Disposition of Multifamily Projects and HUD-Held Multifamily Mortgages

SUMMARY: This interim rule amends the Department's multifamily property

disposition regulations to incorporate statutory amendments affecting

the management and disposition of HUD-owned properties and properties

with delinquent HUD-held mortgages, and the sale of HUD-held

multifamily mortgages.

DATES: Effective date: March 2, 1995.

Comments due date: May 1, 1995.

ADDRESSES: Interested persons are invited to submit comments regarding

this interim rule to the Rules Docket Clerk, Office of General Counsel,

Room 10278, Department of Housing and Urban Development, 451 Seventh

Street SW., Washington, DC 20410. Communications should refer to the

above docket number and title. A copy of each communication submitted

will be available for public inspection and copying between 7:30 a.m.

and 5:30 p.m. weekdays at the above address. Faxed comments will not be

accepted.

FOR FURTHER INFORMATION CONTACT: Frank Malone, Director, Office of

Multifamily Housing Preservation and Property Disposition, Department

of Housing and Urban Development, Room 6164, 451 7th Street SW,

Washington, DC 20410. Telephone (202) 708-3555; TDD (202) 708-4594.

(These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

The information collection requirements contained in this interim

rule were approved by the Office of Management and Budget (OMB) under

the Paperwork Reduction Act of 1980 and were assigned OMB control

number 2502-0204 (expiration date: 9/30/96).

I. Introduction

On August 17, 1993 (58 FR 43708), the Department published a final

rule amending its requirements for the management and disposition of

HUD-owned multifamily housing projects. The regulation, at 24 CFR part

290, implemented HUD's statutory authority, contained in section 207(k)

and (l) of the National Housing Act and in section 203 of the Housing

and Community Development Amendments of 1978, to handle and dispose of

such real property.

Section 203 was amended by section 181 of the Housing and Community

Development Act of 1987 (1987 Act), section 1010 of the Stewart B.

McKinney Homeless Assistance Amendments Act of 1988 (1988 Act), and

section 579 of the National Affordable Housing Act of 1990 (NAHA). The

final rule published on August 17, 1993 implemented the NAHA

amendments.

Generally, the statutory amendments specified the type of

assistance to be provided when the Department determines to preserve

units as affordable low- and very low-income housing, and included

certain projects with HUD-held mortgages within the scope of section

203. The Department has been carrying out its multifamily property

disposition program and its servicing of delinquent HUD-held

multifamily mortgages on a project-by-project basis in conformity with

the requirements of section 203, as amended.

In the Multifamily Housing Property Disposition Reform Act of 1994

(MHPDRA) (Pub. L. 102-233, approved April 11, 1994), section 203 was

completely revised. This interim rule, in turn, completely revises 24

CFR part 290 to reflect the new statutory amendments.

Before turning to a discussion of specific details of the

implementation of the revised section 203 in this interim rule, a

general comment on the overall format of this interim rule is in order.

HUD is attempting to implement this complex legislation in a manner

that is more accessible and ``user friendly'' than the typical

government regulation, with the goal of providing clear guidance within

a legally binding context. The structure of the statute has been

reorganized in the regulation to correspond more with the flow of the

disposition process as it actually happens, from general, guiding

principles, through notification requirements, plan development, and

the various actions the Department will take to facilitate the

disposition process. The section headings in this interim rule are

posed in the form of questions, to invite a broader spectrum of users

for the interim rule and to permit all of its users to scan it and

identify more quickly their areas of concern. Certain portions of the

interim rule, which present an extended series of requirements or

alternatives, have been summarized with the use of tables that appear

within the permanent text of the interim rule itself. These tables,

covering the subjects of rents, notification requirements, methods of

disposition, and actions to facilitate disposition, provide a shorthand

overview of major portions of the interim rule that will permit users

to comprehend the interim rule and the disposition process more easily.

The tables are cross referenced to the sections of interim rule text

that provide a fuller explication of the requirements. HUD specifically

invites comments on whether the public finds such innovations to be

helpful, and welcomes suggestions for additional innovations.

A discussion of the revisions to the multifamily property

disposition program, organized section-by-section according to the

amended section 203, follows.

II. Implementation of Amended Section 203

Section 203(a)--Goals

The goals of the interim rule, which provide the general guidelines

within which HUD makes its determinations for the management or

disposition of multifamily housing projects, are listed in section

203(a). They closely resemble the goals previously listed at 24 CFR

290.5, but include three new factors. Protecting the financial

interests of the Federal Government, adhering to fair housing

requirements, and disposing of projects in a manner consistent with

local housing market conditions are now explicitly listed among the

goals which are set forth in Sec. 290.3 of this regulation.

Section 203(b)--Definitions

Several of the nine definitions included in this section are

combined and otherwise modified in the interim rule at Sec. 290.5. The

Department believes that its modifications provide additional precision

and simplify the structure of the interim rule. For example, the

interim rule defines the term multifamily housing project as a subset,

with references to specific statutory authorities, of multifamily

project, which is defined in very broad terms to cover most non-single

family projects insured or subject to a loan under one of HUD's

statutory authorities, including such properties as hospitals,

intermediate care facilities, and nursing homes. The actions the

Department may take to facilitate disposition (i.e., the

[[Page 11845]] assistance to be provided or the restrictions to be

imposed) depend upon the type of multifamily housing project involved,

and the statute provides definitions of subsidized project, formerly

subsidized project, and unsubsidized project, for this purpose. The

interim rule cuts back on the number of cross references necessary to

determine what actions may be taken by combining the definitions for

subsidized and formerly subsidized into a single definition of

subsidized project. Subsidized project includes projects both before

foreclosure and after HUD assumes ownership of the project, when the

mortgage which governs the project has been extinguished. Subsidized

projects and unsubsidized projects are the subsets within the category

of multifamily housing projects.

Although section 203(b)(8) lists market area among the definitions,

its meaning is left to the determination of the Department. The

Department has determined that this is a term best defined on a case-

by-case basis at the local level, particularly when the new goal of

disposing of projects in a manner consistent with local housing market

conditions is taken into consideration. The interim rule provides for

the market area for a project to be defined by the local HUD Office,

which would have the best grasp of local conditions, in terms of the

area from which a multifamily housing project may reasonably be

expected to draw a substantial number of its tenants.

The statute also permits HUD to define the term useful life, used

to determine how long certain requirements will apply to a project. The

Department has determined to define useful life as 20 years, the period

adopted in the August 17, 1993 final rule for maintaining a project as

rental or cooperative housing, but it may be more or less, as

determined by the Department.

Section 203(c)--Disposition of Property

Section 203(c)(1) lists ``negotiated, competitive bid, or other

basis'' as methods of disposition. The interim rule at Sec. 290.30

lists the basic methods of disposition as: (1) Foreclosure sales, (2)

sale of HUD-owned projects, and (3) transfer for use under other HUD

programs.

Method (3) is taken from section 203(f), entitled ``Discretionary

Assistance,'' where ``transfer for use under other HUD programs'' is

listed as an action the Department may take to facilitate disposition.

However, in the Department's analysis, a transfer is actually a method

of disposition, rather than a form of assistance or restriction such as

the other actions given in section 203(f).

The transfer option permits the Department, ``notwithstanding the

provisions of subsection (e)'' (which lists the basic actions and the

alternatives to the basic actions to facilitate disposition), to

transfer a multifamily housing project for use as public housing or

supportive housing, subject to any terms, conditions, and limitations

determined to be appropriate by the Department. The disposition is

complete upon the transfer.

Section 203(c) also lists the qualities of an eligible purchaser

(incorporated in the interim rule at Sec. 290.32); and requirements for

an initial disposition plan and initial sales price (Sec. 290.34 of the

interim rule). Section 203(c)(2)(D) requires the Department to obtain

timely and appropriate input into disposition plans from the community

and tenants. This requirement is stated in Sec. 290.34, and is also

laid out in more detail at Sec. 290.26 in subpart C of the interim rule

where the notification requirements are gathered. HUD views the

requirement for community and tenant input into the disposition plan as

a process similar to providing public notice and an opportunity for

comment in rulemaking. Just as a proposed rule is published for

comment, followed by consideration of the comments before a final rule

is issued, HUD will make an initial disposition plan available to the

community and tenants, consider the comments it receives, and then

issue its final disposition plan.

A requirement for a pre-foreclosure notification is included in

section 203(c)(3), which appears in subpart C of the interim rule as

Sec. 290.22.

Section 203(d)--Management and Maintenance of Properties

This subsection of the statute is the only one that explicitly

addresses management and maintenance of HUD-owned projects, or projects

where HUD is the mortgagee in possession (MIP). These provisions, which

provide management standards and permit HUD to contract or require an

owner to contract for management services, are basically identical to

those in Sec. 290.51 of the August 17, 1993 final rule, and are

incorporated in this interim rule at Secs. 290.10 (standards) and

290.12 (contracting), under subpart B, titled, ``Management

Provisions.'' Also included in subpart B are provisions for determining

occupancy (Sec. 290.14) and rental rates (Sec. 290.16) while a project

is managed by HUD. These provisions are based largely on the August 17,

1993 final rule and, in general, provide that the requirements of the

project's mortgage insurance program before HUD assumed management will

continue to apply.

Actions to Facilitate Disposition

Section 203(e)--Required Assistance; Section 203(f)--Discretionary

Assistance; Section 203(g)--Protection for Very Low-Income Tenants;

Section 203(j)--Displacement of Tenants and Relocation Assistance

Sections 203 (e), (f), (g), and (j) are discussed together because

of their close interrelationship. The actions the Department may take

to facilitate disposition are the common subject matter of these

sections. The regulation organizes the statutorily permitted actions

into four categories: ``required,'' ``basic,'' ``alternatives to

basic,'' and ``additional.'' The table which immediately precedes

subpart E provides an overview of these assistance and restrictions

provisions.

Section 203(e) is divided into three sections, each delineating

actions that the statute requires HUD to take separately, or in

combination with each other or with actions under section 203(f). These

actions are the assistance that may be provided or the restrictions

(mainly to preserve affordability) that may be imposed. The basic

actions are established by section 203(e)(1), which identifies the

units in subsidized projects and unsubsidized projects that are to

receive project-based Section 8 assistance or that are to be subject to

use or rent restrictions. The alternatives to these basic actions

appear in: (1) Section 203(e)(1)(C), which permits project-based

Section 8 assistance and/or use and rent restrictions in unsubsidized

projects to be substituted for the ``basic'' project-based Section 8

assistance in subsidized projects; (2) section 203(e)(2), which permits

tenant-based Section 8 assistance to be provided to tenants instead of

the project-based Section 8 assistance required under (e)(1); and (3)

section 203(e)(3), which provides that the additional actions listed in

section 203(f) may be used as long as, first, affordability use and

rent restrictions are imposed on units that otherwise would have

received the basic project-based Section 8 assistance under (e)(1), and

second, very low-income tenants in units that otherwise would have

received project-based Section 8 assistance under (e)(1) receive

tenant-based Section 8 assistance.

Section 203(f) then lists the additional actions that may be used

in subsidized and unsubsidized projects. Included by this interim rule

in the category of additional actions are provisions taken from the

August 17, 1993 final rule. [[Page 11846]] These provisions, entitled

``determination not to preserve,'' are included to provide criteria

under which the Department will take the action of a determination not

to preserve a project, or a part of a project, as affordable rental or

cooperative housing, resulting primarily in demolition.

