
[[Page 32936]]
complete and accurate information from which a full determination of
financial condition can be made. Debt settlement offers will not be
approved by the Agency unless the financial information submitted by
the borrower indicates that the borrower will be able to make the debt
settlement payments as proposed.
(c) Effective date of approval. Debt settlement offers will be not
be accepted until the borrower receives written approval from the
Agency.
(d) Appraisal requirement. No debt settlement offer will be
accepted for less than the net liquidation value of the security as
determined by a licensed appraiser or other qualified official, and
concurred in by the Agency's qualified appraisal review official or
other qualified official.
(e) Rejected offers. Offers that are rejected will be returned to
the borrower with Agency comments on potential points of negotiation
and may be resubmitted to the Agency at any time.
(f) Disposition of security prior to offer. Borrowers are not
required to dispose of security prior to making a debt settlement
offer. However, if a borrower has disposed of security prior to making
a debt settlement offer, the proceeds from the disposed security must
be applied to the borrower's account prior to any negotiations on the
debt settlement offer.
(g) Final release condition. Upon full payment of the approved debt
settlement, the Agency will release the borrower from liability.
Sec. 3560.458 Special property circumstances.
(a) Abandonment. When the Agency determines that a borrower has
abandoned security for a loan under this part, the Agency will take the
steps necessary to protect the Federal Government's security interest
in the security. Costs associated with managing abandoned property are
the responsibility of the borrower and will be charged to the
borrower's account until liquidation is completed and the title has
been transferred to the Agency.
(b) Other security. The Agency will service security such as
collateral assignments, assignments of rents, Housing Assistance
Payments Contracts, and notices of lienholder interest according to
acceptable practices in the respective states.
(c) Taking of additional security to protect Agency interests. The
Agency may require borrowers to provide additional security in the form
of real estate, cash reserves, letters of credit, or other security
when needed to improve the chances that the Agency will not suffer a
loss, and when:
(1) The account is in default; or
(2) The property has not been properly managed or maintained; and
(d) Due diligence. When the Agency has completed an environmental
review in accordance with 7 CFR part 1940, subpart G, and decides not
to acquire security property through liquidation action or chooses to
abandon its security interest in real property, whether due in whole or
in part, to the presence of contamination from hazardous substances,
hazardous wastes, or petroleum products, the Agency will provide the
appropriate environmental authorities with a copy of its due diligence
report.
Sec. 3560.459 Special borrower circumstances.
(a) Deceased borrower, bankruptcy, insolvency, and divorce actions.
The Agency will address borrower accounts affected by special
circumstances such as death, bankruptcy, insolvency, and divorce on a
case-by-case basis. The Agency will make servicing decisions in such
cases on the basis of best interest to the Federal Government and
tenants. In order for the Agency to make servicing decisions in such
cases, the borrower or the borrower's representative will provide to
the agency:
(1) The status of the health of the borrowers and the members of
the borrowers' family or key members of the borrower organization, if
applicable;
(2) The financial status of the borrower and any member pledging
additional security for the debt;
(3) The status of the security property; and
(4) The impact of the identified actions on the operation of the
project.
(b) Membership liability agreements. If a borrower's note is
endorsed by individuals other than the borrower or a borrower has
security agreements with members of the organization for the purchase
of shares of stock or for the payment of a pro rata share of the loan
in the event of default, or has individual liability agreements, which
are usually assigned to and held by the Agency as additional security
for the loan, the security and liability agreements must be adequate to
protect the Agency's interest.
(c) Security issues in participation loans. When a multi-family
housing project is receiving financing or a subsidy from sources other
than the Agency, the Agency will service the account in accordance with
the participation agreements made with the Agency and the other funding
sources under Sec. 3560.65.
Sec. Sec. 3560.460-3560.499 [Reserved]
Sec. 3560.500 OMB control number. [Reserved]
Subpart K--Management and Disposition of Real Estate Owned (REO)
Properties
Sec. 3560.501 General.
This subpart contains Agency procedures and other policies related
to the management and disposition of multi-family housing projects in
the Agency's inventory (Real Estate Owned (REO) property.) Housing
projects will not be accepted into the Agency's inventory unless one of
the following has occurred.
(a) The borrower has abandoned the housing project and the Agency
has performed the required steps to take the housing project into
custody.
(b) The housing project title has been transferred to the Agency as
a result of foreclosure, conveyance, redemption, or other action.
Sec. 3560.502 Tenant notifications and assistance.
Each tenant in an REO property designated to be sold as a non-
program property will be notified by the Agency, in writing, of the
housing projects' non-program designation and will be given an
opportunity to obtain a LOPE as specified in Sec. 3560.159(c).
Sec. 3560.503 Disposition of REO property.
Preference will be given to purchase offers that allow REO property
designated to be sold as program property to remain in the program
under which the property was operating when the property came into the
Agency's REO property inventory. However, REO property may be sold
under whatever Agency program is most appropriate for the property and
the community needs regardless of the program under which the property
was originally financed or whether the property was being used to
secure loans under more than one Agency program.
Sec. 3560.504 Sales price and bidding process.
(a) The loan documents related to REO property sold for program
purposes must contain the restrictive-use language specified in Sec.
3560.662(a).
(b) Entities bidding on REO property designated to be sold as
program property must submit a loan application package that meets the
requirements specified in subpart B of this part.
(1) Bidders on REO property designated to be sold as program
property must meet the eligibility requirements established under Sec.
3560.55.
[[Page 32937]]
(2) Bidders determined by the Agency to be ineligible to purchase
REO property designated to be sold as program property will be notified
in writing. The bidding process will continue regardless of pending
appeals.
(3) All offers from bidders determined to be eligible to purchase
REO property designated to be sold as program property will be
considered in the bidding process and must provide evidence of
financial stability and credit worthiness.
(c) The Agency will determine the successful bidder on REO property
designated to be sold as program property by conducting a drawing of
sealed bids.
(1) All sealed bids meeting the terms and conditions set forth in
the sale notice will be part of the drawing. Award will be made to the
first offer drawn. Offers drawn after the first bid will be considered
back-up offers. Bidders who do not want their bids held as back-up
offers must notify the Agency prior to the drawing. The Agency will
notify all bidders of the public drawing outcome in writing.
(2) Bidders who desire to withdraw their bids must do so prior to
the drawing date.
(d) Property designated to be sold as non-program property may be
sold to entities that do not meet the Agency's eligible borrower
requirements specified in Sec. 3560.55, and must be sold for cash or
on terms approved by the Agency. Cash sales will be given first
preference and will be drawn before any sales on terms.
Sec. 3560.505 Agency loans to finance purchases of REO property.
(a) Agency loans to finance the purchase of REO property designated
to be sold as program property must meet the same requirements as
specified in subparts A and B of this part. In addition, the following
provisions apply.
(1) At the borrower's option, the interest rate will be the
prevailing rate at the time of loan approval or the prevailing rate at
loan closing.
(2) Purchasers may pay closing costs from their own funds or, if
allowable under subparts B, L, or M of this part, as applicable, may
finance such costs as part of the Agency loan.
(b) Agency loans to finance the purchase of REO property designated
to be sold as non-program property must meet the following terms.
(1) A down payment of not less than 10 percent of the purchase
price is required at closing.
(2) The interest rate will equal the lesser of the prevailing
interest rate at the time of loan approval or loan closing for multi-
family housing loans plus one-half percent.
(3) The note amount will be amortized over a period not to exceed
10 years. If the Agency determines that more favorable terms are
necessary to facilitate the sale, the note amount may be amortized
using a 30-year factor with payment in full due no later than 10 years
from the date of closing (balloon payment). In no case will the term be
longer than the useful life of the property.
(4) Agency loans to finance the purchase of non-program REO
property is subject to the availability of funds.
(c) Loan limits and allowable uses of loan funds specified in
subparts B, L, and M of this part, as applicable, are applicable to any
Agency-financed (credit) sale of REO property.
(d) Title clearance and loan closing for an Agency financed sale
and any subsequent loan to be closed simultaneously with the sale must
meet the requirements in subpart B of this part for an initial loan,
with the following exceptions:
(1) A ``Quit Claim'' or other non-warranty deed will be used; and
(2) The buyer must pay attorney's fees, insurance costs, recording
fees and other customary fees unless they are included in a subsequent
loan and the subsequent loan is for purposes other than closing costs
and fees.
