HOME Investment Partnerships Program: Program Updates and Streamlining

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 91, 92, 570, and 982

[Docket No. FR-6144-F-03]

RIN 2506-AC50

HOME Investment Partnerships Program: Program Updates and Streamlining

AGENCY:

Office of the Assistant Secretary for Community Planning and Development, Department of Housing and Urban Development, HUD.

ACTION:

Final rule.

SUMMARY:

HUD's HOME Investment Partnerships Program (HOME program or HOME) provides formula grants to States and units of general local government to fund a wide range of activities to produce and maintain affordable rental and homeownership housing and provides tenant-based rental assistance for low-income and very low-income households. This final rule revises the current HOME regulations to update, simplify, or streamline requirements, better align the program with other Federal housing programs, and implement recent amendments to the HOME statute. This final rule also includes minor revisions to the regulations for the Community Development Block Grant and Section 8 Housing Choice Voucher Programs consistent with the implementation of the changes to the HOME program. This final rule follows the publication of a proposed rule on May 29, 2024, and takes into consideration the comments received in response to that proposed rule.

DATES:

Effective February 5, 2025.

FOR FURTHER INFORMATION CONTACT:

Virginia Sardone, Director, Office of Affordable Housing Programs, Office of Community Planning and Development, Department of Housing and Urban Development, 451 7th Street SW, Room 7160, Washington, DC 20410; telephone number (202) 708-2684 (this is not a toll-free number). HUD welcomes and is prepared to receive calls from individuals who are deaf or hard of hearing, as well as individuals with speech or communication disabilities. To learn more about how to make an accessible telephone call, please visit

https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION:

I. Background

The HOME program is authorized by title II of the Cranston-Gonzalez National Affordable Housing Act

1

(“NAHA” or the “Act”) and has been in operation since 1992. The HOME program provides grants to States, local jurisdictions, and consortia of local jurisdictions (collectively, participating jurisdictions or PJs) and is used, often in partnership with local nonprofit groups, to fund a wide range of activities to build, buy, or rehabilitate affordable housing for rent or homeownership or to fund direct rental assistance to low-income people.

2

HOME program funds are awarded annually as formula grants to PJs. After the Department obligates funds to a PJ, the Department establishes a HOME Investment Trust Fund

3

for each PJ, providing a line of credit that a PJ may draw upon as needed.

1

42 U.S.C. 12721

et seq.

2

See HUD's HOME Investment Partnerships Program web page at

https://www.hud.gov/program_offices/comm_planning/home.

3

HUD's regulations for the HOME Investment Trust Fund can be found at 24 CFR 92.500.

The HOME program is the largest Federal block grant to States and local governments designed exclusively to create affordable housing for low-income households. Each year, the HOME program allocates approximately $1.5 billion among States and approximately 600 localities nationwide. In fiscal year 2023, PJs completed 6,848 rental housing units and 4,051 homebuyer units, assisted 2,717 low-income homeowners to repair their homes, and provided tenant-based rental assistance to 13,016 low-income households. HOME funds are most often used as gap financing for rental projects, particularly for projects that have been awarded Low-Income Housing Credits (LIHTC).

4

As of late 2024, there are 237,767 HOME-assisted rental units operating in their periods of affordability (

i.e.,

subject to ongoing HOME income and rent requirements).

4

See 26 U.S.C. 42.

The HOME program is designed to reinforce several important values and principles of community development. First, the HOME program's flexibility empowers people and communities to design and implement strategies tailored to their own needs and priorities. Second, the HOME program's emphasis on consolidated planning expands and strengthens partnerships among all levels of government and the relationship with the private sector in the development of affordable housing. Third, the HOME program's technical assistance activities and set-aside for qualified Community Housing Development Organizations (CHDOs) help to build the capacity of, and partnerships, with these community-based nonprofit organizations. Fourth, the HOME program's requirement that PJs match 25 cents of every dollar in program funds helps mobilize community resources in support of affordable housing.

II. The Proposed Rule

On May 29, 2024, HUD published the “HOME Investment Partnerships Program: Program Updates and Streamlining” proposed rule (the proposed rule) in the

Federal Register

, available at 89 FR 46618. In the proposed rule, HUD proposed numerous changes to 24 CFR part 92. The proposed changes included significant revisions to the CHDO requirements, a change in the approach to HOME rents, simplified requirements for small-scale rental projects, enhanced flexibility in HOME tenant-based rental assistance (TBRA) programs, and simplified provisions and new flexibilities for community land trusts (CLTs). The proposed rule also proposed to significantly strengthen and expand tenant protections by requiring that a HOME tenancy addendum with a set of uniform tenant protections be appended to the leases of all tenants of HOME-assisted rental housing units. HUD also proposed requiring that a HOME tenancy addendum with a streamlined set of uniform tenant protections be appended to the leases of all tenants receiving TBRA. Additionally, HUD proposed to create incentives for meeting a more advanced property standard that incorporates green building standards, higher levels of energy efficiency, and innovative building techniques in new construction, reconstruction, and rehabilitation of housing. The proposed rule also sought to clarify the resale requirements for homeownership housing and proposed technical amendments and simplifications to conform provisions to certain changes made in the 2013 HOME Final Rule.

5

5

HOME Investment Partnerships Program: Improving Performance and Accountability; Updating Property Standards, (78 FR 44628, July 24, 2013).

The proposed rule also included changes made by the Housing Opportunity Through Modernization Act of 2016: Implementation of Sections 102, 103, and 104 final rule, published in the

Federal Register

on February 14, 2023 (88 FR 9600) (the HOTMA Final Rule) and the Economic Growth Regulatory Relief and Consumer Protection Act: Implementation of National Standards for the Physical Inspection of Real Estate (NSPIRE) final rule, published in the

Federal Register

on May 11, 2023 (88 FR 30442) (the NSPIRE Final Rule). The proposed rule also proposed further revisions to the changes made to 24 CFR part 92 by the HOTMA and NSPIRE Final Rules. In addition, the proposed rule proposed updates to citations, in paragraphs where other changes are being made, to conform with recent changes to the Office of Management and Budget (OMB) regulations at 2 CFR part 200.

See the proposed rule for a full description of all the HOME program proposed regulation changes associated with this rulemaking.

III. This Final Rule

HUD reviewed and considered all public comments submitted in response to the proposed rule, which are summarized and addressed in the next section of this final rule. After considering the public comments received in response to the proposed rule, this final rule incorporates a majority of the proposed regulatory changes described in the proposed rule; however, in response to public comments received, HUD is making certain revisions to the HOME program regulations from those described in the proposed rule at this final rule stage. HUD is also making certain non-substantive revisions to the proposed regulatory text at this final rule stage.

In response to comments received during the proposed rule stage of this rulemaking, HUD is making the following revisions to the final rule:

24 CFR Part 91—Technical Revisions

HUD is making certain technical revisions in 24 CFR part 91 to replace the term “affordability period” with “period of affordability.” These revisions are consistent with the technical revision proposed in 24 CFR part 92 to make the same terminology replacement. Further, these revisions are consistent with public comments HUD received noting that these revisions are appropriate.

24 CFR Part 92—Technical Revisions

HUD is making certain technical revisions in 24 CFR part 92 to improve clarity and readability of certain language throughout the part. While HUD is not summarizing each of these technical changes because the changes are minor and non-substantive, a sampling of these revisions are described in the paragraphs that follow.

The Department received comments indicating that it had not fully revised all references from “downpayment assistance” to “homeownership assistance.” The Department is revising §§ 92.203(d), 92.209(c)(2)(iv), 92.250(b)(4), 92.251(c)(3), 92.254(b)(1)(ii), 92.300(a)(6)(i), 92.351(a)(1), 92.504(c)(1)(i), and 92.504(c)(2)(i) accordingly. The Department declined to revise certain references in the regulation that were specific to the downpayment provided by a homebuyer (

e.g.,

for purposes of the resale or recapture methods used in § 92.254).

Commenters noted that there were a number of areas where the term “dwelling” had not been replaced by “housing.” Accordingly, the Department is revising §§ 92.219(a)(4), 92.254(a)(5)(ii)(A), and 92.258(a) to standardize the use of “housing.”

The Department noted several instances where it had not corrected the term “single-family” to read “single family.” Accordingly, the Department is revising §§ 92.220(a)(5)(ii), 92.254(a)(6), 92.504(c)(1)(i), and 92.504(c)(2)(i) to include the standardized term “single family.”

Several commenters noted that the Department failed to change all the references from “affordability period” to “period of affordability.” The Department has further revised the term for consistency in §§ 92.251(f), 92.252(d)(3), 92.254(a)(5)(ii)(B)(2), 92.258(c) and (d)(3), 92.359(f), and 92.508(c)(1) and (2).

The Department is also revising the first sentence of § 92.201(b)(3)(i) to clarify that States must require that State recipients use HOME funds in accordance with 24 CFR part 92. This is also stated in the written agreement section in § 92.504 and is a revision for consistency.

24 CFR 92.2 Definitions

A. Commitment

As explained in greater detail in the preamble describing the revisions in § 92.209, the rental assistance contract requirements in the HOME tenant-based rental assistance program are being revised to require that the PJ enter into a rental assistance contract with the owner and the tenant, either as separate agreements or a single tri-party agreement. The Department is therefore revising the definition of

Commit to a specific local project

in paragraph (2)(iii) of the definition of

Commitment

to accurately state that the rental assistance contract, which is the committing document for HOME tenant-based rental assistance, is the contract with the “owner and the tenant” instead of the contract with the “owner or the tenant.”

A new paragraph (2)(ii)(C) was added under

Commit to a specific local project

in the definition of

Commitment

to provide the requirements for commitments to a family to acquire single family housing for homeownership that does not meet the PJ's property standards, as described in § 92.251(c)(3). The requirements include the same requirements for standard housing,

i.e.,

that the PJ (or State recipient or subrecipient) and the family must have executed a written agreement under which HOME assistance will be provided for the purchase of the single family housing, which requires the property title to be transferred to the family within six months of the agreement date. In addition, the paragraph will also require that the written agreement require the property to meet the standards in accordance with § 92.251(c)(3). This revision is being made because the current definition of Commit to a specific local project only contemplates that the homebuyer will be purchasing housing in standard condition and not housing that requires rehabilitation. This allows the written agreement to count as a commitment when it complies with the requirements in § 92.251(c)(3), thereby providing consistent application of the new rules permitting homebuyers to rehabilitate their units to meet property standards post-acquisition.

B. Community Housing Development Organizations

In response to public comments received, HUD is making multiple changes to paragraph (8)(i) of the definition of community housing development organization in § 92.2. Paragraph (8)(i) of the CHDO definition describes board membership requirements to maintain accountability to low-income community residents. Many commenters were concerned that the language of the proposed rule would reduce the accountability of CHDO boards. As described further in the following paragraphs, HUD is addressing the concerns expressed in the comments by strengthening the accountability structures.

HUD is revising paragraph (8)(i) of the CHDO definition to add “low-income beneficiaries of HUD programs” as an explicitly named group of eligible board members to meet the accountability to low-income community residents board requirement. HUD recognizes that 42 U.S.C. 12704(6)(B) requires that a CHDO “maintain[], through significant representation on the organization's governing board and otherwise, accountability to low-income community residents and, to the extent practicable, low-income beneficiaries with regard to decisions on the design, siting, development, and management of

affordable housing . . . .” By adding “low-income beneficiaries of HUD programs” to the regulation, HUD believes it is more closely matching the intent of the statute and emphasizing that, whenever possible, board members of CHDOs should include low-income beneficiaries of HUD programs.

HUD is also revising paragraph (8)(i) of the CHDO definition to use the term “designees of nonprofit organizations” instead of “authorized representatives of nonprofit organizations.” This revision of the term “designee” is being made because of confusion expressed by commenters regarding when a person is considered an “authorized representative.” HUD recognizes that the inconsistent terminology is confusing and believes that using a consistent term to describe individuals representing “low-income neighborhood organizations” and the “nonprofit organizations” described in paragraph (8)(i) brings additional clarity to paragraph (8)(i) of the CHDO definition.

HUD is further revising paragraph (8)(i) of the CHDO definition to specifically reference the designees of nonprofit organizations in the community that address the housing or supportive service needs of “low-income residents or residents of low-income neighborhoods.” This revision is in response to commenters who stated that HUD had not sufficiently connected the term “nonprofit organizations” to low-income residents of the community in paragraph (8)(i) of the CHDO definition. The commenters urged HUD to use clearer language to show that individuals representing organizations serving low-income persons, even if those persons do not live in low-income neighborhoods, should be able to meet the requirement that the CHDO board is accountable to low-income community residents. HUD believes this revision will better enable designees that directly serve low-income residents to be CHDO board members. In response to significant comment from the public, the Department is revising paragraph (8)(i) to prohibit an organization from being considered a CHDO if its service area is the entire State. Though the Department had proposed removing this restriction from the current regulation to better enable rural PJs and states to use their CHDO set-aside funds, the public comments were quite clear that allowing an organization to have a statewide service area was not the solution to addressing the shortage of CHDOs with capacity in rural areas.

In response to public comments received, HUD is also making multiple changes to paragraph (9) of the definition of community housing development organization in § 92.2. These specific changes are described in the paragraphs that follow.

HUD is revising the introductory text of paragraph (9) of the CHDO definition to add “Federal Home Loan Bank Affordable Housing Program (12 U.S.C. 1430) funds” to the list of housing programs that demonstrate a CHDO's capacity to carry out a housing project. This change is made in response to public comments to provide clarity because these grant funds are frequently layered with HOME funds in housing development projects.

HUD is revising paragraph (9)(i) of the CHDO definition by changing the first sentence of the paragraph to require that a CHDO have “paid employees” with housing development experience who will work directly on the HOME-assisted project. HUD is making this revision in response to public comments that correctly noted that the way the proposed rule phrased this portion of paragraph (9)(i) of the CHDO definition allowed a CHDO to have no paid employees at all and still meet the capacity requirement. HUD's intent with the proposed rule was to allow volunteers to supplement the capacity of paid employees, not to allow a CHDO to meet the capacity requirements while having no paid employees. HUD is making a similar revision in the last sentence of paragraph (9)(i) of the CHDO definition to read as “key, paid staff of the organization” for the same reasons.

HUD is further revising paragraph (9)(i) of the CHDO definition to add an additional sentence to clarify that where the paid employees of a CHDO alone do not demonstrate capacity, that experience can be supplemented with volunteer board members or officers. For additional clarity, HUD is also making minor revisions to paragraph (9)(i) of the CHDO definition to more directly state the requirement that a volunteer board member or officer may not be compensated by or have their services donated by another organization.

C. Community Land Trust

In response to public comments received, HUD is making multiple changes from the proposed rule to the definition of CLT in § 92.2. These specific changes are described in the paragraphs that follow.

HUD is revising paragraph (1) of the CLT definition to read “[h]as as its primary purposes acquiring, developing, or holding land to provide housing that is permanently affordable to low-income persons.” Commenters noted that CLT ownership models vary nationwide and, while some CLTs do develop and maintain their properties, other CLTs acquire and hold properties as affordable housing in perpetuity but are not otherwise involved in maintenance or development work. HUD recognizes that its proposed definition was too narrow to consider many of these organizations as CLTs and is revising it accordingly. In addition, HUD's proposed rule stated that a CLT must have a primary purpose of serving both low- and moderate-income persons. After reviewing the comments and the various CLT models provided by commenters, HUD is revising the CLT definition to recognize that the primary purpose of a CLT participating in the HOME program must be to serve low-income persons. HUD is also making a similar change to remove “moderate-income” from paragraph (3) of the CLT definition.

