[Text Only]Project-based Section 8 Contracts Expiring in Fiscal Year 2000
Directive Number: 99-36
Self Extracting File which contains Notice and all attachments
MS Word version of Notice
U.S. Department of Housing and Urban Development
Office of Housing
Special Attention of: Notice H 99-36 (HUD)
All Community Builders
All Multifamily Hub Directors Issued: December 29, 1999
All Multifamily Program Center Directors Expires: December 12, 2000
All Project Managers
All Secretary's Representatives
Contract Administrators, Owners and Managers
of Projects with Expiring Section 8 Contracts
Subject: Project-based Section 8 Contracts Expiring in Fiscal
Year 2000
TABLE OF CONTENTS
SECTION PAGE
I. BACKGROUND 4
II. PURPOSE 6
III. FY 2000 POLICY CHANGES 6
IV. APPLICABILTY 10
V. Initial and Subsequent RENEWALS 11
VI. CONTRACT TERMS AND EFFECTIVE DATES 12
VII. OWNER'S OPTIONS AT CONTRACT EXPIRATION 16
VIII. RENT COMPARABILITY STUDY (RCS) 18
IX. OPTION 1: Request Renewal Under
MARK-UP-TO-MARKET PROCEDURE 20
X. OPTION 2: REQUEST RENEWAL OF OTHER CONTRACTS WITH
CURRENT RENTS AT OR BELOW COMPARABLE MARKET RENTS 22
XI. OPTION 3: REQUEST REFERRAL TO OMHAR
FOR RESTRUCTURING 24
XII. OPTION 4: REQUEST RENEWALS FOR PROJECTS EXEMPTED FROM
OMHAR 25
XIII. OPTION 5: Request renewal for portfolio reengineering
or preservation contract 27
XIV. Option 6: Notification of intention to opt out of the
section 8 contract 29
XV. PROTECTING SECTION 8 FAMILIES 29
XVI. OWNER'S NOTIFICATION REQUIREMENTS 31
XVII. LEASE ADDENDUM 34
XVIII. RESIDUAL RECEIPTS 35
XIX. PHYSICAL CONDITION OF THE PROPERTY 36
XX. HUD's REFUSAL TO RENEW A SECTION 8 CONTRACT 41
XXI. RURAL HOUSING SERVICE 515/8 PROJECTS 44
XXII. BUDGET-BASED RENT INCREASES FOR CAPITAL REPAIRS 46
XXIII. OTHER RENT INCREASES 48
XXIV. REMS REPORTING 49
XXV. FOR FURTHER INFORMATION 49
ATTACHMENTS
1. Acronyms Used in this Notice
2. Glossary of Terms
3A. Sample One Year Notification Reminder Letter from HUD to
Owners for Projects in Good Standing
3B. Sample One Year Notification Reminder Letter from HUD to
Owners for Projects Not in Good Standing
3C. Sample One Year Notification Letter When Owner Does Not
Intend To Renew
3D. Sample One Year Notification when Owner Intends to Renew
3E. Sample 150-Day Notification Letter to Tenants When Owner
Pre-Pays a Preservation Eligible Project
4. Owner's Option Checklist and Worksheet
4A. Processing Instructions for Attachment 4.
4B. Processing Instructions for Initial Renewal Under Option 1
4C. Worksheets for Mark-Up-To-Market
5. Addendum to Lease
6. Instructions for Completing the RCS
1. Overview of Conversion Procedure
8. Additional Guidance for Budget Submission (to be used with
Chapter 7 of HUD Handbook 4350.1)
9. FY 2000 OCAF's
1. Section 8 Renewal Help Desk Contacts
11A. Section 524(a) Contract - HUD as Contract Administrator
11B. Section 524(a) Contract - PHA as Contract Administrator
11C. Addendum to Section 524(a) Contract
12A. Section 524(b)(1) Contract - HUD as Contract Administrator
12B. Section 524(b)(1) Contract - PHA as Contract Administrator
12C. Addendum to Section 524(b)(1) Contract
13A. Annual Contributions Contract
13B. Annual Contributions Contract M2M
14. Section 524(e)(1) Preservation Contract
14A. Section 524(e)(1) Addendum
15A. Section 524(e)(2) Demonstration Project Contract - HUD as
Contract Administrator
15B. Section 524(e)(2) Demonstration Project Contract - PHA as
Contract Administrator
15C. Addendum to 524(e) Demonstration Project Contract
15D Section 524(e)(2) Addendum
16A. M2M HAP Renewal Contract and Rider - HUD as
Contract Administrator
16B. M2M HAP Renewal Contract and Rider - PHA as
Contract Administrator
17. Addendum to Section 8 HAP Renewal Contract
18. Anticipated Abatement or Termination of Full Section 8 HAP
Contracts Chart
19. HUD Form 92273
20. Voucher Processing Division Procedures
21. OMHAR-LITE Contract (HUD)
22. OMHAR-LITE Contract (PHA)
23. When To Use A Contract
24. Non-Profit Capital Repair Request
25A. Generic Contract (HUD)
25B. Generic Contract (PHA)
: Distribution:
I. BACKGROUND
The Multifamily Assisted Housing Reform and Affordability
Act of 1997 (MAHRA), Title V of the HUD Fiscal Year 1998
Appropriations Act, Pub. L. 105-65, enacted October 27,
1997, established new policies for the renewal of Section 8
project-based contracts based on market rents. For most
projects with rents above market, the Act transferred
processing and oversight functions from the Multifamily Hubs
and Program Centers to the new Office of Multifamily Housing
Assistance Restructuring (OMHAR).
In general, MAHRA required that expiring Section 8 project-
based contracts be renewed under Section 524(a)(1) or
524(a)(2).
· Section 524(a)(1) renewals required a Rent Comparability
Study (RCS).
If the RCS indicated rents at or below comparable
market rents, the contract was renewed at current
rents, unless the Owner submitted documentation
justifying a budget-based rent increase. In no case
could renewal rents exceed comparable market rents.
If the RCS indicated rents above comparable market
rents, the contract was referred to OMHAR for debt
restructuring and/or rent reduction.
· Section 524(a)(2) renewals were for projects identified
as "exception" projects that were not eligible to be
referred to OMHAR(no RCS was required except under
524(a)(2)(E)).
These requirements are discussed in detail in HUD's Interim
Rule for Multifamily Housing Mortgage and Housing Assistance
Restructuring Program (Mark-To-Market) and Renewal of
Expiring Section 8 Project-Based Assistance Contracts,
published in the Federal Register on September 11, 1998, at
63 FR 48925.
On October 16, 1998, HUD published Housing Notice H 98-34
which provided instructions for renewing Section 8 contracts
expiring in FY 1999. On May 27, 1999, HUD published Housing
Notice H 99-08 which made several modifications to H 98-34.
On June 16, 1999, HUD published Housing Notice H 99-15 which
implemented the Mark-Up-To-Market Option for Owners of
projects with expiring Section 8 contracts.
The Preserving Affordable Housing for Senior Citizens and
Families Into the 21st Century Act of 1999, Titles II and V
of the HUD Fiscal Year 2000 Appropriations Act, Pub. L. 106-
74, enacted on October 20, 1999, made some modifications to
the previous Section 8 renewal policies, and established
specific provisions for rent adjustments in subsequent years
after an initial renewal under MAHRA.
This Notice provides instructions for renewing Section 8
contracts expiring in FY 2000. While Section 8 renewal
policy remains substantially similar to the policy already
in place, the major changes from FY 1999 renewal policies
are highlighted in Section III below. Because of changes to
MAHRA, all references to renewing contracts under Sections
524(a)(1) and 524(a)(2) are no longer accurate. In FY 2000,
six options are available to Owners of projects with
expiring contracts. These options are explained in Section
VII of this Notice.
This Notice is the comprehensive policy for Section 8
project-based contract renewals in FY 2000 and incorporates
the procedures contained in previous Housing Notices.
Therefore, the following Notices are no longer in effect:
· H 98-34 published on October 16, 1998, which provided
instructions for renewing Section 8 contracts expiring in
FY 1999.
· H 99-08 published on May 27, 1999, which made several
modifications to H 98-34.
· H 99-15 published on June 16, 1999, which implemented the
Emergency Mark-Up-To-Market Initiative for certain
projects with expiring Section 8 contracts.
· H 99-25 published on September 22, 1999, which extended
Notices H 98-34 and H 99-08.
· H 99-32 published December 1, 1999, which clarified
existing policies.
II. PURPOSE
This Notice provides instructions for renewing Section 8
project-based assistance contracts (or stages) expiring in
FY 2000. It:
A. Provides guidance to Owners, management agents,
contract administrators and HUD staff on:
1. Renewing contracts, including the combination of
multiple stages and/or multiple contracts;
2. Setting initial renewal rents and handling annual
rent increases at subsequent renewals; and
3. The requirements and procedures for opting-out of
a Section 8 project-based contract.
B. Advises Owners to submit their option selection
(Attachment 4) to HUD 120 days before expiration of the
contract, rather than the previous 90 days.
C. Defines Owners' notification responsibilities
regarding:
1. Contract expiration/termination;
2. Prepayment notification for Emergency Low-Income
Housing Preservation Act (ELIPHA) and Low-Income
Housing Preservation and Resident Home Ownership
Act (LIHPRHA) projects; and
3. Intent to Opt out of the Section 8 program.
III. FY 2000 POLICY CHANGES
The following are highlights of the differences between the
FY 1999 and FY 2000 renewal policies. These highlights are
explained in greater detail throughout the body of this
Notice.
A. Section 524(a) replaces Section 524(a)(1) and now
provides general Section 8 expiring contract renewal
authority. It:
1. Provides the renewal authority for what had been
the "Emergency Initiative" implemented by HUD
Notice H 99-15, which in FY 2000 is Option 1,
Mark-Up-To-Market Procedure. It is generally the
same policy as in FY 1999, except that non-profit
transfers are now eligible for Mark-Up-To-Market,
even if the property does not meet the standard
eligibility criteria. (See Section IX)
2. Is the authority for renewing other contracts with
current rents that are at or below comparable
market rents. In general, rents at initial
renewal will be determined by applying an OCAF to
current rents, or if the Owner requests, a budget-
based adjustment. This is a change from last
year, when below-market contracts generally were
renewed at current rents without an OCAF
adjustment. In no case may initial renewal rents
under 524(a) exceed comparable market rents. (See
Section X)
3. Permits non-profit Owners to mark rents up to a
budget-based level, not to exceed comparable
market rent, to perform capital repairs on the
project, an option that was not available last
year. (See Section XXII)
4. In general, requires that contracts with current
rents above market rents must be referred to OMHAR
for processing. (See Section XI)
B. Section 524(b) now provides the authority to renew
projects exempted from OMHAR. The major change, other
than the change in Section cite from 524(a)(2) to
524(b), is that in FY 2000, FHA insured properties that
are State or locally financed may be eligible for the
Mark-To-Market program, and will be referred to OMHAR
for processing. (See Section XII)
C. Section 524(c) provides general authority to adjust
rents at subsequent renewal by:
1. OCAF; or,
2. Upon the request of the Owner, a budget basis
which, in some cases, will be limited to
comparable market rents.