In addition to these basic, alternative, and additional categories

of actions is the category of required actions. Section 203(g) provides

for required assistance for very-low income tenants, and 203(j)

provides for required displacement assistance. The displacement

assistance requirements in this interim rule are based upon the

requirements of the August 17, 1993 final rule. An action from the

August 17, 1993 final rule is also included as required, the

nondiscrimination against Section 8 certificate holders and voucher

holders provisions of section 183(c) of the Housing and Community

Development Act of 1987.

The interim rule organizes this complex system of actions to

facilitate a disposition according to the type of project involved in a

disposition--separate subparts address which actions are applicable to

all multifamily housing projects, or to subsidized projects, or to

unsubsidized projects, as follows. Subpart E contains the required

actions applicable to all multifamily housing projects under sections

203 (g) and (j), as well as the nondiscrimination requirements of

section 183(c) of the Housing and Community Development Act of 1987.

Subpart F contains the basic and alternative actions applicable to

subsidized projects under section 203(e), with a reference to the

additional section 203(f) actions listed in subpart H. Subpart G

contains the same information for unsubsidized projects as subpart F

does for subsidized projects. Subpart H lists the additional actions

under 203(f) that are applicable to all multifamily housing projects.

All of the actions to facilitate disposition are set out in abbreviated

form in a table that precedes subpart E, to permit users of this

interim rule to follow more easily the options for assistance and

restrictions that would apply to a particular project.

Section 203(h)--Contract Requirements

This section states the contract requirements applicable to

project-based Section 8 assistance provided in accordance with a

disposition. These requirements are implemented by revising the

appropriate Section 8 regulations at 24 CFR 886.310 and 886.311.

Section 203(i)--Right of First Refusal for Local and State Government

Agencies

This right of first refusal provision is included among the

notification requirements in subpart C as Sec. 290.24.

III. Sale of HUD-Held Multifamily Mortgages

On September 22, 1994 (59 FR 48726), the Department published a

final rule that amended 24 CFR part 290 to set forth the basic policies

and procedures that govern the disposition of HUD-held multifamily

project mortgages. This final rule implemented a proposed rule

published on April 13, 1994 (59 FR 17500) and also incorporated

amendments made by the MHPDRA. The provisions of the mortgage sale

final rule are included in this interim rule as subpart I, with only

slight modifications to conform to the new format of this interim rule.

IV. Other Amendments in This Interim Rule

Section 101(d) of the MHPDRA amended the definition of owner under

the United States Housing Act of 1937 to include ``an Agency of the

Federal Government.'' The purpose and effect of this amendment is to

permit HUD to collect Section 8 rental payments when it owns or manages

a project. The conforming change to the definition of owner is made in

24 CFR 886.302.

The definition of eligible project or project in 24 CFR 886.302 is

also amended to include a multifamily housing project under 24 CFR part

290.

Section 886.319 is amended to conform to Sec. 886.120 and state

explicitly that HUD may contract for the administration of its Section

8 contract functions.

V. Other Matters

Any assistance made available to a purchaser under this interim

rule, whether rental or other financial assistance, will be subject to

scrutiny under section 102(d) of the HUD Reform Act, insofar as that

statutory provision has been implemented by guidelines issued by the

Office of Housing under 24 CFR part 12, subpart D (see, e.g., a Federal

Register Notice published April 9, 1991 (56 FR 14436) entitled

``Administrative Guidelines; Limitations on Combining Other Government

Assistance with HUD Housing Assistance'').

Environmental Impact

A Finding of No Significant Impact with respect to the environment

has been made in accordance with HUD regulations at 24 CFR part 50,

which implement section 102(2)(C) of the National Environmental Policy

Act of 1969. The Finding is available for public inspection between

7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules Docket

Clerk, Office of the General Counsel, Department of Housing and Urban

Development, Room 10276, 451 Seventh Street SW., Washington, DC 20410.

Executive Order 12866

This interim rule has been reviewed and approved by the Office of

Management and Budget in accordance with Executive Order 12866, issued

by the President on September 30, 1993 (58 FR 51735, October 4, 1993).

Any changes to the interim rule resulting from this review are

available for public inspection between 7:30 a.m. and 5:30 p.m.

weekdays in the Office of the Rules Docket Clerk.

Regulatory Flexibility Act

The Secretary, in accordance with provisions of the Regulatory

Flexibility Act (5 U.S.C. 605(b)), has reviewed this interim rule

before publication and by approving it certifies that it will not have

a significant economic impact on a substantial number of small

entities. These revisions to the policies governing the management and

disposition of HUD-owned multifamily housing projects should not affect

the ability of small entities, relative to larger entities, to bid for

and acquire projects that HUD determines to sell.

Executive Order 12612, Federalism

HUD has determined, in accordance with Executive Order 12612,

Federalism, that this interim rule will not have a substantial, direct

effect on the States or on the relationship between the Federal

government and the States, or on the distribution of power or

responsibilities among the various levels of government. While the

interim rule would impose terms and conditions on States that acquire

projects under this interim rule, that is clearly the intent of the

authorizing legislation, and therefore no further review is necessary

or appropriate.

Executive Order 12606, the Family

HUD has determined that this interim rule will not have a

significant impact on family formation, maintenance, and general well-

being within the meaning of Executive Order 12606, The Family, because

it does not affect the eligibility of families for admission into

multifamily housing projects that are subject to this

rulemaking. [[Page 11847]]

Justification for Interim Rulemaking

This publication of this interim rule for effect upon issuance is

required by MHPDRA section 101(f).

Regulatory Agenda

This interim rule was listed as item number 1802 in the

Department's Semiannual Agenda of Regulations published on November 14,

1994 (59 FR 57632, 57657) under Executive Order 12866 and the

Regulatory Flexibility Act.

The Catalog of Federal Domestic Assistance Program number and title

is 14.156, Lower Income Housing Assistance Program (Section 8).

List of Subjects

24 CFR Part 290

Low and moderate-income housing, Mortgage insurance.

24 CFR Part 886

Grant programs--housing and community development, Lead poisoning,

Rent subsidies, Reporting and recordkeeping requirements.

Accordingly, for the reasons stated in the preamble, part 290 of

chapter II and part 886 of chapter VIII of title 24 of the Code of

Federal Regulations, are amended as follows:

1. Part 290 is revised to read as follows:

PART 290--DISPOSITION OF MULTIFAMILY PROJECTS AND SALE OF HUD-HELD

MULTIFAMILY MORTGAGES

Subpart A--General Provisions

Sec.

290.1 What subjects does this regulation cover?

290.3 What are the goals of this regulation?

290.5 What definitions apply in this regulation?

290.7 May any of the provisions of this regulation be waived?

Subpart B--Management and Maintenance Provisions

290.10 What maintenance and management standards apply to

multifamily housing projects?

290.12 How may HUD contract for management services, or require the

owner of a multifamily project to contract for management services?

290.14 What occupancy requirements apply under this regulation?

290.16 How will rental rates be set when HUD is mortgagee-in-

possession (MIP) or owner of a multifamily housing project?

Subpart C--Notification Requirements

290.20 How will HUD provide the notifications that are required

under this regulation?

290.22 What notification must be given before foreclosure?

290.24 Who has a right of first refusal for properties that HUD is

selling, and what kind of notice must HUD provide?

290.26 What kind of notice must HUD provide to tenants and the

community when HUD is selling a project?

Subpart D--Disposition Procedures

290.30 What are the different methods that may be used for the

disposition of a multifamily housing project?

290.32 What qualities does HUD look for in a purchaser?

290.34 What kind of disposition plan will HUD prepare before

selling a project?

Subpart E--All Multifamily Housing Projects--Required Actions

290.40 Are there any required actions that must be taken in the

disposition of all multifamily housing projects?

290.42 What actions must be taken concerning tenants who are

displaced by the disposition of a multifamily housing project?

290.44 What actions must be taken concerning very low-income

tenants in the disposition of a multifamily housing project?

290.46 What restrictions concerning nondiscrimination against

Section 8 certificate holders and voucher holders apply in the

disposition of a multifamily housing project?

Subpart F--Subsidized Projects--Basic and Alternative Actions to

Facilitate Disposition

290.54 What are the basic actions that may be taken in the

disposition of a subsidized project?

290.56 What alternatives to the basic actions are available in the

disposition of subsidized projects?

Subpart G--Unsubsidized Projects--Basic and Alternative Actions to

Facilitate Disposition

290.64 What are the basic actions that may be taken in the

disposition of an unsubsidized project?

290.66 What alternatives to the basic actions are available in the

disposition of an unsubsidized projects?

Subpart H--All Multifamily Housing Projects--Additional Actions to

Facilitate Disposition

290.70 What guidelines will HUD apply in determining which

additional actions to take in the disposition of a multifamily

housing project?

290.72 May HUD reduce the sales price for a project?

290.74 May HUD require additional use and rent restrictions?

290.76 May HUD provide short-term loans to facilitate the sale of a

project?

290.78 Under what conditions may HUD provide up-front grants?

290.80 What additional tenant-based assistance may HUD offer?

290.82 How may HUD provide for alternative uses of units in the

disposition of a multifamily housing project?

290.84 What disposition assistance may be available to rebuild a

multifamily housing project?

290.86 What emergency assistance funds may be provided to tenants?

290.88 Under what circumstances may HUD make a determination not to

preserve a project or a part of a project?

Subpart I--Sale of HUD-Held Multifamily Mortgages

290.100 What is the purpose of this subpart?

290.102 What affect does this subpart have on the applicability of

Civil Rights requirements?

290.104 What tenant protections will apply in the sale of HUD-held

subsidized mortgages?

290.106 How will HUD sell current subsidized mortgages?

290.108 How will HUD sell delinquent subsidized mortgages?

290.110 What is HUD's policy for selling HUD-held unsubsidized

mortgages?

Authority: 12 U.S.C. 1701z-11, 1701z-12, 1713, 1715b, 1715z-1b;

42 U.S.C. 3535(d).

Subpart A--General Provisions

Sec. 290.1 What subjects does this regulation cover?

(a) Except as provided in paragraph (b) of this section, this part

applies to the sale of multifamily projects which are or were, before

being acquired by the Department, assisted or had a mortgage insured

under the National Housing Act, or which were subject to a loan or a

capital advance under Section 202 of the Housing Act of 1959. Subpart I

of this part applies to the sale of HUD-held multifamily mortgages.

(b) This part does not apply to multifamily projects being

foreclosed by HUD for which the decision to foreclose has been made

before the effective date of this part, nor to HUD-owned projects where

the initial disposition program has been approved before the effective

date of this part. For such projects, the procedures in the regulations

at 24 CFR part 290 in effect immediately prior to the effective date of

this regulation apply, unless HUD determines, on a case-by-case basis,

to apply the new regulations.

(c) This part applies to the sale of multifamily projects which are

or were, before being acquired by the Department, assisted or insured

under the National Housing Act, or which were subject to a loan under

section 202 of the Housing Act of 1959. It also applies to the sale of

certain loans and mortgages, and to the management of certain

multifamily properties.

Sec. 290.3 What are the goals of this regulation?