D. Homeownership

In response to public comments received, HUD is making certain changes to the definition of homeownership in § 92.2. Public commenters noted that the Department had not changed the term “dwelling” in the definition of homeownership in § 92.2. After considering the best way to clarify the requirement, the Department determined that it would be easier to replace to term “1-4 unit dwelling or in a condominium unit” with the term “single family housing,” which is defined as “a one-to four- unit residence, condominium unit, cooperative unit, combination of manufactured housing and lot, or manufactured housing lot.” The final rule text is clearer and uses a common term that is also defined in the regulation. It also provides additional clarity for homeownership projects involving manufactured homes, which are more explicitly referenced in the definition of single family housing. HUD believes that this clarifying change is therefore also responsive to comments requesting that HUD clarify the treatment of manufactured homes in HOME homeownership projects.

HUD notes that in its review of the public comments, the Department identified significant confusion by some commenters about the time periods in the definition of CLT and homeownership in § 92.2 and the housing education and organizational support requirements in § 92.302. HUD is committed to better addressing the needs of CLTs and its revisions to the homeownership definition in § 92.2 clarify the intent of the definition and how it is meant to apply to HOME homeownership projects. The specific changes to the definition of

homeownership are described in the paragraphs that follow.

HUD is revising paragraph (1) of the definition of homeownership to further clarify the explanatory text to state that the land upon which housing is located may be owned in fee simple or through a ground lease if the housing was owned in fee simple. The paragraph was also revised to give a rule of construction so that PJs and homeowners understand that the minimum term of a ground lease is the lowest time period if more than one condition applies. For example, if a ground lease was part of a CLT-developed project, the minimum term for the ground lease to be considered homeownership is 50 years, but if that CLT-developed project was in an insular area, the minimum term for the ground lease to be considered homeownership would be 40 years because the minimum term for a ground lease to be considered homeownership in insular areas is 40 years (See § 92.2(1)(ii)).

HUD is further revising paragraph (1) of the definition of homeownership to remove the latter portion of the introductory text of paragraph (1) that addressed 99-year ground leases. Paragraph (1) is instead being revised to create a new paragraph (1)(i) to make clear that a 99-year ground lease is one of multiple options for ground lease length. The original paragraphs (1)(i), (1)(ii), and (1)(iii) are being redesignated as (1)(ii), (1)(iii), (1)(iv), respectively.

HUD is also making other minor, non-substantive revisions to the introductory text and paragraph (1) to the definition of homeownership to improve the readability of the text.

E. Housing

HUD is revising the definition of housing in § 92.2 to replace the term “dwellings” with “housing units.” Commenters noted that there were certain areas in the proposed rule where “dwelling” had not been replaced with the updated term. HUD is updating the housing definition to correct this issue.

F. Single Room Occupancy (SRO) Housing

HUD is revising the definition of

single room occupancy

(SRO) housing in § 92.2 to replace the term “dwelling” with “housing.” Commenters noted that there were certain areas in the proposed rule where “dwelling” had not been replaced with the updated term. HUD is updating the SRO housing definition to correct this issue.

G. American Dream Downpayment Initiative References

The Department intended to remove all American Dream Downpayment Initiative (ADDI) regulations as part of this rulemaking. Unfortunately, the Department inadvertently retained language in the definition of “State” that described deviations between the term “State” in the HOME program and in the ADDI program. The Department is revising the definition of “State” to remove all ADDI-related language in this final rule.

24 CFR 92.3—Applicability of 2025 Regulatory Changes

In response to the proposed rule, HUD received comments requesting that the Department specify the effective date of the regulatory changes associated with this final rule. To address these comments, HUD is revising § 92.3 to provide the applicable effective dates for the regulatory changes associated with this final rule instead of the applicable effective dates associated with the 2013 regulatory revisions. The header is being revised to describe the applicability of 2025 regulatory changes.

The introductory language of § 92.3 is being replaced by a provision explaining that the regulations in 24 CFR part 92 apply based on when an income determination is made or when the HOME funds for the project were committed. The provision goes on to explain that projects where the HOME funds were committed before a certain date may be subject to previous versions of these regulations. The provision also explains that the intent of § 92.3 is to provide instruction regarding which version of these regulations applies to which project based on when the funds were committed.

Paragraph § 92.3(a) is being replaced with a new paragraph (a). Paragraph (a) establishes the effective date for the 2025 final rule. The paragraph explains that the final rule is applicable to projects for which HOME funds are committed on or after February 5, 2025. The paragraph goes on to state that a PJ must perform income determinations in accordance with § 92.203 after February 5, 2025.

Paragraph § 92.3(b) is being revised to explain that while the effective date of the rule is 30 days after publication, PJs are permitted to continue to comply with the HOME regulations as they existed immediately before the effective date for commitments made up to one year after the rule's effective date. This allows PJs time to change their policies and procedures, forms, and systems, so that they can effectively implement the provisions of the final rule.

Paragraph (c) describes how the income regulations will be implemented for existing tenants and new projects that are coming online. This is because the income requirements of § 92.203 are applied to tenants of existing projects pursuant to their written agreements. The Department wants to clarify that for up to one year after the effective date of the rule, PJs may calculate income in accordance the income requirements that the PJs was implementing immediately prior to the publication of the final rule. This allows PJs to transition to determining income in accordance with the new requirements, as many income reexaminations may be underway when the rule becomes effective.

In some cases, PJs may wish to amend existing written agreements to take advantage of certain flexibilities or impose new requirements. While most of the rule may be applied immediately on the effective date, the Department is clarifying that certain provisions may not be implemented when a commitment has already been issued for a project. These relevant provisions are listed in § 92.3(d)(1) through (5).

Section 92.3(d)(1) explains that the written agreement cannot be revised to allow for certain predevelopment costs as well as certain project related soft costs currently contained in § 92.206(d)(2) to be reimbursed in accordance with the newly revised § 92.206(d)(1) if the HOME funds were committed to the project prior to the effective date of the final rule. Commitments were made after underwriting the project with assumptions that these costs were not going to be paid with HOME funds and the Department determined that the written agreements should not be amended to include those costs as payable from HOME when it was not the source that had already been identified to pay for the cost.

Similarly, § 92.3(d)(2) states that the new flexibility to obtain a higher maximum per-unit subsidy increase should only be included for projects where funds were committed to the project after the effective date of the final rule. While the Department fully supports green building requirements, the Department determined that projects with current commitments should not undergo additional underwriting and cost allocation. When a PJ committed HOME funds to projects before the effective date of the rule, they underwrote and sized the assistance based on the assumption that the maximum per-unit subsidy was the

limit in effect. The Department believes that this should continue to be the case and that current projects should not be amended. If a PJ were to amend its written agreement with an owner to add the new requirements at a later time, it can be disruptive, cause delays in production of badly needed affordable housing units and is not the behavior that the Department is attempting to incentivize by providing the increase in maximum per-unit subsidy.

Section 92.3(d)(3) states that the revised dollar thresholds for periods of affordability in § 92.252 and § 92.254 will not apply to projects where the PJs had already committed HOME funds. Similar to paragraphs (d)(1) and (2), a PJ already agreed with an owner on the applicable periods of affordability, just like they had agreed to a maximum per-unit subsidy, or which type of funds were used to pay which costs. To allow the owner and PJ the ability to reduce the period of affordability for a project that has already been agreed upon through amending the written agreement would be perverse and counter to the purposes of the Act.

Section 92.3(d)(4) states that the new tenant protection provisions cannot be imposed upon owners that are already under a current written agreement or tenants and owners under a current rental assistance contract or receiving security deposit assistance. Owners should have appropriate notice before imposing substantial changes in landlord-tenant relations. The HOME program provides development subsidies to owners to build affordable housing but does not provide ongoing operations assistance. Owners must consider the costs of compliance in determining whether to participate in the HOME program. This includes the costs of complying with tenant protections. Moreover, the Department received numerous comments indicating that imposing the tenant protections on current owners would amount to a regulatory taking. While the Department does not believe that this is the case and would strenuously object to any characterization of improving tenant protections as a form of taking or violation of an owner's due process rights, the Department does believe it is important to establish clear compliance requirements within the written agreement between the PJ and the owner, and to allow those requirements to remain consistent for the life of the agreement. To prevent potential litigation and loss of affordable housing, the Department is requiring that the new and revised tenant protections provided in § 92.253 only be effective for projects with commitments of up to one year after the effective date of the rule and not be applied to projects with commitments prior to the effective date of the rule.

Finally, § 92.3(d)(5) was added to state that the revisions to the role of CHDOs in owning, developing, and sponsoring affordable housing in § 92.300 only apply to projects where the PJ committed CHDO set-aside funds on or after the effective date of the final rule. The new flexibilities in § 92.300 should be used for new projects. If a PJ has already entered into an agreement with a CHDO to own, develop, or sponsor a project, then it is inappropriate for the PJ to amend the agreement and enter into an agreement with a new party because of the new flexibilities provided in § 92.300. The Department is expanding the way in which CHDOs can be involved in a HOME project but is not encouraging PJs to terminate or significantly restructure existing CHDO projects.

The Department also believes that it may be helpful to place the date and the triggering action into a chart to better assist PJs, owners, and the public in understanding when the 2025 final rule's requirements are applicable.

24 CFR 92.201 Distribution of Assistance

The Department is also revising the first sentence of § 92.201(b)(3)(i) to clarify that States must require State recipients use HOME funds in accordance with part 92. This is also stated in the written agreement section in § 92.504 and is a revision for consistency.

24 CFR 92.203 Income Determinations

The Department is making a technical revision to the first sentence of § 92.203(a) to remove the dash between “income” and “eligible” to maintain consistent usage of the term. The Department is revising the “must” to a “may” in § 92.203(a)(1) in response to public comments recommending that HUD allow PJs to always retain the right to determine annual income in accordance with the process described in paragraphs (b)-(e). This change will allow PJs the choice of accepting the income determinations made in Federal or State project-based rental subsidy programs instead of requiring PJs to accept those determinations.

In response to public comments, the Department is revising the language in § 92.203(a) to create a new paragraph (a)(3) and redesignate the current paragraph (a)(3) as paragraph (a)(4). The new paragraph (a)(3) provides additional burden relief for PJs and owners by expanding a safe harbor that is currently located in § 92.203(b)(1)(iii). The current safe harbor in § 92.203(b)(1)(iii) is limited to government programs and not forms of public assistance, which is a broader term that encompasses tax credits and other forms of assistance that are not “programs.” The Department uses this broader term “public assistance” in the safe harbor provisions in 24 CFR 5.609(c)(3) for 1937 Act programs but does not use this term in the current HOME regulations. The current safe harbor in HOME regulations cannot be used for initial annual income and eligibility determinations, or in calculating annual income for a family in years 6, 12, and 18 of a HOME rental housing project's period of affordability. The safe harbor also cannot be used for individuals applying for or renewing tenant-based rental assistance.

Public commenters recommended that PJs be able to accept income determinations made under other forms of public assistance, including LIHTC income determinations for families living in tax credit units. The Department recognizes the utility in expanding the safe harbor to include other forms of government assistance and allowing its use for initial annual income determinations or annual income determinations made in years 6, 12, and 18 of a HOME rental housing project's period of affordability as well as for individuals entering into or renewing a new rental assistance contract for tenant-based rental assistance. Therefore, the Department is moving the safe harbor into paragraph (a) as a new paragraph (a)(3) to enable a PJ to use the information for initial annual income and subsequent income determinations for HOME rental housing tenants as well as for tenant-based rental assistance. The Department is also expanding the applicability of the safe harbor to include an annual income determination made under another form of Federal, State, or local public assistance. Accordingly, the Department is also removing § 92.203(b)(1)(iii) and revising the last sentence in paragraph (b)(1) to indicate that there are only two methods of determining income under paragraph (b)(1).

The Department provides several examples to enhance the public's understanding of the types of assistance that could be accepted under the new paragraph (a)(3). These examples include TANF, Medicaid, LIHTC, and local rental subsidy programs. These programs all calculate annual income but do not make the adjustments that are made in HUD programs that are subject to 24 CFR 5.611.

To obtain the relief of the safe harbor under new § 92.203(a)(3), the PJ must be able to obtain a statement that indicates the family size and income. This can be provided by an administrator of a Federal, State, or local form of public assistance, even if that administrator is not the administrator at the Federal or State level. The Department considered whether to allow, as the current safe harbor provision in § 92.203(b)(1)(iii) does, a government administrator to provide a PJ with a statement indicating that the family's income does not exceed the current dollar limit for very low-income or low-income families for the family size of the tenant. The Department decided against including this language.

The Department drafted this safe harbor partly in response to public comments requesting that the Department accept a statement made by an administrator of public assistance without further review of income documentation for the tenant. The Department agrees that it is possible to use a statement from a government administrator to determine income, though verification is left to PJ policies and procedures. However, the Department decided that if it was expanding the safe harbor to enable PJs to accept a statement, then the statement must contain a statement of family size and income and not just a statement that the family was below the applicable income limit for the family's size. This is especially true because, in many cases, the PJ must still calculate adjusted income in accordance with paragraph (f). To provide the maximum amount of burden relief to both the PJs and tenant, and best address the concerns of the commenter, the statement must have the family's annual income on it so that the PJ need only adjust the income (if applicable) from a known amount of annual income. Accordingly, the Department is also removing § 92.203(b)(1)(iii) and revising the last sentence in paragraph (b)(1) to indicate that there are only two methods of determining income under paragraph (b)(1).

The Department is requiring in the new § 92.203(a)(3) that the statement accepted by the PJ must be for an income determination made within the previous 12-month period. This aligns with how similar safe harbor provisions are used in other HUD programs, such as the safe harbor in 24 CFR 5.609(c)(3) that is used for certain programs governed under the U.S. Housing Act of 1937. The Department considered whether to provide a shorter period, such as the 6-month requirement under § 92.203(e)(2) for income determinations made prior to providing homeownership or tenant-based rental assistance to a family. However, after consideration of the comment and how to align this safe harbor with other safe harbors in HUD regulations, HUD has determined that 6 months is inappropriate. When a family applies to a PJ for assistance and the PJ determines the family's income, there is a reasonable expectation that this income examination is close in time to when the family will receive the HOME assistance from the PJ. When a person was determined income eligible with these other forms of public assistance, it may not be at the same time as when the PJ's tenant-based rental assistance program waiting list opens up for the public to apply or when a person is next up on an owner's waiting list. To establish a shorter period in which the income determination will remain valid for purposes of the new safe harbor would therefore disadvantage those families and PJs and so the Department chose to allow income determinations made within a 12-month period to qualify for purposes of the safe harbor at § 92.203(a)(3).