(See Sections IX, X and XII)
NOTE: There are exceptions to the general rules stated
in Section 524 (a) through (c). Where applicable,
these exceptions are noted in this Notice.
D. The new law states that OCAFs established by HUD shall
not result in a negative rent adjustment.
E. In accordance with 24 CFR 402.2, in FY 1999, MAHRA
required Owners of contracts that renewed under Section
524(a)(1) to submit a RCS with their request for
contract renewal. Future rent increases were to be by
application of an OCAF, but not to exceed comparable
market rents. The regulation reserved to HUD the right
to re-determine rents on the budget-based method from
time to time. The FY 2000 Act changed this to make
automatic OCAF adjustments for four years after initial
renewal, unless the Owner requests a budget-based rent
increase. In the fifth year, the Owner must submit a
new RCS in order to ensure contract rents do not exceed
market rents.
For Owners who wish to combine contracts or request a
budget-based increase, the RCS submitted at initial
renewal can be used for any contract or stage that
expires during the five year term of the RCS, but to do
so, the RCS must include all of the Section 8 units in
the project (not just the units in the expiring Section
8 contract). (See Attachments 4 and 6 and Section
VIII)
Note: The five year cycle for each RCS starts with the
initial renewal of the Section 8 project-based contract
under MAHRA. This includes contracts renewed in FY
1999 and Portfolio Reengineering Demonstration
contracts.
The law also gives HUD the right to request one updated
RCS at any time during the five year period.
F. The new law authorizes an "enhanced" voucher instead of
a "standard" voucher for an eligible family living in
an assisted unit when a Section 8 contract expires. If
the contract is terminated, eligible families will
continue to receive a standard voucher. (See Section
XV)
G. The new law allows Preservation projects with contracts
expiring to renew under the provisions outlined in the
approved Plan of Action (POA), even if these rents
exceed market. Additionally, such projects are no
longer eligible for Mark-to-Market.
1. Preservation projects will receive all of the
benefits called for in the POA.
2. In FY 2000, Preservation Section 8 contracts, by
statute, cannot be renewed for more than one year.
H. Portfolio Reengineering Demonstration Projects:
Projects that went through the Portfolio Reengineering
Demonstration Program will renew the Section 8 contract
in one of the following ways:
1. Projects that went through the Portfolio
Reengineering Demonstration Program and had their
mortgages restructured and/or had rents reduced to
market should not be forwarded to OMHAR. They
should be renewed as follows:
a. Annually for the four years after the
Demonstration Contract was signed, the
contract will receive an OCAF adjustment.
b. At the end of the fifth year, the project
must follow the procedures outlined in
Section X (option 2) of this Notice. This
includes having to complete a RCS.
2. If the mortgage was not restructured and the
project's rents were not reduced to market, the
Owner must submit a rationale as to why debt
restructuring is inappropriate. The rationale and
the renewal request should be submitted to
Headquarters, Office of Portfolio Management,
attention Frank Malone.
I. HUD now has the authority to renew contracts for any
term, subject to appropriations. Generally, renewals
should be for either one year or five years. However,
HUD will permit terms ranging from less than one year
to more than five years in certain situations. (See
Section VI)
J. The FY 2000 Appropriations Act amended Section 8(c)(8)
of the U. S. Housing Act of 1937 to provide for a
uniform one-year notification requirement for contract
expiration or termination. See Section XVI for further
discussion. Revised notification letters are provided
in Attachment 3.
K. If an Owner of an expiring Section 8 contract requests
a contract renewal, and it is determined that he/she or
an affiliate is a suspended or debarred Owner, HUD may
permit the Owner to renew the Section 8 contract if the
project(s) in question is(are) adequately managed and
maintained, and activities at the project(s) were not
the cause of the administrative actions against the
Owner.
L. Under certain circumstances, a budget-based rent
increase will be permitted during the term of a Section
524 contract. These rent increases are "other rent
increases." (See Section XXIII)
M. When a Contract Administrator is administering the
Section 8 contract, a HUD signature is no longer
required on the "PHA as Contract Administrator"
contract form.
IV. APPLICABILITY
A. This Notice applies to all Multifamily Housing Projects
with project-based Section 8 assistance contracts
expiring in FY 2000, unless otherwise noted.
1. It does not apply to Moderate Rehabilitation
projects administered by the Office of Public and
Indian Housing or to any projects administered by
the Office of Community Planning and Development.
2. Until a project has a contract or stage of a
contract that is expiring, project Owners and
Field staff should follow the procedures in place
when the contract was executed.
B. This Notice does not provide detailed instructions
regarding OMHAR's Mark-To-Market Program. For detailed
information on restructuring:
1. Contact the OMHAR staff at 202-708-0001.
2. You can also access Mark-To-Market information on
the web at:
http://www.hud.gov/omhar.
V. INITIAL AND SUBSEQUENT RENEWALS
Two years ago Congress made major changes to the Section 8
project-based renewal process. As a requirement for renewal
under Section 524(a)(1)of MAHRA, project Owners with
expiring Section 8 project-based contracts had to submit a
RCS to demonstrate that current rents were at or below
comparable market rents. In FY 2000, most Owners are still
required, at the initial renewal stage, to submit a RCS to
establish that the contract rents are at or below comparable
market rents.
The FY 2000 Act states that, beginning with the date of the
initial renewal of an expiring Section 8 project-based
contract, the RCS will start a five-year "life cycle" before
a new RCS is required. During the five-year life cycle, all
subsequent renewals of the first contract and renewals of
other Section 8 project-based contracts or stages will not
require a new RCS.
A. An "Initial Renewal" is the first renewal of a
project's contract or stage that is processed under the
rules established by MAHRA.
B. A "Subsequent Renewal" is the renewal of an expiring
Section 524 contract at the end of its term. A
contract that received its initial renewal in FY 1999
under Section 524(a)(1) or 524(a)(2) of MAHRA, will
receive its subsequent renewal in FY 2000 under the
procedures outlined in this Notice.
1. Projects are eligible to apply for Mark-up-to-
Market at any expiration, not just at initial
renewal.
2. Staged contracts that were not combined and are
expiring for the first time in FY 2000 may use the
RCS submitted at the initial renewal, if the RCS
included all of the Section 8 units in the
project.
C. Initial and Subsequent renewals have separate
processing instructions.
1. Field Office staff and Contract Administrators
should check the Owner's Attachment 4 submission
to see which option the Owner selected.
2. Based on the option selected by the Owner, refer
to the table of contents to see how to process the
request.
VI. CONTRACT TERMS AND EFFECTIVE DATES
In FY 1999, only contracts that renewed under the "Emergency
Initiative" (Mark-Up-To-Market) were permitted to enter into
contract renewals for five year terms. All other renewals,
with the exception of short-term renewals under 514(c) (for
projects being referred to OMHAR) and short-term renewals
for the protection of the families (to allow time to issue
vouchers in instances of Owner opt-outs), were renewed for
one-year terms. In FY 2000, HUD has the authority to enter
into Section 8 project-based contract renewals for any term.
A. Generally, contract terms shall be for one or five
years.
1. If an Owner chooses a contract term of more than
one year, the contract will be funded for one year
with the balance of years selected by the Owner
being subject to annual appropriations.
2. The effective date of the new contract is the day
following the expiration date of the previous
contract.
Note: HUD will consider terms longer than five
years on a case-by-case basis.
B. HUD offices should make every effort to align contract
renewal terms with the five-year life cycle of the RCS.
For example, if an Owner renewed the contract in FY 99
under section 524(a)(1) for a one year term, and in FY
2000 the Owner wishes to renew the contract for a five
year term, the Owner has two options:
1. They may renew the contract for four years, using
the RCS submitted at initial renewal (the
524(a)(1) renewal) and adjusting it by OCAF, or,
2. They may submit a new RCS and renew the contract
for a five year term.
C. Short term contracts are for less than one year. The
term "short term " refers to the term of the contract,
not the "type" of contract.
Short-term renewals may be provided for the following:
1. To protect the families. For example, to allow
additional time to cover a delay in providing
family based assistance in cases of Owner opt-
outs, or in cases where the project is subject to
enforcement actions.
2. To align multiple contracts or stages in a
project.
3. To provide HUD with adequate time to process an
Owner's request to renew under the Mark-Up-To-
Market Procedure.
D. For all projects, the short-term renewal will be
considered to be the contract's "initial" renewal.
1. For Owners requesting a short term renewal under
option 2, Owners must submit a RCS and all
documentation required in Attachment 4 .
2. For Owners requesting a short term renewal under
option 4, Owners must submit all documentation
required in Attachment 4. Renewal rents will be
subject to the "lesser of" test in Option 4, at
initial renewal only.
NOTE: Hub and Program Center Directors should use
their discretion when determining whether or not to
grant a short-term renewal.
E. Where a short-term contract is executed:
1. It should be renewed in increments of months, not
days,
2. The project files should adequately document the
need for the short-term renewal.
NOTE: For multiyear contracts, Owners must submit the
worksheets found in Attachment 4 annually. If the
Owner is requesting a budget-based rent increase, all
documentation required in Attachment 4 must be
submitted annually.
F. Calculating Rents for Short-term renewals:
Short-term renewals are for terms of less than one
year. When executing short-term renewals using a
Section 524 contract, if the project is entitled to an
OCAF increase, a pro-rated OCAF should be applied to
the contract instead of a full OCAF. This is because
the new law requires that an eligible project receive a
rent increase at initial renewal, but does not entitle
the project to more than one full OCAF increase within
a 12 month period. Because the project will be
entitled to a full OCAF increase at the first
subsequent renewal with a term of one or more years,
the OCAF increase for the short-term initial renewal
must be pro-rated.
To calculate a pro-rated OCAF:
Take the full OCAF, divide it by 12 and multiply
that number by the number of months needed for the
short-term renewal.
Example:
Full OCAF: 2.5%
Months in Year: 12
Term of Short-term contract: 8 months
2.5 divided by 12 = .21 x 8 = 1.68
The Pro-rated OCAF to apply to the short-term
renewal is 1.68%.
After determining the pro-rated OCAF, follow the
instructions in Attachment 4 for applying the OCAF to
the Section 8 units being renewed.
Note: This method of calculating the rents for short-
term renewals is only for projects renewing under
Section 524 of MAHRA, not for Section 514(c) renewals,
nor generic contract renewals.
G. From HUD's point of view, a desirable goal is to have
only one Section 8 contract per project. To achieve
this goal, Owners may elect to combine multiple
contracts or stages. HUD cannot require Owners to
combine contracts. However, the benefits of combining
multiple contracts in the same project should be
pointed out to Owners.
H. At the Owner's request, multiple contracts or stages
that are expiring in FY 2000 may be combined into one
contract. This combination can be achieved in one of
two ways:
1. At the time of renewal of the first stage or
contract, the Owner may request a short-term
renewal to bring the earliest expiring contract in
line with the latest expiring contract. If the
Owner elects to do so, they must meet the
appropriate renewal requirements. Only contracts
that are at or below market or are exempt from
OMHAR may take a short-term renewal to align
contracts.