(a) The goals of this part are to provide for the management and

[[Page 11848]] disposition of HUD-owned multifamily projects, and

multifamily projects subject to HUD-held mortgages, in a manner that:

(1) Is consistent with the National Housing Act, section 203 of the

Housing and Community Development Amendments of 1978, and other

relevant statutes;

(2) Will protect the financial interests of the Federal Government;

and

(3) Will, in the least costly fashion among reasonable available

alternatives, address the goals of:

(i) Preserving certain housing so that it can remain available to

and affordable by low-income persons;

(ii) Preserving and revitalizing residential neighborhoods;

(iii) Maintaining the existing housing stock in a decent, safe, and

sanitary condition;

(iv) Minimizing the involuntary displacement of tenants;

(v) Maintaining housing for the purpose of providing rental

housing, cooperative housing, and homeownership opportunities for low-

income persons;

(vi) Minimizing the need to demolish multifamily housing projects;

(vii) Adhering to fair housing requirements; and

(viii) Disposing of such projects in a manner consistent with local

housing market conditions.

(b) The goals of this part, with respect to HUD-held mortgages, are

to sell such mortgages in a manner that:

(1) Reduces losses to the FHA fund;

(2) Decreases HUD's inventory of project mortgages;

(3) Improves the servicing of these mortgages; and

(4) Improves the rental services provided by properties securing

HUD-insured and HUD-held mortgages.

(c) Competing goals. In determining the manner in which a project

is to be managed and disposed of, HUD may balance competing goals

relating to individual projects in a manner that will further the

purposes of this part.

Sec. 290.5 What definitions apply in this regulation?

The following definitions apply to this part:

Affordable means, with respect to a unit of a multifamily housing

project:

(1) For a unit occupied by a very-low income family, the unit rent

does not exceed 30 percent of 50 percent of the area median income (not

the income of the family), as determined by the Department, with

adjustments for smaller and larger families; or

(2) For a unit occupied by a low-income family other than a very

low-income family, the unit rent does not exceed 30 percent of 80

percent of the area median income (not the income of the family), as

determined by the Department, with adjustments for smaller and larger

families; or

(3) The unit, or the family residing in the unit, is receiving

assistance under Section 8 of the United States Housing Act of 1937.

Cooperative means a nonprofit, limited equity, or consumer

cooperative as defined under 24 CFR part 213. It may include mutual

housing associations.

Department means the United States Department of Housing and Urban

Development, or HUD.

HUD-owned project means a multifamily project that has been

acquired by HUD.

Low-income family means a low-income family as defined at 24 CFR

part 813.

Market area means the area from which a multifamily housing project

may reasonably be expected to draw a substantial number of its tenants,

as determined by HUD, taking into consideration the knowledge of the

HUD office with jurisdiction over the project of the local real estate

market and HUD's project underwriting experience. Submarkets may be

used in large, complex metropolitan areas.

Multifamily housing project means a multifamily project that is or

was insured under sections 207, 213, 220, 221(d)(3) 221(d)(4), 223(f),

231, 236, or 608 of the National Housing Act (12 U.S.C. 1701 et seq.);

or is or was subject to a loan under section 202 of the Housing Act of

1959 (12 U.S.C. 1701q); or was a Real Estate Owned (REO) multifamily

project transferred by the Government National Mortgage Association to

the Department. Multifamily housing project does not include projects

consisting of one to eleven units insured under section 220(d)(3)(A) of

the National Housing Act (12 U.S.C. 1715k); or mobile home parks under

section 207(m) of that Act (12 U.S.C. 1713); or vacant land; or

property covered by a homeownership program approved under the

Homeownership and Opportunity for People Everywhere (``HOPE'') program.

Multifamily project means a project consisting of five or more

units that has or had a mortgage (even if subordinate to other

mortgages) insured under the National Housing Act or is or was subject

to a loan under section 202 of the Housing Act of 1959, or a hospital,

intermediate care facility, nursing home, group practice facility, or

board and care facility that has or had a mortgage insured, or is or

was subject to a loan under, these authorities. Multifamily project

does not include projects consisting of one to eleven units insured

under section 220(d)(3)(A) of the National Housing Act, which are

classified as single family homes.

Nonprofit organization means a corporation or association organized

for purposes other than making a profit or gain for itself.

Stockholders or trustees do not share in profits or losses. Profits are

used to accomplish the charitable, humanitarian, or educational

purposes of the corporation.

Preexisting tenant means a family that resides in a unit in a

multifamily housing project immediately before the project is acquired

under this part by a purchaser other than the Department.

Project-based assistance means assistance that is attached to a

structure.

Subsidized mortgage means a mortgage, including a purchase money

mortgage, on a subsidized project.

Subsidized project means a multifamily housing project that is

receiving, or immediately before its mortgage was foreclosed by HUD or

the project was acquired by HUD, pursuant to this regulation, was

receiving any of the following types of assistance:

(1) Below market interest rate mortgage insurance under the proviso

of section 221(d)(5) of the National Housing Act (12 U.S.C. 1715l)

(hereinafter, a BMIR project);

(2) Interest reduction payments made in connection with mortgages

insured under section 236 of the National Housing Act (hereinafter, a

236 project);

(3) Direct loans made under section 202 of the Housing Act of 1959

(hereinafter, a 202 project);

(4) Assistance, to more than 50 percent of the units in the

project, in the form of:

(i) Rent supplement payments under section 101 of the Housing and

Urban Development Act of 1965 (12 U.S.C. 1701s) (hereinafter, Rent

Supp);

(ii) Additional assistance payments under section 236(f)(2) of the

National Housing Act (hereinafter, RAP);

(iii) Housing assistance payments under section 23 of the United

States Housing Act of 1937 (as in effect before January 1, 1975)

(hereinafter, Sec. 23); or

(iv) Housing assistance payments under Section 8 of the United

States Housing Act of 1937 (42 U.S.C. 1437f note) (excluding payments

of tenant-based Section 8 assistance) (hereinafter, project-based

Section 8 assistance).

Sufficient habitable, affordable, rental housing is available means

that the HUD office with jurisdiction determines that there is an

adequate supply of habitable, affordable housing for low-

[[Page 11849]] and very low-income families available in the market

area. Submarkets, consisting of portions of units of general local

government, may be used in large, complex metropolitan areas. Local

housing markets having an adequate supply of standard-quality rental

housing would include housing markets in which the supply of rental

housing available and in production is adequate to meet the anticipated

demand (e.g., the housing market is balanced), as well as those in

which there is an excess supply of rental housing (e.g., the housing

market is soft). Rental markets that do not have an adequate supply

(e.g., tight markets) are characterized by low rental vacancy rates,

low levels of production and turnover of rental housing, and, usually,

by high levels of rent inflation. HUD will make the determination of

whether sufficient habitable, affordable, rental housing is available

using established market analysis techniques, and will consider

information that demonstrates:

(1) The rental housing vacancy rate is at a low level relative to

the rate required for a balanced market, typically a four percent

vacancy rate; except that a rate lower than four percent may be

considered in unusual circumstances if it can be demonstrated that

there is an adequate supply of affordable housing for low-income

families;

(2) The number of rental housing units being produced on an annual

basis is not large enough to satisfy demand arising from the increase

in households, or, in markets where there is little or no growth,

evidence that the number of additional rental units being supplied is

not sufficient to meet the demand arising from net losses to the

available inventory and the inadequate supply of rental housing has

inhibited growth;

(3) The shortage of housing is resulting in rent increases that

exceed normal increases commensurate with the costs of operating rental

housing;

(4) A significant number, or proportion, of the households holding

Section 8 certificates or rental vouchers are unable to find adequate

housing because of the shortage of rental housing, including PHA data

showing a lower than average percentage of units under lease and a

longer than average time required to find units.

Tenant-based assistance means rental assistance that is not

attached to a structure.

Unit of general local government means a city, town, township,

county, parish, village, or other general purpose political subdivision

of a State.

Unsubsidized mortgage means any HUD-held multifamily mortgage that

is not a subsidized mortgage.

Unsubsidized project means a multifamily housing project that is

not a subsidized project.

URA means the Uniform Relocation Assistance and Real Property

Acquisition Policies Act of 1970 (42 U.S.C. 4601-4655).

Useful life means, generally, twenty years, but it may be more or

less, as determined by the Department.

Very low-income family means a very low-income family as defined at

24 CFR part 813.

Sec. 290.7 May any of the provisions of this regulation be waived?

The Assistant Secretary for Housing may waive any provision of this

part, subject only to statutory limitations. Each waiver must be in

writing, and must be supported by documentation of the facts and

reasons which formed the basis for the waiver. HUD will publish a

Federal Register notice informing the public of all waivers granted

under this section in accordance with the HUD Reform Act of 1989 and

HUD policies regarding publication of waivers.

Subpart B--Management and Maintenance Provisions

Sec. 290.10 What maintenance and management standards apply to

multifamily housing projects?

(a) Scope. The provisions of this section apply to any multifamily

housing project:

(1) That is HUD-owned;

(2) For which HUD is mortgagee-in-possession; or

(3) That is subject to a mortgage held by HUD.

(b) Maintenance and management standards. With respect to projects

within the scope of this section, HUD or the owner, as appropriate,

shall:

(1) To the greatest extent possible, maintain all occupied projects

in a decent, safe, and sanitary condition, and in compliance with any

standards established by the Department and under applicable State or

local laws, rules, ordinances, or regulations relating to the

accessibility and physical condition of the housing;

(2) Maintain full occupancy;

(3) Maintain projects for purposes of providing rental or

cooperative housing; and

(4) Manage projects in accordance with the requirements of the Fair

Housing Act (42 U.S.C. 3601-19) and implementing regulations at 24 CFR

parts 100 et al, which prohibit discrimination in the sale or rental of

housing and in related transactions on the basis of race, color,

religion, sex, national origin, handicap, or familial status; section

504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) and implementing

regulations at 24 CFR part 8 that prohibit discrimination against

disabled individuals in Federally-assisted activities, and 24 CFR part

9, which prohibit discrimination against disabled individuals in

Federally-conducted activities; Title VI of the Civil Rights Act of

1964 and implementing regulations at 24 CFR part 1, which prohibit

discrimination based on race, color, or national origin in programs

receiving Federal financial assistance; the Age Discrimination Act of

1975 and implementing regulations at 24 CFR part 146, which prohibit

discrimination based on age in programs receiving Federal financial

assistance; and Executive Order 11063, as amended by Executive Order

12259 (Equal Opportunity in Housing) and implementing regulations at 24

CFR part 107.

Sec. 290.12 How may HUD contract for management services, or require

the owner of a multifamily project to contract for management services?

(a) Scope. The provisions of this section apply to any multifamily

housing project:

(1) That is HUD-owned;

(2) For which HUD is mortgagee-in-possession; or

(3) That is subject to a mortgage held by HUD.