As part of the revisions made to lift and expand the safe harbor in § 92.203(a)(3), the Department is making conforming changes to paragraph (b)(2) and adding paragraph (b)(3) to explain that only families applying for homeownership activities must calculate income using 2 months of source documents. Before paragraph (a)(3) was added, both families applying for homeownership assistance and families applying for or receiving tenant-based rental assistance were required to solely use source documents. However, with the expansion of the safe harbor to tenants applying for, renewing, or for assisted families required to enter into a new rental assistance contract, the Department had to make conforming changes to explain how income is calculated for tenant-based rental assistance. The new paragraph (b)(3) does this by explaining that, for families applying for or receiving tenant-based rental assistance, the PJ may determine annual income in accordance with the new safe harbor provision or through the use of source documents. The paragraph also clarifies that income will be calculated at the times specified in § 92.209(e)(3), which provides explicit instructions on when income must be determined for a family applying for or receiving tenant-based rental assistance.

The Department received negative comments on § 92.203(e)(2). While the Department is declining to revise the six-month limit on when income is valid, the Department recognizes that the provision itself could be clearer. The Department is therefore clarifying that a PJ is not required to redetermine income for a family unless 6 months have elapsed since the PJ determined the family is income eligible. The term “re-examine” is confusing given that the provision is about determining a family's income eligibility in advance of being provided assistance. This is different than when income is reexamined for families living in a rental housing project or families entering into or renewing a rental assistance contract. As the Department is revising income reexamination provisions for small-scale rental housing and in the context of tenant-based rental assistance, the Department believes it is important to remain consistent and is therefore revising this provision as well.

Paragraph 92.203(e)(2) is also being clarified to explain that when the regulation refers to “HOME assistance,” the regulation means homeownership assistance and tenant-based rental assistance. In the HOME regulations, the term “HOME assistance” is used in a variety of contexts. The term means the assistance provided to a subrecipient, State recipient, or contractor to run all or a portion of a PJ's HOME program; the assistance provided to a developer, owner, or sponsor to develop a HOME rental or homeownership project; assistance provided to a family for tenant-based rental assistance; homeownership assistance provided to a family to purchase and/or rehabilitate a home; or assistance provided to a CHDO. The Department believed it was important to clarify which type of assistance is meant in the provision given the various ways in which the term is used. Paragraph (e)(2) was also revised with a clarifying edit to say that a family “is income eligible” instead of “qualifying as income eligible.” This is a non-substantive revision for readability.

The Department is revising § 92.203(f)(1)(ii) to remove two references to § 92.252(a)(2)(iii), which is being removed by this rulemaking. The Department is also revising § 92.203(f)(2) to make corresponding revisions now that PJs are given the option of accepting a public housing agency, owner, or rental subsidy provider's determination of the family's adjusted income under that program's rules instead of being required to do so under § 92.203(a)(1). This change is in response to public comments, as described earlier in this preamble.

24 CFR 92.206 Eligible Project Costs

In response to public comments, HUD is making certain changes to § 92.206(d) regarding related soft costs that may be considered eligible project costs. The Department proposed and received comments requesting that HUD allow environmental reviews or other environmental studies or assessments to be reimbursable costs incurred prior to the commitment of funds to a project. Commenters requested that the provision be expanded to also include environmental fees, which the Department agrees can be included in the provision. The comments urged the Department to also consider expanding the types of costs that would be allowed to be incurred to include “pre-development” and other related soft costs.

In response to the comments, HUD is making changes to paragraph (d)(1) to expand the project soft costs that may be incurred prior to a commitment. The final rule moves certain soft costs from paragraph (d)(2) into paragraph (d)(1), including costs to process and settle financing for the project, such as private lender origination fees, credit reports, fees for title evidence, legal fees, private appraisal fees, and fees for independent cost estimates. By moving these soft costs into paragraph (d)(1), HUD is allowing the costs to be paid so long as they were incurred no more than 24 months before the date of commitment and included in the written agreement committing the funds. Note that “legal fees” is a more expansive term than the current term “attorney's fees” and the Department is intentionally expanding the term to be more inclusive of the different legal costs that are associated with a project in response to public comment.

The Department determined that soft costs contained in the other provisions in paragraph (d) could not be moved into paragraph (d)(1) as there is no reasonable expectation that such costs would occur prior to commitment of HOME funds. Those provisions include building permits, which can only be obtained after completion of the HUD environmental review; fees for recordation and filing of legal documents, as recordation of documents related to an acquisition, rehabilitation, or new construction contract should occur after commitment of HOME funds; and building or developer fees, as those fees should not be earned or chargeable to the HOME grant for work performed prior to the environmental review and commitment of the HOME funds to a project.

In response to public comment, HUD is also revising § 92.206 to add “accounting fees”, “filing fees for zoning or planning review and approval”, and “other lender-required third-party reporting fees” to paragraph (d)(1). The Department added these fees, as recommended by the commenter, because the Department agrees that these fees, which are generally incurred prior to applying to a PJ for HOME assistance, are directly related to meeting underwriting and construction feasibility criteria that are required in the definition of § 92.2

Commitment.

They may be payable with HOME funds if a PJ agrees to pay these costs in the written agreement.

24 CFR 92.208 Eligible Community Housing Development Organization (CHDO) Operating Expense and Capacity Building Costs

The public comments indicated confusion over the proposed use of capacity building funds for CHDOs. The new § 92.208(c) describes how PJs may provide HOME assistance to CHDOs for operating costs under § 92.300(a). The paragraph is not intended to describe the use of capacity building funds, which is described in the previous paragraph at § 92.208(b). HUD inadvertently included reference to “capacity building costs” in the proposed § 92.208(c) and understands that this may have led to confusion for commenters. Consequently, HUD is removing the reference to “capacity building costs” in § 92.208(c) to eliminate this confusion.

24 CFR 92.209 Tenant-Based Rental Assistance: Eligible Costs and Requirements

The Department revised § 92.209(c)(3) to correct the term “tenant-based rental assistance” in the third sentence of the paragraph. The regulation had previously read “tenant-based assistance.” This is a non-substantive change.

The Department made several revisions to § 92.209(e) in response to public comment. The Department redesignated § 92.209(e) as § 92.209(e)(2) and revised the provision as described below. The Department also revised the header for paragraph (e) to describe the rental assistance contract more broadly and not just the term rental assistance contract. The Department then made four new subsections.

The first subsection, § 92.209(e)(1), defines the parties to the rental assistance contract, which is also the header for this provision. Based on public comment to specific solicitation of comment #10, the Department is requiring the PJ to have a rental assistance contract with both the owner and the tenant. This can take the form of a single tri-party agreement or two separate agreements. There is precedent for this model in HUD programs. In the Housing Choice Voucher program, the tenant has an agreement with the public housing agency where the tenant agrees to the rules of the program (See Form HUD-52646), and the owner has an agreement with the public housing where the owner agrees to the terms of the housing assistance payments agency (See Form HUD-52641). The Department also believes that this is the best method for the PJ to enforce HOME requirements on tenant and owner alike.

The Department revised the redesignated § 92.209(e)(2) to provide that a rental assistance contract does not need to start on the first day of the lease so long as the contract commences at the beginning of the first month in which tenant-based rental assistance is provided. The Department revised the provision to decouple the execution of the rental assistance contract from the tenant lease because with the imposition of the tenancy addendum, which must be executed and attached to the tenant lease, the need for the rental assistance contract to begin on the first day of the lease is significantly lessened. This is because the terms of the HOME tenant-based rental assistance tenancy addendum will control in the event of a conflict between the preexisting lease and the tenancy addendum, and therefore the risk that the lease would contain prohibited lease terms or would otherwise not comply with the HOME program requirements is eliminated. The Department is also revising this requirement in response to public comments that stated that it disadvantages families to require that the rental assistance contract begin on the first day of the lease because current very low-income tenants would have to break their lease to obtain rental assistance, which is not always possible. The Department does not wish to disadvantage tenants that are housing insecure or rent burdened by requiring they enter a new lease in order to receive tenant-based rental assistance under HOME.

The Department also revised the redesignated § 92.209(e)(2) to explain that a rental assistance contract can be amended subject to the availability of funds. This revision is made in response to a public commenter that requested HUD explain whether an amendment to a rental assistance contract would require a new income determination. The Department is drawing a distinction

between new contracts, amendments, and renewals of rental assistance contracts first in paragraph (e)(2) and then further in the new paragraphs (e)(3) and (e)(4).

The new § 92.209(e)(3) explains under what conditions a contract may be amended or renewed. The new § 92.209(e)(3)(i) explains that all parties must consent to an amendment to the rental assistance contract. The new § 92.209(e)(3)(i)(A) explains that a rental assistance contract may be amended because the lease between the family and owner has been amended or renewed, as long as the lease term or amount charged under the lease are the only terms of the contract being changed. The new § 92.209(e)(3)(i)(B) explains that amendments to the rental assistance contract may extend the original term of the rental assistance contract up to 24 months from the original date of execution, which is the maximum term allowable under § 92.209(e)(2). The new § 92.209(e)(3)(i)(C) also allows for the amendment of the rental assistance contract when a family is moving within the same building or development, but the parties to the lease, family size, and the number of bedrooms are all the same. With respect to § 92.209(e)(3)(i)(C), the Department believes these are reasonable restrictions on tenants and owners, as changes to the parties to a lease, family size, and the number of bedrooms in a unit are all significant enough such that allowing a PJ to amend an existing rental assistance contract is not appropriate, and the PJ should instead be required to enter into a new rental assistance contract with the family and owner.

The new § 92.209(e)(3)(ii) explains that, subject to the availability of HOME funds, a rental assistance contract may be renewed after the expiration of its initial term. The new § 92.209(e)(3)(iii) explains that in all other instances, the PJ must enter a new rental assistance contract with the family and owner in accordance with § 92.209(e). This includes when family size changes, when the family moves to a different address with a different owner, or when the number of bedrooms in the unit changes.

The Department explains the differences between when a new contract must be entered, when a contract can be amended, or when a contract can be renewed primarily to provide greater clarity in tenant-based rental assistance requirements as well as to explain when an income determination must be performed. The new paragraph (e)(4) whose header is “initial and subsequent income determinations” explains that a PJ must perform an income examination each time a new rental assistance contract is entered into (see § 92.209(e)(4)(i)) or renewed (see § 92.209(e)(4)(iii)). The Department believes that this change is appropriate because it permits PJs to amend current rental assistance contracts to extend their term to the maximum 24-month period without requiring additional income examination, providing burden relief to tenants receiving tenant-based rental assistance. The Department declines to extend this burden relief to new rental assistance contracts or renewals as material terms of the lease or the number of persons in the housing are changing (in the case of new rental assistance contracts) or the rental assistance contract is being extended for more than twenty-four months (in the case of renewals). In these situations, income should be redetermined because it factors so heavily into the sizing of the rental assistance.

The Department is adding a new § 92.209(e)(4)(iv) to explain that if a family is participating in a HOME lease-purchase program and receiving tenant-based rental assistance, then the family's income will only be determined at the time of execution of the lease purchase agreement. This is because the statute states that a family must be income-eligible at the time the lease-purchase agreement is signed,

6

and because this will better enable tenants to save up for the purchase of the housing in accordance with the lease-purchase agreement and the HOME lease-purchase program. This type of treatment is only when the family is participating in a HOME lease-purchase program and not for other non-HOME lease-purchase programs because those programs may have different rules and restrictions, and their program design may vary significantly from HOME requirements. In those instances where a family is receiving tenant-based rental assistance and participating in a lease-purchase program, the family's income will be examined when the family enters into the rental assistance contract and again if the family's assistance is renewed.

6

See 42 U.S.C. 12745(b)(2)(B).

The Department is revising § 92.209(g) to refer to § 92.253 instead of specific paragraphs within § 92.253. This is because § 92.253 has been revised to directly state its applicability to tenant-based rental assistance and the requirements of the HOME tenant-based rental assistance tenancy addendum. The Department is also revising § 92.209(h)(3)(ii) to better identify the Section 8 Housing Choice Voucher Program payment standard that may be used by a PJ, which is the payment standard established in 24 CFR 982.503(a) through (c) and not the exception payment standard established in 24 CFR 982.503(d). The exception payment standard is, by its nature, an exception to the rule and the Department has not allowed its use in HOME in the past. This change is therefore just a clarification of HUD's existing interpretation of the HOME and Section 8 regulations.

The Department also made clarifying revisions to § 92.209(j)(6) to use the language “[s]urety bonds, security deposit insurance, or instruments similar to surety bonds or security deposit insurance . . .” instead of the proposed phrasing of “[s]urety bonds or security deposit insurance and similar instruments . . . .” HUD believes that this revision improves the clarity and readability of the paragraph.

Consistent with changes made throughout the section, the Department is revising the last two sentences of paragraph (k) to reference paragraph (e) and making technical revisions. The current provision requires that a PJ enter into an agreement with either the owner or the family. The final rule will require that the PJ enter into an agreement with the owner and the family.

24 CFR 92.210 Troubled HOME-Assisted Rental Housing Projects

In response to public comment that suggested the Department was establishing an unreasonably high bar to evidence that a HOME project is no longer financially viable and able to obtain the relief in § 92.210, the Department has revised and reorganized § 92.210(a).

The first sentence in the paragraph remains unchanged from the proposed rule. Revised § 92.210(a)(1) now states that a project is not financially viable through the period of affordability if one of the conditions in § 92.210(a)(1)(i)-(iii) exists.

In response to public comments, the Department provides in § 92.210(a)(1)(i) that a project is no longer financially viable through the period of affordability if the project's operating costs exceed its operating revenue considering project reserves. The Department has revised this sentence to remove the term “significantly” and to make this and the other conditions listed in § 92.210(a)(1)(i)-(iii) be independent conditions. In § 92.210(a)(1)(ii), the Department is creating a new condition that the project is no longer financially viable through the period of affordability if an owner is

unable to pay for necessary capital repair costs or ongoing expenses for the project. In the proposed rule, the owner being unable to pay for necessary capital repair costs was another condition that needed to be satisfied instead of an independent condition. However, given the comments, the Department believed it was best to expand the ground to include inability to pay operating expenses and to make the ground an independent ground for demonstrating that a project is no longer financially viable through the period of affordability.

Lastly, if project reserves are insufficient to operate the project, then the Department also believes that the project is no longer financially viable through the period of affordability and is therefore making that a separate ground for relief under § 92.210(a)(1)(iii). The Department also revised § 92.210(a)(3) to clarify that HUD may approve the actions in § 92.210(b) and (c) to “strategically preserve the affordability of a rental project.” The Department had proposed to add the modifier “in preserving affordability” at the end of the sentence in the proposed rule but believes it is better for readability to move the language to describe the type of preservation action that is occurring for troubled housing rental housing projects under § 92.210. Similarly, the Department is revising § 92.210 to explain that the PJ may be permitted to reduce the “total” number of HOME-assisted units or change the designation of the units. This is a non-substantive clarifying change.

24 CFR 92.212 Pre-Award Costs

The Department revised § 92.212(b)(2) to clarify the provision. The provision, as proposed, had initially stated that, if a given year's appropriation were not timely, then a PJ may incur administrative and planning costs as of the earlier of the beginning of their program year or the date that HUD receives the PJ's consolidated plan. The provision then defined when an appropriation was not timely as when it occurs less than ninety days before a PJ's program year start date.