The first contract/stage should be renewed for the
period of time necessary to bring it coterminous
with the later expiring contract (remember, only
contracts expiring in the same FY may be
combined). The rent for the early expiration will
be adjusted following the option selected by the
Owner and supported by a RCS, if required. If
OCAF is appropriate for the first contract, the
rent will be adjusted by prorating the OCAF. (See
above)
The pro-rated OCAF should be applied to the early
terminating contract or stage and to the RCS.
When the contracts or stages expire, they will be
combined and renewed for the a minimum term of one
year. If an OCAF adjustment is appropriate, the
full OCAF should be applied to all the renewing
units.
2. The Owner's second option would be to terminate
the later expiring contract early, roll those
units into the earlier expiring contract and renew
all of the units for a one or five year term.
I. If an Owner has multiple stages or contracts that it
does not want to combine, the contracts or stages that
expire during the five year life cycle of the earlier
RCS may use that earlier RCS at the initial renewal of
the later expiring contract or stages. The RCS should
be adjusted by OCAF, provided that the RCS included all
of the Section 8 unit types in the project. If the
Owner believes that rents have changed since the
initial renewal, he/she may submit an updated RCS.
J. Attachment 4 includes a checklist format which can be
used by Owners to request a contract renewal. The
cover sheet of this format has a space for the Owner to
designate its choice regarding the combination of
multiple contracts or stages.
K. An exception to HUD's preference to combine contracts
is when there are pre- and post-October 1, 1981
contracts involved. Due to conflicting income
eligibility requirements for these two categories of
contracts, it is not practical at this time to allow
Owners to combine a pre-October 1981 contract or stage
with a post-October 1981 contract or stage.
L. Contracts and stages that expire in different fiscal
years may not be combined during FY 2000. However, if
an Owner requests a contract renewal to bring multiple
contracts or stages in line so that they may be
combined more easily in future years, HUD will permit
this. An example would be a property which has a
contract that expires in January 2000 and another that
expires in March 2001. The Owner may request a 15
month renewal for the January 2000 contract to bring it
coterminous with the March 2001 expiration.
Rural Housing Service (RHS) has separate guidelines.
(See Section XXI)
M. See Attachments 20, 21, and 22 for processing
instructions when combining contracts.
VII. OWNER'S OPTIONS AT CONTRACT EXPIRATION
In FY 1999, MAHRA provided Owners with three options at
contract expiration. Under the first option an Owner could
elect to renew under Section 524(a)(1), or Section 524
(a)(2). Section 524(a)(1) required Owners to conduct a RCS
and limited renewal rents to comparable market levels.
Section 524(a)(2) allowed renewals for "exception" projects.
These projects were ineligible for OMHAR, and as such, they
renewed without having to conduct a RCS (except for projects
under 524(a)(2)(E)). Section 524(a)(2) projects renewed at
the lesser of current rents adjusted by OCAF or a budget-
based rent.
The second option Owners had was in cases where the Owner
knew that contract rents exceeded comparable market rents or
when the RCS indicated project rents were above comparable
market rents. The Owner could choose to have the contract
referred to OMHAR for a mortgage restructuring and/or a
reduction of the rents to market.
The third option available to Owners was to opt out of the
Section 8 contract.
During FY 1999, HUD implemented a fourth option, the
Emergency Mark-Up-To-Market Initiative for certain projects.
In FY 2000, Owners have similar options available to them,
including all of the options noted in the above paragraph.
In addition, Preservation projects and Portfolio
Reengineering Demonstration projects are treated differently
in FY 2000. (See Section XXII)
HUD's general processing instructions can be found in
Attachment 4A.
In FY 2000, Owners have the following options available to
them at contract expiration:
Option 1: Request Renewal Under the Mark-Up-To-Market Procedure.
Option 2: Request Renewal of OTHER ContractS with current rents at or
below Comparable Market Rents.
Option 3: Request Referral to OHMAR:
· To reduce the Section 8 contract rents to
comparable market rents without restructuring
the mortgage (OHMAR-Lite).
· To restructure the mortgage and reduce the
Section 8 contract rents to comparable market
rents.
Option 4: Request Renewal of the Contract for PROJECTS EXEMPTED
FROM OMHAR.
OPTION 5: Request Renewal of Portfolio Reengineering Demonstration or
Preservation projects.
Option 6: Notification of Intention to Opt out of the Section 8
contract.
Note: An Owner must submit its option at least 120 days
before contract expiration
VIII. Rent Comparability Study (RCS)
NOTE: The procedures for conducting and reviewing the
RCS are currently undergoing major revisions. These
revised instructions will be published in the near
future. Until they are published, the instructions for
completing the RCS in Attachment 6 should be followed
A. Contracts that renew for the first time under Option 1
or Option 2 are required to submit a RCS. For the
purpose of later contract renewals, the RCS is valid
for a period of five years. Owners will be required to
submit a new RCS at the end of the five-year term. If
HUD believes that contract rents have significantly
exceeded comparable market rents, HUD may request one
updated RCS during the five year period.
1. An Owner must submit a RCS not less than 120 days
before initial renewal.
2. The RCS submitted at initial renewal must have
been completed within 90 days of submission by the
Owner to HUD.
3. If the Owner's RCS concludes the Section 8 rents
in the expiring contract(s) are less than market
but the HUD reviewer (or the Contract
Administrator) does not agree with the RCS, the
Program Center Director or Hub Director will
exercise their authority to accept or reject the
RCS, utilizing whatever staff or other resources
(including OMHAR) they feel appropriate for this
purpose. If HUD rejects the Owner's submission,
the Owner will be given the opportunity to appeal
the decision under the Appeal Process included in
Section XX.
4. The RCS must include all Section 8 unit types in
the project.
5. For the purpose of later contract renewals, the
RCS submitted at initial renewal is valid for a
period of five years from the date of the
initial renewal.
a. The initial RCS will be valid for any
contracts or stages expiring during the five
year term of the RCS. HUD will adjust the
RCS annually by the OCAF. Note also that the
initial RCS may be used as the comparability
standard for current or future budget-based
rent increase requests.
b. Projects that submitted a RCS last year do
not need a new RCS because the renewal last
year counts as the initial renewal. Use this
same approach for the Demo projects.
c. A new RCS is required at the end of the five-
year period.
B. By law HUD has the authority to request (one time only)
an updated RCS during the five-year life cycle.
1. If the new RCS indicates that project rents:
a. Exceed comparable market rents, HUD may
adjust the rents to the comparable market
rents; or
b. Are below comparable market rents, HUD may
increase project rents to comparable market
rents, consistent with outstanding
instructions for Mark-Up-To-Market (Option
1).
2. HUD does not anticipate exercising this authority
during the term of a multi-year contract.
C. HUD staff must keep detailed records in REMS of which
projects have completed the RCS. This information must
include the date of the initial Section 8 contract
renewal as it starts the five-year clock.
Note: When determining whether or not the expiring
Section 8 contract rents are at or below comparable
market rents, the results of the RCS should be
considered in the aggregate (the total income generated
by all market rents in the expiring Section 8
contracts/stages should be compared to the total income
generated by the current Section 8 rents in the
expiring Section 8 contract(s)/stages)
D. If an Owner renewed the contract in FY 99 under section
524(a)(1) of MAHRA for a one year term, and in FY 2000
the Owner wishes to renew the contract for a five year
term, the Owner has two options:
1. They may renew the contract for four years,
using the RCS submitted at initial renewal (the
524(a)(1) renewal); or,
2. They may submit a new RCS and renew the
contract for a five year term.
IX. OPTION 1: REQUEST FOR RENEWAL UNDER MARK-UP-TO-MARKET
An Owner may request to enter into Mark-Up-To-Market at any
expiration of its Section 8 contract. Rents may be renewed
at the lesser of comparable market rents or 150% of the FMR.
The Owner can use an existing RCS adjusted by OCAF to
establish initial eligibility.
A. Eligible Projects
All properties that meet the following criteria are
eligible for a Section 8 contract renewal under Mark-
Up-To-Market:
1. A Real Estate Assessment Center (REAC) physical
inspection score of 60 or above with no
uncorrected Exigent Health and Safety (EHS)
violations.
2. For-profit or limited-distribution Ownership.
3. Comparable market rents at or above 110% of the
FMR potential.
4. The project does not have a low-and moderate-
income use restriction that cannot be eliminated
by unilateral action by the Owner. (Examples
would be the existence of a Rent Supplement
Contract, prior or present Flexible Subsidy
assistance, or Low-Income Housing Tax Credits.)
B. In addition to the qualifying criteria in A. above, HUD
will use its discretionary authority to mark rents up
to market to facilitate a change in Ownership from a
for-profit Owner or limited-dividend Owner to a
nonprofit; or from one nonprofit Owner to another
nonprofit Owner.
1. To be eligible, a nonprofit Owner must have:
a. Financial capacity;
b. Managerial capacity for owning and operating
a multifamily project; and,
c. Ties to the neighborhood
Note: A nonprofit Owner may include a nonprofit-
controlled limited partnership formed to obtain
tax credits.
2. The property transferred does not have to meet
criteria 1, 2, 3, or 4 in A. above. The
transaction must result in a Use Agreement of at
least 20 years, which includes affordability
restrictions and a requirement to accept Section 8
renewals. If the project already has a Use
Agreement, it must be extended an additional 20
years.
3. It is assumed that a project transferred to an
eligible nonprofit based on the criteria in 1.
above, is a high priority for the local community,
and therefore meets criteria C.3. below as well.
However, if a Field office believes the project
does not meet any of the criteria in C. below, the
Field Office may refuse to approve the mark-Up-To-
Market request, or may refer the request to
headquarters.
C. For projects that request participation in Mark-Up-To-
Market but do not qualify under A. or B. above, or for
projects that request an increase in rents above the
cap on comparable rents of 150% of FMR, HUD will
consider these requests if the project:
1. Has a high percentage of the units rented to
elderly families, disabled families, or large
families;
2. Is located in a low-vacancy area where family-
based vouchers would be difficult to use and there
is a lack of comparable rental housing; or
3. Is a high priority for the local community as
demonstrated by a contribution of State or local
funds to the property.
These requests will be considered waivers of this
Notice and must be submitted to Headquarters as
described in Attachment 4B.
D. All Owners that are renewed under Mark-Up-To-Market
must accept a five-year Section 8 contract subject to
annual appropriations. In years two through five,
rents will be adjusted by OCAF; HUD does not anticipate
approving budget-based increases because they would
take rents above the OCAF-adjusted comparable market
rents. HUD does not anticipate requiring Owners to
provide an updated RCS during the term of the contract.