(b) Contracting for management services. (1) With respect to

projects within the scope of this section, HUD may, or may require the

owner to, contract for management services for the project with for-

profit and nonprofit entities and public agencies, including public

housing agencies, on a negotiated, competitive bid, or other basis, at

a price determined by HUD to be reasonable, with a manager determined

by HUD to be capable of:

(i) Implementing a sound financial and physical management program

that is designed to enable the project to meet anticipated operating

and maintenance expenses to ensure that the project will remain in a

decent, safe, and sanitary condition, and in compliance with any

standards under applicable State or local laws, rules, ordinances, or

regulations relating to the accessibility and physical condition of the

housing, and any such standards established by HUD;

(ii) Responding to the needs of tenants and working cooperatively

with tenant organizations;

(iii) Providing adequate organizational, staff, and financial

resources to the project; and

(iv) Meeting such other requirements as HUD may determine to be

necessary or appropriate. [[Page 11850]]

(2) HUD will conduct outreach efforts to minority-owned and female-

owned businesses to become managers of the HUD-owned projects covered

by this section, in accordance with Executive Order 11625, as amended

by Executive Order 12007 (Minority Business Enterprises), Executive

Order 12432 (Minority Business Enterprise Development), and Executive

Order 12138 (National Women's Business Enterprise Policy).

Sec. 290.14 What occupancy requirements apply under this regulation?

(a) Multifamily housing project that is HUD-owned or for which HUD

is mortgagee-in-possession. Occupancy in a multifamily housing project

that is HUD-owned or for which HUD is mortgagee-in-possession shall be

available on a basis that is comparable to the occupancy requirements

that applied to the project immediately before HUD acquired the project

or became mortgagee-in-possession, except that preference shall be

given to tenants of other HUD-owned multifamily housing projects who

are eligible for assistance in accordance with the displacement and

relocation provisions at Sec. 290.42.

(b) Evictions. Eviction from a HUD-owned multifamily housing

project is governed by 24 CFR part 247, subpart B.

(c) Threat to health and safety. Whenever HUD determines that there

is an immediate threat to the health and safety of the tenants, HUD may

require the tenants to vacate the premises and shall provide temporary

relocation benefits as provided in Sec. 290.42 to tenants required to

vacate the premises.

Project Rents While HUD is MIP or Owner

Unit rents....................... Unit rents set in accordance with the

rent setting requirements of the

project's mortgage insurance or

direct loan program while HUD is

mortgagee-in-possession (MIP), or in

accordance with the rent setting

requirements of the project's

mortgage insurance or direct loan

program in effect immediately before

HUD became the owner of the project

(Sec. 290.16(a)).

Rents payable by tenants......... 1. Tenant rent. Rent the tenant pays

will be based on the income

certification and the rent payment

requirements of the project's

mortgage insurance or direct loan

program in effect while HUD is MIP

or immediately before HUD became the

owner of the project (Sec.

290.16(b)(1)).

2. Rent when tenant does not certify

income. If a tenant does not certify

income, the tenant must pay the unit

rent (Sec. 290.16(b)(1)).

3. Utility allowance. For a tenant

whose rent is based on a percentage

of adjusted income, HUD will use a

utility allowance to reduce the rent

(Sec. 290.16(b)(2)).

4. Project viability. HUD may adjust

the rent to promote project

viability (Sec. 290.16(b)(3)).

5. Tenants with rental vouchers or

certificates. Tenant pays rent in

accordance with policies and

procedures governing such assistance

(Sec. 290.16(b)(4)).

Sec. 290.16 How will rental rates be set when HUD is mortgagee-in-

possession (MIP) or owner of a multifamily housing project?

Because of the subsidies involved in making multifamily housing

projects affordable, the setting of rents involves two steps: first,

establishing the rent on a unit that will be paid to the owner, and

second, determining the rent that the tenant pays (with the difference

made up by a subsidy), using a number of procedures to obtain income

verification and notify tenants of changes in rent. These procedures

are explained below.

(a) Setting unit rents. Except as modified by this section, for a

property where HUD is mortgagee-in-possession (MIP), HUD will set unit

rents in accordance with the rent setting requirements of the project's

mortgage insurance or direct loan program; or for a property owned by

HUD, rents will be set in accordance with the rent setting requirements

of the project's mortgage insurance or direct loan program in effect

immediately before HUD became the owner of the project.

(b) Setting rents payable by tenants--(1) Tenant rent. The rent the

tenant pays will be based on the income certification and the rent

payment requirements of the project's mortgage insurance or direct loan

program in effect while HUD is MIP or immediately before HUD became the

owner of the project, as affected by any of the factors in paragraphs

(b)(2) through (b)(4) of this section. However, if a tenant does not

certify income as required by this section, the tenant must pay the

unit rent as determined under the rent setting requirements in

paragraph (a) of this section.

(2) Utility allowance. For a tenant whose rent is based on a

percentage of adjusted income (except for rental voucher or rental

certificate holders), if the cost of utilities (except telephone) and

other housing services for the unit is the responsibility of the tenant

to pay directly to the provider of the utility or service, HUD will

deduct from the rent to be paid by the tenant to HUD a utility

allowance, which is an amount equal to HUD's estimate of the monthly

costs of a reasonable consumption of the utilities and other services

for the unit for an energy-conservative household of modest

circumstances consistent with the requirement of a safe, sanitary, and

healthful living environment. If the utility allowance exceeds the

percentage of the tenant's adjusted income payable as rent, HUD will

pay the difference between the amount payable as rent and the utility

allowance to the tenant or, with the consent of the tenant and the

utility company, either jointly to the tenant and the utility company

or directly to the utility company.

(3) Rent adjustments for project viability. For a HUD-owned

project, HUD may adjust the rent provided for in paragraphs (b)(1) or

(b)(2) of this section if necessary or desirable to maintain the

existing economic mix in the project, prevent undesirable turnover, or

increase occupancy.

(4) Tenants who are rental voucher or rental certificate holders.

Tenants assisted with rental vouchers or certificates certify their

income to the public housing agency (PHA) administering the assistance,

and pay rent pursuant to the policies and procedures governing such

assistance.

(c) Income verification and rent notification procedures.

(1) Income certification by tenants--(i) In subsidized projects.

(A) For families residing in subsidized projects, when HUD becomes MIP

or owner, HUD will request an income certification from each family as

soon as practicable after HUD initially assumes management, unless the

family's income has been examined by the owner or by HUD not more than

four months before HUD's assumption of management.

(B) For each family applying for admission to subsidized projects,

HUD will request an income certification to determine the family's

eligibility for a subsidized rent, and (if the rent is based on a

percentage of adjusted income) the [[Page 11851]] family's subsidized

rent, in accordance with part 813 of this title.

(ii) In unsubsidized projects. (A) For tenants in occupancy when

HUD becomes mortgagee-in-possession or owner of an unsubsidized

project, HUD may request an income certification from families who are

not paying a subsidized rent.

(B) For families applying for admission to such projects, HUD will

request sufficient information for income verification to determine the

family's ability to pay the unit rent.

(2) Notice of increases in the amount of rent payable. Whenever HUD

proposes an increase in rents in a HUD-owned multifamily project or a

project where HUD is mortgagee-in-possession, HUD will provide tenants

30 days notice of the proposed changes and an opportunity to review and

comment on the new rent and supporting documentation. After HUD

considers the tenants' comments and has made a decision with respect to

its proposed rent change, HUD shall notify the tenants of its decision,

with the reasons for the decision. A tenant in occupancy before the

effective date of any revised rental rate must be given 30 days notice

of the revised rate, and any change in the tenant's rent is subject to

the terms of an existing lease. Notices to each tenant must be

personally delivered or sent by first class mail. General notices to

all tenants must be posted in the project office and in appropriate

conspicuous and accessible locations around the project.

(3) Disclosure and verification of Social Security numbers. Any

certifications or reexaminations of the income of tenants or

prospective tenants in connection with tenancy under this section are

subject to the requirements for the disclosure and verification of

Social Security Numbers, as provided by part 200, subpart T, of this

title.

(4) Signing of consent forms for income verification. Any

certifications or reexaminations of the income of tenants or

prospective tenants in connection with tenancy under this section are

subject to the requirements for the signing and submitting of consent

forms for the obtaining of wage and claim information from State Wage

Information Collection Agencies, as provided by part 200, subpart V, of

this title. (Approved by Office of Management and Budget under control

number 2502-0204.)

Pre-Disposition Notification Requirements

Pre-foreclosure (Sec. 290.22).... 1. Timing. Not later than 60 days

before foreclosure on any mortgage.

2. Recipients.

(i) Tenants of the project, and

(ii) The unit of general local

government in which the project is

located.

3. Contents.

(i) General terms and conditions

concerning the sale, future use, and

operation of the project that HUD

proposes to impose; and,

(ii) Whether temporary or permanent

relocation is anticipated, and, if

so, available displacement and

relocation assistance.

Right of first refusal (Sec. 1. Timing. Not later than 30 days

290.24). after HUD acquires title to a

multifamily housing project.

2. Recipients.

(i) The appropriate unit of general

local government;

(ii) Public housing agencies in the

project's market area;

(iii) The State agency or agencies

designated to receive such notice by

the chief executive officer of the

State in which the project is

located.

3. Contents.

(i) Description of the project;

(ii) Invitation to recipients to make

bona fide offers to purchase the

project;

(iii) Offer of right of first refusal

for period of up to 90 days;

(iv) Method by which the recipient

may respond to HUD.

Notice to tenants and the 1. Timing. Not later than 60 days

community (Sec. 290.26). after HUD acquires title to a

multifamily housing project.

2. Recipients.

(i) To the tenants of the project;

(ii) To the unit of general local

government in which the project is

located; and

(iii) To the community in which the

project is located.

3. Contents.

(i) Description of the project;

(ii) Proposed general terms and

conditions concerning the sale,

future use, and operation of the

project;

(iii) Invitation for tenants and

their organizations, units of

general local government, and other

public or nonprofit entities to

submit comments on the disposition

plan, and/or proposals for

disposition which will be considered

by HUD in making its property

disposition determination.

Subpart C--Notification Requirements

Sec. 290.20 How will HUD provide the notifications that are required

under this regulation?

(a) In general. HUD may combine two or more of the notifications

required by this subpart, as appropriate, to simplify the disposition

process.

(b) Methods of notification-- (1) To tenants. The notices required

to be made to tenants under this subpart will be delivered to each unit

in the project, or sent to each unit by first class mail. Where HUD is

mortgagee-in-possession or owner of a project, the notice will also be

posted in the project office and in appropriate conspicuous and

accessible locations around the project.

(2) To the unit of general local government. The notice required to

be made to a unit of general local government under this section will

be sent to the chief executive officer of the unit of general local

government by first class mail. For purposes of receiving or sending

any notices or information under this subpart, the unit of general

local government is its chief executive officer, or the person

designated by the chief executive officer to receive or send the notice

or information.

(3) To the community or any other party. HUD will consult with

tenants and their organizations, officials of units of general local

government, and other entities as HUD determines to be appropriate, to

identify community recipients of any notification required by this

subpart. Any notice required to be made to any party other than a

tenant [[Page 11852]] or a unit of general local government will be

sent by first class mail.

Sec. 290.22 What notification must be given before foreclosure?

(a) Timing and recipients of notice. Not later than 60 days before

foreclosing on any mortgage held by the Department on any multifamily

housing project, HUD will provide notice of the proposed foreclosure

sale to the tenants of the project and to the unit of general local

government in which the project is located.

(b) Contents of notice. The notice will describe the general terms

and conditions concerning the sale, future use, and operation of the

project that HUD proposes to impose on a purchaser other than HUD

through the foreclosure. The notice will also state whether temporary

or permanent relocation is anticipated as a result of repairs or the

proposed disposition, including any anticipated conversion of use, and,

if so, the levels of displacement and relocation assistance available

under Sec. 290.42.