After further consideration, the Department decided that it is inappropriate to characterize appropriations as timely or not timely in a regulation. The Department also believed this language detracted from the overall clarity of the provision. Instead, the last sentence is being deleted and the first sentence is being revised to state that in any year in which an appropriation is less than 90 days from a PJ's program start date, the PJ may incur administrative and planning costs as of the earlier of the beginning of their program year or the date that HUD receives the PJ's consolidated plan. This is a clearer sentence that doesn't characterize the timeliness of appropriations and it aligns with the related final rule text in § 570.200(h)(3).

24 CFR 92.214 Prohibited Activities and Fees

For certain paragraphs in § 92.214, HUD made clarifying revisions to use the language “[s]urety bonds, security deposit insurance, or instruments similar to surety bonds or security deposit insurance . . .” instead of the proposed phrasing of “[s]urety bonds or security deposit insurance and similar instruments . . . .” HUD believes that this revision improves the clarity and readability of the paragraph. In response to public comment, HUD also clarified that HOME rental housing project owners may not charge tenants fees for normal wear and tear.

24 CFR 92.219 Recognition of Matching Contribution

HUD is revising § 92.219(a)(4) to replace the term “dwelling” with the term “housing.” HUD is making this revision to standardize the use of the term “housing” in part 92 and in response to commenters that noted that the Department failed to make this terminology replacement in the proposed rule. The Department also made technical revisions to § 92.221(b)(1) to remove a dash, add section symbols, and add the word “through” when citing §§ 92.218 through 92.221.

The Department is making conforming regulatory revisions to § 92.219(b)(2)(ii) and (iii) to remove the pinpoint citations to § 92.253(a)-(c) and (d)(2) and replace them with more general citations to the tenant protection provisions, as the provisions have moved and are now contained in the applicable tenancy addendum (HOME rental housing tenancy addendum, HOME TBRA tenancy addendum, and HOME security deposit assistance tenancy addendum). The Department also made non-substantive revisions to § 92.253(b)(2)(ii) for readability and to reduce confusion. The revised provision explains that the written agreement must impose and enumerate all requirements applicable to the project, including affordability requirements in §§ 92.252 or 92.254 (as applicable based on the type of project being carried out), any applicable tenant protections due to operation of a rental housing project (or lease-purchase project), any applicable property standards based on the type of project (

e.g.,

new construction, rehabilitation, acquisition, etc.), and income determination requirements that apply to the family through § 92.203. The revisions of the section should make it easier for PJs to know what items are necessary for the written agreement, but no substantive changes were made from the current requirements.

24 CFR 92.250 Maximum Per-Unit Subsidy Amount, Underwriting, and Subsidy Layering

The Department received comments stating that a five percent increase in the maximum per-unit subsidy was insufficient to cover the associated costs with meeting nationally recognized green building standards. In response, the Department is increasing the percentage in the final rule up to ten percent in § 92.250(c). The Department understands that many commenters requested increases that were significantly higher, especially in the context of rehabilitation. The estimates provided by commenters ranged significantly from ten percent to well over twenty-five percent depending upon the market, the standard the project owner is attempting to meet, and whether the project was new construction or rehabilitation. The Department understands that rehabilitation of existing housing units and meeting significantly higher energy efficiency thresholds than what is required under section 212(e) of the Act can add significantly higher costs. However, the Department must balance the benefits from more sustainable, energy-efficient housing against the potential that fewer units will be created or fewer families served if the subsidy increased beyond ten percent. Given the level of annual appropriations that the HOME program receives, the Department believes it can only move to ten percent at this time but will reevaluate in the future.

24 CFR 92.251 Property Standards and Inspections

A. Carbon Monoxide and Smoke Detection

In response to public comments on carbon monoxide and smoke detection, including comments received in response to specific solicitation of comment #3, which requested comment from the public on new requirements for smoke alarms, the Department is making revisions to § 92.251(a)(3)(vi), § 92.251(b)(1)(xi), § 92.251(c)(3), and § 92.251(f)(1)(iv).

First, the Department is adding the carbon monoxide requirement applicable to the Section 8 voucher program as a new requirement for the HOME program at § 92.251(a)(3)(vi)(A), § 92.251(b)(1)(xi)(A), and § 92.251(f)(1)(iv)(A), which HUD will more fully describe through a publication in the

Federal Register

. The Department is also revising § 92.251(c)(3) to reference the requirement at § 92.251(b)(1)(xi)(A) and revising § 92.251(f)(1)(i) to clarify that the carbon monoxide requirements in 24 CFR 5.703 do not apply because the ones in § 92.251(f)(1)(iv)(A) apply instead.

Second, the Department is adding smoke detection requirements to § 92.251(a)(3)(vi)(B), § 92.251(b)(1)(xi)(B), and § 92.251(f)(1)(iv)(B). The Department is also revising § 92.251(c)(3) to reference the requirement in § 92.251(b)(1)(xi)(B). The revised smoke detection requirements are tailored to the type of HOME activity and work being performed, based on public comments and informed by implementation considerations.

For new construction projects under § 92.251(a)(3)(vi)(B)(

1

), a hardwired smoke detector must be installed on each level of each housing unit, in or near each sleeping area in each housing unit, in the basement of each housing unit, and in each common area of a project. However, a hardwired smoke alarm is not required in crawl spaces or unfinished attics of housing units. In addition, a hardwired smoke detector must also be installed within 21 feet of any door to a sleeping area measured along a path of travel and, where a smoke alarm installed outside a sleeping area is separated from an adjacent living area by a door, a smoke alarm must also be installed on the living area side of the door. The Department believes that it is appropriate to require that the smoke alarm be hardwired, as HOME funds are being used in the new construction of the projects and therefore the building designs and electrical systems can be tailored to meet the HOME requirements.

In response to HUD's consideration of public comments, the Department added § 92.251(a)(3)(vi)(B)(

4

) to establish that following the relevant specifications of either the International Code Council (ICC) or the National Fire Protection Association (NFPA) Standard 72 satisfies the requirements of § 92.251(a)(3)(vi)(B). Originally, the Department considered only codifying installation in accordance with the NFPA Standard 72 but received comments urging the Department to make its revisions consistent with the U.S. Housing Act of 1937, as amended by the Consolidated Appropriations Act, 2023 (Pub. L. 117-328, div. AA, title VI, § 601)). The Consolidated Appropriations Act, 2023 requires that units occupied by tenants living in public housing, living in units and receiving Section 8 Housing Choice Vouchers, or living in unit that receives project-based assistance comply with the applicable codes and standards published by the International Code Council or the National Fire Protection Association and the requirements of the National Fire Protection Association Standard 72 or any successor standard. Therefore, the Department is codifying § 92.251(a)(3)(vi)(B)(

4

) to allow property compliance with either standard for new construction in the HOME program which is consistent with other HUD programs.

The Department also added paragraph (a)(3)(vi)(B)(

2

) to require that smoke alarms have an alarm system designed for hearing-impaired persons. The Department is adding this language to ensure that individuals with hearing impairments are adequately warned in the event of smoke or a fire. The addition of this paragraph also makes the requirements of this section more consistent with the requirements contained in the Consolidated Appropriations Act, 2023.

The Department also added paragraph (a)(3)(vi)(B)(

3

) to describe that the Secretary may establish additional standards related to § 92.251(a)(3)(vi)(B) through a publication in the

Federal Register

.

Additionally, the Department considered requiring hardwired smoke detectors for rehabilitation projects but understood that rehabilitation projects may require different considerations. As a result, while the Department is adopting the same requirements from § 92.251(a)(3)(vi)(B) for § 92.251(b)(1)(xi)(B). In addition, the Department is also adding § 92.251(b)(1)(xi)(B)(4), which will allow a PJ to provide a written exception to an owner to allow the owner to install a smoke detector that uses 10-year non rechargeable, nonreplaceable primary batteries as long as the smoke detector is sealed, tamper-resistant, contains a means to silence the alarm, and otherwise complies with the requirements of this section. This relief may only be provided where the use of hardwired smoke detectors places an undue financial burden on the owner or is infeasible. It is the PJ's responsibility for making and documenting this determination for their records. The Department is declining to define the terms “undue financial burden” or “infeasible” because it believes that PJs should have the flexibility to develop their own standards and to make their own determinations based on the fact-specific circumstances.

For homeownership activities, the Department is revising § 92.251(c)(3) to require that housing acquired for homeownership meet the same carbon monoxide and smoke detection requirements required under § 92.251(b)(1)(xi). And, similar to the exception that the Department is allowing at § 92.251(b)(1)(xi)(B), the Department is allowing a PJ to provide a written exception to an owner to allow the owner to install a smoke detector that uses 10-year non rechargeable, nonreplaceable primary batteries as long as the smoke detector is sealed, tamper-resistant, contains a means to silence the alarm, and otherwise complies with the requirements of this section. The Department is also requiring that the same grounds which justify an exemption from being required to use hardwired smoke detectors,

i.e.,

undue financial burden, be the applicable grounds in § 92.251(c)(3).

Finally, as for the ongoing property standards for existing rental housing projects and the property standards for tenant-based rental assistance, the Department is creating new requirements in § 92.251(f)(1)(iv)(B), which will mandate that smoke detectors meet the standards in 24 CFR 5.703(b) and (d). These are the NSPIRE smoke detection standards that apply to the Section 8 program and elsewhere. The Department believes it is appropriate to treat existing rental housing and units with tenants receiving tenant-based rental assistance the same as those receiving Section 8 HCV assistance or project-based Section 8 assistance, as these programs are sufficiently similar.

For these existing rental housing units and units with tenants receiving tenant-based rental assistance, the inside area must include at least one battery-operated or hard-wired smoke detector, in proper working condition, on each level of the property. For the unit, there must be at least one battery-operated or hard-wired smoke detector, in proper working condition on each level of the unit, inside each bedroom, within 21 feet of any door to a bedroom measured along a path of travel, and where a smoke detector installed outside a bedroom is separated from an adjacent living area by a door, a smoke detector must also be installed on the living area side of the door. Additionally, if the unit is occupied by any hearing-

impaired person, the smoke detectors must have an alarm system designed for hearing-impaired persons. For both the inside area of the building and the unit, the Secretary is able to establish additional standards through

Federal Register

publication.

B. Accepting NSPIRE Inspections

The Department is revising § 92.251(b)(1)(viii)(A), § 92.251(f)(3)(i)(B), and § 92.251(f)(4)(ii) in response to commenters that stated HUD should not restrict the acceptance of NSPIRE inspections to only those made under another HUD program. The Department understands that there are other projects using non-HUD funding, such as LIHTC projects, that may use inspections to the NSPIRE standards to demonstrate compliance with the requirements for those funding sources. The Department will allow a PJ to accept inspections to the NSPIRE standards or another alternative inspection standard HUD may establish through

Federal Register

publication. The inspections must be in satisfaction of another funding source's requirements and conducted within the timeframes established for the applicable regulations.

C. Meeting Property Standards After Acquisition of Homeownership Housing

In response to comment, the Department is revising § 92.251(c)(3)(ii)(C) and adding § 92.251(c)(3)(ii)(D) to give PJs the ability to provide homebuyers an extension of the six-month deadline for bringing a substandard homeownership unit into compliance with the PJ's property standards.

While the Department strongly encourages PJs to provide homeownership assistance to homebuyers purchasing housing that already meets their property standards, this is not always possible. Because there will be times where homebuyers wish to purchase properties that do not meet the PJ's property standards, the Department is revising its regulations to be flexible enough to allow PJs and homebuyers to bring a unit up to the PJ's property standards after purchase.

The Department continues to believe that six months is the appropriate amount of time to provide a homebuyer to comply with a PJ's property standards. However, every construction project is different, and each jurisdiction has local requirements for permitting. In the past, due to national emergencies or disasters, homebuyers have also been affected by materials shortages. Therefore, in light of the variety of factors that can affect even minor repairs needed to bring a unit up to a PJ's property standards, the Department's revisions to § 92.251(c)(3)(ii)(C) and addition of § 92.251(c)(3)(ii)(D) will allow PJs to provide homebuyers an extension lasting up to 12 months from the date of acquisition with HOME funds to bring their unit up to the PJ's property standards. If an extension is granted, the PJ must inspect the unit within 12 months of acquisition and determine that it meets the PJ's property standards.

D. Clarifying the Application of Property Standards

In response to public comments requesting clear requirements for when a unit must be inspected under the new construction property standards and when a unit must be inspected under the PJ's rehabilitation standards, the Department is adding a new § 92.251(d) that explains that if a project includes both rehabilitation of housing units and either new construction or reconstruction of housing units, then the PJ must apply the rehabilitation standards to the housing units that are rehabilitated and the new construction requirements to housing that is either newly constructed or reconstructed.

E. Sample Size for Property Inspections

The Department solicited comment on the correct sample size for HOME project inspections in specific solicitation #4 of the proposed rule. After considering the comments received in response to this solicitation, the Department developed a chart that will provide greater clarity on how many units must be inspected in a project based on the number of HOME-assisted units within the project. Accordingly, the Department is revising § 92.251(f)(3)(iii) to require that inspections be performed in accordance with the chart. The Department is also adding clarifying text to indicate that the PJ must inspect the inspectable areas for each building containing HOME-assisted units and not just the units themselves.

To determine the appropriate sample size for each project, the Department started with its minimum requirement that four units be inspected for all projects that have up to twenty units. This is because all units in small-scale housing (1-4 unit projects) must be inspected once every three years, and projects of a larger size should not be required to inspect fewer units than a small-scale housing project. This is counter to the statutory intent of the monitoring flexibilities provided for small-scale housing projects.

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Additionally, the Department examined other sampling techniques in response to public comment, including the LIHTC and NSPIRE sampling methods (see 26 CFR 1.42-5 for LIHTC and 88 FR 43379 and 43380 for NSPIRE). The Department found that even with the four-unit minimum sample size requirement for projects with up to twenty units, HOME was still less burdensome than other programs and required fewer units to be inspected than did other programs.

7

See 42 U.S.C. 12756(c).

The Department has therefore adopted its proposal for a 20 percent sample for projects containing between twenty and one hundred and thirty HOME units. Then, in response to comments requesting that the Department provide burden relief similar to that provided in LIHTC or HUD programs subject to NSPIRE, the Department adopted the sampling method that it uses under NSPIRE for projects containing greater than one hundred and thirty units. The Department believes that this approach strikes the correct balance by providing burden relief for smaller and larger projects while still requiring an appropriate amount of unit inspections occur. It also provides a clearer standard for PJs because the unit sampling for the inspection is not required to be based on a statistically valid sample.

F. Miscellaneous Revisions to § 92.251

The Department is adding State and local requirements back into § 92.251(a)(3)(iii), which lists the various standards that housing must, where relevant, meet with respect to disaster mitigation. The Department believed it had provided clarifying technical revisions to this section, but did not mean to remove any additional requirements not contained in State and local codes or ordinances from the list of applicable standards. The Department also did not intend to change the meaning of that provision in any other way.

The Department is revising paragraph (a)(3)(iv) to make the requirement described in that paragraph more consistent with the requirements in § 92.504(c). Instead of requiring that a PJ ensure construction contracts and documents describe the work to be undertaken, the PJ must require this to be the case. This non-substantive change will increase clarity and will make the language in paragraph (a)(3)(iv) consistent with that of the monitoring requirements provided in the written agreement provisions in

§ 92.504 and of the cost principles contained in 2 CFR part 200, subpart E.