Note: If the Owner or Purchaser of the project
has engaged in material adverse financial or
managerial actions or omissions with regard to the
project; or the Owner or Purchaser has engaged in
material adverse financial or managerial actions
or omissions with regard to other projects of such
Owner or purchaser that are federally assisted or
financed with a loan from, or a mortgage insured
or guaranteed by, an agency of the Federal
Government, he/she is ineligible for
participation.
E. For processing instructions, please see Attachments 4B
and 4C.
X. OPTION 2: REQUEST RENEWAL OF OTHER CONTRACT with current rents
at or below comparable market rents
Option 2 is for Owners who request a renewal of their
Section 8 contract where the RCS indicates that the
contract's current rents are at or below comparable market
rents, but are not applying for Mark-Up-To-Market.
A. Rent Adjustments.
1. At initial renewal the current rents:
a. Shall be adjusted by:
1) An OCAF; or
2) At Owner's request, by budget-based
increase.
b. Initial renewal rents may not exceed the
comparable market rents.
2. At subsequent renewal the current rents may be
adjusted by:
a. An OCAF, or
b. At the Owner's request, a budget-based
increase, as long as the resulting rents are
below the OCAF-adjusted RCS discussed in
section VIII. A. 5. a.. If the rents are
above the RCS, HUD will not approve the
budget-based request.
Note: In no case shall application of OCAF result in
negative rent adjustments.
B. For Initial Renewals, the Owner submits:
1. Attachment 4, Owner's Option Checklist and
Worksheet;
2. A RCS prepared following Attachment 6; and
3. If applicable, a budget-based rent increase
request in accordance with the requirements of HUD
Handbook 4350.1, Chapter 7, and Attachment 8
(Owner Distribution Worksheet).
NOTE: Unlike Owners who participate in Mark-Up-To-
Market, Owners who have rents brought up to market via
application of OCAF or a budget-based rent increase are
not required to renew for five years.
C. For subsequent renewal years two through five, the
Owner submits:
1. Attachment 4, Subsequent Renewal Request; and
2. If applicable, a budget-based rent increase
request in accordance with the requirements of HUD
Handbook 4350.1, Chapter 7, and Attachment 8
(Owner Distribution Worksheet).
NOTE: Where a contract receives an OCAF rent
adjustment, a proportionate amount of any OCAF-
adjustment to the rent must be applied to the reserve
for replacement account.
XI. OPTION 3: REQUEST REFERRAL TO OMHAR
In FY 2000, eligible above market contracts are to be
referred to OMHAR for processing.
A. The Owner of an eligible above market project
1. Requests either:
a. A renewal of the contract without
restructuring, with the rents marked down to
market (see OMHAR-Lite below); or
b. A mortgage or rent restructuring and contract
renewal with the rents marked down to market.
NOTE: No matter what renewal option an Owner
selects, if HUD determines that contract rents
exceed comparable market rents and the project is
eligible for OMHAR, the Field Office or Contract
Administrator must forward the project to OMHAR
for processing.
2. Submits the worksheet including a certification
that project rents exceed comparable market rents
and neither the Owner nor any affiliate is
suspended or debarred. If the Owner or any
affiliate is suspended or debarred, the project
may continue to be eligible for restructuring at
OMHAR's discretion.
B. OMHAR Processing.
Further information can be found in the Mark-To-Market
Program Operating Procedures Guide, (Section 10-4)
which addresses processing OHMAR-lites and rent
renewals without debt restructuring. The Guide can be
found on the Web at:
www.hud.gov/omhar/readingrm/opglinks.html.
NOTE: An Owner may request that contracts with out-year
(later than FY 2000) expirations be forwarded to OMHAR for
restructuring.
XII. OPTION 4: REQUEST RENEWAL FOR PROJECTS EXEMPTED FROM OMHAR
Certain project types cannot be forwarded to OMHAR even
though the contract rents may exceed market.
A Section 524(b) authorizes renewals for the following
"Exception" projects:
1. Projects for which the primary financing or
mortgage insurance was provided by a unit of State
government or a unit of general local government
(or an agency or instrumentality of either) and is
insured under the National Housing Act; and where
a mortgage restructuring and rental assistance
sufficiency plan conflicts with local law, or
agreements governing such financing;
2. Projects financed under Section 202 of the
Housing Act of 1959 or Section 515 of the Housing
Act of 1949 (includes 202/8, 515/8; does not
include 202 and 811 Capital Advance projects,
which do not have Section 8 contracts);
3. Projects that have an expiring contract under
Section 8 of the United States Housing Act of 1937
pursuant to Section 441 of the Stewart B. McKinney
Homeless Assistance Act; (SRO Mod Rehab) and
4. Projects that do not qualify as eligible
multifamily housing projects pursuant to Section
512(2) of MAHRA. Examples include:
a. a project that is not subject to a HUD-held
or insured mortgage; or,
b. a project that has FHA mortgage insurance or
is HUD-held with rents at or below comparable
market rents.
NOTE: For an Owner of an FHA-insured or HUD-held project to
claim eligibility under 4b, they must obtain a RCS.
For projects listed above, the statute permits them to
renew under renewal options one or two, as well.
B. For Initial Renewal:
1. The Owner should submit:
a. Attachment 4, Owner's Option Checklist and
OCAF Worksheet - Initial Renewal.
b. Budget and rent schedule completed in
accordance with the requirements of HUD
Handbook 4350.1, Chapter 7, and Attachment 8.
c. For an FHA-insured or HUD-held project that
is requesting renewal as described in Section
A4 above, a RCS showing that the project's
current rents are at or below comparable
market rents is required.
2. The rents at initial renewal will be the lesser
of:
a. The project's current rents adjusted by an
OCAF; or
b. The budget-based rent provided in the format
required by HUD Handbook 4350.1, Chapter 7
and Attachment 8, and submitted with the
request for renewal.
NOTE: If the project had a budget approved
by HUD less than one year before this
process, a copy of that budget can be
submitted in lieu of a new budget. There
will be no increase. However, if the project
Owner feels that a rent increase is
necessary, a new budget-based rent increase
request may be submitted with the request for
contract renewal.
C. For subsequent Renewal.
The Owner should:
1. Submit Attachment 4, Owner's Option Checklist and
Worksheet-Subsequent Renewal; and
2. Request either:
a. An OCAF-adjusted rent increase or
b. A budget-based rent increase.
D. HUD will not allow Owners who renew under this option
to include new debt (i.e., refinancing or including new
debt service in budget) that keeps or takes the project
rents above market.
XIII. OPTION 5: Request Renewal of Portfolio Regineering Demonstration or
Preservation Contract
A. PORTFOLIO REENGINEERING DEMONSTRATION PROJECTS
Projects that went through the Portfolio Reengineering
Demonstration Program will renew the Section 8 contract
in one of the following ways:
1. Projects that went through the Portfolio
Reengineering Demonstration Program and had their
mortgages restructured and/or had rents reduced to
market should not be forwarded to OMHAR. They
should be renewed as follows:
a. Annually for the four years after the
Demonstration Contract was signed, the
contract will receive an OCAF adjustment.
b. At the end of the fifth year, the project
must follow the procedures outlined in
Section X (option 2) of this Notice. This
includes having to complete a RCS.
2. If the mortgage was not restructured and the
project's rents were not reduced to market, the
Owner must submit rationale as to why debt
restructuring is inappropriate. The rationale and
the renewal request should be submitted to
Headquarters, Office of Portfolio Management,
attention Frank Malone.
Processing instructions for Demonstration Projects can
be found in Attachment 4.
B. LIPHRA and ELIHPA (PRESERVATION PROJECTS)
When Owners entered into long-term use agreements with
HUD under the Preservation Program, HUD agreed to
certain items (outlined in the Preservation property's
approved Plan of Action (POA)). In FY 1999,
Preservation projects were not included as exception
projects under MAHRA and as such, they were limited to
Section 8 contract renewals under Section 524(a)(1).
In many cases, a renewal under 524(a)(1) would have
resulted in rent reductions for the contract. In a
majority of Preservation contracts, the POA allows for
either a budget-based rent adjustment or an Annual
Adjustment Factor (AAF) rent adjustment. MAHRA limited
rent adjustments to OCAF for all 524a(1) projects and
as such, Preservation Owners were denied the benefits
called for in the POA. This situation has been
rectified for FY 2000 by new legislation.
1. Preservation projects shall be renewed (both at
initial and subsequent renewal) according to all
provisions outlined in the project's POA.
2. There are instances where the Owner of a
Preservation project has renewed a contract in the
past under terms different than the terms in the
approved POA. In these cases field offices should
calculate what the rent would have been if the
contract(s) had been renewed consistent with the
POA. This is the rent that should be used as the
basis for determining the renewal rent for FY
2000. There will be no reimbursement for income
lost because of past renewals.
3. In general, most POAs did not permit the Owner to
opt out of their Section 8 contract. However, if
a Preservation project Owner does elect to opt out
of the Section 8 contract or prepay:
a. The Owner must give HUD a detailed plan
indicating how it intends to honor its
obligations under the Use Agreement to
maintain the project as affordable housing.
i. This plan should detail how the Owner
intends to maintain the appropriate
income mix.
ii. The plan should be submitted to Frank
Malone, Director, Office of Portfolio
Management, Headquarters, for review.
b. The Hub or Program Center should take the
following steps:
i. The PM should review the POA to
determine if it provides the right for
the Owner to opt out of the Section 8
contract. In general, opt-outs were
precluded, but each Preservation POA was
structured differently, and as a result,
field offices will have to review each
POA and Use Agreement to determine
whether or not the project is eligible
to opt out of the Section 8 contract.
ii. If the POA does not allow the Owner to
opt out, the Field Office should advise
the Owner that they must renew the
Section 8 contract.
iii. If the POA allows the Owner to opt- out,
eligible families will be issued
enhanced vouchers.
NOTE: Owners must be made aware that should they
elect to opt out or prepay, it does not release
them from their obligations under the long-term
Use Agreement to provide affordable housing.
Processing instructions for ELIHPA and LIHPRHA
Preservation Projects can be found in Attachment 4.
XIV. OPTION 6: NOTIFICATION OF INTENTION TO OPT OUT OF THE
SECTION 8 CONTRACT
HUD is committed to preserving affordable housing. Local
Offices should make every effort to inform Owners of all
available options, including Mark-Up-To-Market. However, if
an Owner chooses to opt out of the Section 8 contract, and
has satisfied the relevant Notification requirements, the
Owner may request to opt out of the Section 8 program by
providing the Cover Sheet format in Attachment 4 and the
Worksheet for Option 6. (This is done for HUD's convenience
to assist in providing vouchers to eligible families.) The
request must be sent to the Director of the Multifamily
Program Center or Hub which has jurisdiction over the
project 120 days prior to contract expiration. The PM
should ensure that the Owner has no restriction from opting
out, for example, Preservation properties, Portfolio
Reengineering Demonstration properties, etc.
XV. PROTECTING SECTION 8 FAMILIES
A. The Department is committed to protecting families
living in assisted units, regardless of the actions a
project Owner may take. To protect families living in
assisted units, HUD will make vouchers available in the
event project-based assistance ends as a result of a
"Housing Conversion Action."