Sec. 290.24 Who has a right of first refusal for properties that HUD

is selling, and what kind of notice must HUD provide?

(a) Timing and recipients of notice. Not later than 30 days after

HUD acquires title to a multifamily housing project, HUD will provide

notice of the right of first refusal to the appropriate unit of general

local government, as well as public housing agencies in the project's

market area, and the State agency or agencies designated to receive

such notice by the chief executive officer of the State in which the

project is located.

(b) Content of notice. The notice will describe the project

acquired by HUD, and contain an invitation to recipients to make bona

fide offers to purchase the project. The notice will state:

(1) That for a period specified in the notice, not to exceed 90

days from the time the notification is made, HUD will not sell or offer

to sell the project other than to a recipient of the notice, unless the

recipients notify HUD sooner that they will not make an offer to

purchase the project;

(2) That if a recipient expresses interest within the specified

period in acquiring the project, HUD will consult with the interested

parties in the preparation of the disposition plan and the terms and

conditions of the sale of the project. HUD will accept a bona fide

offer to purchase the project if the offer complies with the terms and

conditions of the disposition plan for the project, or is otherwise

acceptable to HUD;

(3) The method by which the recipient may respond to HUD with an

expression of interest or a bona fide offer, or by which the recipient

may notify HUD that an offer will not be made.

Sec. 290.26 What kind of notice must HUD provide to tenants and the

community when HUD is selling a project?

(a) Timing and recipients of notice. Not later than 30 days after

HUD acquires title to a multifamily housing project, HUD will provide

notice of HUD's acquisition and proposed disposition of the project to

the tenants of the project, to the unit of general local government,

and to the community in which the project is located.

(b) Content of notice. The notice will describe the project

acquired by HUD, and the general terms and conditions concerning the

sale, future use, and operation of the project as proposed by HUD. The

notice will, as appropriate, state:

(1) HUD has acquired the project.

(2) During HUD's ownership, HUD will, to the extent feasible,

assure that the project is maintained in a decent, safe, and sanitary

condition.

(3) HUD is developing a final disposition plan for the project.

(4) HUD normally seeks to sell HUD-owned projects as rapidly as

possible.

(5) HUD's interest in learning of tenant, community, and local

government plans and capacity for the acquisition of the project for

use as rental or cooperative housing.

(6) HUD's final determination of the terms and conditions to be

imposed on the disposition of the project will not be made until after

HUD considers the comments received from tenants, the community, and

the unit of general local government within the specified comment

period.

(7) A brief description of a proposed manner of disposition of the

project.

(8) A description of the pending notice of the right of first

refusal to purchase the project made under Sec. 290.24.

(9) That alternative uses of units in the project may be part of

the project's disposition, and that:

(i) Some of the units in the project may be made available for uses

other than rental or cooperative uses, including low-income

homeownership opportunities, or community space, office space for

tenant or housing-related service providers or security programs, or

small business uses, if such uses benefit the tenants of the project;

(ii) Some of the units in the project may be used in any manner, if

the Department and the unit of general local government or area-wide

governing body determine that such use will further fair housing,

community development, or neighborhood revitalization goals;

(iii) Such alternative uses of units may only take place if:

(A) Tenant-based Section 8 rental assistance is made available to

each eligible family residing in the project that is displaced as a

result of such actions; and

(B) The Department determines that sufficient habitable, affordable

rental housing is available in the market area in which the project is

located to ensure use of such assistance.

(10) That any very low-income family who is a preexisting tenant of

the project who upon disposition of the project would be required to

pay rent in an amount in excess of 30 percent of the adjusted income of

the family:

(i) For a period of 2 years beginning upon the date of the

acquisition of the project under the disposition, the rent for the unit

occupied by the family may not be increased above the rent charged

immediately before the acquisition; and

(ii) The family shall be considered displaced for purposes of the

preferences for assistance under sections 6(c)(4)(A)(i), 8(d)(1)(A)(i),

and 8(o)(3)(B) of the United States Housing Act of 1937.

(11) Whether temporary or permanent relocation is anticipated as a

result of repairs or the proposed disposition, including any

anticipated conversion of use, and, if so, the levels of relocation

assistance available under Sec. 290.42.

(12) That tenants and their organizations, units of general local

government, and other public or nonprofit entities are invited to

submit comments on the disposition plan, and/or proposals (e.g.,

expressions of interest to convert the project to a cooperative or

other form of resident-controlled ownership, or other resident

initiative), which will be considered by HUD in making its property

disposition determination.

(13) That comments must be submitted to HUD within 30 days of

receipt of the notice.

(14) That the full disposition recommendation and analysis and

other supporting information will be available for inspection and

copying at the HUD field office.

[[Page 11853]]

Methods of Disposition

Foreclosure sales. (Sec. HUD may dispose of a project at a

290.30(a)). foreclosure sale:

1. In accordance with the Multifamily

Mortgage Foreclosure Act, or

2. In accordance with other Federal

or State foreclosure law.

Sale of HUD-owned projects. (Sec. HUD may sell a HUD-owned project

290.30(b)). using any of the following

procedures:

1. Competitive bid;

2. Auction;

3. Request for proposals;

4. Negotiated sale, as permitted

under Sec. 290.30(b)(1) and (2); or

5. Any other method, on such terms as

HUD considers appropriate.

Transfer for use under other HUD HUD, under an agreement, may transfer

programs. (Sec. 290.30(c)). a multifamily housing project:

1. To a public housing agency (PHA)

for use of the project as public

housing; or

2. To an entity eligible to own or

operate 202 or 811 supportive

housing.

Subpart D--Disposition Procedures

Sec. 290.30 What are the different methods that may be used for the

disposition of a multifamily housing project?

HUD may use any of the following methods, as appropriate, for the

disposition of a multifamily housing project:

(a) Foreclosure sales. Foreclosure sales will be conducted, at

HUD's discretion, in accordance with the Multifamily Mortgage

Foreclosure Act, or other Federal or State foreclosure law, on such

terms as HUD considers appropriate to further the purpose stated in

Sec. 290.3.

(b) Sale of HUD-owned projects. HUD may dispose of a HUD-owned

multifamily project by competitive bid, auction, request for proposals,

or other method, on such terms as HUD considers appropriate to further

the purpose stated in Sec. 290.3. When HUD conducts a negotiated sale

involving the disposition of a project to a person or entity without a

public offering, the following provisions apply:

(1) HUD may negotiate the sale of any project to an agency of the

Federal, State, or local government.

(2) When HUD determines that a purchaser can demonstrate the

capacity to own and operate a project in accordance with standards set

by HUD, and/or a competitive offering will not generate offers of equal

merit from qualified purchasers, HUD may approve a negotiated sale of a

subsidized project to:

(i) A resident organization wishing to convert the project to a

nonprofit or limited equity cooperative;

(ii) A cooperative (e.g., nonprofit limited equity, consumer

cooperative, mutual housing organization) with demonstrated experience

in the operation of nonprofit (and preferably low- to moderate-income)

housing;

(iii) A nonprofit entity that will continue to operate the project

as low- to moderate-income rental housing and whose governing board is

composed of project residents;

(iv) A State or local governmental entity with the demonstrated

capacity to acquire, manage, and maintain the project as rental or

cooperative housing available to and affordable by low- and moderate-

income residents;

(v) A State or local governmental or nonprofit entity with the

demonstrated capacity to acquire, manage, and maintain the project as a

shelter for the homeless or other public purpose, generally when the

project is vacant or has minimal occupancy and is not needed in the

area for continued use as rental housing for the elderly or families;

or

(vi) Other nonprofit organizations.

(c) Transfer for use under other HUD programs.--(1) In general.

Subject only to the requirements of an agreement under paragraph (c)(2)

of this section, HUD may transfer a multifamily housing project:

(i) To a public housing agency (PHA) for use of the project as

public housing; or

(ii) To an entity eligible to own or operate housing assisted under

section 202 of the Housing Act of 1959 or under section 811 of the

Cranston-Gonzalez National Affordable Housing Act for use as supportive

housing under either of those sections.

(2) Transfer agreement. An agreement providing for the transfer of

a project as described in paragraph (c)(1) of this section must:

(i) Contain such terms, conditions, and limitations as HUD

determines to be appropriate, including requirements to ensure use of

the project as public housing, supportive housing under section 202 of

the Housing Act of 1959, or supportive housing under section 811 of the

Cranston-Gonzalez National Affordable Housing Act, as applicable; and

(ii) Ensure that no tenant of the project will be displaced as a

result of the transfer.

Sec. 290.32 What qualities does HUD look for in a purchaser?

(a) Foreclosure sales. HUD will dispose of a multifamily housing

project through a foreclosure sale only to a purchaser that the

Department determines is capable of implementing a sound financial and

physical management program that is designed to enable the project to

meet anticipated operating and repair expenses to ensure that the

project will remain in decent, safe, and sanitary condition and in

compliance with any standards under applicable State or local laws,

rules, ordinances, or regulations relating to the physical condition of

the housing and any such standards established by the Department.

(b) HUD-owned multifamily housing projects. Sales of HUD-owned

multifamily housing projects may be made only to a purchaser determined

by the Department to be capable of:

(1) Satisfying the conditions of the disposition plan developed

under Sec. 290.34 for the project;

(2) Implementing a sound financial and physical management program

that is designed to enable the project to meet anticipated operating

and repair expenses to ensure that the project will remain in decent,

safe, and sanitary condition and in compliance with any standards under

applicable State or local laws, rules, ordinances, or regulations

relating to the physical condition of the housing and any such

standards established by the Department;

(3) Responding to the needs of the tenants and working

cooperatively with tenant organizations;

(4) Providing adequate organizational, staff, and financial

resources to the project; and

(5) Meeting such other requirements as HUD may determine to be

appropriate for the particular project.

Sec. 290.34 What kind of disposition plan will HUD prepare before

selling a project?

(a) In general. Before disposing of a HUD-owned multifamily housing

[[Page 11854]] project, HUD will develop an initial and a final

disposition plan for the project that specifies the minimum terms and

conditions for the disposition of the project, the sales price that is

acceptable to HUD, and the assistance that HUD plans to make available

to a prospective purchaser.

(b) Market-wide plans. In developing the disposition plan under

this section for a HUD-owned multifamily housing project located in a

market area in which at least 1 other HUD-owned multifamily housing

project is located, HUD may coordinate the disposition of HUD-owned

multifamily housing projects located within the same market area to the

extent and in such a manner as the Department determines appropriate to

carry out the goals under Sec. 290.3.

(c) Sales price. The sales price in the disposition plan will be

reasonably related to the intended use of the project after the sale,

any rehabilitation requirements for the project, the rents for units in

the project that can be supported by the market, the amount of rental

assistance available for the project under Section 8 of the United

States Housing Act of 1937, the occupancy profile of the project

(including family size and income levels for tenant families), and any

other factors that HUD considers appropriate.

(d) Community and tenant input. In developing the initial and final

disposition plans, HUD will consider any timely input from officials of

the unit of general local government affected, the community in which

the project is situated, and the tenants of the project, including the

comments received in response to the notice required by Sec. 290.26. To

obtain this input, HUD may provide technical assistance, directly or

indirectly, and may use amounts available for technical assistance

under the Emergency Low Income Housing Preservation Act of 1987,

subtitle C of the Low-Income Housing Preservation and Resident

Homeownership Act of 1990, subtitle B of title IV of the Cranston-

Gonzalez National Affordable Housing Act, or this part, for the

provision of such technical assistance. Recipients of technical

assistance funding under the provisions referred to in this

subparagraph may provide technical assistance to the extent of such

funding, notwithstanding the source of the funding.

