Office of Assistant Secretary for HousingFederal Housing Commissioner; Disposition of Multifamily Projects and Sale of HUD-Held Multifamily Mortgages

Federal RegisterMar 21, 1996

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SUMMARY: This final rule implements at 24 CFR part 290 the regulatory

requirements under the Multifamily Housing Property Disposition Reform

Act of 1994 that affect the management and disposition of HUD-owned

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

held multifamily mortgages. Conforming changes are made to part 886.

EFFECTIVE DATE: April 22, 1996.

FOR FURTHER INFORMATION CONTACT: Barbara D. Hunter, Director, Program

Management Division, Office of Multifamily Asset Management and

Disposition, Department of Housing and Urban Development, Room 6182,

451 7th Street SW, Washington, DC 20410. Telephone (202) 708-3944; TDD

(202) 708-4594. (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

The information collection requirements contained in Sec. 290.9 of

this rule have been approved by the Office of Management and Budget in

accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-

3520), and assigned OMB control number 2502-0204. An agency may not

conduct or sponsor, and a person is not required to respond to, a

collection of information unless the collection displays a valid

control number.

I. Statutory and Regulatory Background

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). A

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.

In the Multifamily Housing Property Disposition Reform Act of 1994

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

completely revised. An interim rule amending 24 CFR part 290 to reflect

the new statutory amendments was published on March 2, 1995 (60 FR

11844) with a 60 day public comment period. The Department received no

comments on the interim rule.

II. Changes Made by the Final Rule--Regulatory Reinvention

Consistent with Executive Order 12866 and President Clinton's

memorandum of March 4, 1995 to all Federal Departments and Agencies on

regulatory reinvention, HUD has reviewed all its regulations to

determine whether certain regulations can be eliminated, streamlined,

or consolidated with other regulations. In keeping with the President's

mandate to reinvent and reform regulations, the Department is taking

advantage of the publication of this final rule to streamline part 290.

The entire part has been re-drafted to eliminate text that only repeats

the statutory language, or provisions that are only advisory (rather

than binding) or non-exclusive. Instead of consisting of nine subparts,

A through I, as did the interim rule, this final rule has only two

subparts: subpart A--Disposition of Multifamily Projects, and subpart

B--Sale of HUD-Held Multifamily Mortgages.

One goal of reinventing regulations is to remove rule text that

only repeats statutory language. To achieve this goal, rules will only

contain legally binding requirements that are in addition to those

contained in a statute. This will streamline regulations, avoid

redundancy, and remove the problems that result when a rule that echoes

the language of a statute becomes inconsistent with new statutory

amendments. The period before a rule is amended to conform to new

statutory language is often one of confusion and uncertainty as to

which law applies. The final rule promulgated here does not, therefore,

repeat any statutory language; it contains only those provisions that

clarify the statutory procedures, or provisions that address those

areas that give the Secretary discretion to act.

The remaining regulatory text is further pruned to eliminate

provisions that are only advisory (rather than binding) or non-

exclusive. An example of such a provision is the listing in

Sec. 290.42(d)(3) of the interim rule of persons included in the

definition of ``displaced person.'' This listing is prefaced by the

phrase, ``This includes, but is not limited to:'', which indicates that

it only provides examples, and is not exclusive or complete. Such lists

of examples are more appropriate for inclusion in guidance materials

(such as the appendix which follows this rule) than in rules.

The consolidated statutory and regulatory procedures for the

disposition of multifamily properties, which were contained in the

interim rule, have been placed in an appendix to this final rule. The

final rule will be codified in the Code of Federal Regulations; the

appendix will not be codified. However, the appendix is available to

the public as a single document which provides a unified overview of

the disposition process. The user-friendly features of the interim

rule, its tables and question-and-answer format, are retained as

features of the appendix.

A number of consolidating and clarifying adjustments are also made

to the regulatory language that remains in part 290. The requirements

for the timing of any disposition-related notifications (i.e., pre-

foreclosure notification to tenants and units of general local

government; pre-disposition community and tenant input notification;

state and local government right of first refusal notification) are

combined into a single provision, at Sec. 290.11, which states that

notifications will be made, as appropriate, (1) 60 or more days before

HUD forecloses on a project, or (2) before, or not more than 30 days

after, HUD acquires a project. By making it clear that notifications

that may be made up to 30 days after acquisition may also be made

before acquisition, the rule confirms that the notification provisions

are meant to complement, rather than impede, the disposition process.

