4350.6

Chapter 1. General

1-1. Introduction. This Handbook provides information to

Field Office staff about processing Plans of Action

for terminating or extending affordability

restrictions for eligible low-income housing under

Subtitle A of Title VI of the National Affordable

Housing Act, the Low Income Housing Preservation and

Resident Homeownership Act of 1990.

1-2. Authority.

A. Subtitle A of Title VI of the National

Affordable Housing Act of 1990 (Title VI), which

repealed and replaced Title II of the Housing

and Community Development Act of 1987 (Title

II), restricts an owner of \"eligible low-income

housing,\" insured, formerly insured or assisted

under Section 221(d)(3) or Section 236 of the

National Housing Act, from prepaying a project\'s

mortgage note after 20 years if the mortgage

note is eligible to be prepaid without HUD\'s

consent. In this Handbook, all references to

\"prepaying a project\'s mortgage\" also covers

\"involuntarily terminating the mortgage

insurance.\" In other words, HUD may approve a

Plan of Action that provides for termination of

the low-income affordability restrictions

through prepayment of the mortgage or voluntary

termination of the mortgage insurance contract.

Each of the actions has the same effect. That

is they each terminate the low-income

affordability restrictions of the project

Regulatory Agreement. Title VI provides

permanent authority to address certain

low-income housing as further defined.

B. These legislative provisions have been

implemented in 24 CFR Part 248, Subpart B (in

this Handbook, subsequent references to any Part

of 24 CFR will be limited to using the word Part

or Section and its number), with conforming

amendments in Parts 50, 219, 241, 221 and 236.

The requirements of Part 248 apply to any

project that is eligible low-income housing, as

defined in Section 248.101 and Paragraph 1-15

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4350.6

below, on or after November 1, 1987. Subpart C

pertains only to administering Title II.

Subpart A of Part 248 consists of provisions

which are applicable to both Subpart B and

Subpart C. While Subparts A and B of Part 248

are covered by this Handbook, Subpart C is

covered in Notice H91-29. Instructions for

implementing Subpart D will be published later.

An Interim Rule, for effect amending Part 248 in

order to implement Title VI, was published in

the Federal Register on April 8, 1992.

C. Section 602(b) of the National Affordable

Housing Act amends Section 250(b) and (c) of the

National Housing Act so that a mortgagee may

foreclose a mortgage on any eligible low-income

housing project, only if the mortgagee also

agrees to convey the title to the project to

HUD.

D. Section 602(b) applies regardless of whether the

mortgage or applicable regulations permit

prepayment without HUD\'s consent.

1-3. Purpose. The purpose of this Handbook is to provide

comprehensive guidance to HUD Field Offices regarding

requests to prepay mortgages or extend affordability

on eligible low-income housing. This Handbook:

A. Covers all aspects of receiving, processing,

evaluating, and approving Notices of Intent and

Plans of Action;

B. Establishes the procedure for requesting

appraisals of eligible low-income housing for

which the owner has submitted a Notice of Intent

to transfer the project or to extend its

low-income affordability restrictions;

C. Provides standards for evaluating Plans of

Action to terminate or extend the current

affordability restrictions;

D. Provides standards for organizing a Resident

Council for the purpose of developing a Resident

Homeownership Program; and

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4350.6

E. Provides an application and approval procedure

for a State Agency to be delegated some or all

responsibility for receiving Notices of Intent

and processing Plans of Action.

1-4. Revisions to Section 250(b) and (c) of the National

Housing Act were implemented by Mortgagee letter

[91-25](http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/91-25ml.txt)
in Appendix 1-2.

1-5. This Handbook covers all Plans of Action (POAs) filed

under Title VI. Since the new law (Title VI), under

certain circumstances, maintains the provisions of

the old law (Title II), old law provisions will be

referred to as Title II and new law provisions will

be referred to as Title VI.

1-6. Exceptions.

A. The requirements of Title VI will not apply to a

project that has received approval of a

Homeownership Plan under the HOPE Program.

Projects receiving an implementation grant under

the HOPE Program are not eligible for assistance

under Title VI.

B. This Handbook does not govern the prepayment of

Section 202 mortgages.