The Department is revising § 92.251(a)(3)(vii) to state that the green building standards will be published through a

Federal Register

publication.

Similar to how the Department is revising § 92.251(a)(3)(iv) to make the requirements in this section more consistent with the requirements in § 92.504(c), the Department is also revising § 92.251(b)(2). Instead of requiring a PJ to “ensure” that construction meet the PJ's rehabilitation standards, the PJ must “require” this to be the case. This is already required in other regulations including the monitoring requirements provided in the written agreement provisions in § 92.504 and the cost principles contained in 2 CFR part 200, subpart E, and so is a non-substantive change made to increase clarity. § 92.251(b)(1)(vi) is being revised to align the language with the same language contained in § 92.251(a)(2)(iii).

24 CFR 92.252 Qualification as Affordable Housing: Rental Housing

In response to public comment, the Department has determined that the rent limits do not apply to Federal, State, or local rental assistance or subsidy payments and is revising the third sentence of § 92.252(a) accordingly. The Department also revised the first sentence of § 92.252(a)(1) to state that if a family is participating in a program where the person pays thirty percent of their monthly adjusted income or ten percent of their monthly income as a contribution to rent, then the maximum rent due from the family is the family's contribution under that program. Commenters requested clarity on whether an owner could accept the full contract rent for a tenant in a HOME-assisted rental housing unit that was also receiving Section 8 or other forms of rental assistance even if the tenant was low-income and governed by the High HOME Rent provisions of § 92.252(a)(1).

After careful consideration, the Department determined that the changes in the Housing and Economic Recovery Act of 2008 (HERA) (Pub. L. 110-289, 122 Stat. 2654, approved July 30, 2008) not only revised the Section 8 statute, but fundamentally changed the relationship between the two programs. It is clear from HERA that the HOME Rent Limits were not meant to apply to recipients of Section 8 assistance or similar recipients of rental assistance or living in subsidized units. Prior to the passage of HERA, the only way that the Secretary was permitted to increase the rent limits was provided by 42 U.S.C. 12745(a)(1)(A). After passage of HERA, HUD determined the Secretary could also make such determination based upon misalignment between HOME rent requirements and the rent requirements of Section 8 and other similar rental assistance or subsidy programs. The Secretary determined that this change is appropriate and promotes greater alignment between the HOME program and HUD's other rental assistance programs and is revising § 92.252(a)(1) and § 92.252(a)(2) accordingly. Where a family is participating in a program where the family pays as a contribution toward rent no more than thirty percent of the family's monthly adjusted income or ten percent of the family's monthly income, then the maximum rent due from the family is the family's contribution, regardless of whether the family is occupying a High or Low HOME Rent unit. Thus, under the HOME program as changed by HERA, the HOME-assisted rental housing project owner may now accept the rent due from the tenant and the assistance or subsidy payment made under the applicable assistance or subsidy program.

The Department is revising § 92.252(a)(2)(i) to clearly reference the fair market rent being described in § 92.252(a)(1)(i) and to revise the term “fair market value” to “fair market rent” to more accurately describe the rent. § 92.252(a)(2)(ii) is also being revised to more accurately state that the rent contribution of the family in a Low HOME rent unit is 30 percent of the family's adjusted income. This is not a substantive change from the proposed rule or the current regulatory text, but it is a more accurate description of the Low HOME rent applicable to a family.

In response to comments about aligning with LIHTC on income and rents, the Department is adding the statutory language contained in 42 U.S.C. 12745(a)(1)(B)(ii) into the new § 92.252(a)(2)(iii). The provision will state that if a HOME-assisted unit “is a LIHTC unit and has rents not greater than the gross rent for rent-restricted residential units as determined under section 42(g)(2) of title 26” then it shall be a Low HOME Rent unit.

The Department is revising § 92.252(a)(3)(i) and (ii) to add explicit reference to how the zero-bedroom fair market rent is determined. This rent is established under 24 CFR part 888. In revising the rent limits, the Department also realized the requirement in § 92.252(a)(3)(ii), which currently requires that SRO units without sanitary or food preparation facilities meet the occupancy requirements of Low HOME rent units, could be identified in plain language. Instead of referring to the occupancy requirements, the provision is being revised to explain that the units are to be occupied by very low-income tenants. This is a non-substantive change to provide a clearer regulation.

In response to public comments received, HUD is clarifying in § 92.252(b) that “cable and broadband” are not included in utility allowances. Commentors asked for clarity regarding whether broadband is a utility and whether tenants can be required to pay for cable and broadband as a condition of occupying a HOME-assisted rental housing unit. The Department agrees the regulation could be clearer and included language in § 92.252(b) to clarify that in addition to telephone, “cable and broadband” are not included in utility allowances.

Paragraph § 92.252(b) was also revised to add the term “applicable” when describing local public housing authority utility allowances. The Department understands multiple public housing authorities may serve a particular geographic location (

e.g.,

State, county, city, etc.) and the Department believes that the public housing authority providing Section 8 project-based voucher assistance (if the project is assisted) or the one serving the jurisdiction that the PJ believes is most reflective of the utility consumption in the community in which the project is located should be the one used for the HOME project.

The Department is making a non-substantive change to replace the word “ensure” with “require” in § 92.252(c). This change better explains the requirement that PJs must not allow owners to charge tenants in excess of the rents in § 92.252.

The Department is revising the dollar thresholds that define the periods of affordability in § 92.252(d) in response to public comments. Commenters stated that the thresholds had not been adjusted for inflation and the increase in the cost of construction. The Department agrees that the thresholds have not been revised since 1991 and must be revised to account for the increase in costs.

8

See

42 U.S.C. 12745(a)(1)(E) of the Act. requires that HOME projects “will remain affordable, according to binding commitments satisfactory to the Secretary, for the remaining useful life of the property, as determined by the Secretary, without regard to the term of the mortgage or to transfer of ownership, or for such other period that the Secretary determines is the longest feasible period of time

consistent with sound economics and the purposes of this Act . . .” The Department cannot adjust the thresholds to fully account for the differences in inflation

9

because the Department must balance the need for adjusting the periods of affordability to account for the increase in costs (

i.e.,

sound economics) with the purposes of the Act, which are to produce and maintain affordable housing units.

10

Given the significant decrease in appropriations that the HOME program has had in both real and inflation-adjusted dollars since the inception of the current dollar thresholds, the Department can only revise the thresholds to partially account for the increase of costs.

11

8

The HOME thresholds came into effect in 1991 (see 56 FR 65312-01).

9

By one measure, the Consumer Price Index, the dollar has increased by over 200% since the establishment of the dollar thresholds used to determine the period of affordability for the HOME program. See the CPI Inflation Calculator at

https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1%2C000%2C000.00&year1=199201&year2=202310.

10

See 42 U.S.C. 12722(1) and (7).

11

In 1992, the Department was appropriated $1,500,000,000 for HOME, the first year of annual appropriations for the program. (See 105 STAT. 744 for Pub. L. 102-139). For Fiscal Year 2024, the Department received $1,250,000,000 for HOME. In current dollars, this is a decrease in investment in affordable housing of only $250,000,000 but when using the Consumer Price Index to calculate the inflation-adjusted decrease, it is a decrease of over 50% of the initial investment made in affordable housing.

Accordingly, the Department will revise the initial threshold for rehabilitation or acquisition of existing housing per-unit amount of HOME funds from $15,000 to $25,000. If the per-unit cost of rehabilitation and/or acquisition of existing housing is below $25,000, then the minimum period of affordability for each HOME-assisted housing unit is five years. The Department is revising the second threshold from $40,000 to $50,000. If the per-unit cost of rehabilitation and/or acquisition of existing housing is from $25,000 to $50,000, then the minimum period of affordability shall be ten years for each HOME-assisted rental housing unit. For rehabilitation and/or acquisition of existing housing, if the per-unit cost is over $50,000 for each HOME-assisted rental housing unit, then the minimum period of affordability is fifteen years.

While the Department is revising the dollar thresholds for the periods of affordability involving rehabilitation and/or acquisition, the Department has chosen to maintain the period of affordability for new construction and for rehabilitation involving refinancing. The Department believes that the useful life of the property or the longest feasible period of time is consistent with sound economics and the purposes of this Act is still twenty years for HOME rental housing projects involving new construction. Similarly, the Department believes that properties where rehabilitation involves refinancing should also continue to be subject to a period of affordability of fifteen years, as the refinancing and rehabilitation of the property to the PJ's rehabilitation standards should adequately extend its useful life to a period of fifteen years. If the rehabilitation and refinancing action cannot ensure that the property remains capable of operating as affordable housing for a period of fifteen years, then the project is not feasible or furthering the purposes of the Act.

The Department is revising the first sentence of § 92.252(g) and § 92.252(g)(3) to include reference to the new safe harbor in § 92.203(a)(3). This revision allows a PJ to use the safe harbor in § 92.203(a)(3) in the calculation of both initial and annual income determinations instead of using source documents, as required in § 92.203(b)(1)(i). The Department is also revising the first sentence of § 92.252(g) to reference income provisions for HOME tenant-based rental assistance tenants, which have been moved to § 92.203(b)(3) from § 92.203(b)(2).

The Department is revising § 92.252(g)(1) to provide a chart clarifying the alternative income reexamination cycle for small-scale rental projects that a PJ may permit. The Department is also revising § 92.252(g)(2) to specify that rental projects, including small-scale projects, must reexamine tenant income using source documentation every sixth year of the period of affordability.

The Department is revising § 92.252(h)(2)(i) for readability by striking “section 42” and instead stating that over-income tenants subject to the rent restrictions under section 42 of the Internal Revenue Code of 1986 must pay a rent that complies “with that section.” This is clearer and less wordy. The Department is adding a new paragraph § 92.252(h)(2)(iii) that will explain that rent limits do not apply to rental assistance or subsidy payments under any Federal, State, or local rental assistance or subsidy program. This is because when tenants become over-income in certain rental assistance programs, such as the Housing Choice Voucher program, the tenant still pays a percentage of their rent, such as thirty percent of their rent, up to the contract rent for the housing unit. This means that there may still be subsidy or assistance from the rental assistance provider until the tenant is paying the full contract rent. If owners were unable to accept this rent, then it would undermine the purposes of HERA, as explained earlier for High and Low HOME Rents. As such, the Department providing the same clarification it did in paragraph § 92.252(a), which is that the rent does not include the rental assistance provided by the rental assistance or subsidy provider.

Paragraph § 92.252(i) was revised similar to other provisions to state that surety bonds, security deposit insurance, or instruments similar to surety bonds and security deposit insurance may not be used in lieu of or in addition to a security deposit in HOME-assisted units. This is a clarifying change for readability and not a substantive change from the proposed rule.

24 CFR 92.253 Tenant Protections and Selection

The Department is making significant changes to its tenant protection provisions in response to public comment. Based on comments received as part of the specific solicitation of comment #10, the Department has chosen to create three tenancy addenda for the HOME program, one for each type of HOME rental activity (rental housing, tenant-based rental assistance, security deposit assistance only). The requirements for each addendum shall be provided in paragraphs (b)-(d) accordingly. The Department is also reorganizing the tenant protections regulations by removing the current security deposit and termination of tenancy provisions found in paragraphs (c) and (d) and instead placing them directly into the applicable tenancy addendum. The Department believes these changes allow HUD to tailor the protections to the form of assistance being received under the HOME program and should decrease any potential chilling effects that an addendum may have on private owners accepting tenants with HOME tenant-based rental or security deposit assistance.

The Department also believes reorganizing the tenant protections to include the security deposit requirements and termination of tenancy provisions into the applicable tenancy addenda for rental housing and tenant-based rental assistance is more legally supportable and consistent with other HUD programs. Section 42 U.S.C. 12755(a)(1) provides an explicit congressional delegation of authority to the Secretary to determine the terms and conditions of leases in the HOME program. Security deposit requirements and termination of tenancy provisions are material terms to a lease and other

HUD programs include specific provisions addressing each in their tenancy addenda, including in the Section 8 voucher programs.

12

The Department believes this is the most legally sound way of requiring PJs and owners to comply with the tenant protections and that it will better enable beneficiaries of HUD programs to assert their legal rights and defenses. Commenters had also specifically requested that the Department add the security deposit provisions within the tenancy addendum, as those are traditionally contained in a lease, and the Department agrees.

12

See HUD Form 52641A for the Housing Choice Voucher Program Tenancy Addendum and Form HUD 52530.c for the Section 8 Project-based Voucher Program Tenancy Addendum.

Accordingly, the Department is revising paragraph § 92.253(a) by adding a “(1)” after lease contents and redesignating § 92.253(a)(1)-(4) as § 92.253(a)(1)(i)-(iv). Paragraph § 92.253(a)(1)(iv)(A) shall also be revised to require that a lease of a tenant in HOME rental housing include the HOME rental housing tenancy addendum described in § 92.253(b). Paragraph § 92.253(a)(1)(iv)(B) is being added and shall require that a lease of a tenant in HOME tenant-based rental assistance include the HOME tenant-based rental assistance tenancy addendum described in paragraph § 92.253(c).

A separate paragraph § 92.253(a)(2) is being added and shall provide the lease requirements for security deposit assistance only recipients. After reviewing the comments received as part of the solicitation of public comment, the Department determined that it was not appropriate to require that tenants and owners use the HOME tenant-based rental assistance tenancy addendum. Security deposit assistance is fundamentally different than other forms of assistance under the HOME program. It is a one-time form of assistance that is inherently short-term in nature. The assistance is primarily intended as a form of emergency assistance for families whose primary barrier to obtaining housing is the security deposit. Many times, this assistance is also paired with long-term assistance in other programs that comes with their own protections. The HOME tenant-based rental assistance tenancy addendum contemplates a contractual relationship between the PJ and the owner because of the updated rental assistance contract requirements contained in § 92.209(e). Security deposit assistance, in contrast, is of limited duration, lasting only the issuance of the initial assistance.

Instead of requiring the HOME tenant-based rental assistance tenancy addendum, the Department is requiring a security deposit assistance tenancy addendum. Paragraph § 92.253(a)(2) shall require a written lease between the tenant and the owner that is for a period of not less than 1 year, unless by mutual agreement between the tenant and the owner, a shorter period is specified. This mirrors the requirements for both rental housing and tenant-based rental assistance. Likewise, to determine that the HOME security deposit assistance tenancy addendum is included in the lease, the owner must also provide the PJ with a written lease before security deposit assistance is provided. This mirrors the new requirements for both rental housing and tenant-based rental assistance. Then, the paragraph requires that the lease contain the HOME security deposit assistance tenancy addendum in paragraph (d) of this section.

The Department received a significant amount of comment on its proposed tenant protections that represented a spectrum of participants in the HOME program including PJs, owners, CHDOs, tenant rights and advocacy organizations, fair housing and civil rights organizations, and associations. These comments ranged from unqualified support to complete opposition. The Department considered the comments and determined that the vast majority of its proposed text was appropriate for a rental housing tenancy addendum. However, based on public comment and the reorganization of the regulation, the Department did make a number of revisions since the proposed rule stage.