For instance, in the case of a negotiated sale to a State or local

government (including public

[[Page 11685]]

agencies), waiting until after acquisition to provide the statutorily

required state and local government right of first refusal notification

could delay a disposition for 90 days. Providing this notification

earlier in the process allows for a more expeditious disposition.

A correction is made in the table entitled ``Pre-Disposition

Notification Requirements,'' which now appears in the appendix. In the

interim rule, the timing for providing notice to tenants and the

community was listed as 60 days in the table, and 30 days in the rule

text. The time period in the table is here conformed to 30 days.

This rule also includes two provisions, at Secs. 290.37 and 290.39,

added to the Sale of HUD-Held Multifamily Mortgages subpart by an

interim rule published on February 6, 1996 (61 FR 4580). These

provisions are included in this rule to present the complete part 290

in its current form. However, after considering comments submitted on

these provisions, they will be republished separately as a final rule.

As an additional matter, the Department is taking advantage of the

publication of this rule to provide notice of section 401 of Pub. L.

104-99 (110 Stat. 26, approved January 26, 1996), which provides that,

``During fiscal year 1996, the Secretary of Housing and Urban

Development may manage and dispose of multifamily properties owned by

the Secretary, including the provision of the grants from the General

Insurance Fund (12 U.S.C. 1735c) for the necessary costs of

rehabilitation and other related development costs and multifamily

mortgages held by the Secretary without regard to any other provision

of law.''

III. Other Matters

Any assistance made available to a purchaser under this 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

``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.

Regulatory Flexibility Act

The Secretary, in accordance with provisions of the Regulatory

Flexibility Act (5 U.S.C. 605(b)), has reviewed this 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 requirements 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 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 rule would impose terms and

conditions on States that acquire projects under this 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 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.

The Catalog of Federal Domestic Assistance Program number and title

are 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, under the authority of 42 U.S.C. 3535(d), for the

reasons stated in the preamble, title 24 of the Code of Federal

Regulations is amended by adopting the amendments to part 886 of the

interim rule published in the Federal Register of March 2, 1995 (60 FR

11844) as final without change, and by revising part 290, to read as

follows:

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

MULTIFAMILY MORTGAGES

Subpart A--Disposition of Multifamily Projects

Sec.

290.1 Applicability.

290.3 Definitions.

290.7 Occupancy requirements.

290.9 Setting rental rates.

290.11 Notification requirements.

290.13 Negotiated sales.

290.15 Disposition plan.

290.17 Displacement of tenants and relocation assistance.

290.19 Restrictions concerning nondiscrimination against Section 8

certificate holders and voucher holders.

290.21 Computing annual number of units eligible for substitution

of tenant-based assistance or alternative uses.

290.23 Rebuilding.

290.25 Determination not to preserve a project or a part of a

project.

Subpart B--Sale of HUD-Held Multifamily Mortgages

290.30 General.

290.31 Sale of current mortgages securing subsidized projects.

290.33 Sale of delinquent mortgages securing subsidized projects.

290.35 Sale of HUD-held mortgages securing unsubsidized projects.

290.37 Requirements for continuing federal rental subsidy

contracts.

290.39 Nondiscrimination in admitting certificate and voucher

holders.

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

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

Subpart A--Disposition of Multifamily Projects

Sec. 290.1 Applicability.

The requirements of this part supplement the requirements of 12

U.S.C. 1701z-11 for the management and disposition of multifamily

housing projects and the sale of HUD-held multifamily mortgages. The

goals and objectives of this part are the same as the goals and

objectives of 12 U.S.C. 1701z-11, which shall be referred to in this

part as ``the Statute.''

Sec. 290.3 Definitions.

The terms Department and URA are defined in 24 CFR part 5. The

following definitions apply to this part:

Cooperative means a nonprofit, limited equity, or consumer

cooperative as defined under 24 CFR part 213. It

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may include mutual housing associations.

HUD-owned project means a multifamily project that has been

acquired by HUD.