(e) Environmental requirements. HUD will perform, and include in

the final disposition plan, the environmental reviews required by 24

CFR part 50.

Table of Actions to Facilitate Disposition

All Multifamily Housing Projects Required Actions

[Subpart E]. 1. Displacement requirements (Sec.

290.42).

2. Very-low income preexisting

tenant--2 year rent freeze if rent

after disposition more than 30

percent of adjusted income (Sec.

290.44).

3. Nondiscrimination against Section

8 certificate holders and voucher

holders (Sec. 290.46).

Subsidized Projects [Subpart F].. Basic Actions

1. Provide project-based Section 8

assistance to at least all units

that, before acquisition or

foreclosure, received: Rent Supp,

RAP, Sec. 23, project-based Section

8 (Sec. 290.54(a)).

2. Vacancy in any assisted unit must

be filled by a family that is

eligible for the assistance (Sec.

290.54(b)).

3. Rent and use restrictions on BMIR,

236, or 202 subsidized project units

that were not covered before

acquisition or foreclosure by Rent

Supp, RAP, Sec. 23, or project-based

Section 8 (Sec. 290.54(c)).

Alternatives to Basic Actions

1. Assistance to, or restrictions on,

units in unsubsidized projects

instead of assistance to units in

subsidized projects (Sec.

290.56(a)).

2. Substitution of tenant-based

Section 8 assistance to low-income

families instead of Project-based

assistance to units (Sec.

290.56(b)).

3. Use of the additional assistance

and restrictions permitted in

subpart H (Sec. 290.56(c)).

Unsubsidized Projects [Subpart G]

Basic Actions

1. Provide project-based Section 8

assistance for all units that,

before acquisition or foreclosure,

received assistance under:

(i) The new construction and

substantial rehabilitation program

under section 8(b)(2) of the United

States Housing Act of 1937 (as in

effect before October 1, 1983);

(ii) The property disposition program

under section 8(b) of such Act;

(iii) The project-based certificate

program under section 8 of such Act;

(iv) The moderate rehabilitation

program under section 8(e)(2) of

such Act;

(v) Section 23 of such Act (as in

effect before January 1, 1975);

(vi) The rent supplement program

under section 101 of the Housing and

Urban Development Act of 1965; or

(vii) Section 8 of the United States

Housing Act of 1937, following

conversion from assistance under

section 101 of the Housing and Urban

Development Act of 1965 (Sec.

290.64(a)).

2. Provide tenant-based Section 8

assistance to preexisting tenants of

LMSA-assisted units (Sec.

290.64(b)).

Alternatives to Basic Actions

1. Substitution of tenant-based

Section 8 assistance to low-income

families instead of project-based

assistance to units (Sec.

290.66(a)).

2. Use of the additional assistance

and restrictions permitted in

subpart H (Sec. 290.66(b)).

All Multifamily Housing Projects Additional Actions

[Subpart H]. 1. Discounted sales price (Sec.

290.72).

2. Additional use and rent

restrictions (Sec. 290.74).

3. Short-term loans (Sec. 290.76).

4. Up-front grants (Sec. 290.78).

5. Additional tenant-based assistance

(Sec. 290.80).

6. Alternative uses (Sec. 290.82)

6. Rebuilding (Sec. 290.84).

7. Emergency assistance funds (Sec.

290.86).

8. Determination not to preserve

(Sec. 290.88).

[[Page 11855]]

Subpart E--All Multifamily Housing Projects--Required Actions

Sec. 290.40 Are there any required actions that must be taken in the

disposition of all multifamily housing projects?

Yes, the requirements regarding tenants who are displaced

(explained in Sec. 290.42), unassisted very low-income tenants

(explained in Sec. 290.44), and nondiscrimination against Section 8

certificate holders and voucher holders (explained in Sec. 290.46),

apply in the disposition of all multifamily housing projects.

Sec. 290.42 What actions must be taken concerning tenants who are

displaced by the disposition of a multifamily housing project?

(a) Scope of section. This section applies to all HUD-owned

multifamily housing projects and all multifamily housing projects

subject to HUD-held mortgages. When HUD is not the mortgagee-in-

possession or owner, the owner of the project shall comply with this

section, if HUD has authorized the demolition of, repairs to, or

conversion of the use of the multifamily housing project.

(b) Minimizing displacement. Consistent with the other goals and

objectives of this part, all reasonable steps shall be taken to

minimize the displacement of persons (families, individuals,

businesses, and nonprofit organizations) from a project covered by this

part. If displacement or temporary relocation will occur in connection

with the disposition of a project, HUD may require the purchaser of the

project to provide assistance in accordance with this section.

(c) Relocation assistance at non-URA levels. Whenever the

displacement of a residential tenant (family or individual) occurs in

connection with the management or disposition of a multifamily project,

but is not subject to paragraph (d) of this section (e.g., occurs as a

direct result of HUD repair or demolition of all or a part of a HUD-

owned multifamily project or as a direct result of the foreclosure of a

HUD-held mortgage on a multifamily housing project or sale of a HUD-

owned project without federal financial assistance), the displaced

tenant shall be eligible for the following relocation assistance:

(1) Advance written notice of the expected displacement. The notice

shall be provided at least 60 days before displacement, describe the

assistance and the procedures for obtaining the assistance, and contain

the name, address and phone number of an official responsible for

providing the assistance;

(2) Other advisory services, as appropriate, including counseling,

referrals to suitable (and where appropriate, accessible), decent,

safe, and sanitary replacement housing, and fair housing-related

advisory services;

(3) Payment for actual reasonable moving expenses, as determined by

HUD;

(4) For displaced eligible families and individuals--

(i) The opportunity to relocate to a suitable (and where

appropriate, accessible), decent, safe, and sanitary dwelling unit in a

HUD-owned multifamily project, in a public housing project, or in

another HUD subsidized multifamily housing project; or

(ii) Assistance under the Section 8 Certificate program (see

Sec. 882.209(a)(4)(ii)(B) of this title) or the Housing Voucher program

(see Sec. 887.155(c) of this title), if the assistance is available;

and

(5) Such other federal, State or local assistance as may be

available.

(d) Relocation assistance at URA levels--(1) General. Whenever

assistance under 24 CFR part 886, subpart C (or other federal financial

assistance, as defined in 49 CFR 24.2(j)) is provided in connection

with the purchase, demolition, or rehabilitation of a multifamily

property by a third party, any resulting displacement is subject to

paragraph (d) of this section. A displaced person (defined in paragraph

(d)(3) of this section) must be provided relocation assistance at the

levels described in, and in accordance with the requirements of, the

URA, implementing regulations at 49 CFR part 24, and this section.

(2) Definition of ``initiation of negotiations''. Under the URA,

for purposes of determining the method for computing the replacement

housing assistance to be provided to a residential tenant displaced as

a direct result of privately undertaken rehabilitation, demolition, or

acquisition of the real property, the term ``initiation of

negotiations'' means the transfer of title to the purchaser.

(3) Definition of displaced person. (i) The term ``displaced

person'' means any person (family, individual, business, or nonprofit

organization) that moves from the real property, or moves personal

property from the real property, permanently, as a direct result of

acquisition, rehabilitation or demolition for a federally assisted

project. This includes, but is not limited to:

(A) A person that moves permanently from the real property after

receiving notice requiring such move, if the move occurs on or after

the date of the transfer of title to the purchaser.

(B) Any person that HUD determines was displaced as a direct result

of acquisition, rehabilitation or demolition for an assisted project.

(C) A tenant-occupant of a dwelling unit who moves from the

building/complex, permanently, after the transfer of title to the

purchaser, if the move occurs before the tenant is provided notice

offering him or her the opportunity to lease and occupy a suitable,

decent, safe, sanitary, and where appropriate, accessible dwelling in

the same building/complex, under reasonable terms and conditions, upon

completion of the project. Such reasonable terms and conditions shall

include a monthly rent, including estimated average monthly utility

costs, that does not exceed the greater of the tenant's monthly rent

before transfer of title to the purchaser and estimated average monthly

utility costs, or that is affordable, as defined in this part.

(D) A tenant-occupant of a dwelling unit who is required to

relocate temporarily for the project, but does not return to the

building/complex, if either the tenant is not offered payment for all

reasonable out-of-pocket expenses incurred in connection with the

temporary relocation, or other conditions of the temporary relocation

are not reasonable.

(E) A tenant-occupant who moves from the building/complex

permanently after he or she has been required to move to another unit

in the same building/complex for the project, if either the tenant is

not offered reimbursement for all reasonable out-of-pocket expenses

incurred in connection with the move, or other conditions of the move

are not reasonable.

(ii) Notwithstanding the provisions of paragraph (d)(3)(i) of this

section, a person does not qualify as a ``displaced person'' if:

(A) The person is excluded under 49 CFR 24.2(g)(2).

(B) The person has been evicted for a serious or repeated violation

of the terms and conditions of the lease or occupancy agreement,

violation of applicable Federal, State, or local law, or other good

cause, and HUD determines that the eviction was not undertaken for the

purpose of evading the obligation to provide relocation assistance.

(C) The person moves into the property after transfer of title to

the purchaser.

(D) HUD determines that the person was not displaced as a direct

result of acquisition, rehabilitation, or demolition for an assisted

project.

(e) Temporary relocation (URA and non-URA relocation assistance).

Residential tenants, who will not be required to move permanently, but

who [[Page 11856]] must relocate temporarily (e.g., to permit property

repairs), shall be provided:

(1) Reimbursement for all reasonable out-of-pocket expenses

incurred in connection with the temporary relocation, including the

cost of moving to and from the temporary housing and any increase in

monthly rent or utility costs. The party responsible for this

requirement may, at its option, perform the services involved in

temporarily relocating the tenants or pay for such services directly;

and

(2) Appropriate advisory services, including reasonable advance

written notice of the date and approximate duration of the temporary

relocation; the suitable (and where appropriate, accessible), decent,

safe, and sanitary housing to be made available for the temporary

period; the terms and conditions under which the tenant may lease and

occupy a suitable, decent, safe, and sanitary dwelling in the building/

complex following completion of the repairs; and the right to financial

assistance provided under paragraph (e)(1) of this section.

(f) Appeals. If a person disagrees with the purchaser's

determination concerning the person's eligibility for relocation

assistance or the amount of the assistance for which the person is

eligible, the person may file a written appeal of that determination

with the owner or purchaser. A person who is dissatisfied with the

purchaser's determination on his or her appeal may submit a written

request for review of that decision to the HUD Field Office responsible

for administering the URA in the area.

Sec. 290.44 What actions must be taken concerning very low-income

tenants in the disposition of a multifamily housing project?

HUD will require that for a period of 2 years, beginning upon the

date of disposition of a multifamily housing project, the rent for any

unit occupied by a very low-income family, that is a preexisting tenant

and that would be required to pay a rent that is more than 30 percent

of the adjusted income (as defined in part 813) of the family, may not

be increased above the rent charged immediately before the acquisition.