1-7. Objectives. HUD will approve POAs submitted by

owners of eligible low-income housing when the plans

meet the statutory and regulatory criteria for

approval. Owners whose contractual right to mortgage

prepayment has been limited by Title VI are entitled

to prompt, efficient processing by the Department.

It is HUD\'s objective to make decisions without delay

and in conformance with statutory and regulatory

timeframes.

1-8. Preemption of State and Local Laws. Title VI

provides that a fair Federal preservation policy must

apply uniformly to all affected properties regardless

of location. For that reason, pursuant to Section

232 of Title VI, HUD may preempt State and local laws

that target only prepayment projects for special

treatment. Any questions about preemption of State

and local laws should be referred the the Field

Office Chief Counsel.

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4350.6

1-9. Delegated Responsibility to State Agencies.

A. In General, HUD may delegate some or all

responsibility for implementing Plans of Action

(POAs) to a State Housing Agency if such agency

submits a State Preservation Plan acceptable to

the Department. State agencies may redelegate

such authority to local housing authorities at

their discretion. In those cases where such

redelegation takes place, the local housing

authority must meet the requirements of

Paragraph B below. Headquarters staff must

review, evaluate and approve a State\'s

Preservation Plan in accordance with the

criteria set forth below.

B. Implementation. In order to implement a State

Preservation Plan, the State agency must submit

the following information to the Director of the

Office of Multifamily Housing Preservation and

Property Disposition in Headquarters:

1\. An inventory of low-income housing within

the State that is, or will be, eligible

low-income housing under Title VI within

five years. The inventory must include:

a\. A brief description of the Federal or

State housing program under which the

project was built;

b\. Project name, location, owner and

mortgage amount;

c\. Number of units by income category;

d\. Type of rent subsidy in effect; and

e\. The date the project becomes eligible

for prepayment.

2\. A description of the agency\'s experience in

the area of multifamily financing and

restructuring which includes:

a\. A narrative describing the types of

housing produced or rehabilitated;

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4350.6

b\. The number of units of new or

rehabilitated property currently in

the inventory; and

c\. The types and amounts of multifamily

financing undertaken (i.e., tax exempt

bonds, State programs, Federal

programs, and conventional financing).

3\. Descriptions of the means available to

process Plans of Action including:

a\. A description of administrative

resources that will enable the agency

to:

i\. Review appraisals;

ii\. Assist priority purchasers;

iii\. Process POA\'s with incentives;

and

iv\. Conduct monitoring duties in

connection with approved POA\'s.

b\. A description of the staffing

available to process the State\'s Plans

of Action including, as an attachment:

i\. Resumes of key staff persons who

will be directly involved in this

activity;

ii\. Job descriptions and salary rates

per job category for the staff

that will be involved with this

activity; and

iii\. An organization chart indicating

lines of responsibility.

c\. A description of the administrative

resources that the agency will commit

to the monitoring of approved Plans of

Action in accordance with this Title

VI\.

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4350.6

4\. An independent analysis of the performance

of the multifamily housing financed or

otherwise monitored by the agency. Loan

Management staff review of this data may

include but not be limited to:

a\. Reviewing the State agency\'s data

against Standard and Poor\'s (S&Ps)

\"top tiered\" bond rating certification

as a measure to satisfy the

independent analysis requirement.

b\. Using the annual independent audit of

the State Housing Finance Authority\'s

operations and an annual or other

periodic review conducted by HUD to

satisfy this independent analysis

requirement.

C. Implementation Agreements. The Department may

enter into any agreements necessary to implement

and approve a State Preservation Plan.

D. Certifications Required:

1\. A certification by the public official

responsible for submitting the

comprehensive housing affordability

strategy (CHAS) under Section 105 of the

National Affordable Housing Act that the

proposed activities are consistent with the

approved housing strategy of the State

within which the eligible low-income

housing is located; and

2\. Such other certifications or information

that the Department determines to be

necessary to implement an approved State

Preservation Plan.

E. Fees. Any State agencies participating in HUD\'s

affordable housing program may not charge any

fee for accepting Notices of Intent, processing

Plans of Action or performing any other duties

related to the approval of a Plan of Action.

This prohibition does not preclude:

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4350.6

1\. An owner from paying for its appraisal or

share of a joint appraisal under Title VI;

or

2\. A State agency from collecting fees

normally associated with providing and

processing loans insured under Part 241.