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. 1713, 1715e,

1715k, 1715l, 1715n, 1715v, 1715z-1, or 1742-1746); 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. 1715l); 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 (12 U.S.C.

1715k), 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.

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 (42 U.S.C. 1437 note) (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) (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- 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.

Unsubsidized project means a multifamily housing project that is

not a subsidized project.

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

less, as determined by the Department.

Sec. 290.7 Occupancy requirements.

(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. 290.17.

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

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

is an immediate threat to the health and

[[Page 11687]]

safety of the tenants, HUD may require the tenants to vacate the

premises and shall provide temporary relocation benefits as provided in

Sec. 290.17 to tenants required to vacate the premises.

Sec. 290.9 Setting rental rates.

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

for a property owned by HUD or where HUD is mortgagee-in-possession 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.

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 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 of

rent increases 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 the Office of Management and Budget under control number

2502-0204.)

Sec. 290.11 Notification requirements.

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

notifications, as appropriate, to simplify the disposition process.

(b) Timing of notifications. Disposition-related notifications

(i.e., pre-foreclosure notification to tenants and units of general

local government; pre-disposition community and tenant input

notification; state and local government right of first refusal

notification) will be made, as appropriate:

(1) 60 or more days before HUD forecloses on a project; or

(2) Before, or not more than 30 days after, HUD acquires a project.

notification 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 units of general local government. Pre-disposition

notification to a unit of general local government

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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 part, 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 required notification. Any notice

required to be made to any party other than a tenant or a unit of

general local government will be sent by first class mail.

(d) Content of notifications. Notifications will, as appropriate,

identify the project acquired or to be foreclosed by HUD; provide the

general terms and conditions concerning the sale, future use, and

operation of the project as proposed by HUD; indicate the time by which

any offers must be made or any comments must be submitted; and state

that the full disposition recommendation and analysis and other

supporting information will be available for inspection and copying at

the HUD Field Office.

Sec. 290.13 Negotiated sales.

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:

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

federal, State, or local government.

(b) 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:

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

nonprofit or limited equity cooperative;

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

cooperative, mutual housing organization) with demonstrated experience

in the operation of nonprofit (and preferably low-income) housing;

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

low-income housing and whose governing board is composed of project

residents;

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

capacity to acquire, manage, and maintain the project as housing

available to and affordable by low-income residents;

(5) 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;

(6) Other nonprofit organizations.

Sec. 290.15 Disposition plan.

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

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) Environmental requirements. HUD will perform, and include in

the final disposition plan, the environmental reviews required by 24

CFR part 50.

Sec. 290.17 Displacement of tenants and relocation assistance.

(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.

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

connection with the management or disposition of a multifamily housing

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 housing 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 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; and

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

available.

(d) Relocation assistance at URA levels. (1) General. The

requirements of this paragraph apply to any displacement that results

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. 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. 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. However, a person does not qualify as a ``displaced person''

if:

(i) The person is excluded under 49 CFR 24.2(g)(2);

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

violation of the terms and conditions of the lease or occupancy

agreement, violation of

[[Page 11689]]

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;

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

the purchaser; or

(iv) 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 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. 290.19 Restrictions concerning nondiscrimination against Section

8 certificate holders and voucher holders.

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.

Sec. 290.21 Computing annual number of units eligible for substitution

of tenant-based assistance or alternative uses.

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

families instead of project-based assistance to units. The number of

units eligible, as permitted by the Statute, 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.

(b) Alternate uses. The number of units eligible for alternate uses

in any fiscal year, as permitted by the Statute, will be determined at

the beginning of the fiscal year as the applicable percentages (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.

Sec. 290.23 Rebuilding.

HUD may provide project-based assistance to support the rebuilding

of a HUD-owned multifamily housing project only. The required

determination that rebuilding the project would be less expensive than

substantial rehabilitation means that 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.

Sec. 290.25 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. 290.17.

(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.

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

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

[[Page 11690]]

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 B--Sale of HUD-Held Multifamily Mortgages

Sec. 290.30 General.

(a) Except as otherwise provided in Sec. 290.32(a)(2), HUD will

sell HUD-held multifamily 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

subpart will govern the sale.