The introductory text in § 92.253(b) has been clarified to indicate that the tenancy addendum being described is the HOME “rental housing” tenancy addendum. The second sentence was also revised to include addenda from local affordable housing programs in addition to other Federal or State affordable housing programs. The Department did not intend to inadvertently exclude HOME-assisted tenants from receiving other forms of local affordable housing assistance and believes this revision is responsive to public comments that warned HUD not to create conflicts with local programs. Paragraph (b)(1)(ii)(A) is being revised to clarify that with respect to maintenance and repairs to a housing unit, the owner shall provide tenants with written expected timeframes for maintaining or repairing units as soon as practicable. A written record is more protective of a participating jurisdiction, owner, and tenant alike, as it provides each clear evidence of when work is expected to occur.

The Department is revising paragraph (b)(2)(i) because while it is true that a family may reside in the unit with a foster child, foster adult, or live-in aide, the family must still comply with all applicable occupancy requirements when living in HOME-assisted rental housing. The Department did not intend to preempt or override State or local occupancy laws or HUD's own occupancy restrictions in other programs whose assistance may be combined with HOME assistance, such as Section 8 project-based rental assistance. The Department notes that any reasonable accommodations must still be made in accordance with all applicable laws regarding nondiscrimination and accessibility. In § 92.253(b)(5), the owner is separately agreeing not to interfere with or retaliate against the tenant for asserting their rights, which include the right to request a reasonable accommodation for a live-in aide. In § 92.253(b)(8), the owner is also agreeing to operate HOME rental housing in accordance with all applicable nondiscrimination and equal opportunity requirements pursuant to § 92.350. As a result, the Department does not believe that this revision will negatively impact tenant protections. This revision was made in response to public comments that requested HUD reexamine the tenant protections to determine that they did not conflict with State or local law or with other Federal programs.

The Department is revising the term “dwelling” to “housing” in § 92.253(b)(2)(iii), (b)(2)(iii)(A), and (b)(2)(iii)(C). The Department is also revising § 92.253(b)(2)(iii)(C) in response to public comment urging HUD to require that owners provide tenants with written notice of the date, time, and purpose of the owner's entry if the owner must enter the housing without advance notification when there is reasonable cause to believe that an emergency requiring entry to the unit exists. The commenter was supportive of this approach and believed it would be protective for the tenant. The Department agrees and believes this provision will improve communication between owners and tenants of HOME-rental housing.

In response to public comment, the Department is revising § 92.253(b)(3)(i) to require that owners provide tenants with written accessible notice of the specific grounds for proposed adverse actions by the owner against the tenant before taking such actions. The

Department had proposed to provide this as simply a notification requirement. One commenter recommended that instead, the Department revise the provision to make the adverse action itself contingent upon providing the tenant notice. The Department believes this is a sensible approach and that it may enable tenants to assert any rights or protections prior to the imposition of any charges or other adverse actions. In revising § 92.253(b)(3)(i), the Department is also clarifying that the notification of the adverse action must be translated if required for the tenant to understand the notice. Tenants and owners have an existing landlord-tenant relationship and so it should not be overly burdensome to ensure that tenants are able to read the written notice in a language they can understand. Similar changes were made to § 92.253(c)(3)(i).

The Department is also revising § 92.253(b)(3)(ii) to more clearly state when tenants must be notified of changes in the ownership and management of the rental housing project. Paragraph § 92.253(b)(3)(ii)(A) will specify that an owner must notify tenants within 30 calendar days of the impending sale or foreclosure of a rental housing project. Paragraph § 92.253(b)(3)(ii)(B) specifies that owners must notify tenants within five business days of a change in ownership. These requirements were both in the proposed rule. The Department added as a new requirement that owners not only notify tenants within five business days of any changes in ownership but also any changes in property management companies managing the property as § 92.253(b)(3)(ii)(C). This change, being made to was in response to public comments that believed that such notification should include property managers and not just owners. Property managers have significant involvement in the operation of the property and are agents or employees acting on behalf of HOME rental housing owners. When an owner obtains a different property management company, it can have significant impacts on the daily life of tenants. The Department believes it is important to keep tenants informed in advance of such impacts and that this improved communication may help both owners and tenants. Similar additions are made to § 92.253(c)(3)(ii).

The Department is revising § 92.253(b)(4)(v) to narrow the instances in which a tenant must pay an owner's attorney fees or other legal costs as part of a court proceeding. In the proposed rule, the Department proposed language to allow payment of such costs if the tenant loses the court proceeding. In response to public comment stating that the Department should examine local and State laws to determine that the tenant protections in § 92.253 are not in conflict with such requirements, the Department determined that this provision may conflict with State or local laws that would not permit payment of attorney's fees or other legal costs, even if the tenant were to lose the matter. Moreover, as courts hearing landlord-tenant disputes are making findings of fact and law based on the individual circumstances of each case, it should be up to those courts to determine whether tenants should pay these costs. Therefore, the revised requirement will state that a tenant is only required to pay the owner's attorney fees or other legal costs if the tenant loses the court proceeding and the court orders the tenant to pay those costs.

The Department is significantly revising § 92.253(b)(5) to address a number of comments received about the effectiveness of the provisions in protecting tenants. First, the heading for the section is being revised to explicitly include “unreasonable interference” to be clear that unreasonable interference with the tenant's safety or peaceful enjoyment of their property is a subject of the provision and that the provision is not only prohibiting retaliation. Commenters reasonably believed that the section was only describing retaliation because the heading did not specify otherwise. Similarly, unreasonable interference is now being separately prohibited in § 92.253(b)(5)(i). The terminology is also being revised from the proposed rule to remove the term “comfort” and instead state “tenant's safety or peaceful enjoyment of a rental unit or the common areas of the rental housing project.” The Department recognizes that there is significant landlord-tenant case law on the term “peaceful enjoyment” and that it is a far more recognized term than “enjoyment.” The Department believes this change will improve the ability for courts to determine the meaning of the provision in relation to their jurisdictions and governing law. The revision to address common areas also reflects consistency with protections in § 92.253 that allow tenants reasonable access to and use of the common areas of the project (see § 92.253(b)(2)(iv)).

The Department then revised § 92.253(b)(5)(ii) to prohibit an owner from retaliating against a tenant for taking any action allowable under the lease and applicable law. The rule provides a variety of actions that a tenant may take under a lease and the Department believes that retaliating against a tenant for using any of these protections is a breach of the lease and of the owner's written agreement with the participating jurisdiction. Section 92.253(b)(5)(iii) provides a list of actions that evidence unreasonable interference or retaliation against a tenant. The Department stresses that this language is providing examples and that it is not a limited list. The actions taken are the same actions that were prohibited in the proposed rule, but the list has been redesignated § 92.253(b)(5)(iii)(A)-(E), and § 92.253(b)(5)(iii)(B) has been revised to add a parenthetical to give an example of what it means to be increasing obligations of a tenant in a manner that is not in accordance with 24 CFR part 92. The example given is of new or increased monetary obligations, such as the addition of new or increased fees. This is just an example of monetary obligations but nonmonetary obligations like new property rules could also be considered retaliatory acts under this regulation under the right circumstances.

In response to public comments requesting that the Department specify the consequences of unreasonably interfering with a tenant's safety or peaceful enjoyment or retaliating against a tenant for exercising a right under their lease or the law, the Department has added a new § 92.253(b)(5)(iv). This new provision explains that if an owner unreasonably interferes or retaliates against a tenant, then the owner is violating the lease, the HOME program requirements, and their written agreement with the participating jurisdiction. While the Department has no authority to require that a participating jurisdiction establish a grievance process, the participating jurisdiction is required to address any regulatory violations in accordance with the applicable provisions contained in § 92.504(a) and (c). This applicability is made clearer by adding explicit cross references.

The Department is also revising § 92.253(b)(5)(ii) of the proposed rule, which is being revised and redesignated as § 92.253(b)(6). The new § 92.253(b)(6) has a revised header that explains that the section is describing the exercise of rights under tenancy. The revised first sentence explains that the tenant can exercise any right of tenancy or protection under their lease and other applicable Federal, State, or local tenant protections. Then the Department redesignated § 92.253(b)(5)(ii)(A)(C) as § 92.253(b)(6)(i) through (iii) and revised § 92.253(b)(6)(ii) to also allow for a tenant to report lease violations in

addition to requesting enforcement of the lease or any tenant protections. The Department believes that reporting such lease violations are inherent in requesting enforcement but believes that it is best to be explicit, given that the provision is also contained in the lease addendum.

The Department redesignated the proposed § 92.253(b)(6) and (7) as § 92.253(b)(7) and (8). In response to public comments, the Department also redesignated § 92.253(c) as § 92.253(b)(9). The same provision will also be included in § 92.253(c)(9). This provision, which provides the requirements for security deposits, should be contained in the tenancy addenda and not contained in a standalone regulation. As explained earlier in this preamble, the Department has clear authority to specify the terms and conditions of the lease under 42 U.S.C. 12755 and security deposits are a material term of the lease. Therefore, the Department is moving the security deposit provisions from a standalone section of the regulation and instead making the language a part of each HOME tenancy addendum. The Department is also revising § 92.253(b)(9) to state that “Surety bonds, security deposit insurance, and instruments similar to surety bonds or security deposit insurance may not be used in lieu of or in addition to a security deposit.” This is a non-substantive clarification of the text.

Similarly, one of the most important provisions of a lease concerns termination of tenancy. The Department understands how central these terms are to a lease and is also including termination of tenancy provisions in the lease addendum. Section 92.253(d)(1) of the proposed rule and all its contents are being redesignated as § 92.523(b)(10)(i)-(v) and being revised.

Section 92.253(b)(10)(i) is being revised from the proposed rule to clarify that good cause includes serious or repeated violation of the “material” terms and conditions of the lease. The Department adds the word “material” because good cause is a higher standard and minor lease violations, especially when easily curable or already cured, should not provide the basis for a termination of tenancy or refusal to renew tenancy in a HOME rental housing project. The Department still believes that serious or repeated violations of the material terms of the lease, such as nonpayment of rent or intentionally damaging the project, can form the basis of a termination of tenancy or refusal to renew.

Section 92.253(b)(10)(i) is also being revised to add a provision that states that an owner is permitted to terminate the tenancy of any tenant or household member or refuse to renew the lease of a tenant of rental housing assisted with HOME funds if the owner is permitted to do so pursuant to the provisions contained in 24 CFR part 5, subpart I; 24 CFR 882.511; or 24 CFR 982.310. This change is in response to public comments and to maintain consistency across HUD programs. Owners with tenants assisted under programs that are subject to these lease provisions must be allowed to terminate tenancy in accordance with the U.S. Housing Act of 1937 (42 U.S.C. 1437f) and the Department is allowing for a consistent approach for termination of tenancy under the HOME program for those assisted tenants.

Section 92.253(b)(10)(i)(A) is being revised from the proposed rule. The provision will state that refusal to purchase a HOME rental housing unit is not good cause to terminate a tenancy. The provision will provide an exception for when a family fails to purchase housing pursuant to a lease-purchase agreement. This was in response to public comment, which pointed out that owners must be able to sell units when the tenant fails to purchase the home in accordance with their lease-purchase agreement. The Department agrees and allows for this to be good cause to terminate a tenancy.

Section 92.253(b)(10)(i)(B) is being restructured to specify other good cause and then list each ground individually. This was done to improve readability of this section. Two grounds for good cause were added and one was significantly revised.

The first form of good cause being added to § 92.253(b)(10)(i)(B)(

1

) is when a tenant or household member is a direct threat to the safety of the tenants or employees of the housing or an imminent and serious threat to the property, which is a statutory ground that commenters requested be considered in the termination of tenancy or refusal to renew.

13

The Department agrees that owners should be able to terminate tenancy for this reason and is adding this as a specific ground. The Department requires owners to maintain records to demonstrate that they complied with the tenant protections provisions, including records demonstrating there is a reasonable basis to determine that a person constituted a direct threat to safety of the tenants or employees of the housing or an imminent and serious threat to the property. This could include specific threats or acts that took place on the project site, against other families living in the project, or against any employees or staff of the owner. The Department believes that posing a direct threat to the safety of tenants or employees is a high bar and not satisfied easily. Similarly, forming the basis for an imminent and serious threat to the property is a higher bar than just describing past negligent acts alone, and brings with it an expectation that there is a specific or credible threat or act made by the tenant or household member against the property.

13

42 U.S.C. 12755(b) states: “An owner shall not terminate the tenancy or refuse to renew the lease of a tenant of rental housing assisted under this subchapter except for serious or repeated violation of the terms and conditions of the lease, for violation of applicable Federal, State, or local law, or for other good cause. Any termination or refusal to renew must be preceded by not less than 30 days by the owner's service upon the tenant of a written notice specifying the grounds for the action. Such 30-day waiting period is not required if the grounds for the termination or refusal to renew involve a direct threat to the safety of the tenants or employees of the housing, or an imminent and serious threat to the property (and the termination or refusal to renew is in accordance with the requirements of State or local law).”

The second form of good cause added to § 92.253(b)(10)(i)(B)(

5

) allows an owner to terminate a tenant's tenancy terminated if the tenant fails to purchase the housing within the timeframes listed in the tenant's lease-purchase agreement. The intent of a lease-purchase program is for the tenant to purchase the unit. If the unit cannot be purchased pursuant to the lease-purchase agreement within 36 months, then the owner must be able to sell the unit to an eligible homebuyer to effectuate the intent of the homeownership development project. The Department has revised § 92.254(a)(7) to further enable owners to sell homeownership units that fail to be purchased pursuant to their lease-purchase agreement and though those changes are not interdependent with the tenant protections provisions contained in § 92.253, the Department is maintaining consistency between the requirements.

One form of good cause was substantively revised since the proposed rule is contained in the newly redesignated § 92.253(b)(10)(i)(B)(

2

). This form of good cause was revised to state that other good cause includes when a tenant unreasonably refuses to provide the owner access to the unit to allow the owner to repair the unit. The provision originally contained language permitting termination of tenancy or refusal to renew tenancy if the tenant creates a documented nuisance under applicable State or local law. The comments received for that provision were decidedly negative and there were significant concerns that this provision

was not only inconsistent with the rest of the tenant protections but counterproductive to the overall tenant protection scheme by providing an often-used avenue for discrimination. The Department agrees with commenters and is removing the provision, thereby clarifying that owners may not justify termination of tenancy on outdated or discriminatory concepts of nuisance but instead must rely upon good cause.

Section 92.253(d)(1)(i)(D) is being redesignated and revised as § 92.253(b)(10)(i)(C). The provision is also being revised directly in response to public comment. The public was concerned that the meaning of a record of conviction of a crime that bears directly on the tenant's continued tenancy was too vague to be an appropriate legal standard to apply to landlord-tenant relationships. The commenters believed that the Department should be more specific to ensure the regulation and protections are applied correctly. The Department agrees. Based on the public comment, the Department is revising the language to specify that the violations of applicable Federal, State, or local law must be for convictions of a crime that directly threatens the health, safety, or right to peaceful enjoyment of the premises by other tenants in the project. The Department continues to believe that termination of tenancy is a fact-specific matter and that it is impossible to provide an exhaustive list of all the grounds or considerations that one must consider prior to termination. Criminal convictions may impact continued tenancy but only to the extent that such convictions interfere with the rights of others who live in the project. Minor violations of law that do not impact people living in the housing should not form the basis for terminating tenancy or refusing to renew a lease in the HOME program.