1-10. Consultation with Other Interested Parties.

A. The Chief, Loan Management Branch, will

designate a person to serve as the liaison

between HUD and States, local governments, and

other interested parties to:

1\. Ensure that the Initial and Second Notices

of Intent (NOIs) are sent to the Chief

Executive Officer (CEO), or its designee,

at the lowest level of government in a

metropolitan area (eg., the CEO of the city

rather than the county or State) and to the

CEO, or its designee, at the highest level

of government, which would be the State, in

a non-metropolitan area.

2\. Elicit feedback from State and local

governments where projects are located to

make sure that the owner has filed the

Initial Notice of Intent and the Second

Notice of Intent (where applicable) with

them and that all Federal requirements have

been met.

3\. Gather information specified in

Paragraph A.2. above and find out if the

owner has provided other information,

required by Title VI, to the appropriate

State or local agencies, including

appraisal information it received from HUD.

4\. Develop a list which contains the name of

the person, designated by the State or

local CEO, to be responsible for

implementing the low-income affordable

housing program so that HUD:

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4350.6

a\. Can submit the POA to the appropriate

State or local agency to which the

owner was not required to send a copy;

b\. Can ensure that the statutory purpose

of Title VI is carried out;

c\. Can ensure that the POA reaches the

person at the agency closest to the

task of reviewing and approving the

POA so that it will receive the most

expeditious review possible.

B. The Affordable Housing Branch in Headquarters

will undertake outreach efforts with National

State organizations such as the Council of State

and County Agencies (COSCA) and the National

Council of State Housing Agencies (NCSHA) to

obtain information that will aid in HUD\'s goal

to preserve affordable housing stock.

Headquarters staff will compile the information

gathered and provide it to Loan Management staff

as needed.

C. Loan Management staff must confer with any

appropriate State or local government agency to

confirm any State or local assistance that is

available to help low-income families preserve

and retain their residences as affordable

housing. The Loan Management Branch must also

consider such views when making determinations

about Plans of Action or a Resident

Homeownership Plan of Action.

D. The Department must confer with appropriate

interested parties (e.g., community groups,

nonprofit organizations, tenant groups) that it

believes could assist in the development of a

Plan of Action that best achieves the purpose of

preserving and maintaining, to the maximum

extent possible, housing that is affordable to

low-income families or persons; minimizes the

involuntary displacement of tenants currently

residing in low-income housing; or facilitates

the sale of housing to residents under a

Homeownership Program.

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4350.6

1-11. Maintenance of Tenant Income Profiles. Loan

Management staff should warn owners of projects that

may become eligible to prepay that they must maintain

an income profile of tenants as of January 1, 1987.

HUD is authorized to approve POAs extending

affordability restrictions only if the project

maintains the same proportions of very low-, low- and

moderate-income families or persons as resided in the

project as of January 1, 1987, or as of the date of

the POA approval, whichever date results in the

highest proportion of very low-income families. If

the tenant profile for January 1, 1987 is no longer

available, the owner will be able to certify to this

effect and will have to submit the earliest available

profile of January 1, 1988, or January 1, 1989.

1-12. Waivers. Upon making a determination and finding a

good cause, the Commissioner may waive any provision

of this Handbook or regulations, subject to statutory

limitations. Each waiver request must be in writing

and must be supported by documentation of the facts

and reasons that form the basis for the waiver.

1-13. Maintain a Log. The Multifamily Housing Preservation

staff in Headquarters will develop a log (automated

and manual) which Loan Management staff may use to

record the receipt of an Initial Notice of Intent

(NOI). Information on the log will include, but will

not be limited to, the date of receipt of the Initial

NOI, the project name and number, the type of action

the owner intends to take (i.e., terminate, extend or

transfer) and POA approval date. The log format will

allow recordation of data in a sequential, on-going

manner and will complement the Plan of Action

tracking system now under development in

Headquarters. Loan Management staff should also

enter information on the log, as specified in this

Handbook, whenever the word LOG appears.

1-14. Timelines. Appendix 1-1A, 1-1B and 1-1C are

timelines that contain the clock Loan Management

staff must adhere to when processing NOIs and Plans

of Actions.