(b) References in subpart B of this part to mortgages securing

subsidized projects include HUD-held purchase money mortgages on

subsidized projects.

Sec. 290.31 Sale of current mortgages securing subsidized projects.

HUD will sell current mortgages securing subsidized projects, 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, in addition to meeting the requirements of the Statute,

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. 290.33 Sale of delinquent mortgages securing subsidized projects.

Delinquent mortgages securing subsidized projects 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. 290.35 Sale of HUD-held mortgages securing unsubsidized projects.

HUD's policy for selling HUD-held mortgages securing unsubsidized

projects 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.

Sec. 290.37 Requirements for continuing federal rental subsidy

contracts.

For any mortgage that, at the time HUD offers the mortgage for sale

without FHA mortgage insurance, is delinquent and secures a subsidized

project or unsubsidized project that receives any of the forms of

assistance enumerated in paragraphs (4)(i) to (4)(iv) of the

``subsidized project'' definition in Sec. 290.3:

(a) The mortgage purchaser and its successors and assigns shall

require the mortgagor to record a covenant running with the land as

part of any loan restructuring or of a final compromise of the mortgage

debt and shall include a covenant in any foreclosure deed executed in

connection with the mortgage. The covenant shall continue in effect

until the last federal project-based rental assistance contract expires

by its own terms. The covenant shall provide that, except where

otherwise approved by HUD, a project purchaser shall agree to assume

the obligations of any outstanding:

(1) Project-based federal rental subsidy contract; and

(2) Tenant-based Section 8 housing assistance payments contract

with a public housing agency and the related lease.

(b) In the event of foreclosure of the mortgage sold by HUD, the

mortgage purchaser and its successors and assigns shall not foreclose

in a manner that interferes with any lease related to federal project-

based assistance or any lease related to tenant-based, Section 8

housing assistance payments.

Sec. 290.39 Nondiscrimination in admitting certificate and voucher

holders.

(a) Nondiscrimination requirement. For any mortgage described in

paragraphs (c) or (d) of this section that HUD sells without FHA

mortgage insurance, the project owner shall not unreasonably refuse 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 a certificate or

voucher holder under 24 CFR part 982.

(b) Inapplicability to current mortgages securing unsubsidized

projects that receive no project based-assistance. The

nondiscrimination requirements of this section do not apply to any

mortgage that is current under the terms of the mortgage at the time

HUD offers it for sale, if the mortgage secures an unsubsidized project

that does not receive any of the forms of project-based assistance

enumerated in paragraphs (4)(i) to (4)(iv) of the ``subsidized

project'' definition in Sec. 290.3.

receiving project-based assistance (partially-assisted projects) or

securing subsidized projects. (1) The nondiscrimination requirement in

paragraph (a) of this section applies to the project owner upon the

sale of a mortgage without FHA mortgage insurance if, at the time HUD

offers it for sale, the mortgage secures:

(i) An unsubsidized project that receives any of the forms of

assistance enumerated in paragraphs (4)(i) to (4)(iv) of the

``subsidized project'' definition in Sec. 290.5; or

(ii) A subsidized project, as defined in Sec. 290.3.

(2) This requirement shall continue in effect until the mortgage is

paid in full, including by a mortgage prepayment, except as provided in

paragraph (d) of this section.

(2) A subsidized project, as defined in Sec. 290.3.

This requirement shall continue in effect until the mortgage is paid in

full, including by a mortgage prepayment, except as provided in

paragraph (d) of this section.

(d) Covenant requirement for all delinquent mortgages sold without

FHA mortgage insurance. This paragraph (d) applies to the sale of any

mortgage that is delinquent at the time HUD offers it for sale without

FHA mortgage insurance, without regard to the subsidy status of the

project. The mortgage purchaser and its successors and assigns shall

require the mortgagor to record a covenant running with the land as

part of any loan restructuring or final compromise of the mortgage debt

and shall include a covenant in any foreclosure deed executed in

connection with the mortgage. The covenant shall set forth the

nondiscrimination requirement in paragraph (a) of this section. The

covenant shall continue in

[[Page 11691]]

effect until a date that is the same as the maturity date of the

mortgage sold by HUD.

Dated: March 7, 1996.