Section 538 of the FY 2000 Appropriations Act enables
the Department to make enhanced vouchers available to
limit the displacement of families living in an
assisted unit when an Owner elects to opt out of the
Section 8 project-based program. As has been the case
when enhanced vouchers were provided in prepayments,
residents may elect to remain in their units when
issued an enhanced voucher as a result of an opt-out.
1. The following actions constitute the "Housing
Conversion Actions":
a. Project-based opt-outs. This term refers to
a conversion action where an Owner chooses to
opt out of certain programs by not renewing
an expiring Section 8, Section 23, or rent
supplement program project-based contract.
Commencing in FY 2000 and subject to the
availability of appropriations, enhanced
vouchers are provided for the eligible
residents who were assisted under the
expiring project-based contract on the date
of expiration.
b. HUD enforcement actions. In these cases, HUD
is either terminating the Section 8 project-
based HAP contract or not offering the Owner
the option to renew an expiring contract due
to an Owner's failure to comply with the
terms of the HAP contract.
HUD enforcement actions may also result from
material adverse financial or managerial
actions or omissions which lead to either
Owner default under a FHA-insured mortgage
(monetary or technical) or a documented
material violation of one or more of the
obligations under the project's Regulatory
Agreement.
Regular housing choice vouchers will be
provided in these circumstances to assist
eligible families affected by the enforcement
action.
c. HUD property disposition (PD). In these
cases HUD is the mortgagee-in-possession or
Owner of the multifamily property due to an
Owner default on an FHA-insured mortgage and
is closing down or selling the property to a
new Owner. Regular housing choice vouchers
will be provided to assist eligible families
in these cases.
2. The payment standard for enhanced vouchers is
based on comparable market rents, and will be
detailed in a joint Housing and PIH Notice which
is forthcoming.
3. To qualify for tenant-based assistance, the family
must live in an assisted unit on the date of the
contract expiration, be income-eligible and
otherwise eligible to participate in the tenant-
based Section 8 program.
4. Once the family moves from the project, the
enhanced feature is no longer in effect and the
voucher reverts to a standard housing choice
voucher.
B. HUD is in the process of issuing a Notice on Section 8
Tenant-Based Assistance for Housing Conversion Actions
in FY 2000. The Notice will outline policies and
processing guidelines for administering vouchers. For
more information contact the local PIH Office.
C. The process of converting to tenant-based assistance
can produce worry and fear for many families.
Therefore, care must be taken to make sure the process
is completed correctly and information is made clear
and available for all families, Owners, and PHAs. If
there is any delay in processing the tenant-based
assistance, the Department may ask the Owner to
consider a short-term renewal of the contract.
XVI. OWNER'S NOTIFICATION REQUIREMENTS
A. The FY 2000 Act requires that, at least one year prior
to contract termination or expiration, the Owner must
give a written notice to tenants and HUD of the
contract's expiration.
B. Reminder Letter to Owners. Attachments 3A and 3B are
letters to Owners from HUD reminding them of their
notification responsibilities. The letters have been
slightly modified from previous versions and field
staff will have to continue issuing these letters as
they have in the past. Headquarters will notify the
field if there are any changes in this process.
C. Content of Notification Letter. Attachment 3C provides
Owners with a sample one-year notification letter when
an Owner intends to opt-out of the Section 8 project-
based contract. Attachment 3D provides Owners with a
sample one-year notification letter when an Owner
intends to renew the Section 8 project-based contract.
1. The Department encourages Owners to utilize a
letter similar to the sample ones provided in this
Notice.
2. Owners are no longer required to specify the
reasons for contract termination. However, Owners
are encouraged to provide as much information as
possible to the residents.
3. The notification must include a statement that:
"If the Congress makes the funds available, the
Owner and the Secretary may agree to a renewal of
the contract, thus avoiding termination, and that
in the event of termination, HUD will provide
tenant-based assistance to all eligible residents,
enabling them to choose the place they wish to
rent, which is likely to include the dwelling unit
in which they currently reside."
4. Project Managers in the field must review all
Tenant Notification letters to ensure that
they are consistent with the new FY 2000 law.
If the letter is not in compliance with the new
law then it should be returned to the Owner for
corrections.
NOTE: For purposes of determining when the one
year notification clock begins, if HUD returns the
letter to the Owner for corrections, the clock
does not start until the corrected letter is
provided to HUD and the tenants.
D. In general, upon execution of a short-term contract,
the Owner must provide a one-year notification to
tenants and HUD. Over the course of this one-year
period, the Owner and HUD may agree to additional
short-term extensions. The Owner is not required to
provide a new notice as each subsequent short-term
extension is granted. Instead, the Owner will have
fulfilled his/her requirement if he/she was provided a
short-term extension, and the 12 months have elapsed.
If the Owner accepts another short-term renewal after
the 12-month notification period has expired, the Owner
will be subject to another 12-month notification
requirement. Exceptions to this general policy are as
follows:
1. Where the Owner has fulfilled his/her notification
requirement, but agrees to execute a contract for
less than one year solely to provide HUD with
enough time to provide Section 8 tenant-based
assistance, execution of a short-term contract
does not require a notice requirement.
2. Where HUD provides the Owner with a short-term
contract to cover the remaining portion of the
notification period (i.e., the Owner provided a
12-month notice, but at a time when the contract
had fewer than 12 months remaining), execution of
a short-term contract does not trigger an
additional notification requirement. However, the
original 12-month notice must make clear that the
Owner may not raise the tenant's portion of the
rent, independent of the contract expiration date,
until the full twelve months have passed since
notification was provided.
3. Where an Owner provided tenants and HUD with the
proper notification and then accepts a short-term
renewal to consider accepting a Section 8 contract
under the terms of Mark-Up-To-Market, the Owner
would not be subject to another one-year
notification requirement.
E. Selection of Option at Contract Expiration.
Four months (120 days) before the contract expiration,
Owners are asked to notify HUD's local Hub or Program
Center Director in writing that they are going to renew
or opt-out of their Section 8 contract. HUD needs this
time to obtain enhanced vouchers for the eligible
families living in the assisted units.
F. Prepayment of Preservation Eligible Properties.
Section 219 of the Quality Housing and Work
Responsibility Act of 1998 established a notification
requirement for Owners of ELIPHA and LIHPRHA eligible
projects that elect to prepay their federally-assisted
mortgages. At least 150 days, but not more that 270
days, before the date of prepayment, Owners must
provide written notification to the families and HUD of
their intent to prepay. A sample letter is available
as Attachment 3E of this Notice.
G. Other Requirements.
Besides meeting the Federal notification requirements,
project Owners must also comply with any State or local
notification requirements. Owners should check with
their appropriate local authorities to find out about
such requirements.
H. Failure to comply with Section 8 Opt-Out Notification
Requirements.
If an Owner fails to provide the one-year written
notice to HUD and the families, legally, the Owner must
permit the families to remain in their unit without
increasing the family's portion of the rent for one
year after the Owner gives the required notification.
XVII. LEASE ADDENDUM
A. Attachment 5 contains a Lease Addendum with Termination
of Tenancy provisions which address the one-year
contract termination and Owner notification
requirements.
B. The appropriate contract addendum should be executed
according to the following schedule:
1. When a new family moves into the project.
2. Upon expiration of the family's original one-year
lease.
3. Upon receipt of the Owner's one-year family
notification in accordance with Section
8(c)(8)(A), and the family has lived there more
than one year.
XVIII. RESIDUAL RECEIPTS
A. Disposition of the Residual Receipts Account Upon
Termination of the Section 8 Housing Assistance
Payments (HAP) Contract or Upon Owner Opt-Out.
Owners are reminded that under the regulations for
Section 8 New Construction (effective November 5,
1979), Substantial Rehabilitation (effective February
28, 1980), and State Agency (effective February 28,
1980) projects, for Section 8 assisted projects as
defined by 24 CFR 880.201 or 883.302, as applicable,
when the HAP contract terminates, HUD has the right to
require the designated Depository to return to HUD the
unused balance of funds remaining in the Residual
Receipts Account at the time of the HAP contract's
termination.
B. HAP Contracts where the Mortgage Insurance is
Terminated by the Owner before Termination of the HAP
Contract.
Should an Owner elect to prepay the mortgage before
termination of a HAP Contract and the Owner has a 100
percent subsidized HAP Contract under the new
regulations, any balance remaining in the Residual
Receipts account at the time of the insurance
termination must continue to be held in trust by a
Depository and under the control of HUD. Upon
expiration of the contract under this Notice, these
funds must be remitted to HUD.
C. Notification Requirements.
The Hub or Program Center Director must notify the
Section 8 Financial Management Center and the Fort
Worth Accounting Center once an Owner's decision to opt
out is final or HUD terminates any Section 8 HAP
Contract.
1. Any remaining subsidy, as well as funds in an
applicable Residual Receipts account must be
returned to HUD.
2. The Hub or Program Center Director should send a
memorandum to the Comptroller, Fort Worth
Accounting Center, informing the Comptroller of
the termination of the Section 8 HAP Contract(s)
and any impending deposit of remaining funds in a
Residual Receipts Account by a depository.
a. Include documentation to evidence the
termination of the HAP Contract with the
memorandum.
b. Simultaneously, send a letter of instructions
to the Depository advising them of the
disposition of the Residual Receipts Account.
3. The Depository must forward all remaining or
prorated funds held in the Residual Receipts
Account to a Lockbox administered by NationsBank
of Georgia, P. O. Box 277303, Atlanta, GA 30384-
7303. It is critical that the Section 8 contract
number(s) be disclosed on the front of the check
so that the funds can be returned to the proper
HAP Contract or else the Lockbox will not know
where to place the funds.
4. Once the Fort Worth Accounting Center receives
confirmation of the termination of the HAP
contract(s), all of the funds remaining in the
Lockbox will ultimately be sent to the Budget
Office in HUD Headquarters for recapture.
XIX. PHYSICAL CONDITION OF THE PROPERTY
A. The physical condition of a property is an important
component in deciding whether or not to renew a
Section 8 contract. The Real Estate Assessment Center
(REAC) will complete a physical inspection that will
assist field staff in making this important decision.
Based on the results of the inspection, HUD can either
renew, terminate or simply let a contract expire. The
vast majority of properties will not show serious
problems and will have their contract renewed.
However, some properties will be shown to be in
material violation of their agreements with HUD. The
course of action that the field staff will take will
depend on the score the property receives on the report
and whether the Owner corrects the deficiencies in an
acceptable and timely manner.
In cases where there are multiple contracts or stages
on one property, there will only be one inspection each
year. The PM should refer back to the results of the
earlier inspection and the Owner's response. If the
Owner submitted a Plan to complete the repairs, as
described below, the PM should assess compliance with
that Plan when making a recommendation on renewing the
contract. If in the Owner's plan, it is not determined
that the repairs have or will be made, or if the Owner
is not in compliance with the approved plan, the
contract should not be renewed. (If a contract is not
renewed or terminated, See Section XIX D.)