1-15. Definitions.

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4350.6

Acquisition Loan. A loan or advance of credit made

to a qualified purchaser of eligible low-income

housing and insured by the Department under Section

241(f) of the National Housing Act for which

regulations are promulgated under 24 CFR Part 241,

Subpart E.

Adjusted Income. Annual income, as specified in

Section 813.106, less allowances specified in the

definition of \"Adjusted Income\" in Section 813.102.

Aggregate Preservation Rent. The extension

preservation rent or transfer preservation rent, as

defined under this Paragraph for the project.

Annual Authorized Return. The total amount an owner

of an eligible low-income housing project may receive

in distributions from the project each year,

calculated as a percentage (i.e., 8%) of the

project\'s extension preservation equity. This amount

may be taken as distribution and/or be used to pay

debt service for the equity take-out portion of any

loan approved under the Plan of Action.

Basic Rents. The HUD-approved monthly rent for a

unit in a Section 236 project determined on the basis

of operating the project with payments of principal

and interest at the rate of one percent per annum in

accordance with Section 236.2.

Bona Fide Offer. A certain and unambiguous offer to

purchase an eligible low-income housing project

pursuant to Subpart B of Part 248 made in good faith

by a qualified purchaser with the intent that such

offer result in the execution of an enforceable,

valid and binding contract.

Capital Improvement Loan. A direct loan to the owner

or purchaser originated by the Department under Part

219\.

Community-Based Nonprofit Organization (CBO). A

private nonprofit organization that:

A. Is organized under State or local laws;

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4350.6

B. Has no part of its net earnings inuring to the

benefit of any member, founder, contributor, or

individual;

C. Is neither controlled by, nor under the

direction of, individuals or entities seeking to

derive profit or gain from the organization;

D. Has applied for, or has a tax exemption ruling

from the Internal Revenue Service under Section

501(c) of the Internal Revenue Code of 1986;

E. Does not include a public body (including the

participating jurisdiction) or an

instrumentality of a public body. An

organization that is State or locally chartered

may qualify as a CBO. However, the State or

local government may not have the right to

appoint more than one-third of the membership of

the organization\'s governing body and no more

than one-third of the board members can be

public officials;

F. Has standards of financial accountability that

conform to Attachment F of OMB Circular No.

A-110 (Rev.) \"Standards for Financial Management

Systems\";

G. Has among its purposes the provision of decent

housing that is affordable to low-income and

moderate-income persons, as evidenced in its

charter, articles of incorporation, resolutions

or by-laws;

H. Maintains accountability to low-income community

residents by:

1\. Maintaining at least one-third of its

governing board\'s membership for low-income

neighborhood residents, other low-income

community residents, or elected

representatives of low-income neighborhood

organizations.

a\. For urban areas, \"community\" may be a

neighborhood or neighborhoods, city,

county, or metropolitan area;

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4350.6

b\. For rural areas, \"community\" may be

neighborhood or neighborhoods, town,

village, county, or multi-county area

(but not the entire State), provided

the governing board contains low-income

residents from each county of

the multi-county area; and

2\. Providing a formal process for low-income,

program beneficiaries to advise the

organization on its decisions regarding the

acquisition, rehabilitation and management

of affordable housing.

Debt Service Coverage. An amount reserved to make

loan payments in the event of unanticipated project

expenses. For purposes of determining preservation

rents, debt service coverage (DSC) will be the amount

needed to bring debt service (DS) to 90 percent of

the total debt service and the amount reserved, i.e.,

debt service coverage is set to the amount such that:

Example: DS = .90(DS+DSC)

DSC = 1/9 DS

DSC = .111 DS

Default. For purposes of determining eligibility

for filing a Notice of Intent, default is the failure

of the owner to make any payment due under the

mortgage (including the full amount of the debt if

the mortgagee has accelerated the debt on the basis

of a non-monetary default) within 30 days after such

payment becomes due.