Nicolas P. Retsinas,

Assistant Secretary for Housing--Federal Housing Commissioner.

[Note: The following guide to part 290 will not be codified in

title 24 of the Code of Federal Regulations.]

GUIDE

Disposition of Multifamily Projects and Sale of HUD-Held Multifamily

Mortgages--Guide

General Provisions

1. What subjects does this guide cover?

2. What are HUD's management and disposition goals?

3. What definitions apply in this guide?

4. What provisions may be waived?

Management and Maintenance Provisions

5. What maintenance and management standards apply to multifamily

housing projects?

6. How may HUD contract for management services, or require the

owner of a multifamily project to contract for management services?

7. What occupancy requirements apply to multifamily housing

projects?

8. How will rental rates be set when HUD is mortgagee-in-possession

(MIP) or owner of a multifamily housing project?

Notification Requirements

9. How will HUD provide required notifications?

10. What notification must be given before foreclosure?

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

selling, and what kind of notice must HUD provide?

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

community when HUD is selling a project?

Disposition Procedures

13. What are the different methods that may be used for the

disposition of a multifamily housing project?

14. What qualities does HUD look for in a purchaser?

15. What kind of disposition plan will HUD prepare before selling a

project?

Required Actions For All Multifamily Housing Projects

16. What actions must be taken in the disposition of all

multifamily housing projects?

17. What actions must be taken concerning tenants who are displaced

by the disposition of a multifamily housing project?

18. What actions must be taken concerning very low-income tenants

in the disposition of a multifamily housing project?

19. What restrictions concerning nondiscrimination against Section

8 certificate holders and voucher holders apply in the disposition of a

multifamily housing project?

Subsidized Projects--Basic and Alternative Actions to Facilitate

Disposition

20. What are the basic actions that may be taken in the disposition

of a subsidized project?

21. What alternatives to the basic actions are available in the

disposition of subsidized projects?

Unsubsidized Projects--Basic and Alternative Actions to Facilitate

Disposition

22. What are the basic actions that may be taken in the disposition

of an unsubsidized project?

23. What alternatives to the basic actions are available in the

disposition of an unsubsidized project?

All Multifamily Housing Projects--Additional Actions to Facilitate

Disposition

24. What guidelines will HUD apply in determining which additional

actions to take in the disposition of a multifamily housing project?

25. May HUD reduce the sales price for a project?

26. May HUD require additional use and rent restrictions?

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

project?

28. Under what conditions may HUD provide up-front grants?

29. What additional tenant-based assistance may HUD offer?

30. How may HUD provide for alternative uses of units in the

disposition of a multifamily housing project?

31. What disposition assistance may be available to rebuild a

multifamily housing project?

32. What emergency assistance funds may be provided to tenants?

33. Under what circumstances may HUD make a determination not to

preserve a project or a part of a project?

General Provisions

1. What subjects does this guide cover?

This guide sets out, in a single document, the combined statutory

(section 101 of the Multifamily Housing Property Disposition Reform Act

of 1994, hereinafter, ``the Statute,'' codified at 12 U.S.C. 1701z-11)

and regulatory (24 CFR part 290) requirements for the management and

disposition of multifamily projects. Except as provided in paragraph

(b) of this section, the requirements described in this guide apply 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.

(b) The requirements described in this guide do not apply to

multifamily projects being foreclosed by HUD for which the decision to

foreclose has been made before March 2, 1995, the effective date of the

interim rule which implemented the Multifamily Housing Property

Disposition Reform Act of 1994 at 24 CFR part 290, nor to HUD-owned

projects where the initial disposition program has been approved before

March 2, 1995. For such projects, the procedures in the regulations at

24 CFR 290 in effect immediately prior to March 2, 1995 apply, unless

HUD determines, on a case-by-case basis, to apply the new requirements.

2. What are HUD's management and disposition goals?

(a) HUD's goals are to carry out the management and 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

[[Page 11692]]

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

housing market conditions.

(b) 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 the Statute.

3. What definitions apply in this guide?

The following definitions apply in this guide:

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; or is or was subject to a

loan under section 202 of the Housing Act of 1959; 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; or mobile home

parks under section 207(m) of that Act; or vacant land; or property

covered by a homeownership program approved under the Homeownership and

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