(e) After approval of an Agency-financed sale of occupied REO
property designated to be sold as program property, but prior to
closing, the purchaser must prepare a budget for housing operations in
accordance with subpart B of this part. If a rent increase is
necessary, procedures specified in subparts E and F of this part for
calculating rents, net tenant contributions, and rental assistance will
be followed by the borrower.
Sec. 3560.506 Conversion of single family type REO property to multi-
family housing use.
Single family type REO property may be sold for conversion to
multi-family housing program use under the following conditions.
(a) The Agency will allow nonprofit organizations, public bodies,
or for-profit entities to purchase single family type REO property for
conversion to multi-family housing program use. When the Agency
finances the sale of single family-type REO property for conversion to
rural rental housing program use (i.e., multi-family housing including
group homes and homes for the elderly or disabled, farm labor housing,
or rural cooperative housing), the sale price will be the lesser of the
Federal Government's investment or an amount based on the ``as-is''
market value of the housing project as determined by an appraisal
conducted in accordance with subpart P of this part.
(b) The Agency will only accept written offers to purchase two or
more single family type REO properties for conversion to rural rental
housing from nonprofit organizations, public bodies, or for-profit
entities with a good record of providing housing under the Agency's
multi-family housing programs. The single family type properties are
not required to be contiguous, however, they must be located in close
enough proximity so that management capabilities are not diminished
because of distance.
Sec. Sec. 3560.507-3560.549 [Reserved]
Sec. 3560.550 OMB control number. [Reserved]
Subpart L--Off-Farm Labor Housing
Sec. 3560.551 General.
This subpart establishes the requirements for making loans and
grants for off-farm labor housing and for ongoing operations of this
housing. Unless otherwise specified in this subpart, the requirements
of subparts A through K, O, and P of this part will apply in addition
to the requirements in this subpart.
Sec. 3560.552 Program objectives.
In addition to the objectives stated in Sec. 3560.52, off-farm
labor housing loan and grant funds will be used to increase:
(a) The supply of affordable housing for farm labor; and
(b) The ability of communities to attract farm labor by providing
housing which is affordable, decent, safe and sanitary.
Sec. 3560.553 Loan and grant purposes.
In addition to the purposes stated in Sec. 3560.53, off-farm labor
housing loan and grant funds may be used to provide facilities for
seasonal or temporary use with appropriate furnishings and equipment.
Sec. 3560.554 Use of funds restrictions.
Off-farm labor housing loan and grant funds may not be used for any
purpose prohibited by Sec. 3560.54 except Sec. 3560.54(a)(1). Off-
farm labor housing may be used to serve migrant farmworkers.
Sec. 3560.555 Eligibility requirements for off-farm labor housing
loans and grants.
(a) Eligibility for loans. Applicants for off-farm labor housing
loans must be:
[[Page 32938]]
(1) A local nonprofit organization, a nonprofit organization of
farmworkers, federally recognized Indian tribe, or an agency or
political subdivision of State or local government, and must meet the
requirements of Sec. 3560.55(a) and (b), except that the board of a
nonprofit organization which is an association of farm workers is not
required to reflect the demographics of the community. Instead, a
nonprofit association of farmworkers must have representation on the
board from the area where the housing is located. Directors may be
elected who are not members of the organization, but are experienced in
such fields as real estate management, finance, or related businesses
provided member directors represent a majority of the board; or
(2) A limited partnership with a non-profit general partner which
meets the requirements of Sec. 3560.55(d).
(b) Eligibility for grants. To be eligible for off-farm labor
housing grants, applicants must:
(1) Meet the requirements in Sec. 3560.55(a), excluding
subparagraph (6);
(2) Meet the requirements of Sec. 3560.55(b) if the grant
applicant has an outstanding Agency loan or grant;
(3) Meet the requirements in Sec. 3560.55(c) with the exception
specified for off-farm labor housing loan applicants specified in
paragraph (a)(1) of this section;
(4) Be able to contribute at least one-tenth of the total farm
labor housing development cost from its own or other resources. The
applicant's contribution must be available at the time of grant
closing. An off-farm labor housing loan financed by RHS may be used to
meet this requirement.
(5) Limited partnerships eligible under paragraph (a)(2) of this
section are not eligible for farm labor housing grants.
Sec. 3560.556 Application requirements and processing.
Off-farm loans and grants will be available under a Notice of
Funding Availability (NOFA) that will be published in the Federal
Register each fiscal year.
Sec. 3560.557 [Reserved]
Sec. 3560.558 Site requirements.
The requirements established in Sec. 3560.58 apply to all
applications for off-farm labor housing loans and grants except that
off-farm labor housing are not limited to rural areas.
Sec. 3560.559 Design and construction requirements.
(a) General. The requirements established in Sec. 3560.60 apply to
all applications for off-farm labor housing loans and grants except
that seasonal off-farm labor housing that will be occupied for eight
months or less per year by migrant farmworkers while they are away from
their residence, will be constructed in accordance with Exhibit I of 7
CFR part 1924, subpart A.
(b) Additional requirements. In addition to the requirements
established in Sec. 3560.60, the design of off-farm labor housing must
incorporate exterior washing facilities as necessary to protect the
resident and the asset from excess dirt and chemical exposure.
(c) Davis-Bacon wage requirements. For housing developed with grant
funds, the borrower must not pay less than the wages prevailing in the
locality as predetermined by the Secretary of Labor pursuant to the
Davis-Bacon Act (40 U.S.C. 276(a)-276(a)(b)), to all laborers and
mechanics employed in the development of any part of the housing.
Sec. 3560.560 Security.
The security requirements established in Sec. 3560.61 will apply
to all applications for off-farm labor housing loans.
Sec. 3560.561 Technical, legal, insurance and other services.
The requirements established under Sec. 3560.62 apply to all
applications for off-farm labor housing loans and grants.
Sec. 3560.562 Loan and grant limits.
(a) Determining the security value. The requirements established
under Sec. 3560.63(a) apply to loans or combination loans and grants.
(b) Maximum amount of loan. The requirements established in Sec.
3560.63(c)(1) and (2), regarding borrower equity contribution apply to
all applications for off-farm labor housing loans. (For applicants
eligible under Sec. 3560.555(a)(2), the amount of Agency financing for
the housing will not exceed 95 percent of the total development cost or
95 percent of the security value available for the Agency loan,
whichever is lower.) In determining the amount of the loan, the Agency
will also review the capacity of the applicant to amortize such loan,
considering any rental assistance provided for use in the housing, and
any rents anticipated to be paid by farmworkers expected to occupy the
housing.
(c) Maximum amount of grant. The amount of any off-farm labor
housing grant must not exceed the lesser of:
(1) Ninety percent of the total development cost, or 90 percent of
security value, whichever is less; or
(2) That portion of the total development cost which exceeds the
sum of any amount provided by the applicant from their own resources
plus the amount of any loans approved for the applicant, considering
the capacity of the applicant to amortize the loan.
Sec. 3560.563 Initial operating capital.
The requirements for Sec. 3560.64 apply to all applications for
off-farm labor housing loans and grants.
Sec. 3560.564 Reserve accounts.
The requirements for Sec. 3560.65 apply to all applications for
off-farm labor housing loans and grants.
Sec. 3560.565 Participation with other funding or financing sources.
(a) General. The requirements established in Sec. 3560.66 apply to
all applications for off-farm labor housing loans and grants.
(b) Additional requirements. In addition to the requirements
established in Sec. 3560.66, the following policies will also apply.
(1) Where Agency rental assistance is requested, Agency financial
participation must equal or exceed 10 percent of the total development
cost with a minimum of 5 percent of the total development cost in the
form of off-farm labor housing loan.
(2) When the combined debt service for housing financed by the
Agency and other sources is equal to or less than what the debt service
would be for a 95 percent loan for total development cost of the entire
housing provided solely by the Agency, the Agency will provide 100
percent rental assistance to an off-farm labor housing project.