B. An Exigent Health and Safety (EHS) Deficiency Notice or
a Full Physical Inspection Report from REAC may affect
renewals of Section 8 HAP contracts.
1. EHS Deficiency Notice
Field staff should not take action to terminate
the contract or refuse to renew the contract based
solely upon receipt of the EHS Notice. However,
if the condition is not promptly corrected or
mitigated, the Section 8 subsidy should be abated
on individual units depending on the severity of
the deficiency. Abatement on units identified on
the Deficiency Notice should occur only if the
units are clearly identified, the deficiency is
deemed exigent and the Owner cannot or will not
repair or mitigate the problem. However, if EHS
deficiencies are numerous and are not quickly
corrected (within 72 hours) the Field Office
should give careful consideration to not renewing
the contract in addition to abating the Section 8
on individual units and or the field should
consider requesting an expeditious special
inspection from Headquarters to quickly determine
the extent of the EHS problem throughout the
project. A special inspection can be ordered
within 30 days.
2. Full Physical Inspection Report (REAC)
Upon receipt of a full inspection report the Field
Office has a complete picture of the condition of
the property; and, subject to the Owner's response
to the inspection, is prepared to assess how to
handle renewal of the Contract.
a. For inspections where the score is 60 or
above:
1) Renew the contract if all EHS
deficiencies were corrected or
mitigated; and
2) If the Owner does not correct EHS,
follow the procedures listed in (D)
below.
b. For inspections where the score is 59 or
below:
1) And if all EHS deficiencies and repair
items have been corrected or mitigated
or the Owner submits an acceptable
repair Plan within the prescribed time,
renew the contract. If the repair Plan
continues into the term of the new
contract, the Owner must agree to
execute the new HAP Addendum (See
Attachment 18) regarding physical
conditions in addition to the Plan.
2) Whenever the Owner fails to complete the
EHS repairs or provide an acceptable
Plan for other repairs, and either the
Owner indicates that it cannot or will
not bring the property into compliance
or the PM is certain that based on what
the Owner has submitted as a Plan that
the Owner cannot bring the property into
compliance, generally, do not renew the
contract.
However, the decision to not renew the
Contract will depend on whether there is
sufficient time to obtain vouchers to
protect the residents.
C. Any decision not to renew a Contract or terminate must
be made by the Program Center Director or a Supervisor
in the Hubs. Generally, the decision should be to not
renew if serious physical problems exist at the
property that threaten the health and safety of the
families, unless the Owner has a viable plan underway
and is current under that plan. The Hub Director must
be informed before any termination in order to advise
Headquarters of the potential termination. Every
effort should be made to obtain compliance from the
Owner. The PM should continue to actively service the
asset to correct the physical problems of the property
up until the time the vouchers are about to be issued.
The PM should utilize all resources that are available
to restore full compliance, including the proposed sale
of the property to a new Owner (Transfer of Physical
Assets). A supplemental site visit is advisable as
well as involvement of the Community Builder to address
local issues. Appeals regarding any decision should go
to the Hub Director.
D. The process to obtain vouchers to assist residents is
expected to take no more than 180 days.
1. If more than 180 days remain on the contract:
a. Notify the Owner that because the EHS repairs
were not corrected or the Owner did not
submit an acceptable Plan, HUD intends to not
renew the Contract.
b. Follow Attachment 7, to immediately begin
processing vouchers; however, allow up to 180
days.
c. Monitor the processing of the vouchers with
the Owner, PIH and the assigned Public
Housing Agency (PHA).
2. If less than 180 days remain on the contract.
a. Notify the Owner that because the physical
condition of the property remains
uncorrected, HUD intends to end the project-
based subsidy. However, to protect families
in the interim, HUD is renewing the contract
on a short-term basis (not to exceed 180
days) in order for HUD to process vouchers
for residents. The Owner must also sign the
new HAP Addendum.
b. Do not sign the contract renewal with the
Owner immediately.
1) Make all necessary preparations to get
funding for housing vouchers in place.
2) Do not sign the renewal Contract with
the Owner until very near the expiration
of the existing contract.
c. Enter into a short-term renewal of the
contract utilizing either of the appropriate
generic contracts, at current rents, not to
exceed 120 percent of Fair Market Rent (FMR).
d. Follow Attachment 7, in order to obtain the
vouchers, allowing up to 180 days, if
necessary.
e. Terminate the contract after vouchers have
been issued to eligible families and
sufficient search-time has been provided to
locate eligible housing units with the
tenant-based assistance.
3. HUD's decision not to renew:
a. If the Contract is about to expire and the
Owner appeals the decision to not renew the
contract under this notice, the PM should
renew the contract for one year with the new
HAP Addendum, pending the appeal.
b. If the Owner subsequently becomes compliant
or prevails with the appeal and the Field
Office changes its decision, leave the
contract in place.
c. If the Owner does not prevail in the appeal,
request vouchers to protect the families and
coordinate with PIH. Terminate the Contract
after vouchers have been issued to the
eligible families and sufficient search time
has been provided to locate eligible housing
units with the family-based assistance.
d. Should an Owner want to appeal the physical
Inspection upon which certain decisions were
made, see the Instructions for the Field for
REAC Inspections.
E. REMS and Reporting Requirements
1. All activities related to bringing a property into
Regulatory an Contractual compliance because of a
REAC physical inspection must be entered in the
Project Action Screen of REMS.
a. It is important to Owners for HUD to document
compliance since that is part of the asset
management record which may influence future
decisions; and it is important to HUD to have
an accurate administrative record should HUD
proceed with enforcement.
b. Track in REMS all close-out activity
regarding Physical Inspections.
2. The Hub Director must submit Attachment 19,
Anticipated Abatement or Termination of Full
Section 8 HAP Contracts on a monthly basis to
Frank Malone, Director of Portfolio Management,
Headquarters.
a. The report will be used to track the number
of anticipated abatements or termination of
full Section 8 Contracts, as well as to
identify Owners and the properties within a
particular Hub or Program Center which may
have abatements of Section 8 subsidy.
b. The Hub Director must contact Frank Malone
before the actual termination of any full
contract.
XX. HUD's REFUSAL TO RENEW A SECTION 8 CONTRACT
A. Under Sections 516 of and 524(a)(2) of MAHRA:
1. HUD may refuse to renew a contract if it is
determined that:
a. The Owner or Purchaser of the project has
engaged in material adverse financial or
managerial actions or omissions with regard
to such project; or
b. The Owner or Purchaser of the project has
engaged in material adverse financial or
managerial actions or omissions with regard
to other projects of such Owner or purchaser
that are federally assisted or financed with
a loan from, or mortgage insured or
guaranteed by, an agency of the Federal
Government;
c. The project does not meet the physical
condition standards for HUD housing that is
decent, safe, sanitary, and in good repair,
unless HUD determines the project will meet
the standards within a reasonable time after
renewal.
2. Material adverse financial or managerial actions
or omissions include:
a. Materially violating any Federal, State, or
local law or regulation with regard to this
project or any other federally assisted
project, after receipt of notice and an
opportunity to cure;
b. Materially breaching a contract for
assistance under Section 8 of the United
States Housing Act of 1937, after receipt of
notice and an opportunity to cure;
c. Materially violating any applicable
regulatory or other agreement with the
Secretary or a participating administrative
entity, after receipt of notice and an
opportunity to cure;
d. Repeatedly and materially violating any
Federal, State, or local law or regulation
with regard to the project or any other
federally assisted project;
e. Repeatedly and materially breaching a
contract for assistance under Section 8 of
the United States Housing Act of 1937;
f. Repeatedly and materially violating any
applicable regulatory or other agreement with
the Secretary or a participating
administrative entity;
g. Repeatedly failing to make mortgage payments
at times when project income was sufficient
to maintain and operate the property;
h. Materially failing to maintain the property
according to housing quality standards after
receipt of notice and a reasonable
opportunity to cure; or
i. Committing any actions or omissions that
would warrant suspension or debarment by the
Secretary.
3. The Owner or Purchaser of the property materially
failed to follow the procedures and requirements
of MAHRA, after receipt of notice and an
opportunity to cure.
B. Owner's Dispute and Appeal of Rejection.
If HUD refuses to renew an Owner's request for contract
renewal, the following appeal process should be
followed. However, HUD staff should take all steps
necessary to protect the families. If this means
executing a short-term contract to complete the appeal
process and issue vouchers if necessary, that is what
should be done.
1. HUD will provide a notice to the Owner giving the
reason(s) for rejection.
2. The Owner has 30 calendar days from receipt of
this notice to provide written objections or cure
the problems identified. If the Owner does not
submit written objections or cure the problems
identified during that period, the decision will
become a final determination under Section 516(c)
of MAHRA and is not subject to judicial review.
3. If the Owner submits written objections or asserts
that the problems identified have been cured, HUD
will consider the matter, review the Owner's
action, if any, and send the Owner a final
decision affirming, modifying, or reversing the
rejection and setting forth the rationale for the
final decision.
4. Within 10 days of receiving the final decision,
the Owner may submit a written appeal to HUD
contesting the decision and requesting a
conference to discuss the issues with the Hub that
has jurisdiction over the project.
5. A representative of the Hub will meet with the
Owner at a mutually agreeable time, but no later
than 10 calendar days after request by Owner for
meeting.
6. If the Owner wants to provide additional
information, establish a mutually agreeable
deadline for submission of the material.
7. Within 20 days after the conference, or 20 days
after any agreed-upon extension of time for
submission of additional materials, the Hub will
advise the Owner in writing of the decision to
either terminate, modify or affirm the original
decision.
8. HUD will designate an official to review any
appeal, conduct the conference, and issue the
written decision. The official designated will be
one who was not directly involved in making the
decision being appealed.
The reviewing official's decision is a final
determination and is not subject to judicial
review.
C. The Hub Director must contact Frank Malone, Director,
Office of Portfolio Management in Headquarters before
the actual termination of any contract.
XXI. RURAL HOUSING SERVICE (RHS) 515/8 PROJECTS
A. Owners of Section 515/8 projects who are requesting a
contract renewal under Option 4 pursuant to 524(b) of
MAHRA must submit their project budget approved by the
Rural Housing Service. HUD staff are not required to
review and approve these budgets. As long as the
budget has been approved by RHS, the budget-based rent
should be accepted by HUD. Their budget-based rent is
the "basic" rent.
B. During our negotiations with RHS staff on this process,
we agreed to accept RHS-approved budgets reflecting the
appropriate 8 percent allowable Owner's distribution on
equity or any higher level as approved by RHS as an
incentive to the Owner to prevent prepayment. (This is
explained in RHS's administrative notice dated April
12, 1999)
C. An Owner of a Section 515/8 project may receive a
short-term renewal in order to align the project's
accounting cycle with the anniversary date of the
Section 8 HAP contract. The Owner should contact the
local HUD office. The PM will issue a short-term
contract covering the months between the end of the
current HAP contract and the end of the current
accounting cycle (December 31). Upon expiration of the
short-term contract, the Owner will be eligible for
renewal under the provisions of MAHRA, as described
above.