Paragraph § 92.253(d)(1)(ii) is being redesignated as § 92.253(b)(10)(ii) and revised. The first and second sentence are revised to only provide 30 days' notice prior to termination of tenancy or refusal to renew, and to specify that the 30-day requirement does not apply to the statutory grounds for termination relating to tenants that are a direct threat to the safety of the tenants or employees of the housing or an imminent and serious threat to the property. The Department received overwhelmingly negative comments from the public on the negative effects of requiring a longer notice period before termination or refusal to renew. Some commenters explained the variation of eviction timeframes across the country. Others explained how adding an additional 30 days to the notice period impacted the average eviction process and the average owner in their jurisdiction. Organizations that represented owners and affordable housing managers described how these changes negatively impact the financial feasibility of current and future HOME projects. There were commenters who supported the change, and most indicated that it would better assist tenants in curing or preventing termination of tenancy. The Department also considered what it had done in other programs and the effort to make a consistent 30 day notice standard. On the whole, when the Department considered the potential negative ramifications and how the extension to 60 days was inconsistent with other Departmental efforts, the Department decided to withdraw the proposal to extend the notice period to 60 days and is revising the paragraph accordingly. Paragraphs § 92.253(d)(1)(iii) through (v) are redesignated as § 92.253(b)(10)(iii) through (v). Paragraph § 92.253(d)(1)(v) is also being revised to specify that an owner may not create a hostile living environment or refuse to provide a reasonable accommodation to cause a tenant to terminate their tenancy. The proposed rule had initially just stated that the owner cannot refuse to make a reasonable accommodation, but changes are now being made to cover situations where an owner refuses to permit a lawful reasonable accommodation with the intent of constructively evicting a person.

A new paragraph (c) is being added to § 92.253. This section will provide the tenancy addendum requirements for the HOME tenant-based rental assistance program. The opening paragraph mirrors the opening paragraph for § 92.253(b) and specifies that the terms of the HOME tenant-based rental assistance tenancy addendum shall prevail over any conflicting provisions of the lease. The terms and conditions of the written lease, the HOME tenant-based rental assistance tenancy addendum, the VAWA addendum listed in § 92.253(a), and any addendum required by another Federal, State, or local affordable housing program are the sole and entire agreement between the owner and the tenant and no prior or contemporaneous oral or written representation or agreement between the owner or tenant shall have legal effect. This is the same as the new rental housing requirements and provides sufficient protections to ensure that the owner does not later claim that the tenant agreed to something that would be prohibited under the tenant protections or applicable law. Paragraph § 92.253(c) also states that the HOME tenant-based rental assistance tenancy addendum shall terminate upon termination of the rental assistance contract. Initially, the Department had proposed that the lease terminate upon termination of the rental assistance contract but determined that it was best left to the owner and tenant as to when the lease shall terminate. Instead, the tenancy addendum shall terminate, as the tenant is no longer being assisted with HOME tenant-based rental assistance. Then the paragraph provides the same list of tenant protections contained in the HOME rental housing tenancy addendum paragraph (b) except for:

1. The provision in § 92.253(b)(1)(iii) which requires an owner to repair a life-threatening deficiency impacting the tenant, and requires, if the repairs cannot be completed on the day the life-threatening deficiency is identified, the owner to promptly relocate the tenant into housing that is decent, safe, sanitary, and in good repair and that provides the same or a greater level of accessibility, or other physically suitable lodging, at no additional cost to the tenant, until the repairs are completed. The Department recognizes that this type of provision may have a chilling effect on owner participation in the tenant-based rental assistance program and is removing the requirement. If participating jurisdictions wish to provide this requirement as part of the rental assistance contract, then they still retain discretion to do so.

2. Section 92.253(b)(2)(v) allowing tenants to organize, create tenant associations, convene meetings, distribute literature, and post information. This provision may have a chilling effect on owners and may deter participation in the tenant-based rental assistance program. Though the Department believes that tenants should have the right to organize tenant associations, rental assistance provided through HOME tenant-based rental assistance is not of the same durable nature as development subsidies provided to owners and developers producing HOME rental housing. Requiring that owners allow organizing activities when the participating jurisdiction has far fewer incentives to encourage owners to comply disadvantages tenants and participating jurisdictions who are already contending with source of income discrimination in many jurisdictions.

3. Paragraph § 92.253(c)(9)(iii) will permit tenants that are already in a lease

before they enter into a rental assistance contract to have fulfilled the security deposit requirements of paragraph § 92.253(c)(9) even if the family used an instrument prohibited under paragraph (c)(9)(i). This was due to comment that rightly explained that tenants under a lease may have already used surety bonds, security deposit insurance, or instruments similar to surety bonds and security deposit insurance before they ever received HOME tenant-based rental assistance. While the Department does not encourage the use of these instruments and has determined that they are neither legally security deposits nor is their use advantageous to either owners or tenants, the Department does not want to penalize tenants or place obstacles in the way of tenants attempting to use tenant-based rental assistance.

Other than the above-described protections, § 92.253(c)(1)-(9) is substantively the same as § 92.253(b)(1)-(9). The Department believes that this is appropriate. Recipients of tenant-based rental assistance should have substantively the same protections as tenants in HOME-assisted rental housing.

The Department did want to highlight that for the retaliation provision contained in § 92.253(c)(5)(iv), the Department understands that participating jurisdictions may have limited leverage to require that owners unreasonably interfering with or retaliating against individuals with HOME tenant-based rental assistance stop their actions. The participating jurisdiction must use their best judgment about how to address such circumstances, including balancing the needs of the tenant to the continued tenant-based rental assistance and the participating jurisdiction's obligation to enforce compliance with the owner's rental assistance contract with the participating jurisdiction. However, the Department is declining to remove this protection, as it is a meaningful and necessary tenant protection for all the reasons given in the proposed rule.

The termination of tenancy provisions that were contained in paragraph § 92.253(d)(2) are being revised and redesignated from the proposed rule to be included in § 92.253(c)(10). First, just as in the HOME rental housing termination provisions in § 92.253(b)(10)(i), the tenant-based rental assistance provisions are being included in a new paragraph § 92.253(c)(10)(i) that states that an owner may not terminate the tenancy of any tenant or household member or refuse to renew the lease of a tenant with tenant-based rental assistance, except for serious or repeated violation of the material terms and conditions of the lease; for violation of applicable Federal, State, or local law; for completion of the tenancy period for transitional housing or failure to follow any required transitional housing supportive services plan; or for other good cause. This mirrors the HOME rental housing section but does not include the additional specific grounds that allows owners to terminate the tenancy of any tenant or household member or refuse to renew the lease of a tenant of rental housing assisted with HOME funds if the owner is permitted to do so pursuant to the provisions contained in 24 CFR part 5, subpart I; 24 CFR 882.511; or 24 CFR 982.310. This is because the Department has determined that this is not applicable to the recipients of HOME tenant-based rental assistance, who would not be living in units receiving subsidy or assistance under the Section 8 program.

Similar to § 92.253(b)(10)(i)(A), § 92.253(c)(10)(i)(A) also states that an increase in the tenant's income or assets, the amount or type of income or assets the tenant possesses does not constitute good cause. The section also states that except in the case of a lease-purchase agreement, other good cause also does not include refusal of the tenant to purchase the housing. These protections are substantively the same as the HOME rental housing protections.

The provisions on good cause in § 92.253(c)(10)(i)(B) differ from the proposed rule in several respects. Section 92.253(d)(2)(i)(A) and (B) of the proposed rule are being redesignated as § 92.253(c)(10)(i)(B)(

2

) and (

3

). Section 92.253(c)(10)(i)(B)(

1

) is added and is substantively the same as the statutory grounds for termination of tenancy and refusal to renew that were added to § 92.253(b)(10)(i)(B)(

1

). If a tenant or household member constitutes a direct threat to the safety of tenants or employees of the housing or an imminent and serious threat to the property, an owner must have the ability to terminate the tenancy or refuse to renew the lease. For the reasons given earlier in this preamble, this is a high standard to meet, and the owner must be able to document how they arrived at this determination. Section 92.253(d)(2)(i)(C) is being revised and redesignated as § 92.253(c)(10)(i)(B)(

4

). The sentence shall now only describe when a tenant unreasonably refuses to provide an owner with access to repair the unit. Section 92.253(d)(2)(i)(D) of the proposed rule is being redesignated as § 92.253(c)(10)(i)(B)(

5

). Section 92.253(d)(2)(i)(E) of the proposed rule, which provided the termination of the rental assistance contract as grounds for termination of the tenant lease is being removed. The Department received negative comments on this provision and recognizes that this is a decision best left to the owner and the tenant. After the rental assistance contract expires, the tenancy addendum will also terminate. The owner may continue to lease the unit to the tenant under the terms of the tenant lease. Section 92.253(d)(2)(i)(F) introductory text and (d)(2)(i)(F)(

1

) of the proposed rule are being combined and redesignated as § 92.253(c)(10)(i)(B)(

6

). Section 92.253(d)(2)(i)(F)(

2

) is likewise being revised for readability and redesignated as § 92.253(c)(10)(i)(B)(

7

).

The Department added a new ground for good cause in response to public comment. Section 92.253(c)(10)(i)(B)(

8

) states that if a tenant fails to purchase a housing unit within the timeframes of a tenant's lease purchase agreement, then this shall be good cause to terminate the tenancy. Commenters requested that this be a ground for termination because otherwise, the owner would be required to continue to rent to the family, even though the family would be in breach of their lease purchase agreement. This would disadvantage owners who wished to sell the homeownership units after a tenant fails to purchase the housing and would disincentivize lease-purchases.

Section 92.253(d)(2)(ii) is being redesignated as § 92.253(c)(10)(ii) and revised to remove the 5-business day requirement for the owner to notify the participating jurisdiction that it has served a notice to vacate to a tenant. This is because the new tenant-based rental assistance rental assistance requirements require the owner and participating jurisdiction to have a rental assistance contract (see § 92.209(e)). Therefore, instead of requiring a time period in the regulation, the regulation will defer to the rental assistance contract or the participating jurisdiction's policies and procedures to govern the issuance of notice to the participating jurisdiction. The citation in the last sentence was also revised because of the redesignation of the paragraph.

Paragraphs § 92.253(d)(2)(iii) and (iv) are being redesignated as § 92.253(c)(10)(iii) and (iv) without change. Paragraph § 92.253(d) is being added to add security deposit assistance tenancy addendum requirements. The addendum shall prevail over conflicting terms of the lease. The terms and conditions of the written lease, the HOME security deposit assistance tenancy addendum, and any addendum required by another Federal, State, or

local affordable housing program shall constitute and contain the sole and entire agreement between the owner and the tenant. The security deposit assistance tenancy addendum shall prohibit the prohibited lease terms that are currently contained in § 92.253(b)(1)-(9), except that § 92.253(d)(8) shall be revised to state that a tenant is only obligated to pay costs if the tenant loses and the court so orders, consistent with the revisions made in § 92.253(b)(4)(v) and § 92.253(c)(4)(v).

Paragraph § 92.253(e)(4) is being revised to specify that participating jurisdictions must not exclude an applicant with Federal, State, or local tenant-based rental assistance. The proposed rule did not prohibit discriminating against a person because they were receiving local rental assistance, just State and Federal tenant-based rental assistance. In response to comment and consistent with HUD's position that source of income discrimination must end, the Department is adding this prohibition to the tenant selection regulations.

Paragraph § 92.253(e)(5) is being revised to remove the requirement that HUD approve alternative waiting list procedures for small-scale housing projects. The Department believes that this is best left to participating jurisdictions. The Department reminds participating jurisdictions and owners that all Federal, State, and local nondiscrimination requirements, including the Violence Against Women Act (VAWA), continue to apply to tenant selection, and any approved waiting list procedures must comply with all applicable requirements.

Paragraph § 92.253(f) is being revised to require that the notification of an environmental, health, or safety hazard be in writing. The paragraph is also being revised to require that when an owner becomes aware of such hazards, the owner must notify both the participating jurisdiction and the tenants instead of just the tenants. This was requested by commenters and will allow tenants to find out as quickly as possible if a hazard is affecting their unit or project. The paragraph is also being revised to add a sentence to explain that when an owner or participating jurisdiction has notified the tenants, this satisfies the requirement for the other party.

24 CFR 92.254 Qualification as Affordable Housing: Homeownership

A. Allowing Over-Income In-Place Tenants To Purchase Their Homes

The Department has determined that the Secretary may permit the period of affordability for a project to be terminated earlier than the time periods specified in § 92.252 under the circumstances described in detail below. The Department is revising § 92.254, which currently prohibits over-income in-place tenants from purchasing their units. This is in response to public comment requesting that in-place HOME tenants who are no longer income eligible be permitted to purchase their housing units, including when former tax credit projects are converting to homeownership housing units.

It is consistent with the statutory language of the Act, as well as the purposes of the Act, to allow in-place HOME tenants who have saved up for a downpayment to use that downpayment to purchase the unit that they are currently occupying. Developing stable homeownership models where tenants can live in a housing unit, work towards increasing their income from very-low income to moderate-income, and eventually purchase their unit is not only consistent with the intent of the drafter of the Act but in furtherance of it. As such, the Department is revising § 92.254(a)(3) to add a sentence s allowing HOME-assisted housing to be purchased by an in-place tenant pursuant to § 92.255 if the homebuyer's family was low-income at the time the homebuyer's family began occupying the HOME rental housing unit. This is similar to how families that entered into lease-purchase agreements may purchase their housing so long as they were income-eligible when they entered into their lease-purchase agreement. The Department believes this is in furtherance of the purposes of the Act and will increase homeownership opportunities for HOME-assisted tenants.

B. Meeting Property Standards Post-Acquisition

The Department is revising § 92.254(a)(3) to provide clearer language that explicitly authorizes a participating jurisdiction to assist a family even if the homeownership unit does not meet the property standards at acquisition, provided that the written agreement between the participating jurisdiction and the homebuyer requires the property to meet the standards within the period specified in § 92.251(c)(3)(ii) and funding is secured to complete the rehabilitation necessary to comply with the standards. This ensures consistency between the requirements in § 92.251(c)(3) and § 92.254.

C. Change in Start of Period of Affordability

The Department revised § 92.254(a)(4) in response to public comments. Commenters had objected to beginning the period of affordability upon project completion. For homeownership projects, project completion means that all necessary title transfer requirements and construction work have been performed; the project complies with the requirements of this part (including the property standards under § 92.251); the final drawdown of HOME funds has been disbursed for the project; and the project completion information has been entered into the disbursement and information system established by HUD.

14

14

See 24 CFR 92.2

project completion.

The Department understands that requiring that a homebuyer's resale or recapture period only begin to run after the participating jurisdiction completes all the information in the disbursement and information system can disadvantage homebuyers, especially for multiple address projects where completion of the information in the disbursement and information system can only occur after all housing units in the project meet the requirements in 24 CFR part 92. The Department is changing the provision to instead require the period of affordability begin after execution of the instrument that requires recapture of the HOME investment or recordation of the resale restrictions against the property. The Department is further conditioning the execution of the instrument that requires recapture of the HOME investment or recordation of the resale restrictions against the property upon both meeting the property standards in § 92.251(c)(3) and the transfer of the property title to the homebuyer. The Department believes these are reasonable restrictions because the property must meet the property standards at the time of purchase, or within 6 months after purchase, if permitted by the participating jurisdiction (with the ability to extend up to 12 months after purchase). If the property does not meet the standards within the required time period under § 92.251(c)(3), then the participating jurisdiction would have to repay the investment, and the housing would not be a HOME-assisted homeownership

unit (and thus should not have resale or recapture provisions applied to it).