(3) When the combined debt service for housing financed by the
Agency and other sources exceeds what the debt service would be for a
100 percent loan for total development cost of the entire housing
provided solely by the Agency, the Agency will provide less than 100
percent rental assistance as specified in Sec. 3560.66.
Sec. 3560.566 Loan and grant rates and terms.
(a) Amortization period. The loan will be amortized over a period
not to exceed 33 years. The amortization schedule will take into
account the depreciation of the security and ensure that the loan will
be adequately secured.
(b) Interest rate. The effective interest rate will be 1 percent.
(c) Term of grant agreement. The grant agreement will remain in
effect for
[[Page 32939]]
50 years from the date of signature of all the parties.
Sec. 3560.567 Establishing the profit base on initial investment.
The requirements established under Sec. 3560.67 apply to
applicants eligible under Sec. 3560.555(a)(2) and operating as a
limited partnership with a nonprofit general partner.
Sec. 3560.568 Supplemental requirements for seasonal off-farm labor
housing.
For off-farm labor housing operating on a seasonal basis, the
management plan must establish specific opening and closing dates.
During the off-season, off-farm labor housing may be used as defined in
subpart A of this part under short-term lease provisions. Where rents
are charged on a per-unit basis and family income qualifies the
household for rental assistance, rental assistance may be used.
Sec. 3560.569 Supplemental requirements for manufactured housing.
The requirements established in Sec. 3560.70 apply to all
applications for off-farm labor housing loans and grants.
Sec. 3560.570 Construction financing.
The requirements established in Sec. 3560.71 apply to all
applications involving off-farm labor housing loans and grants. In
addition, the following requirements apply.
(a) If the Agency is providing grant only assistance, the Agency
will provide grant funds as part of the take out of construction
financing.
(b) If construction is financed with a Labor Housing grant, it is
subject to the provisions of the Davis-Bacon Act (published in the
Department of Labor regulations (29 CFR parts 1, 3, and 5)).
(c) If the Agency is providing both loan and grant funds, loan
funds must be fully released and expended prior to the release of grant
funds from the Agency.
Sec. 3560.571 Loan and grant closing.
The requirements established in Sec. 3560.72 apply to all
applications for off-farm labor housing loans and grants. In addition,
the following requirements apply.
(a) For loans, a nonprofit organization will have its Board of
Directors adopt an Agency-approved loan resolution and furnish a
certified copy for the loan docket before loan approval. All other loan
applicants will execute an Agency-approved loan agreement.
(b) For grants, an Agency approved grant agreement, must be
executed by the applicant on the date of grant closing. Also, a
nonprofit organization will have its Board of Directors adopt a
resolution containing provisions authorizing the Agency to prescribe
requirements regarding housing and related facilities' operations and
other provisions including the following provisions.
(1) The rents charged domestic farm labor must not exceed the rents
approved by the Agency after considering the income of the occupants,
Agency and non-Agency rental assistance available and the necessary
costs of operation, debt service, and adequate maintenance of the
housing.
(2) The housing must be maintained at all times in a safe and
sanitary condition in accordance with standards prescribed by state and
local law, and Agency requirements.
(3) When making occupancy decisions, domestic farm labor applicants
will always receive priority.
(c) The obligations incurred by the applicant, as a condition of
accepting the grant, will be in accordance with the off-farm labor
housing grant agreement.
(d) All off-farm labor housing loans and grants are subject to the
restrictive use provisions established by subpart N of this part. Such
restrictions must be included in the mortgage, deed of trust or grant
agreement. The term of the restricted use provision for the off-farm
labor housing grants is 50 years with or without a loan.
Sec. 3560.572 Subsequent loans.
The requirements established in Sec. 3560.73 will apply to all
applications for subsequent off-farm labor housing loans.
Sec. 3560.573 Rental assistance.
(a) Rental assistance may be provided to income eligible tenants
living in off-farm labor housing in accordance with subpart F of this
part. The requirements established in Sec. 3560.252 apply to all
tenants receiving rental assistance.
(b) For dormitory style facilities operating on a per bed basis,
rental assistance will be made available to the housing on a per unit
basis, but may be pro-rated to tenants on a per bed basis. However,
total rent charged for a unit must not exceed conventional rent for
comparable units in the area or a similar area and per bed rents must
be comparable to per bed rents in the market.
Sec. 3560.574 Rental structure and changes.
Off-farm labor housing is subject to the tenant contribution and
rental unit rent requirements for Plan II housing established under
subpart E of this part, except where seasonal housing will be occupied
for less than a 3-month period. In such instances the best available
and practical income verification methods may be used with prior
approval of the Agency.
Sec. 3560.575 Occupancy restrictions.
(a) Restrictions on conditions of occupancy.
(1) No nonprofit organizational borrower, other than an association
of farmers or family farm corporation or partnership, will be permitted
to require that an occupant work on any particular farm or for any
particular owner or interest as a condition of occupancy of the
housing.
(2) Tenant selection should be in accordance with the loan
agreement, subpart D of this part and Sec. 3560.576.
(3) No borrower will discriminate, or permit discrimination by any
agent, lessee, or other operator in the use or occupancy of the housing
or related facilities because of race, color, religion, sex, age,
handicap, marital or familial status, or national origin.
(b) Eligible households. To be eligible for occupancy in off-farm
labor housing, households must meet the following requirements.
(1) Occupational. An eligible household must include a domestic
tenant or co-tenant farm laborer, a retired domestic farm laborer, a
domestic farm laborer with a farm labor-related disability, or must be
a surviving household of a deceased domestic farm laborer.
(2) Income. The household must meet the definition of income
eligible as established in Sec. 3560.152 and the tenant or co-tenant
must receive a substantial portion of income from farm labor
employment. To determine if a substantial portion of income is from
farm labor employment, the following measures will be used.
(i) For housing rented to farm laborers and owned by public bodies
and public or private nonprofit organizations when charging rent.
(A) Actual dollars earned from farm labor by domestic farm laborers
other than migrant farmworkers must equal at least 65 percent of the
annual income limits published by the Agency. For migrant farmworkers
living in seasonal housing the actual dollars earned from farm labor by
a domestic farm laborer must equal at least 50 percent of published
annual income limits.
(B) An alternate measure for determining substantial portion of
income when actual earnings are not available may be the duration of
time a farm laborer worked on a farm or other farming enterprise as a
domestic farmworker during the preceding 12 months. In order to be
considered as
[[Page 32940]]
substantial the farm laborer must have worked at least 110 whole days
in farm work. For purposes of this section one whole day is the
equivalent of at least 7 hours. When using a period of more than 1
year, a yearly average must amount to at least 110 days per year.
(ii) For housing owned by a farmer, family-farm partnership,
family-farm corporation, or an association of farmers which was
initially provided on a non-rental basis, a substantial portion of
income is earned when housing is provided by the owner as part of
employment compensation for farm labor.
(iii) When a natural disaster has occurred, such as a drought,
flood, freeze, etc., figures for the 12 months preceding such disaster
will be used to determine substantial portion of income under paragraph
(b)(2) of this section.
(iv) The tenant who qualifies as a domestic farm laborer residing
in a property with a nonrestrictive farm labor clause in the mortgage
covenants must not have adjusted income which exceeds the moderate
income limit for the appropriate household size and appropriate
geographical area.
(3) Occupancy. The household must remain in compliance with the
borrower's occupancy policy as established in Sec. 3560.155.
(c) Ineligible tenants. Tenants who, at any time, fail to meet all
the requirements in paragraph (b) of this section will be deemed
ineligible for occupancy in off-farm labor housing. Ineligible tenants
in off farm labor housing will be addressed in accordance with the
requirements of Sec. 3560.158.
(d) Non-farm laborer tenants. When there are no persons or families
in the above categories in need of housing, units in off-farm labor
housing complexes may be made available to persons or families eligible
for occupancy under Sec. 3560.152. Eligible tenants under this section
may occupy the labor housing until such time the units are again needed
by persons or families eligible under paragraph (b) of this section.
The procedures specified in Sec. 3560.158 shall be followed when
tenants are required to vacate housing to allow for occupancy by
persons eligible under paragraph (b) of this section.
Sec. 3560.576 Tenant priorities for labor housing.
Tenant occupancy in off-farm labor housing is based on eligible
farm labor certified through the income certification process required
by Sec. 3560.152 and is prioritized in the following order.