The short-term contract is the Initial renewal under
both 524(a) and 524(b) of MAHRA. After the short-term
contract expires, the first full subsequent renewal
contract will be based on current rents adjusted by an
OCAF or RHS-approved budget as described in Section XII
of this Notice.
Note: RHS projects are exempted from OMHAR under
524(b)(1). Like all other 524(b)(1) projects, at
initial renewal, they are subject to the "lesser of"
OCAF or budget-based test.
D. An Owner who has executed a HAP contract expiring on
December 31st is requested to submit its request for
renewal to HUD annually by September 1. The Owner may
submit a non-approved budget at this time. The Owner
should submit the RHS-approved budget to the local HUD
Hub or Program Center no later than November 15.
The process of issuing short-term contracts in order to
align the accounting cycle with the anniversary date of
the HAP contract may begin during FY 2000, with the
first full renewals under this process being in January
2001.
E. After the loan with RHS has been paid in full, the
Owner will submit its budget and request for contract
renewal directly to HUD. The contract will be handled
in accordance with HUD procedures for non-insured
projects with Section 8 contracts. The budget should
be completed in accordance with the instructions in HUD
Handbook 4350.1. After the contract receives an
initial renewal under either Sections 524(a) or 524(b)
of the MAHRA, the Owner will receive OCAF adjustments
in subsequent years, without submitting an annual
budget, unless the Owner requests and the Secretary
approves a budget-based increase. Owners who renew
under Section 524(a) are required to submit a
comparability study at the time of initial renewal and
at the end of five years. HUD may also request that
the Owner submit one additional comparability study
within the five year period.
XXII. BUDGET-BASED RENT INCREASES FOR CAPITAL REPAIRS
A. One of HUD's primary concerns is the long-term
preservation of affordable housing. The Mark-Up-To-
Market renewal option will accomplish this goal for
many properties. Due to budgetary constraints,
however, nonprofit Owners are generally prohibited from
Mark-Up-To-Market because they are less likely to opt
out of their Section 8 contracts. Yet many nonprofit-
owned projects are in need of recapitalization to
perform repairs that will preserve them for the long-
term as affordable housing.
1. To address the physical condition of nonprofit
projects, the Department will approve a Section 8
budget-based rent increase, not exceeding
comparable market rents, for nonprofit projects to
perform capital repairs that will maintain the
financial and long-term physical viability of the
project when current rents are not sufficient.
This is the first time that a budget-based
increase will recognize increased debt service to
address the physical needs of the project.
2. This new option is an addition to existing policy
on budget-based rent increases and does not
replace any existing options for Owners. Both
for-profit and nonprofit Owners continue to be
eligible for budget-based increases for standard
operating expenses under existing guidance.
3. If there are unassisted units in the project, the
burden of the rent increase will be calculated on
the Section 8 rents similar to the Mark-Up-To-
Market procedure.
B. To be eligible, a project must meet the following
criteria:
1. The new Section 8 contract rents will not exceed
comparable market rents based on the Owner's RCS.
2. The project must have a REAC score of greater than
30.
3. The budget-based Section 8 contract rent increase
request must support the project needs.
C. Any one of the following project needs may be a basis
for approving a Section 8 contact rent increase.
1. Capital needs (e.g., lead-based paint, energy
efficient developments, etc.) including debt
financing.
2. Provide a 6 percent return on initial equity as
computed on Form HUD-2580, Maximum Insurable
Mortgage.
Note: This procedure is in addition to the current
budget-based instructions found in Chapter 7 of HUD
Handbook 4350.1.
D. For a Section 8 contract rent increase request for
capital improvements to be approved, the nonprofit
Owner must provide:
1. A Comprehensive Needs Assessment (CNA), or other
reports determined appropriate by the HUD Field
Office staff, to confirm project's capital
improvement needs.
2. A financing plan for funding the repair,
replacement and major maintenance needs of the
project. As part of the plan, the nonprofit Owner
must raise at least 10 percent of the estimated
repair costs from other funds.
3. An estimate of the initial deposit to the
replacement reserve, if any, and the estimated
monthly deposit to the replacement reserve for the
next 10 years. In the tenth year the estimated
monthly deposit will be recomputed to make sure it
meets the project's estimated needs.
E. If the nonprofit Owner successfully seeks a HUD-insured
loan (e.g., 241(a), 221(d), 223(f), etc.) to finance
the capital improvements, HUD will refund one-half of
the application fee at initial endorsement.
F. HUD will:
1. Process the rent increase at any time during the
life of the Section 524 contract. The methodology
for setting the maximum Section 8 rent permitted
will be based on the Mark-Up-To-Market procedure.
Specifically:
a. Comparable market rents are capped at 150% of
the FMR.
b. For a property already receiving benefits
from a below-market interest rate mortgage,
for example a Section 236 project, the
comparable market rents must be adjusted by
an Interest Subsidy Adjustment Factor to
reflect the value of the subsidy for the
below-market interest rate mortgage. See
worksheets contained in Attachment 4C to
perform the calculations.
c. The tenants living in the unassisted units
will not have their rents increased.
2. Withhold approval where the Ownership has
neglected the project or has allowed below
satisfactory non-performing management to
continue.
G. The nonprofit Owner must:
1. Agree to a use agreement, that will be recorded,
requiring the current and future Owners to accept
any Section 8 contract offered by the Department
for the next 20 years.
2. Agree to refund to HUD one-half of the reserve for
replacements at loan termination.
3. Be financially solvent and have no open or
unresolved audit findings or findings from
analyses of the audited annual financial
statements.
4. Be in compliance with the terms of the Regulatory
Agreement, Note, and Mortgage and be current in
debt service and all payments, including the
Reserve Fund for Replacement.
5. Submit a copy of a resolution of the Board of
Directors authorizing the additional debt to be
incurred to repair or rehabilitate the project.
XXIII. OTHER RENT INCREASES
A. Rent increases for Sections 236 and 221(d)(3) BMIR
Projects.
These projects traditionally have used the budget-based
method for all rent increases. Under the new law,
Section 8 rents are renewed under the option selected
by the Owner. However, unassisted units continue to
follow Chapter 7 of HUD Handbook 4350.1.
HUD may approve a short-term renewal to permit Owners
to bring into alignment the Section 8 contract renewal
process and the submission of the annual budget-based
rent increase.
B. Other rent adjustments
1. Normally all rent adjustment requests should be
made on an annual basis. These requests should be
submitted to HUD at least 60 days prior to
contract anniversary date.
2. On a case-by-case basis, the Field Office may
permit a rent adjustment more than annually due to
unusual circumstances.
XXIV. REMS REPORTING.
A. Enter the initial renewal date in the REMS system as
"Expiration Date Causing Initial Renewal Pursuant to
MAHRA."
B. For example, a project has one contract that expired
June 30, 1999. This contract received its Initial
Renewal on July 1, 1999, using a 524(a) contract for a
one-year term. The "Expiration Date Causing Initial
Renewal Pursuant to MAHRA" which is entered in the REMS
system for this project is June 30, 1999. In this
case, when the contract is renewed on July 1, 2000,
this will be a Subsequent Renewal. HUD Field Offices
should use the Real Estate Management System (REMS) to
track the progress of the project up to, and including
when it is sent to OMHAR. Once the request is turned
over to OMHAR, its tracking system will be used to
monitor the progress of the request and feed back
reports to REMS.
NOTE: HUD is considering providing access to REMS for
Section 8 Contract Administrators.
XXV. FOR FURTHER INFORMATION.
A. Section 8 Renewal Help Desks have been established in
each Hub and certain Program Centers to provide
technical assistance to Project Owners, managers and
contract administrators who have questions regarding the
Section 8 contract renewal process. Attachment 10 includes a
complete list of all Section 8 Renewal Help.
B. Information is also available on the following HUD web
pages:
1. The Multifamily Business Page:
http://www.hud.gov/fha/fhamf.html
2. HUDCLIPS: http://www.hudclips.org
C. To ask a Section 8 question regarding expiring
contracts, write to:
sec_8_expiring_contracts@hud.gov
D. To read the Section 8 questions:
http://www.hud.gov/fha/mfh/mfhsec8.html
Note: The requirements outlined in this Notice may not be waived
by the Hub or Program Center Director.
____________________________________________________
Assistant Secretary for Housing - Federal Housing Commissioner
ATTACHMENT 1
ACRONYMS USED IN THIS NOTICE AND ATTACHMENTS
ACC Annual Contributions Contract
BMIR Below Market Interest Rate
CNA Comprehensive Needs Assessment
DEC Department of Enforcement Center
EHS Exigent Health and Safety
ELIHPA Emergency Low-Income Housing
Preservation Act
FMR Fair Market Rents
HA Housing Authority
HAP Housing Assistant Payment
HUDCAPS PIH's Accounting System
LIHPRHA Low-Income Housing Preservation
and Resident Homeownership Act
LMSA Loan Management Set Aside
MAHRA Multifamily Assisted Housing Reform and
Affordability
NHA National Housing Act
OCAF Operating Cost Adjustments Factor
OMF Office of Multifamily Housing
OPH Office of Pubic Housing
PAE Participating Administrative Entity
PBS Project-Based Contract
PHA Public Housing Agency
PIH Public and Indian Housing
PM Housing Project Manager
POA Plan of Action
QHWRA Quality of the Quality Housing and Work
Responsibility Act of 1998
RCS Rent Comparability Study
REAC Real Estate Assessment Center
REMS Real Estate Management System
RHS Rural Housing Service - 515/8 Projects
SRO Single Room Occupancy
TRACS Tenant Rental Assistance Certificate System
Attachment 1 Revision 1/6/2000
ACRONYMS USED IN THIS NOTICE AND ATTACHMENTS
ACC Annual Contributions Contract
BMIR Below Market Interest Rate
CNA Comprehensive Needs Assessment
DEC Department of Enforcement Center
EHS Exigent Health and Safety
ELIHPA Emergency Low-Income Housing
Preservation Act
FMR Fair Market Rents
HA Housing Authority
HAP Housing Assistant Payment
HUDCAPS PIH's Accounting System
LIHPRHA Low-Income Housing Preservation
and Resident Homeownership Act
LMSA Loan Management Set Aside
MAHRA Multifamily Assisted Housing Reform and
Affordability
NHA National Housing Act
OCAF Operating Cost Adjustments Factor
OMF Office of Multifamily Housing
OPH Office of Pubic Housing
PAE Participating Administrative Entity
PBS Project-Based Contract
PHA Public Housing Agency
PIH Public and Indian Housing
PM Housing Project Manager
POA Plan of Action
QHWRA Quality of the Quality Housing and Work
Responsibility Act of 1998
RCS Rent Comparability Study
REAC Real Estate Assessment Center
REMS Real Estate Management System
RHS Rural Housing Service - 515/8 Projects
SRO Single Room Occupancy
TRACS Tenant Rental Assistance Certificate System
APPENDIX 2
GLOSSARY OF TERMS
Adjusted Rents. Existing rents under the expiring
contract, as adjusted by an operating cost adjustment factor
(OCAF) established by the Secretary (which shall not result
in a negative adjustment) or adjusted by budget-based
method.