Such a family will also be considered displaced for purposes of the

preferences for assistance under sections 6(c)(4)(A)(i), 8(d)(1)(A)(i),

and 8(o)(3)(B) of the United States Housing Act of 1937.

Sec. 290.46 What restrictions concerning nondiscrimination against

Section 8 certificate holders and voucher holders apply in the

disposition of a multifamily housing project?

The purchaser of any multifamily housing project shall not refuse

unreasonably to lease a dwelling unit offered for rent, offer to sell

cooperative stock, or otherwise discriminate in the terms of tenancy or

cooperative purchase and sale because any tenant or purchaser is the

holder of a Certificate of Family Participation or a Voucher under

Section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437f),

or any successor legislation. This provision is limited in its

application, for tenants or applicants with Section 8 Certificates or

their equivalent (other than Vouchers), to those units which rent for

an amount not greater than the Section 8 Fair Market Rent, as

determined by HUD. The purchaser's agreement to this condition must be

contained in any contract of sale and also may be contained in any

regulatory agreement, use agreement, or deed entered into in connection

with the disposition.

Subpart F--Subsidized Projects--Basic and Alternative Actions to

Facilitate Disposition

Sec. 290.54 What are the basic actions that may be taken in the

disposition of a subsidized project?

The basic assistance that HUD will provide and the basic

restrictions HUD will require in the disposition of a subsidized

project depend upon the profile of the project's units and tenants, as

follows:

(a) Assisted units--provision of project-based Section 8

assistance. Except as noted in Sec. 290.56, and to the extent budget

authority is available, HUD will provide project-based Section 8

assistance to assist at least all of a subsidized project's units that

were covered, before acquisition or foreclosure, by the rent subsidies

(Rent Supp, RAP, Sec. 23, project-based Section 8) included in the

definition of a subsidized project.

(b) Assisted units--tenant eligibility restrictions. The contract

for project-based Section 8 assistance in accordance with paragraph (a)

of this section, will provide that when a vacancy occurs in any unit

that requires such assistance, but which was occupied by a family

ineligible for such assistance, the owner will lease the available unit

to a family that is eligible for the assistance.

(c) Unassisted units--use and rent restrictions. HUD will require

use or rent restrictions on BMIR, 236, or 202 subsidized projects to

ensure that units that were not covered before acquisition or

foreclosure by Rent Supp, RAP, Sec. 23, or project-based Section 8 rent

subsidies remain available and affordable for the remaining useful life

of the project.

Sec. 290.56 What alternatives to the basic actions are available in

the disposition of subsidized projects?

In the disposition of a subsidized project, HUD may take the

following alternative actions instead of the basic actions listed in

Sec. 290.54:

(a) Unit substitution: Assistance to, or restrictions on, units in

unsubsidized projects instead of assistance to units in subsidized

projects. Instead of providing project-based Section 8 assistance as

required by Sec. 290.54(a), HUD may, in unsubsidized projects located

in the same market area, provide project-based Section 8 assistance to

units to be occupied by very low-income persons, or impose use and rent

restrictions to assure that units remain available to and affordable by

very low-income families for the remaining useful life of the project.

When this unit substitution procedure is used, the total number of

unsubsidized project units provided with assistance and/or placed under

use and rent restrictions must be at least equal to the number of

subsidized projects units that would have received project-based

Section 8 in the absence of unit substitution. In addition, HUD will

make tenant-based Section 8 assistance available to low-income families

residing in the subsidized project's units that would have received

project-based Section 8 assistance if this unit substitution

alternative had not been used.

(b) Substitution of tenant-based Section 8 assistance to low-income

families instead of project-based assistance to units. Instead of

providing project-based Section 8 assistance as required under

Sec. 290.54(a), HUD may enter into annual contribution contracts with

public housing agencies to provide tenant-based Section 8 assistance to

all low-income families who reside, on the date that the project is

acquired by a purchaser other than HUD, in units that would have been

eligible for the project-based Section 8 assistance under Sec. 290.54.

Tenant-based Section 8 assistance may be used in this way as a

substitute for project-based Section 8 assistance in not more than 10

percent of the aggregate number of subsidized project units disposed of

by HUD in any fiscal year, and only if HUD determines that there is

available in the market area in which the project is located an

adequate supply of habitable, affordable [[Page 11857]] housing for

very low-income families and other low-income families using tenant-

based assistance. The number of units eligible for this form of

substitution within the 10 percent limit will be estimated at the

beginning of each fiscal year, taking into consideration the aggregate

number of subsidized project units disposed of by HUD in the

immediately preceding fiscal year and the disposition activity planned

for the current fiscal year.

(c) Additional actions under subpart H. Instead of, or in addition

to, providing project-based Section 8 assistance in the disposition of

a subsidized project as required under Sec. 290.54(a), HUD may make use

of the additional actions to facilitate the disposition of multifamily

housing projects permitted in subpart H of this part.

Subpart G--Unsubsidized Projects--Basic and Alternative Actions to

Facilitate Disposition

Sec. 290.64 What are the basic actions that may be taken in the

disposition of an unsubsidized project?

The basic assistance that HUD will provide and the basic

restrictions HUD will require in the disposition of an unsubsidized

project depend upon the profile of the project's units and tenants, as

follows:

(a) Assisted units--provision of project-based Section 8

assistance. Except as noted in Sec. 290.66, and to the extent budget

authority is available, HUD will provide project-based Section 8

assistance for all of an unsubsidized project's units that were

covered, before acquisition or foreclosure, by an assistance contract

under:

(1) The new construction and substantial rehabilitation program

under section 8(b)(2) of the United States Housing Act of 1937 (the

1937 Act) (as in effect before October 1, 1983);

(2) The property disposition program under section 8(b) of the 1937

Act;

(3) The project-based certificate program under section 8 of the

1937 Act;

(4) The moderate rehabilitation program under section 8(e)(2) of

the 1937 Act;

(5) Section 23 of the 1937 Act (as in effect before January 1,

1975);

(6) The rent supplement program under section 101 of the Housing

and Urban Development Act of 1965; or

(7) Section 8 of the 1937 Act, following conversion from assistance

under section 101 of the Housing and Urban Development Act of 1965.

(b) LMSA-assisted units--provision of tenant-based section 8

assistance. HUD will provide tenant-based Section 8 assistance for

families that are preexisting tenants of unsubsidized projects in units

that, immediately before foreclosure or acquisition of the project by

HUD, were covered by an assistance contract under the loan management

set-aside program under section 8(b) of the United States Housing Act

of 1937.

Sec. 290.66 What alternatives to the basic actions are available in

the disposition of unsubsidized projects?

In disposing of an unsubsidized project, HUD may take the following

alternative actions instead of the basic actions listed in Sec. 290.64:

(a) Substitution of tenant-based Section 8 assistance to low-income

families instead of project-based assistance to units. Instead of

providing project-based Section 8 assistance as required under

Sec. 290.64, HUD may enter into annual contribution contracts with

public housing agencies to provide tenant-based Section 8 assistance to

all low-income families who reside, on the date that the project is

acquired by a purchaser other than HUD, in units eligible for the

project-based Section 8 assistance under Sec. 290.64. Tenant-based

Section 8 assistance may be used in this way as a substitute for

project-based Section 8 assistance only if HUD determines that there is

available in the market area in which the project is located an

adequate supply of habitable, affordable housing for very low-income

families and other low-income families using tenant-based assistance.

(b) Additional actions under subpart H. Instead of, or in addition

to, providing project-based Section 8 assistance in the disposition of

an unsubsidized project as required under Sec. 290.64, HUD may make use

of the additional assistance and restrictions for the disposition of

multifamily housing projects permitted in subpart H of this part.

Subpart H--All Multifamily Housing Projects--Additional Actions to

Facilitate Disposition

Sec. 290.70 What guidelines will HUD apply in determining which

additional actions to take in the disposition of a multifamily housing

project?

The additional actions to facilitate disposition available under

this subpart are intended to replace, supplement or make more cost

effective the Section 8 assistance that would otherwise be required,

and are to be provided in a manner consistent with the goals of

Sec. 290.3 and unless otherwise noted:

(a) On terms that will ensure that at least the units in the

project otherwise required to receive project-based Section 8

assistance in accordance with Sec. 290.54(a) (for a subsidized project)

and Sec. 290.64(a) (for an unsubsidized project) are available to and

affordable by low-income persons for the remaining useful life of the

project, with use or rent restrictions as HUD may prescribe; and

(b) With tenant-based Section 8 assistance to any very low-income

families who would have received project-based assistance under Section

8 in accordance with Sec. 290.54(a) (for a subsidized project) and

Sec. 290.64(a) (for an unsubsidized project), but because of action

taken under subpart H of this part, did not receive such assistance,

and are left residing in units of the project with rents that exceed

the amount payable as rent under section 3(a) of the United States

Housing Act of 1937 for very low-income families.

Sec. 290.72 May HUD reduce the sales price for a project?

HUD may reduce the selling price of a project. The sales price for

a project will be reasonably related to the intended use of the

property as affordable housing for very low-income tenants after sale,

any rehabilitation requirements for the project, the rents for units in

the project that can be supported by the market, the amount of project-

based Section 8 assistance being made available by HUD in the

disposition of the project, the occupancy profile of the project

(including family size and income levels for tenant families), and any

other factors that the Department considers appropriate.

Sec. 290.74 May HUD require additional use and rent restrictions?

Consistent with the guidelines in Sec. 290.70, HUD may require

units in a project to be subject to use or rent restrictions to provide

that the units will be available to and affordable by low- and very

low-income persons for the remaining useful life of the project.

Sec. 290.76 May HUD provide short-term loans to facilitate the sale of

a project?

HUD may provide short-term loans to facilitate the sale of a HUD-

owned multifamily housing project if:

(a) Authority for such loans is provided in advance in an

appropriation Act;

(b) The loan has a term of not more than 5 years;

(c) HUD determines, based upon documentation provided by the

purchaser, that the purchaser has obtained a commitment of permanent

financing to replace the short-term loan from a lender who meets

standards established by the Department; and [[Page 11858]]

(d) The terms of the loan are consistent with prevailing practices

in the marketplace or the provision of the loan results in no cost to

the Government, as defined in section 502 of the Congressional Budget

Act of 1974.

Sec. 290.78 Under what conditions may HUD provide up-front grants?

For a HUD-owned multifamily housing project, HUD may utilize the

budget authority provided for contracts issued under this part for

project-based Section 8 assistance to (in addition to providing

project-based Section 8 rental assistance) provide up-front grants for

the necessary cost of rehabilitation and other HUD-approved related

development costs to reduce the level of Section 8 contract rents if

HUD determines that action under this section is more cost-effective

than providing project-based Section 8 assistance in accordance with

Sec. 290.54(a) (for a subsidized project) and Sec. 290.64(a) (for an

unsubsidized project).

Sec. 290.80 What additional tenant-based assistance may HUD offer?

To facilitate the sale of a multifamily housing project, HUD may

make tenant-based Section 8 assistance available to families eligible

to receive such assistance residing in a multifamily housing project

that do not otherwise qualify for project-based assistance.

Sec. 290.82 How may HUD provide for alternative uses of units in the

disposition of a multifamily housing project?