(a) First priority is to be given to eligible active farm laborer
households based upon percent of total earnings from farm labor in the
following ranked categories: 71-100 percent; 51-70 percent; 26-50
percent; and less than 25 percent.
(1) For off-farm labor housing units without rental assistance,
occupancy priority within each ranking category is according to the
household's income with first priority going to very low-income
households, next priority to low-income households, and last priority
to moderate-income households.
(2) For off-farm labor housing units with rental assistance, tenant
occupancy priority is given to all eligible very low-income farm worker
households by ranked category, then to low-income farm worker
households by ranked category as listed in paragraph (a) of this
section. Moderate-income farm workers may be served without rental
assistance, when there are no very low- or low-income eligible farm
workers on the waiting lists, again by ranked category.
(b) Second priority is given to retired domestic farm laborer
households or to a household with a domestic farm laborer with a farm-
labor related disability and the domestic farm laborer was in the local
farm market area at the time of retirement or disability. Occupancy
priority will be by paragraph (a)(1) or (2) of this section without the
application of the ranking category.
(c) Third priority is to be given to retired domestic farm laborer
households or a household with a domestic farm laborer with a farm
labor related disability that was not in the local area at the time of
retirement or disability. Occupancy priority will be by paragraph
(a)(1) or (2) of this section without the application of the ranking
category.
(d) Fourth priority is to be given to surviving households of a
deceased domestic farm laborer.
(1) The surviving member may continue to occupy the unit after the
death of the original tenant and be eligible with respect to income and
either the co-tenant or member of the household will have legal
capacity to sign and assume the lease; or
(2) The surviving member occupied the unit at the time that the
original tenant died, and will be able to meet tenant eligibility
requirements of a domestic farm laborer.
Sec. 3560.577 Financial management of labor housing.
The requirements established in subpart G of this part will apply
to all off-farm labor housing.
Sec. 3560.578 Servicing off-farm labor housing.
The requirements established in subparts I and J of this part will
apply to all off-farm labor housing. Servicing according to subparts I
and J of this part shall apply throughout the term of the loan or
grant, whichever is longer.
Sec. Sec. 3560.579-3560.599 [Reserved]
Sec. 3560.600 OMB control number. [Reserved]
Subpart M--On-Farm Labor Housing
Sec. 3560.601 General.
This subpart contains the requirements for making loans for on-farm
labor housing and for ongoing operation and management of on-farm labor
housing. Unless otherwise specified in this subpart, the requirements
of subparts A through K, N, and O of this part will apply in addition
to requirements given in this subpart.
Sec. 3560.602 Program objectives.
In addition to the objectives stated in Sec. 3560.52, on-farm
labor housing funds will be used to increase:
(a) The supply of affordable housing for farm labor; and
(b) The ability of the farmer to provide affordable, decent, safe
and sanitary housing for farm workers.
Sec. 3560.603 Loan purposes.
On-farm labor housing loans may be made only for the purposes
established in Sec. 3560.553. Grants are not available for on-farm
labor housing.
Sec. 3560.604 Restrictions on use of funds.
On-farm labor housing loans may not be used for any purpose
prohibited by Sec. 3560.554 except Sec. 3560.54(a)(1). On-farm labor
housing may be used to serve migrant workers. In addition, on-farm
labor housing loan funds may not be used to provide housing for members
of the immediate family of the applicant when the applicant is an
individual farm owner, family farm corporation, family farm
partnership, or a member of an association of farmers. Immediate family
includes mother, father, brothers, sisters, sons and daughters of the
applicant and spouse.
Sec. 3560.605 Eligibility requirements.
(a) To be eligible for an on-farm labor housing loan, the applicant
must meet the requirements of Sec. 3560.55(a) with the exception of
Sec. 3560.55(a)(5) and (6) and the following requirements.
(1) The applicant must be a farm owner, family farm partnership,
family farm corporation, or an association of farmers engaged in
agricultural or
[[Page 32941]]
aquacultural farming operations whose farming operations demonstrate a
need for on-farm labor housing and who will own the housing and operate
it on a nonprofit basis.
(2) The applicant must agree to use the labor housing to engage in
the farming operations of the individual farm owner applicant, or in
the farming operations of its members if it is a family farm
corporation or partnership, or an association of farmers.
(3) The applicant must, as determined by the Agency, be unable to
provide the resources necessary to provide for on-farm labor housing
from assets unrelated to the farming operation.
(b) The Agency may make an exception to the requirement that an
individual farm owner, family farm corporation, family farm partnership
or an association of farmers be unable to obtain the necessary credit
elsewhere when all of the following conditions exist:
(1) There is a housing need in the area for domestic farmworkers
who are migrants and the applicant will provide such housing; and
(2) There are no qualified state or political subdivisions or
public or private nonprofit organizations available, or likely to
become available within 12 months of the application, that are willing
and able to provide the housing.
(c) When an applicant is determined eligible under paragraph (b) of
this section, the interest rate for such loans will be determined in
accordance with 7 CFR part 1810, subpart A.
Sec. 3560.606 Application requirements and processing.
(a) On-farm labor housing loan applications will be processed
according to 7 CFR part 1940, subpart L. Applicants must submit an
application in an Agency-approved format that adequately documents the
need for the housing and the eligibility of the applicant.
(b) The applicant must certify that the farm workers for which the
housing is intended are or will be involved in the applicant's
agricultural or aquacultural farming operations.
(c) The applicant must certify that housing operations will be
conducted in a non-profit manner such that income from the housing does
not exceed eligible expenses associated with the housing. Eligible
expenditures for the housing include, but are not limited to housing
repairs and upkeep, payment of installments on the loan, taxes,
insurance and reserves and other essential uses needed for success of
the operations.
Sec. 3560.607 [Reserved]
Sec. 3560.608 Site and construction requirements.
(a) General. Cost and development standards for on-farm labor
housing will be consistent with the requirements, standards, and cost
limits specified in subpart B of this part, if the housing is a multi-
family housing type structure, or consistent with section 502 of the
Housing Act of 1949, if the housing is a single family type structure.
(b) Permanent units. On-farm labor housing occupied for 8 months or
more of the year will be required to meet the following requirements.
(1) Housing may be multi-family or single family in type and may be
located on the farm away from farm service buildings, or in the nearby
community. Single-family type housing is defined as an individual or a
group of individual single family detached dwelling units. All sites
shall be planned and constructed in accordance with 7 CFR part 1924,
subparts A and C.
(2) Sites must provide access to road frontage, when feasible.
(c) Seasonal units. On-farm labor housing occupied for less than 8
months of the year will be considered seasonal housing. Such housing
must meet the following requirements.
(1) Housing designed for seasonal occupancy may be either single
family or multi-family.
(2) Housing must be suitable to allow for conversion to full-year
occupancy if the need for migrant farmworkers in the area declines.
(3) Seasonal housing will be constructed in accordance with Exhibit
I of 7 CFR part 1924, subpart A.
Sec. 3560.609 [Reserved]
Sec. 3560.610 Security.
(a) Security instruments must meet the requirements established
under Sec. 3560.560.
(b) The on-farm labor housing must be located on a tract of land
that is surveyed such that, for security purposes, it is considered
separate and distinct from the farm. The security for the loan must
include a first lien on the tract of land where the on-farm labor
housing is located.
(c) The Agency will determine the value of the security for the
loan if the entire farm is used as security or in accordance with
section 502 of the Housing Act of 1949, if only the on-farm labor
housing and related land is used for security.
(d) If necessary to provide adequate security for the loan, the
Agency may require that any household furnishings purchased with loan
funds also be secured.
(e) Personal liability and recourse will be required of all
borrowers, including the individual members, stockholders or partners
of an association of farmers, family farm corporations or partnerships,
respectively.
Sec. 3560.611 Technical, legal, insurance and other services.
When technical, legal, insurance, or services are required for
development of on-farm labor housing, applicants must comply with the
applicable requirements of Sec. 3560.62. Regarding insurance coverage,
the requirements of Sec. 3560.62(d) apply to on-farm labor housing.
Sec. 3560.612 Loan limits.