Affiliate. Any person or entity (including, but not limited
to, a general partner or managing member, or an officer of
either) that controls an Owner or purchaser, is controlled
by an Owner or purchaser, or is under common control with
the Owner or purchaser.
Annual Interest Subsidy. For Section 236 properties, the
Annual Interest Subsidy equals the current Annual Interest
Reduction Payment Amount, as defined in 24 CFR 236.520. For
other properties, the Annual Interest Subsidy equals the
unpaid principal balance of the subsidized loan multiplied
by the difference between the annual original interest rate
(7% if original market note rate is not available) and the
annual subsidized interest rate (1% for Section 515, 3% for
Section 221(d)(3) BMIR).
Annual Eligible Interest Subsidy. The Annual Interest
Subsidy multiplied by the percentage of the total units in
the property that are in the Section 8 contract(s) eligible
under the Mark-Up-To-Market Procedure.
Assisted Dwelling Unit. A unit that is in a covered project
and receives project-based rental assistance.
Budget-Based Increase. Rent increase used to promote the
efficient management and continued financial viability of
projects when current rent levels are not sufficient to
cover operating costs.
Capped Comparable Gross Rents. If the Final Comparable
Gross Rent Potential is less than 150% of the FMR Potential,
then the Capped Comparable Gross Rents are the Final
Comparable Gross Rents. If the Final Comparable Gross Rent
Potential is not less that 150% of the FMR Potential, then
the Capped Comparable Gross Rents are 150% of the FMRs.
Capped Comparable Gross Rent Potential. The lesser of the
Final Comparable Gross Rent Potential or 150% of the FMR.
Comparable Market Rents. Comparable market rents are the
rents charged for properties determined to be comparable
properties, which means, properties in the same market areas
that are similar to the eligible multifamily housing project
as to neighborhood (including risk of crime), type of
location, access, street appeal, age, property size,
apartment mix, physical configuration, property and unit
amenities, utilities, and other relevant characteristics;
and are not receiving project-based assistance.
Comparability Study. Also known as a Rent Comparability
Study (RCS). A method of estimating market rent for the
Section 8 units in the subject property. The appraiser
derives an indicated (market) rent by comparing the Section
8 units with similar, but unsubsidized properties, applying
appropriate units of comparison and making adjustments as
appropriate to the comparable rents. The results should
then be correlated into an indicated market rent. The study
must include all Section 8 units in the subject property.
Comparability Analysis. These analysis summarizes the
results of the Comparability Study, however, only those unit
types in the expiring contract will be considered in this
report. The report will include an estimate of income
generated by the Section 8 unit types as though they were
generating as market units.
Community-based nonprofit organization. A private nonprofit
organization that 1) is organized under State or local laws,
2) provides no part of net income to anyone, and 3) has a
long-term record of service in providing or financing
quality affordable housing for low-income families through
relationships with public entities.
Control. Direct or indirect power (under contract, equity
ownership, the right to vote or determine a vote, or
otherwise) to direct the financial, legal, beneficial or
other interests of the Owner or purchaser.
Coterminous. This term means to bring contracts or stages
into alignment so that they expire at the same time.
Covered Project. Any multifamily housing that consists of
more than 4 dwelling units and receives project-based
assistance.
Current Section 8 Rents. The rents specified by the Section
8 contract(s).
Current Section 8 Rent Potential. The sum of all current
Section 8 Rents for the units in the Section 8 contract(s).
Current Section 8 Gross Rents. The Current Section 8 Rents
plus the applicable Utility Allowances, if any.
Current Section 8 Gross Rent Potential. The sum of all
Current Section 8 Gross Rents under the Section 8
contract(s).
Eligible Multifamily Housing Project. A property that
consists of more than 4 dwelling units and receives project-
based assistance.
Enhanced Vouchers. Vouchers that are worth the market value
of the unit, provided that the Local Housing Authority
approves the rent as reasonable. These enhanced vouchers
can only be used in opt-outs and prepayments.
Expiring Contract. Project-based assistance contract
attached to an eligible multifamily housing project which,
under the terms of the contract, will expire.
Fair Market Rent (FMR). The rent, including the cost of
utilities (except telephone), that would be required to be
paid in the housing market area to obtain privately owned,
existing, decent, safe and sanitary rental housing of modest
(non-luxury) nature with suitable amenities. Fair Market
Rents for existing housing are established by HUD for
housing units of varying sizes (number of bedrooms), and are
published in the Federal Register in accordance with 24 CFR
part 888.
Final Comparable Market Rents. The rents that will be used
by HUD as the comparable market rents for determining rent
increases under the Mark-Up-To-Market Procedure. The Final
Comparable Market rents will be set based on the comparison
of the Owner Comparable Market Rents and the HUD Comparable
Market Rents described in Section VI of Attachment 4B of
this Notice.
Final Comparable Rent Potential. The sum of all Final
Comparable Market Rents for units in the Section 8
contract(s).
Final Comparable Gross Rents. The Final Comparable Market
Rents plus the applicable Utility Allowances, if any.
Final Comparable Gross Rent Potential. The sum of all Final
Comparable Gross Rents for units in the Section 8
contract(s).
FMR Potential. The sum of FMRs for all units in the Section
8 contract(s).
HUD Comparable Market Rents. The rents specified by the
comparability study performed by the HUD appraiser.
HUD Comparable Rent Potential. The sum of all HUD
Comparable Market Rents for the units in the Section 8
contract(s).
HUD Comparable Gross Rents. The HUD Comparable Market rents
plus the applicable Utility Allowances, if any.
HUD Comparable Gross Rent Potential. The sum of all HUD
Comparable Gross Rents for the units in the Section 8
contract(s).
HUD Section 236 Fair Market Rental Charge. The rental
charge in a Section 236 project based upon operating it with
payments to principal and interest under the actual mortgage
interest rate, and also including payment of the mortgage
insurance premium.
HAP Contract. A housing assistance payments contract
between HUD (or the Housing Agency) and the Owner. HUD (or
the Housing Agency) pays housing assistance payments to the
Owner in accordance with the HAP contract.
Interest Subsidy Adjustment Factor. The Interest Subsidy
Adjustment Factor is the Annual Capped Comparable Gross Rent
Potential minus the Annual Eligible Interest Subsidy, all
divided by the annual Capped Comparable Gross Rent
Potential.
Initial Renewal. The first renewal of a project's contract
or stage that is processed under Section 524 of MAHRA.
MAHRA. Multifamily Assisted Housing Reform and
Affordability Act of 1997.
Market Rents. Comparable market rents for the market area.
New Authorized Rents. For Section 236, Section 221(d)(3)
BMIR and Section 515 properties, the rents calculated by
following the existing guidance under Handbook 4350.1
Chapter 7 using a budget submitted by the Owner, if any.
New Authorized Rent Potential. The sum of all new
Authorized Rents for the units in the Section 8 contract(s).
New Authorized Gross Rents. The New Authorized Rents plus
the applicable Utility Allowances, if any.
New Authorized Gross Rent Potential. The sum of all New
Authorized Gross Rents for the units in the Section 8
contract(s).
New Section 8 Rents. The New Section 8 Gross Rents minus
the applicable Utility Allowances, if any.
New Section 8 Rent Potential. The sum of all New Section 8
for the units in the Section 8 contract(s).
New Section 8 Gross Rents. The new gross rents for the
Section 8 contract(s).
New Section 8 Gross Rent Potential. The sum of all New
Section 8 Gross Rents for the units in the Section 8
contract(s).
OHMAR-Lite/Haircut. Request for contract renewal without
restructuring, with rents marked down to market.
Owner. Any private person or entity, including a
cooperative, an agency of the Federal Government or a public
housing agency, having the legal right to lease or sublease
dwelling units.
Owner Comparable Market Rents. The rents specified by the
comparability study submitted by the Owner.
Owner Comparable Rent Potential. The sum of all Owner
Comparable Markets Rents for the units in the Section 8
contract(s).
Owner Comparable Gross Rents. The Owner Comparable Market
Rents plus the applicable Utility Allowances, if any.
Owner Comparable Gross Rent Potential. The sum of all Owner
Comparable Gross rents for units under the expiring Section
8 contract(s).
Participating Administrative Entity. A public agency
(including State housing finance agency or a local housing
agency), a nonprofit organization, or any other entity
(including a law firm or an accounting firm) or a
combination of such entities, that meets the requirements
under Section 513(b) of MAHRA.
Purchaser. Any private person or entity, including a
cooperative, an agency of the Federal Government, or a
public housing agency, that, upon purchase of the project,
would have the legal right to lease or sublease dwelling
units in the project, and also means an affiliate of the
purchaser.
Project-Based Assistance. Rental assistance that is
attached to a multifamily housing project.
Renewal. Replacement of an expiring Federal rental contract
with a new contract under Section 8 of the United States
Housing Act of 1937.
Rent Comparability Study (RCS). See Comparability Study.
Stub Contract. Short-term renewals for less than 12 months,
which is designed to protect the tenants and to align
multiple contracts or stages in a project.
Subsequent Renewal. The renewal of an expiring contract
that was initially renewed under 524 of MAHRA.
Tenant-Based Assistance. Rental assistance that is not
project-based assistance and provides for eligible families
to select suitable housing.
Termination. Expiration of the Section 8 contract or an
owner's refusal to renew the contract.
APPENDIX 3A
One-Year Notification Reminder Letter from HUD to Owners
for projects in good standing
(Date)
Dear [Owner]:
As a project owner participating in the Section 8
Program, you are required under Section 8(c)(8)(A) of the
U.S. Housing Act of 1937 (42 U.S.C. § 1437f) to provide a
one-year notice to the U.S. Department of Housing and Urban
Development (HUD or Department) and the affected tenants
about the termination or expiration of your project-based
Section 8 contract. Specifically, Section 8(c)(8)(A), as
amended by the Preserving Affordable Housing for Senior
Citizens and Families into the 21st Century Act of 1999,
states:
Not less than one year before the termination of
any contract under which assistance payments are
received under [Section 8] an owner shall
provide written notice to the Secretary and the
tenants involved of the proposed termination.
Some Owners incorrectly assume that the reinstatement
of the right to prepay the HUD-insured, HUD-held or State-
assisted mortgage under the Low-Income Housing Preservation
and Resident Homeownership Act of 1990, as amended,
supersedes their obligations under the Section 8 HAP
contract. This is an incorrect assumption. Prepayment of
the mortgage removes an Owner's obligation under the
regulatory agreement. Prepayment of the mortgage does not
relieve the Owner's responsibilities to HUD and the tenants
under the Section 8 HAP contract and the U.S. Housing Act of
1937. An Owner's obligations under a regulatory agreement
are separate obligations from those responsibilities under a
Section 8 HAP contract.
Owners who fail to give the mandatory one-year written
notice will have two options: (i) renew the project-based
contract for up to one year or (ii) agree to a short-term
renewal for the period of tim