D. Change in Period of Affordability for Homeownership

The Department revised the threshold for the periods of affordability in the table § 92.254(a)(4) consistent with the periods of affordability in § 92.252(d)(4). When the homeownership assistance provided on a per-unit basis is under $25,000, the period of affordability shall be for a minimum of 5 years. When the homeownership assistance is $25,000 to $50,000, then the minimum period of affordability shall be 10 years. If the amount of homeownership assistance is above $50,000, the minimum period of affordability shall be 15 years.

The Department believes that it is important to increase the thresholds for the periods of affordability for the reasons given earlier. The Department considered that since 1990, the House Price Index has increased by over 300%.

15

The need for HOME homeownership assistance outpaced inflation, as measured by the Consumer Price Index, and has been a driver in increasing the amount of HOME homeownership assistance that is provided per family assisted over the course of the HOME program's history. However, given that the appropriations for the HOME program have decreased by over 50% in inflation-adjusted dollars since the 1992 HOME appropriation of $1,500,000,000,

16

and the need to maintain affordable homeownership units in accordance with the purposes of the Act,

17

the Department adjusted the thresholds to be consistent with the revisions made in § 92.252.

15

See U.S. Developmental Index; Not Seasonally Adjusted, which is an excel sheet within the Federal Housing Finance Agency Housing Price Index Datasets:

https://www.fhfa.gov/data/hpi/datasets?tab=additional-data.

16

By one measure, the Consumer Price Index, the dollar has increased by over 200% since the establishment of the dollar thresholds used to determine the period of affordability for the HOME program. See the CPI Inflation Calculator at

https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1%2C000%2C000.00&year1=199201&year2=202310.

17

See 42 U.S.C. 12722(1) and (7).

E. Edit for Consistency in 92.504

Consistent with § 92.504, the Department is revising the first sentence of § 92.254(a)(5)(ii)(A) to state that recapture provisions must “require” that the PJ recoups all or a portion of the HOME assistance to the homebuyers if the housing does not continue to be the principal residence of the family for the duration of the period of affordability. The Department states this as a requirement in other parts of the rule and is clarifying the provision here for consistency. A similar revision is made in § 92.254(g)(3).

F. Revising Lease-Purchase Provisions of 24 CFR 92.254(a)(7)

The Department considered a variety of comments on its revisions to lease-purchase regulations in § 92.254(a)(7). After careful consideration of the challenges owners encounter when the family fails to purchase the property pursuant to the lease-purchase agreement, the Department is substantially revising § 92.254(a)(7). The Department is revising the introductory sentence of the provision to explain that acquisition, rehabilitation or new construction of housing to be sold to eligible low-income homebuyers for lease-purchase is allowable.

The next provision § 92.254(a)(7)(i) explains the statutory requirement of 42 U.S.C. 12745(b)(2)(B) that a homebuyer must qualify as a low-income family at the time the lease-purchase agreement is signed. The regulation is being revised to provide standalone requirements for lease-purchases within the section. As a result, HUD revised the regulation to clarify that the current regulation's requirements that income determinations be made based on the income of all people living in the homeownership unit are applicable to lease-purchases.

18

The Department is also clarifying in § 92.254(a)(7)(i) that if a family is also receiving HOME tenant-based rental assistance, the PJ is not required to reexamine the family's income during the term of the lease-purchase agreement. The Department has received comments that it should reduce income examination when it is not necessary, and that the Department should move to triennial income examination. While the Department declined to move to such an income cycle for the reasons given in the preamble to § 92.209 and in the applicable responses to public comment, the Department realized that HOME lease-purchase programs are different. The Act clearly states that a family's income is to be determined at the signing of the HOME lease-purchase agreement

19

and does not require that income be reexamined prior to the purchase. When a PJ pairs their tenant-based rental assistance with a HOME-assisted lease-purchase program, the aim is to allow the family to accumulate money for a downpayment and to better position themselves for sustainable homeownership when they acquire the housing. By eliminating the requirement that the family's income be reexamined during the term of the lease-purchase agreement, the requirement is more consistent with the Act, the rule better enables families to save up for the purchase of the home, and it provides burden relief to PJs that would otherwise be required to reexamine the tenant's income after 24 months from the date of execution of the rental assistance contract.

18

See 24 CFR 92.254(a)(3).

19

See 42 U.S.C. 12745(b)(1)(B).

Paragraph § 92.254(a)(7)(ii) explains that the owner and homebuyer must execute a lease-purchase agreement prior to the family occupying the unit and that the lease-purchase program must require the family to purchase the housing within 36 months of the execution of the lease-purchase agreement. The provision also retains language from the proposed rule explaining that owners and homebuyers that have entered into a lease-purchase agreement are subject to the affordability requirements in the homeownership section unless the housing is not purchased within the timeframes described in § 92.254(a)(7) in accordance with the lease-purchase agreement.

The Department is adding § 92.254(a)(7)(iii) in response to public comments that requested that owners be able to sell units to an eligible homebuyer if the family that entered into the lease-purchase agreement fails to purchase the housing pursuant to the agreement. The new § 92.254(a)(7)(iii) provides that if the first homebuyer does not acquire the housing, then the owner may sell the housing to an eligible low-income homebuyer within 48 months of execution of the lease-purchase agreement. This provides owners 12 months from the expiration of a 36-month lease-purchase agreement to find another eligible low-income homebuyer and sell the homeownership unit. The regulation also permits the PJ to provide homeownership assistance to the next homebuyer identified for the unit but prohibits the owner from entering into another lease-purchase agreement for the housing.

The Department has concluded that owners should have another chance to sell the unit as a homeownership unit instead of being required to operate the housing as rental housing if the lease-purchase agreement fails to end in the sale of the housing. However, since the lease-purchase did not succeed the first time, the Department is prohibiting owners from using the lease-purchase model on a second attempt to sell the housing. The owner must default to the rules that apply in a typical homeownership development project.

Section 92.254(a)(7)(iv) has been amended accordingly to provide owners with additional time to sell the housing once it has failed to be sold through a lease-purchase agreement by allowing owners 48 months to complete the sale and transfer the title to an eligible low-income homebuyer (

i.e.,

36 months for lease-purchase under a lease-purchase agreement and 12 months to sell the housing from the expiration of the 36-month lease-purchase agreement). This change to allow 12 months to sell the housing from the expiration of the 36-month lease-purchase agreement is consistent with the Department's extension of the period in which an owner may sell homeownership housing from 9 months to 12 months (see § 92.254(a)(3)).

The Department inadvertently omitted paragraph (a)(8) in the publication of the proposed rule. It was not the Department's intent to delete paragraph (a)(8), and the Department noted some confusion over the use of this provision in the public comments. In the final rule, the Department is retaining the language from § 92.254(a)(8) from the current rule without change.

In response to public comment explaining that it is very difficult to purchase housing with a right of first refusal, bring the property into compliance with the PJ's property standards, and resell it to an eligible homebuyer within 6 months, the Department is revising § 92.254(b)(1)(i) and § 92.254(b)(3)(ii) to allow PJs and CLTs with up to 12 months to sell the housing to the next eligible low-income homebuyer.

G. Preserving Affordability of HOME Projects

The Department is adding an additional clarifying sentence to § 92.254(b)(2)(v) to explain that while sales proceeds can be used to reimburse up to one-hundred percent of the administrative funds used by a PJ to preserve the affordability, any sales proceeds exceeding that amount shall be program income for the PJ.

H. Assisting Homebuyers in Projects Developed by Community Land Trusts

In response to public comments requesting that CLTs or PJs be allowed to assist homebuyers when a CLT exercises a right of first refusal or preemptive purchase rights in accordance with § 92.254(b)(3), the Department is revising § 92.254(b)(3)(iv) to explicitly permit the PJ to provide homeownership assistance to the next eligible homebuyer. PJ always has the flexibility to assist a homebuyer through a homeownership assistance program, regardless of whether the unit the homebuyer wishes to purchase was originally purchased by another HOME-assisted homebuyer. Since the Department is revising § 92.254(b)(3)(iv) to explicitly permit PJs to assist the next homebuyer, the Department is also clarifying both § 92.254(b)(3)(iii) and (iv) to state that if a homebuyer is provided assistance by the PJ, the period of affordability shall be calculated in accordance with § 92.254(b)(1)(iii) and § 92.254(b)(1)(iv), and if no additional assistance is provided to the homebuyer, then the period of affordability shall be equal to remaining period of affordability on the property.

However, the Department does not believe the statute permits the PJ to award HOME funds to the CLT to provide homeownership assistance to the next eligible homebuyer. The statute specifically states that when HOME “funds provided in prior and subsequent appropriations acts that were or are used by community land trusts for the development of affordable homeownership housing pursuant to section 215(b) of such Act,” then the community land trusts could retain the right to purchase the housing without violating the period of affordability requirements contained in section 215(b)(3)(A). This type of relief was to allow for a unit to temporarily cease to be used as affordable housing, as long as the housing was rededicated to that purpose shortly thereafter. It did not establish a new eligible activity or new eligible costs but gave CLTs the ability to exercise their purchase rights without violating the affordability requirements and triggering repayment of the HOME investment by the PJ. As such, the Department is revising the regulation to allow the PJ to assist the next eligible homebuyer.

24 CFR 92.255 Purchase of HOME Units by In-Place Tenants

The Department received public comments requesting that in-place HOME tenants who are no longer income eligible still be permitted to purchase their housing units. While regulations currently do not permit over-income in-place tenants to purchase their units, the Department has determined that the Secretary may permit the period of affordability for a project to be terminated earlier under certain circumstances.

See

42 U.S.C. 12742(a)(1)(E) (noting that rental housing qualifies as affordable housing under this subchapter only if the housing will remain affordable, according to binding commitments satisfactory to the Secretary, for the remaining useful life of the property).

The Department believes that it is consistent with the purposes of the Act to allow in-place HOME tenants who have saved up for a downpayment to use that downpayment to purchase the unit that they are currently occupying. Developing stable homeownership models where tenants can live in a housing unit, work towards increasing their income from very-low income to moderate-income, and eventually purchase their unit is not only consistent with the intent of the Act but in furtherance of it.

As such, the Department is revising § 92.255(b) to state that if the tenant's family is no longer low-income at the time of the purchase, then the family may still purchase the home. The provision is also being revised to state that the family must occupy the housing as their principal residence in accordance with § 92.254(a)(3) and must agree to the imposition of resale restrictions on the housing, in accordance with § 92.254(a)(5), for the remaining period of affordability of the housing unit. By adding these requirements, it ensures that the intent of the Act is fulfilled because the family, which began their participation in the HOME program as low- or very low-income, must own and occupy the housing for the full period of affordability or be subject to the very same resale restrictions that all other income-eligible families must comply with in the event that the family sells or transfers the property within the housing's original period of affordability.

Paragraph § 92.255(c) is similarly revised to explain that though an in-place HOME tenant may purchase their unit even if the tenant's family is no longer low-income, additional HOME funds cannot be provided to assist that family because the family is not income eligible for homeownership assistance.

24 CFR 92.300 Set-Aside for Community Housing Development Organizations (CHDOs)

In the proposed rule, HUD proposed to revise the text of § 92.300. The Department is making further revisions to § 92.300(a)(2) to clarify that rental housing owned by a CHDO is rental housing if it is “leased” to low-income tenants. The Department had inadvertently removed necessary words from the provision in the proposed rule and is clarifying text. HUD also determined that it is necessary to further revise the text of § 92.300(a)(2) and (3) in order to clarify when a community housing development organization is

considered to be an owner of rental housing. The Department is clarifying that if a community housing development organization has site control of a project through a long-term ground lease, such lease must run for the full period of affordability in § 92.252. If an owner does not have site control for the entire period of affordability, then they do not really own the housing for the full period of affordability and cannot enforce 24 CFR part 92 requirements in accordance with this section. Accordingly, § 92.300(a)(2) and (3) are being revised to more clearly explain the ground lease requirements that must be met for a community housing development organization to be considered an owner of rental housing.

In response to public comments, HUD is also making additional changes to § 92.300(a)(3). HUD received public comments requesting that 92.300(a)(3) more clearly describe how a community housing development organization is intended to be in charge of the development process when it acts as a “developer” under that provision. The Department is adding a clarifying sentence that explains that the requirement that a CHDO be in charge of all aspects of the development must be evidenced by an enforceable written agreement between the CHDO and the other entities sharing responsibility in the development of the housing. The Department also provided examples of different types of written agreements that may meet the requirements, including joint venture agreements and master development agreements.

Additionally, multiple commenters questioned whether the Department's removal of the requirement that rental housing developed by a CHDO be owned by the CHDO during development and for the full period of the affordability would allow a loophole for CHDOs to sell CHDO developed units to for-profit organizations. The Department recognized that this provision could inadvertently be used for that purpose. As a result, the Department revised § 92.300(a)(3) to require that the housing be owned by a CHDO unless the PJ documents that that the CHDO no longer has the capacity to own and manage the housing for the full period of affordability and there are no other CHDOs with capacity to own and manage the project for the full period of affordability. If the PJ authorizes the transfer of the housing, then it may only be sold to a nonprofit. By requiring that the PJ attempt to find another CHDO to own the housing unless the PJ cannot identify a CHDO that is capable of owning and managing the housing in accordance with the requirements of part 92 for the full period of affordability, the regulation is more consistent with the purposes of the Act and the intent of the CHDO set-aside. It also provides adequate safeguards to ensure that the CHDO set-aside is not being used for the enrichment of private for-profit businesses.

The Department is withdrawing its proposed language for the first sentence of § 92.300(a)(4)(i), which would have barred wholly-owned for-profit CHDO subsidiaries from being considered a CHDO or valid CHDO subsidiary for purposes of meeting the CHDO project set-aside requirements. The Department recognizes that this is a model that CHDOs may be using and does not wish to reduce the ways CHDOs can participate in HOME projects.

Commenters welcomed changing the term “downpayment assistance” to “homeownership assistance” in § 92.300(a)(6)(i) and elsewhere. Many commenters noted that the new term is broader and could include assistance for closing costs and mortgage rate buy-downs. The Department believes that it in addition to changing the term “downpayment assistance” to “homeownership assistance,” it will also be helpful to revise § 92.300(a)(6)(i) to provide additional examples of the kinds of homeownership assistance that CHDOs can provide.

24 CFR 92.353 Displacement, Relocation, and Acquisition

The Department is revising the reference to § 92.253(d) in § 92.353(c)(2)(ii)(A) to remove the pinpoint citation, as the termination of tenancy provisions are now contained in § 92.253(b)(10) and § 92.253(c)(10).

24 CFR 92.356 Conflict of Interest

HUD is clarifying language in § 92.356(d)(1). The Department recognizes that there may be some confusion over what constitutes a “combination” of conflict of interest disc

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