The maximum loan amount will be 100 percent of the allowable total
development costs of on-farm labor housing and related facilities
subject to Sec. Sec. 3560.603, 3560.604 and 3560.608.
Sec. 3560.613 [Reserved]
Sec. 3560.614 Reserve accounts.
When on-farm labor housing operations include five or more units,
the Agency will require such properties to comply with the reserve
account requirements in Sec. 3560.65.
Sec. 3560.615 Participation with other funding sources.
The Agency encourages the use of other funding sources in
conjunction with on-farm labor housing loans. Use of such financing in
conjunction with an on-farm labor housing loan is subject to the
approval of the Agency and must comply with the requirements of Sec.
3560.66.
Sec. 3560.616 Rates and terms.
(a) The interest rate for on-farm labor housing loans will be 1
percent.
(b) The term of the on-farm labor housing loan will not exceed 33
years.
(c) Loan amortization for on-farm labor housing may be on a monthly
or an annual basis.
Sec. 3560.617 [Reserved]
Sec. 3560.618 Supplemental requirements for on-farm labor housing.
The management plan for on-farm labor housing operated on a
seasonal basis must have specific opening and closing dates. During the
off-season, on-farm labor housing may be used under short-term lease
provisions.
Sec. 3560.619 Supplemental requirements for manufactured housing.
On-farm labor housing loan funds used for manufactured housing must
[[Page 32942]]
comply with Sec. 3560.70. Manufactured housing located on-farm may
consist of an individual unit.
Sec. 3560.620 Construction financing.
The requirements established in Sec. 3560.71 apply to all
applications involving on-farm labor housing loans.
Sec. 3560.621 Loan closing.
Applicants for on-farm labor housing loan funds must execute an
Agency-approved loan agreement.
Sec. 3560.622 Subsequent loans.
The requirements established in Sec. 3560.572 apply to all
applications for on-farm labor housing subsequent loans.
Sec. 3560.623 Housing management and operations.
Borrowers with on-farm labor housing loans must:
(a) Develop and submit to the Agency a management plan in a format
specified by the Agency. At a minimum, the management plan will detail
the borrower's operational and occupancy policies, how the borrower
will deal with resident complaints, and how repairs will be completed;
and
(b) Maintain a lease or employment contract with each tenant
specifying employment with the borrower as a condition for continued
occupancy.
Sec. 3560.624 Occupancy restrictions.
(a) The immediate relatives of the borrowers are ineligible
occupants for on-farm labor housing.
(b) Occupancy of on-farm labor housing is restricted to employees
of the borrower unless otherwise approved by the Agency.
Sec. 3560.625 Maintaining the physical asset.
On-farm labor housing must meet state and local building and
occupancy codes.
Sec. 3560.626 Affirmative Fair Housing Marketing Plan.
On-farm labor housing must meet the requirements of Sec. 3560.104.
Sec. 3560.627 Response to resident complaints.
The management plan submitted in accordance with Sec. 3560.623 (a)
will include a provision for dealing with resident complaints.
Sec. 3560.628 Establishing and modifying rental charges.
If it becomes necessary to establish or modify a shelter cost, the
borrower must obtain Agency approval by as specified in subpart E of
this part.
Sec. 3560.629 Security deposits.
Borrowers that require security deposits to be paid by the tenants
will be required to comply with the requirements of Sec. 3560.204.
Sec. 3560.630 Financial management.
Financial information must be submitted in an Agency-approved
format and will show operation of the housing in a non-profit manner.
Sec. 3560.631 Agency monitoring.
A compliance review and physical inspection will be conducted by
the Agency at least once every 3 years. The purpose of this review will
be to inspect:
(a) Tenant eligibility documentation;
(b) Financial information on the operation and management of the
labor housing, including relevant borrower financial materials;
(c) Payment of taxes, insurance and hazard insurance;
(d) Compliance with the security deposit requirements;
(e) Compliance with the operating plan;
(f) Compliance with the loan agreement; and
(g) Compliance with Agency requirements for affordable, decent,
safe, and sanitary housing.
Sec. Sec. 3560.632-3560.649 [Reserved]
Sec. 3560.650 OMB control number. [Reserved]
Subpart N--Housing Preservation
Sec. 3560.651 General.
(a) This subpart contains the Rural Housing Service's housing
preservation requirements as related to prepayment requests and
restrictive-use provisions. The requirements of this subpart support
the Rural Housing Service's commitment to the preservation of decent,
safe, sanitary, and affordable multi-family housing for very-low, low,
and moderate-income households.
(b) The Rural Housing Service will coordinate, direct, and monitor
the Rural Housing Service's multi-family housing preservation
activities from the National Office level.
Sec. 3560.652 Prepayment and restrictive-use categories.
(a) Loans with prepayment prohibitions include:
(1) Initial loans made on or after December 15, 1989, and
(2) Subsequent loans made on or after December 15, 1989, for
additional rental units.
(b) Loans without prepayment prohibitions but with restrictive-use
provisions include:
(1) All loans made after December 21, 1979, but prior to December
15, 1989; or,
(2) Subsequent loans made on or after December 15, 1989, for
purposes other than additional rental units.
(3) Loans subsequently restricted by servicing actions including
transfers and reamortizations.
(c) Loans without prepayment prohibitions or restrictive-use
provisions include all loans made on or before December 21, 1979 or
loans that had restrictive-use provisions that have expired. Such loans
are subject to the preservation provisions of this subpart.
(d) Loans may be prepaid if another loan or grant from the Rural
Housing Service imposes the same or more stringent restrictive-use
provisions on the housing project covered by the loan being prepaid.
Sec. 3560.653 Prepayment requests.
(a) Borrowers seeking to prepay a Rural Housing Service loan must
submit a written prepayment request to the Rural Housing Service at
least 180 days in advance of the anticipated prepayment date and must
obtain Rural Housing Service approval before the Rural Housing Service
will accept prepayment.
(b) Prior to submitting a prepayment request, borrowers must take
whatever actions are necessary to provide the following items:
(1) A clear description of the loan to be prepaid, the housing
project covered by the loan being prepaid, and the requested date of
prepayment.
(2) A statement documenting the borrower's ability to prepay under
the terms specified.
(3) A certification that the borrower will comply with any federal,
state, or local laws or regulations (e.g., Department of Housing and
Urban Development (HUD) prepayment procedures or requirements, HUD or
state housing authorities that provide rental subsidy) which may relate
to the prepayment request and a statement of actions needed to assure
such compliance.
(4) A copy of the housing project's waiting list and a current
signed multi-family housing balance sheet.
(5) A copy of lease language to be used during the period between
the submission date and the final resolution of the prepayment request
notifying tenant applicants that the housing project has submitted a
prepayment request to the Rural Housing Service and explaining the
potential affect of the request on the lease.
(6) A certification that the borrower has notified all governmental
entities and all nonprofit and public bodies other than the Rural
Housing Service involved in providing affordable
[[Page 32943]]
housing and financial assistance to tenants in the project, of the
prepayment request and a statement specifying how long financial
assistance from such parties will be provided to tenants after
prepayment.
(7) A certification that the housing project covered by the loan
being prepaid will continue to be administered in accordance with the
Fair Housing Act.
(8) A description of the proposed use of the property after
prepayment with documentation supporting the feasibility of the
proposed use and a budget showing anticipated costs and resources
available to cover costs of transition to and operation of the property
as proposed for 3 years.
(9) A market study that addresses assisted and conventional
housing, community demographics, and economic activity in the market
area where the housing project covered by the loan being prepaid is
located and the feasibility of the proposed use of the housing project
in the market.
(c) If a prepayment request lacks full and complete information on
any item, the Rural Housing Service will return the prepayment request
to the borrower with a letter citing the deficiencies in the prepayment
request. The Rural Housing Service will offer borrowers an opportunity,
within 30 days following the date of the return, to address the reasons
given by the Rural Housing Service for the return of the prepayment
request and will allow the borrower to submit a revised prepayment
request.
(d) The Rural Housing Service will review complete requests to
determine if:
(1) The loan is eligible for prepayment;
(2) The borrower has the ability to prepay;
(3) The borrower has complied or has the ability to comply with
applicable federal, state, and local laws related to the prepayment
request;
(4) The borrower's proposed use of the property after prepayment is
likely to be achieved; and,
(5) The proposed use of the property after prepayment will allow
for compliance with any restrictive-use provisions, which may apply to
the property after prepayment.