(a) In general. Notwithstanding any other provision of law, after

providing notice to and an opportunity for comment by preexisting

tenants, HUD may allow up to:

(1) 10 percent of the total number of rental housing units in

multifamily housing projects that are disposed of by the Department

during any fiscal year to be made available for uses other than rental

or cooperative uses, such as, low-income homeownership opportunities,

or in any particular project, community space, office space for tenant

or housing-related service providers or security programs, or small

business uses, if such uses benefit the tenants of the project; and

(2) 5 percent of the total number of rental housing units in

multifamily housing projects that are disposed of by the Department

during any fiscal year to be used in any manner, if HUD and the unit of

general local government or area-wide governing body determine that

such use will further fair housing, community development, or

neighborhood revitalization goals.

(b) Computation of number of eligible units. The number of units

eligible for alternate uses in any fiscal year will be determined at

the beginning of the fiscal year as the applicable percentages in

paragraph (a) (1) or (2) of this section (i.e., either 10 percent or 5

percent) of the estimated total number of units to be disposed of in

the fiscal year, taking into consideration the total number of units in

multifamily housing projects disposed of by the Department in the

immediately preceding fiscal year, and the extent of the disposition

activity planned in the current fiscal year.

(c) Displacement protection. HUD may take actions under paragraph

(a) of this section only if:

(1) Tenant-based Section 8 assistance is made available to each

family eligible for such assistance residing in the project that is

displaced as a result of such actions; and

(2) HUD determines that sufficient habitable, affordable rental

housing is available in the market area in which the project is located

to ensure use of such assistance.

Sec. 290.84 What disposition assistance may be available to rebuild a

multifamily housing project?

(a) Notwithstanding any provision of section 8 of the United States

Housing Act of 1937, HUD may provide project-based assistance up to the

levels required in Sec. 290.54(a) (for a subsidized project) and

Sec. 290.64(a) (for an unsubsidized project) to support the rebuilding

of a HUD-owned multifamily housing project rebuilt or to be rebuilt (in

whole or in part and on-site, off-site, or in a combination of both) in

connection with a disposition under this part, if HUD determines all of

the following:

(1) The project is not being maintained in a decent, safe, and

sanitary condition;

(2) The costs to HUD for rebuilding are such that the monthly debt

service needed to amortize the cost of relocating tenants, demolition,

site preparation, rebuilding, operating expenses, and a reasonable

return to the purchaser cannot be provided with rents that are within

120 percent of the most recently published Section 8 Fair Market Rents

for Existing Housing (24 CFR part 888, subpart A), and would be less

expensive than rehabilitation;

(3) The unit of general local government in which the project is

located approves the rebuilding and makes a financial contribution or

other commitment to the project determined by HUD to be satisfactory;

(4) The rebuilding is a part of a local neighborhood revitalization

plan approved by the unit of general local government.

(b) The provisions of Sec. 290.42 apply to any tenants of the

project who are displaced through an action taken under paragraph (a)

of this section.

Sec. 290.86 What emergency assistance funds may be provided to

tenants?

HUD may make arrangements with State agencies and units of general

local government of States receiving emergency assistance under part A

of title IV of the Social Security Act for the provision of assistance

under that Act on behalf of eligible families who would reside in any

multifamily housing projects.

Sec. 290.88 Under what circumstances may HUD make a determination not

to preserve a project or a part of a project?

HUD may determine to demolish, or otherwise dispose of, a HUD-owned

multifamily housing project, or any portion of such a project, or to

foreclose a HUD-held mortgage on a multifamily housing project, without

ensuring its continued availability as affordable rental or cooperative

housing for low- and very low-income families under appropriate

circumstances which may include one or more those listed in paragraphs

(a) through (g) of this section. If HUD decides not to preserve an

occupied multifamily housing project at a foreclosure sale or sale of a

HUD-owned project, tenants must be provided relocation assistance as

described in Sec. 290.42.

(a) The costs to HUD of rehabilitation are such that the monthly

debt service needed to amortize the cost of rehabilitation, operating

expenses, and a reasonable return to the purchaser cannot be provided

with rents that are, for subsidized and formerly subsidized projects,

within 120 percent of the most recently published Section 8 Fair Market

Rents for Existing Housing (24 CFR part 888, subpart A) or, for

unsubsidized and formerly unsubsidized projects, within rents

obtainable in the market.

(b) Construction is substantially incomplete.

(c) Preservation is not feasible because of environmental factors

that cannot be mitigated by HUD or the purchaser. For example, when the

project is located on a site that cannot be made to comply with the

Section 8 Site and Neighborhood standards in 24 CFR 886.307(k) because

of factors that adversely affect the health, safety and general welfare

of residents such as air pollution; smoke; mud slides; fire or

explosion hazards. Preservation may also be infeasible because of

[[Page 11859]] significantly deteriorated surrounding neighborhood

conditions with inadequate police or fire protection; high crime rates;

drug infestation; or lack of public community services needed to

support a safe and healthy living environment for residents.

(d) HUD determines the project is unfit for rehabilitation.

(e) Rehabilitation would cost more than constructing comparable new

housing.

(f) A reduction in the number of units in the project will enhance

long-term project viability, for example, demolition of a building to

provide space for a playground, open space, or combining one-bedroom

units to create larger units for families.

(g) Continued preservation of the project as rental or cooperative

housing is not compatible with State or local land use plans for the

area in which the project is located.

Subpart I--Sale of HUD-Held Multifamily Mortgages

Sec. 290.100 What is the purpose of this subpart?

The purpose of this subpart is to set out HUD's policy regarding

the sale of subsidized and unsubsidized HUD-held mortgages. Except as

otherwise provided in Sec. 290.106(a)(2), the Department will sell

these mortgages on a competitive basis. HUD retains full discretion to

offer any qualifying mortgage for sale and to withhold or withdraw any

offered mortgage from sale. However, when a qualifying mortgage is

offered for sale, the procedures set out in this part will govern the

sale.

Sec. 290.102 What effect does this subpart have on the applicability

of Civil Rights requirements?

Nothing in this subpart relieves HUD or housing that receives

federal financial assistance from federal civil rights requirements,

including section 504 of the Rehabilitation Act, Title VI of the Civil

Rights Act of 1964, Title VIII of the Civil Rights Act of 1968, the Age

Discrimination Act of 1975, Executive Order 11063, and related

regulations and requirements. This includes housing in which less than

50% of the units are receiving housing assistance payments under either

Section 23 or Section 8 of the United States Housing Act of 1937 and

housing in which the rent of any unit is paid by a Section 8

certificate or voucher.

Sec. 290.104 What tenant protections will apply in the sale of HUD-

held subsidized mortgages?

HUD will only sell subsidized mortgages if the sale is part of a

transaction that will ensure that the project subject to the mortgage

will continue to operate, at least until the maturity date of the

mortgage, in a manner that will provide rental housing on terms at

least as advantageous to existing and future tenants as the terms

required by the program under which the mortgage was insured prior to

its assignment.

Sec. 290.106 How will HUD sell current subsidized mortgages?

HUD will sell current mortgages, as follows:

(a) Current mortgages with FHA mortgage insurance will be sold

either:

(1) On a competitive basis to FHA-approved mortgagees; or

(2) On a negotiated basis, to State or local governments, or to a

group of investors that includes an agency of a State or local

government, if:

(i) The terms of the sale include an agreement by the State or

local government, or an agency of the State or local government, to:

(A) Act as mortgagee or owner of a beneficial interest in the

mortgage; and

(B) Ensure that the project will maintain occupancy by the tenant

group originally intended to be served by the subsidized housing

program; and

(ii) The sales price is the best price that HUD can obtain from an

agency of a State or local government while maintaining occupancy for

the tenant group originally intended to be served by the subsidized

housing program.

(b) Current mortgages without FHA mortgage insurance will be sold

if HUD can offer protections equivalent to those listed for an insured

sale in paragraph (a) of this section.

Sec. 290.108 How will HUD sell delinquent subsidized mortgages?

Delinquent mortgages will be sold only if, as part of the sales

transaction:

(a) The mortgages are restructured; and

(b) Either FHA mortgage insurance or equivalent protections are

provided.

Sec. 290.110 What is HUD's policy for selling HUD-held unsubsidized

mortgages?

HUD's policy for selling HUD-held unsubsidized mortgages is as

follows:

(a) Current mortgages may be sold with or without FHA mortgage

insurance.

(b) Delinquent mortgages may be sold without FHA mortgage

insurance. However, delinquent mortgages will not be sold if:

(1) HUD believes that foreclosure is unavoidable; and

(2) The project securing the mortgage is occupied by very low-

income tenants who are not receiving housing assistance and would be

likely to pay rent in excess of 30 percent of their adjusted monthly

income if HUD sold the mortgage.

PART 886--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--SPECIAL

ALLOCATIONS

2. The authority citation for 24 CFR part 886 continues to read as

follows:

Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), and 13611-

13619.

3. Section 886.302 is amended by revising the definitions of the

terms ``Eligible project or project'', and ``Owner'', to read as

follows:

Sec. 886.302 Definitions.

* * * * *

Eligible project or project. A multifamily housing project (see 24

CFR part 290):

(1) For which the disposition in accordance with the provisions of

24 CFR part 290 involves sale with Section 8 housing assistance to

enable the project to be used, in whole or in part, to provide housing

for lower income families; and

(2) The units of which are decent, safe, and sanitary.

* * * * *

Owner. The purchaser, including a cooperative entity or an agency

of the Federal Government, under this subpart, of a HUD-owned project;

or the purchaser, including a cooperative entity or an agency of the

Federal Government, through a foreclosure sale of a project that was

subject to a HUD-held mortgage.

* * * * *

4. Section 886.310 is revised to read as follows:

Sec. 886.310 Initial contract rents.

HUD will establish contract rents at levels that, together with

other resources available to the purchasers, provide sufficient amounts

for the necessary costs of rehabilitating and operating the multifamily

housing project and do not exceed 120 percent of the most recently

published Section 8 Fair Market Rents for Existing Housing (24 CFR part

888, subpart A).

5. Section 886.311 is revised to read as follows:

Sec. 886.311 Term of contract.

The contract term for any unit shall not exceed 15 years, except

that the term may be less than 15 years as [[Page 11860]] provided

under either paragraph (a) or (b) of this section.

(a) The contract term may be less than 15 years if HUD finds that,

based on the rental charges and financing for the multifamily housing

project to which the contract relates, the financial viability of the

project can be maintained under a contract having a term less than 15

years. Where a contract of less than 15 years is provided under this

paragraph, the amount of rent payable by tenants of the project for

units assisted under such a contract shall not exceed the amount

payable for rent under section 3(a) of the United States Housing Act of

1937 for a period of at least 15 years.

(b) The contract term may be less than 15 years if the assistance

is provided under a contract authorized under section 6 of the HUD

Demonstration Act of 1993, and pursuant to a disposition plan under

this part for a project that is determined by the HUD to be otherwise

in compliance with this part.

6. Section 886.319 is revised to read as follows:

Sec. 886.319 Responsibility for contract administration.

HUD is responsible for administration of the Contract. HUD may

contract with another entity for the performance of some or all of its

Contract administration functions.

Dated: October 13, 1995.

Jeanne K. Engel,

General Deputy Assistant Secretary for Housing--Federal Housing

Commissioner.

[FR Doc. 95-5093 Filed 3-1-95; 8:45 am]

BILLING CODE 4210-27-P