(e) If the Rural Housing Service determines that the prepayment
request appropriately satisfies all the conditions listed in paragraph
(d) of this section, the Rural Housing Service will process the
prepayment request and make a reasonable effort to enter into a new
restrictive-use agreement with the borrower in accordance with Sec.
3560.662. If the Rural Housing Service determines that a loan is
ineligible for prepayment or the borrower does not have the ability to
prepay, to convert the housing to the proposed use, or to comply with
any applicable restrictive-use provisions, the Rural Housing Service
will return the prepayment request to the borrower with a written
explanation of the Rural Housing Service's determinations.
Sec. 3560.654 Tenant notification requirements.
(a) Within 30 calendar days of receiving a complete prepayment
request, the Rural Housing Service will send a prepayment request
notice to each tenant in the housing project. Borrowers must post the
Rural Housing Service's prepayment request notice in public areas
throughout the housing project from the date of the notice until the
final resolution of the prepayment request. The prepayment request
notice will establish a date and place where tenants may meet with the
Rural Housing Service to discuss the prepayment request and will advise
tenants that:
(1) They may review all information submitted with the prepayment
request except financial information regarding the borrower entity,
which the Rural Housing Service will withhold from tenant review unless
given written permission for the release of the information from the
borrower; and,
(2) They have 30 days from the date of the prepayment request
notice to give the Rural Housing Service comments on the prepayment
request.
(b) Borrowers may provide a prepayment request notice of their own
directly to tenants and may establish a date and place where tenants
may meet with the borrower to discuss the prepayment request. The Rural
Housing Service and other providers of housing assistance for very-low,
low, and moderate-income households may attend a borrower's prepayment
request meeting with tenants.
(c) If the Rural Housing Service agrees to accept prepayment on a
loan, the Rural Housing Service will send a prepayment acceptance
notice to each tenant in the housing project at least 60 days prior to
the prepayment date. Borrowers must post copies of the Rural Housing
Service's prepayment acceptance notice in public areas throughout the
housing project until prepayment is made. If the prepayment acceptance
was based on a borrower's agreement to comply with restrictive-use
provisions, the notice will describe the restrictive-use provisions
that will apply to the housing project after prepayment and the
tenant's rights to enforcement of the provisions.
(d) If the Rural Housing Service does not agree to accept a
prepayment request or the borrower withdraws the prepayment request,
the Rural Housing Service will provide a prepayment request
cancellation notice to each tenant in the housing project. Borrowers
must post copies of the prepayment request cancellation notice in the
public areas throughout the housing project for a period of 60 days
following the date of the prepayment request cancellation notice.
(e) If the borrower agrees to accept incentives and restrictive-use
provisions, the Rural Housing Service will notify each tenant, in
writing, of the agreement and a description of the restrictive-use
provision.
(f) If a borrower agrees to sell a housing project involved in a
prepayment request to a nonprofit organization or public body, the
Rural Housing Service will notify each tenant, in writing, of the
proposed sale to a nonprofit organization or public body and will
explain the timeframes involved with the proposed sale, any potential
impact on tenants, and the actions tenants may take to alleviate
adverse impact if any. Borrowers must post copies of the Rural Housing
Service's proposed sale notice in public areas throughout the housing
project until the housing project is sold or the offer to sell is
withdrawn.
(g) If a borrower is unable to sell a housing project involved in a
prepayment request to a nonprofit organization or public body within
180 days as specified in Sec. 3560.659, the Rural Housing Service will
send a notice to each tenant in the housing project explaining the
potential impact of the borrower's inability to sell the housing
project on tenants and the actions tenants may take to alleviate any
adverse impact. Borrowers must post the Rural Housing Service's notice
in public areas throughout the housing project for a period of 60 days
following the date of the notice. If a tenant applicant signs a lease
in a housing project for which a prepayment request has been submitted,
the borrower must provide the tenant with copies of all notifications
provided to tenants by the Rural Housing Service or the borrower prior
to the tenant's occupancy in the housing project.
Sec. 3560.655 Rural Housing Service requested extension.
Before accepting an offer to prepay from a borrower with a
restricted loan, the Rural Housing Service must first make a reasonable
effort to enter into a new restrictive-use agreement with the borrower.
Under this agreement, the
[[Page 32944]]
borrower would make a binding commitment to extend the low-income use
of the housing and related facilities for not less than 15 years for
loans without interest credit and 20 years for loans with interest
credit, beginning on the date on which the new agreement is executed.
If the borrower is unwilling to enter into a new restrictive-use
provision and restrictive-use agreement, the Rural Housing Service
should document this fact in writing and proceed to take the actions
described in Sec. 3560.658.
Sec. 3560.656 Incentive offers.
(a) The Rural Housing Service will offer a borrower, who submits a
prepayment request meeting the conditions of Sec. 3560.653(d),
incentives to agree to the restrictive-use period in Sec. 3560.662 if
the following conditions are met:
(1) The Rural Housing Service determines that the prepayment will
result in an adverse impact on the availability and affordability of
housing for program-eligible households.
(2) For loan agreements approved after December 21, 1979, but prior
to December 15, 1989, the restrictive-use period has expired.
(b) Specific incentives offered will be based on the Rural Housing
Service's assessment of:
(1) The value of the housing project as determined by Rural Housing
Service obtained ``as-is'' market value appraisal conducted in
accordance with subpart P of this part.
(2) An incentive amount that will provide a fair return to the
borrower;
(3) An incentive amount that will not cause basic rents at the
housing project to exceed conventional rents for comparable units; and
(4) An incentive amount that will be the least costly alternative
for the Federal Government while being consistent with the Rural
Housing Service's commitment to the preservation of housing for very-
low, low, and moderate income households in rural areas.
(c) The Rural Housing Service may offer the following incentives.
(1) The Rural Housing Service may increase the borrower's annual
return on investment by one of the following two methods. The actual
withdrawal of the return remains subject to conditions specified in
subpart G of this part.
(i) The Rural Housing Service may recognize the borrower's current
equity in the housing project. The equity will be determined using a
Rural Housing Service accepted appraisal based on the housing project's
value as unsubsidized conventional housing.
(ii) The Rural Housing Service may recognize the borrower's current
equity in the housing project at the higher of the original rate of
return or the current 30-year Treasury bond rate plus 2 percent rounded
to the nearest one-quarter percent. The equity will be determined using
the most recent Rural Housing Service accepted appraisal, which will
include a determination of long-term repair or deferred maintenance, of
the housing project prior to receiving the prepayment request.
(2) The Rural Housing Service may agree to convert projects without
interest credit or with Plan I interest credit to Plan II interest
credit or increase the interest credit subsidy for loans with Section 8
assistance to lower the interest rate on the loan and make basic rents
more financially feasible.
(3) The Rural Housing Service may offer additional rental
assistance, or an increase in assistance provided under existing
contracts under sections 521(a)(2), 521(a)(5) or section 8 of the
United States Housing Act of 1937 (42 U.S.C. 1437f).
(4) The Rural Housing Service may make an equity loan to the
borrower. The equity loan must not adversely affect the borrower's
ability to repay other Rural Housing Service loans held by the borrower
and must be made in conformance with the following requirements.
(i) The equity loan must not exceed the difference between the
current unpaid loan balance and 90 percent of the housing project's
value as determined by an ``as-is'' market value appraisal conducted in
accordance with subpart P of this part.
(ii) Borrowers with farm labor housing loans are not eligible to
receive equity loans as incentives.
(iii) If an incentive offer for an equity loan is accepted, the
equity loan may be processed and closed with the borrower or any
eligible transferee.
(iv) Excess reserve funds will be used to reduce the amount of an
equity loan offered to a borrower.
(v) Equity loans may not be offered unless the Rural Housing
Service determines that other incentives are not adequate to provide a
fair return on the investment of the borrower to prevent prepayment of
the loan or to prevent displacement of project tenants.
(5) The Rural Housing Service will offer rental assistance to
protect tenants from rent overburden caused by any rent increase as a
result of a borrower's acceptance of an incentive offer or tenants who
are currently overburdened.
(6) In housing projects with project-based Section 8 assistance,
the Rural Housing Service may permit the borrower to receive rents in
excess of the amounts determined necessary by the Rural Housing Service
to defray the cost of long-term repair or maintenance of such a
project.
(d) The Rural Housing Service will determine that the combination
of assistance provided is necessary to provide a fair return on the
investment of the borrower and is the least costly alternative for the
Federal Government.
(e) At the time the incentive is developed, the Rural Housing
Service must take into consideration the costs of any deferred
maintenance items in the housing project's operating budget and any
expected long-term repair or replacement costs based on a capital needs
assessment developed in accordance with Sec. 3560.103(c). The amount
required for the reserve account to be considered fully funded will be
adjusted accordingly. To determine if basic rents exceed conventional
rents for comparable units in the area, monthly contributions necessary
to obtain the adjusted fully funded reserve account will be included in
the calculation of basic rents. Deferred maintenance or any
deficiencies identified in project compliance with section 504 of the
Rehabilitation Act of 1973 must be addressed prior to the receipt of
any incentive.
(f) Existing loans must be consolidated, provided consolidation
retains the Rural Housing Service's lien position, and reamortized in
accordance with subparts I and J of this part, unless consolidation is
not necessary to maintain feasibility of the housing for the tenants or
to reduce the debt service or the level of monthly rental assistance.
(g) The borrower must accept or reject the incentive offer within
30 days. If no answer to the offer is received within 30 days, the
Rural Housing Service may void the prepayment request.
(h) If the borrower accepts the incentive offer, procedures
outlined in Sec. 3560.657 must be followed.
(i) If the borrower rejects the incentive offer, the borrower must
comply with requirements listed in Sec. 3560.658.
Sec. 3560.657 Processing and closing incentive offers.
(a) Borrower responsibilities. If a borrower accepts the Rural
Housing Service's offer of incentives, the borrower must complete the
actions listed below. The Rural Housing Service will not negotiate an
incentive offer once it has been accepted.
(1) The borrower must insert the restrictive-use language specified
in
[[Page 32945]]
Sec. 3560.662 into the housing project's loan documents, deeds, and
rental assistance agreements.
(2) If the incentive offer accepted includes an equity loan, the
borrower must complete an application for the equity loan, and the
borrower must continue to qualify as an eligible borrower or transferee
in accordance with subpart B of this part.
(3) If the incentive offer accepted includes rent increases, the
borrower must follow the rent increase requirements established in
subpart E of this part.
(b) Notification. The Rural Housing Service will notify each
tenant, in writing, of the restrictive-use agreement in accordance with
Sec. 3560.654(e).
(c) Waiting lists. If funds for components of incentive offers are
limited, the Rural Housing Service will establish a waiting list of
accepted incentive offers for funding in the date order that the
complete prepayment request was received.
(d) Unfunded incentive offers. If the borrower accepts the
incentive offer but the Rural Housing Service is unable to fund the
incentive within 15 months, the borrower may choose one of the
following actions.
(1) The borrower may offer to sell the housing project in
accordance with Sec. 3650.659. In this case the borrower will be
removed from the list of borrowers awaiting incentives.
(2) The borrower may stay on the list of borrowers awaiting
incentives until the borrower's incentive offer is funded. The Rural
Housing Service will not negotiate the incentive offer; but, at a
borrower's request, may adjust the incentive amount to reflect an
updated appraisal, loan balance, and terms of third party financing.
(3) The borrower may withdraw the prepayment request and be removed
from the list of borrowers awaiting incentives and continue operating
the housing project for program purposes and in accordance with Rural
Housing Service requirements. If the borrower chooses this option, the
borrower may resubmit an updated prepayment request, at any time, and
repeat the prepayment process in accordance within this subpart.
Sec. 3560.658 Borrower rejection of the incentive offer.
(a) If a borrower rejects the incentive package offered by the
Rural Housing Service or a Rural Housing Service request to extended
restrictive-use provisions, made in accordance with Sec. 3560.662, the
loan will only be prepaid if the borrower agrees to the following:
(1) The borrower agrees to sign restrictive-use provisions to
extend restrictive-use by 10 years from the date of prepayment, and at
the end of the restrictive-use period offer to sell the housing to a
qualified nonprofit organization or public body in accordance with
Sec. 3560.659.
(2) If restrictive-use provisions are in place, the borrower will
agree to sign the restrictive-use provisions, as determined by the
Rural Housing Service, and at the end of the restrictive-use period
offer to sell the housing to a qualified nonprofit organization or
public body in accordance with Sec. 3560.659.
(3) If restrictive-use provisions are not in place prior to
prepayment, the borrower will offer to sell the housing to a qualified
nonprofit organization or public body in accordance with Sec.
3560.659, or
(b) The Rural Housing Service will assess the impact of prepayment
on two factors: housing opportunities for minorities and the supply of
decent, safe, sanitary, and affordable housing in the market area. If
the Rural Housing Service determines that the prepayment will not have
an adverse effect on housing opportunities for minorities but there is
not an adequate supply of decent, safe, and sanitary rental housing
affordable to program eligible tenant households in the market area,
the loan may be prepaid only if the borrower agrees to sign
restrictive-use provisions, as determined by the Rural Housing Service,
to protect tenants at the time of prepayment.
(c) If the borrower agrees to the restrictive-use provisions, as
determined by the Rural Housing Service, the applicable language must
be included in the release documents and the borrower must execute a
restrictive-use agreement acceptable to the Rural Housing Service and a
deed restriction.
(d) If the borrower will not agree to applicable restrictive-use
provisions, as determined by the Rural Housing Service, the borrower
must offer to sell to a nonprofit or public body in accordance with
Sec. 3560.659.
Sec. 3560.659 Sale or transfer to nonprofit organizations and public
bodies.
(a) Sales price. For the purposes of establishing a sales price
when a borrower is required to sell a housing project to a nonprofit
organization or public body, two independent ``as is'' market value
appraisals will be completed, in accordance with subpart P of this
part.
(1) The Rural Housing Service will also prepare the appropriate
level of environmental review under the National Environmental Policy
Act to be completed in accordance with 7 CFR part 1940, subpart G prior
to Rural Housing Service approval of a sale or transfer.
(2) The expense of the borrower's appraisal shall be borne by the
borrower. The appraiser selected may not have an identity of interest
with the borrower.
(3) If the two appraisers fail to agree on the fair market value,
the Rural Housing Service and the borrower will jointly select an
appraiser whose appraisal will be binding on the Rural Housing Service
and the borrower. The Rural Housing Service and the borrower shall
jointly fund the cost of the appraisal.
(b) Marketing to nonprofit organizations and public bodies. If a
borrower must offer the property for sale to a nonprofit organization
or public body under this paragraph, the borrower must take the
following actions to inform appropriate entities of the sale.
(1) The borrower must advertise and offer to sell the project for a
minimum of 180 days. The borrower may choose to suspend advertising and
other sales efforts while eligibility of an interested purchaser is
determined. If the purchaser is determined to be ineligible, the
borrower must resume advertising for the balance of the required 180
days.
(2) The borrower must contact all nonprofit organizations and
public bodies on a list maintained by the Rural Housing Service and may
contact other nonprofit organizations and public bodies.
(3) The borrower must provide the nonprofit organizations and
public bodies contacted with sufficient information regarding the
housing project and its operations for interested purchasers to make an
informed decision. The information provided must include the minimum
value of the housing project based on the market value determined in
accordance with paragraph (a) of this section.
(4) If an interested purchaser requests additional information
concerning the housing project, the borrower must promptly provide the
requested materials.
(c) Preference for local nonprofit and public bodies. Local
nonprofit organizations and public bodies have priority over regional
and national nonprofit organizations and public bodies. The borrower
may not accept an offer from other than local nonprofit organizations
or public bodies during the first 60 days that the property is
advertised. If no offer from a local nonprofit organization or public
body is received in the first 60 days, the
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borrower may accept an offer from a regional or national nonprofit
organization or public body.
(d) Eligible nonprofit organizations. To be eligible to purchase
properties under the conditions of this subpart, nonprofit
organizations may not have among its officers or directorate any
persons or parties with an identity-of-interest (or any persons or
parties related to any person with identity-of-interest) in loans
financed under section 515 that have been prepaid or have requested
prepayment. In addition to local nonprofit organizations, eligible
nonprofit organizations include regional or national nonprofit
organizations or public bodies provided no part of the net earnings of
which accrue to the benefit of any member, founder, contributor or
individual.
(e) Requirements for nonprofit organizations and public bodies. To
purchase and operate a housing project, a nonprofit organization or
public body must meet the following requirements.
(1) The purchaser must agree to maintain the housing project for
very low- and low-income families or persons for the remaining useful
life of the housing and related facilities. However, currently eligible
moderate-income tenants will not be required to move.
(2) The purchaser must agree that no subsequent transfer of the
housing project will be permitted for the remaining useful life of the
housing project unless the Rural Housing Service determines that the
transfer will further the provision of housing for low-income
households, or there is no longer a need for the housing project.
Language to be included in the deed, conveyance instrument, loan
resolution, and assumption agreement (as applicable) is provided in
Sec. 3560.662.
(3) The purchaser must demonstrate financial feasibility of the
housing project including anticipated funding.
(4) The purchaser must certify to the Rural Housing Service that no
identity-of-interest relationships exist in accordance with Sec.
3560.102(g). The purchaser must not have any identity of interest with
the seller or any borrower that has previously prepaid or requested
prepayment of a Rural Housing Service MFH loan.
(5) The purchaser must complete a Rural Housing Service approved
application and obtain Rural Housing Service approval in accordance
with subpart B of this part.
(6) The purchaser must make a bona fide offer taking into
consideration the value of the housing project as determined in
accordance with paragraph (a) of this section.
(f) Selection priorities. If more than one qualified nonprofit
organization or public body submits an offer to purchase the project at
the same time, priority will be given to local nonprofit organizations
and public bodies over regional and national nonprofit organizations or
public bodies. When selecting between offers equally meeting all other
criteria:
The borrower will first consider the success of the nonprofit
organization's or public body's previous experience in developing and
maintaining subsidized housing, with preference given to the most
successful. If the offers continue to be equal, the borrower will then
consider the number of years experience that the nonprofit organization
or public body has had in developing and maintaining subsidized
housing, with preference given to the greater number of years.
(g) Loans made by the Rural Housing Service or other sources to
nonprofit organizations and public bodies. Rural Housing Service loans
to nonprofit organizations or public bodies may be made for the
purposes described in paragraphs (g)(1) and (2) of this section. Rural
Housing Service loans will be processed in accordance with subpart B of
this part. Loans from other sources will be approved by the Rural
Housing Service in accordance with subpart I of this part.
(1) Rural Housing Service loans to nonprofit organizations or
public bodies for the purchase of a housing project will be based on
the appraised value determined in accordance with paragraph (a) of this
section.
(2) With proper justification, a Rural Housing Service loan may be
made to help the nonprofit organization or public body meet the housing
project's first year operating expenses if there are insufficient funds
in the housing project's general operating and expense account to meet
such expenses. A Rural Housing Service loan, for the purpose of
covering first year operating expenses, may not exceed 2 percent of the
housing project's appraised value determined in accordance with
paragraph (c) of this section.
(h) Advances for nonprofit organizations and public bodies. The
Rural Housing Service may make advances, in accordance with section
502(c)(5)(c)(i), not in excess of $20,000 to nonprofit organizations or
public bodies that are purchasing housing under this subpart. Grant
funds may be used to cover any direct costs other than the purchase
price, incurred by nonprofit organizations or public bodies in
purchasing and assuming responsibility for the housing project.
Sec. 3560.660 Acceptance of prepayments.
(a) The Rural Housing Service may accept prepayment if any of the
following circumstances exist:
(1) Prepayment will be accepted if the Rural Housing Service
determines that prepayment will not have an adverse impact on
minorities; adequate, safe, decent and affordable housing is available;
and tenants in the housing project will not experience a negative
impact such as a change in rent or use, which results in increased net
tenant contributions, displacements, or involuntary relocations.
(2) Prepayment may be accepted if the Rural Housing Service
determines that prepayment will have an adverse impact on the tenants
in the housing project, but;
(i) The borrower agreed to comply with restrictive-use provisions,
as determined by the Rural Housing Service, after prepayment; or,
(ii) The borrower agreed to offer the housing project for sale to a
nonprofit organization or public body in accordance with Sec. 3560.659
and no bona fide offer was received within 180 days from the date that
the housing project was advertised for sale to a nonprofit organization
or public body, or a bona fide offer was received within 180 days from
the advertisement date but the offeror was unable to fulfill the terms
of the offer within 24 months of the offer date.
(b) When the Rural Housing Service agrees to accept prepayment, the
Rural Housing Service will notify borrowers, in writing, of the
conditions under which the Rural Housing Service will accept prepayment
including the specific restrictive-use provisions to which the borrower
has agreed and the date by which the borrower must make the prepayment.
(1) Prepayment must be made 180 days from the date of the Rural
Housing Service's prepayment acceptance notice to the borrower.
(2) If the borrower's prepayment is not received within 180 days of
the prepayment acceptance notice and the Rural Housing Service has not
agreed to an alternative date based on a written request from the
borrower, the Rural Housing Service may cancel the prepayment
acceptance agreement.
(c) Tenants will be notified of the prepayment acceptance agreement
in accordance with Sec. 3560.654(c).
(d) If a prepayment is anticipated to result in increased net
tenant contributions, displacements or involuntary relocations, the
tenants, who are affected by such a circumstance, may request a Letter
Of Priority Entitlement (LOPE) in
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accordance with Sec. 3560.159(c). Tenants must request a LOPE within
30 days of the prepayment acceptance notice date.
Sec. 3560.661 Sale or transfers.
(a) If a sale or transfer is to take place simultaneously with the
Rural Housing Service incentive offer, the sale or transfer must comply
with the provisions of subpart I of this part.
(b) If a proposed transferee is determined not to be eligible for
the transfer and assumption, the borrower will be given an additional
45 days to find another transferee.
(c) In cases where the existing owner is in program non-compliance
or default, the Rural Housing Service may make an offer of incentives
contingent on the successful transfer of the housing to an acceptable
purchaser. The Rural Housing Service may offer a smaller incentive or
no incentive if the borrower does not agree to transfer the project to
an acceptable purchaser, or if the transfer does not take place.
Sec. 3560.662 Restrictive-use provisions and agreements.
(a) Clauses required for active borrowers with housing projects
subject to restrictive-use provisions as a result of a loan making or
servicing actions. The restrictive-use provisions must be contained in
the loan documents or security instruments. The restrictions are
applicable for a term of 20 years. All loans or servicing actions
meeting the criteria described in paragraphs (a)(1), (2), and (3) of
this section, must include the following clause in loan documents.
The borrower and any successors in interest agree to use the
housing project for the purpose of housing people eligible for
occupancy as provided in section 514 or section 515 of title V of
the Housing Act of 1949, and Rural Housing Service regulations then
in existence during this 20-year period beginning (the date the last
loan on the housing project is obligated or the date the housing
project was last made subject to the prepayment restrictive-use
provisions as a result of servicing actions or an incentive
agreement, authorized under this subpart). Until (date), no eligible
person occupying the housing project shall be required to vacate, or
any eligible person wishing to occupy shall be denied occupancy
without cause. The borrower will be released from these obligations
before that date only when the Rural Housing Service determines that
there is no longer a need for such housing or that such other
financial assistance provided the residents of such housing will no
longer be provided due to no fault, action, or lack of action on the
part of the borrower. A tenant or individual wishing to occupy the
housing, as well as the Rural Housing Service, may seek enforcement
of this provision.
(1) All loans approved after December 21, 1979, but prior to
December 15, 1989.
(2) Subsequent loans not made to build or acquire new units
approved on or after December 15, 1989.
(3) Any loan approved prior to December 21, 1979, and subsequently
made subject to restrictive-use provisions due to a servicing action in
accordance with in subparts I and J of this part, or an incentive to
accept restrictive-use provisions in accordance with in this subpart.
(b) Clauses required for active borrowers with housing projects
subject to restrictive-use provisions as a result of a loan making or
se