Eligible Low-Income Housing. Any project that is not

subject to a use restriction, imposed by the

Department, which restricts it to low and moderate

income use for a period at least equal to the

remaining term of the mortgage, and;

A. That is financed by a loan or mortgage:

1\. Insured or held by the Secretary under

Section 221(d)(3) of the National Housing

Act and assisted under Part 215 or

project-based assistance provided under

Sections 880, 881 or 886;

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4350.6

2\. Insured or held by the Secretary under

Section 221 of the National Housing Act and

bearing a below market interest rate as

provided under Section 221.518(b);

3\. Insured, assisted, or held by the

Department or a State or State agency under

Section 236 of the National Housing Act; or

4\. A purchase money mortgage held by the

Department for a project which, immediately

prior to HUD\'s acquisition, would have been

classified under Paragraph A.1., 2., or 3.

of this definition; and

B. That, under regulation or contract in effect

before February 5, 1988, is or will within 24

months become eligible for prepayment without

prior approval of the Department.

Equity Loan. A loan or advance of credit to the

owner of eligible low-income housing and insured by

the Department under Section 241(f) of the National

Housing Act, for which regulations are promulgated

under 24 CFR Part 241, Subpart E.

Extension Preservation Equity. The extension

preservation equity of a project is:

A. The extension preservation value of the project

determined under Section 248.111; less

B. The outstanding balance of any debt secured by

the property.

Extension Preservation Rent. The extension

preservation rent is the gross potential income for

the project that would be required to support:

A. The annual authorized return;

B. Debt service on any rehabilitation loan for the

project;

C. Debt service on the federally-assisted mortgage

for the project;

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4350.6

D. Project operating expenses; and

E. Adequate reserves.

Extension Preservation Value. The fair market value

of the project based on the highest and best use of

the project as multifamily market-rate rental

housing.

Fair Market Rent. The Section 8 existing fair market

rent (FMR) in effect and as defined under Section

882.102. Section 8 FMRs are applicable to the

jurisdiction in which the project is located and are

adjusted, where appropriate, for projects in which

tenants pay their own utilities. However, no utility

adjustments will be made to the fair market rent for

purposes of determining the Federal Cost Limit.

Federal Cost Limit. The greater of 120 percent of

the Section 8 existing fair market rent for the

market area in which the project is located or 120

percent of the prevailing rents in the relevant local

market area in which the project is located.

Federally-Assisted Mortgage. Any mortgage, as

defined in this Paragraph, any insured operating loss

loan secured by the project and any loan insured by

the Department under Part 241.

Floor Rents. Floor rents are those rents paid by

moderate income tenants in the case of a reduction in

income. The floor rents protect owners from large or

sudden decreases in rental income.

Good Cause. With respect to displacement, the

temporary or permanent uninhabitability of the

project justifying relocation of all or some of the

project\'s tenants (except where such uninhabitability

is caused by the actions or inactions of the owner),

or actions of the tenant that, under the terms of the

tenant\'s lease and applicable regulations, constitute

a basis for eviction.

HOME Investment Trust Fund. A public fund

established in the general local or State government

in which a project is located pursuant to Title II of

the National Affordable Housing Act.

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4350.6

Homeownership Program. A program developed by a

Resident Council for the sale of an eligible low-income

housing project to the tenants in accordance

with the standards in Section 248.173 or 248.175 and

Chapter 9 of this Handbook.

Initial Notice of Intent. An owner\'s notification to

the Department of its intention to terminate the

low-income affordability restrictions on the project

through prepayment of the mortgage or voluntary

termination of the insurance contract, to extend the

low-income affordability restrictions on the project,

or to transfer the project to a qualified purchaser.

Interest Reduction Payments. Payments made by the

Department pursuant to a contract to reduce the

interest costs on a mortgage insured under Section

236 of the National Housing Act.

Limited Equity Cooperative. A cooperative housing

corporation in which the income eligibility of

purchasers or appreciation upon resale of membership

shares, or both, are restricted in order to maintain

the project as available to and affordable by low and

moderate income families and persons.

Low-income Affordability Restrictions. Limits

imposed by regulation or regulatory agreement on

tenant rents, rent contributions, or income

eligibility with respect to eligible low-income

housing.

Low-income Families. Families or persons whose

incomes do not exceed the levels established for

low-income families under Part 813.

Low Vacancy Area. A local market area in which the

current supply of decent, safe and sanitary, vacant,

available rental units, as a proportion of the total

overall rental inventory in the area is not

sufficient to allow for normal growth and mobility.

This determination takes into account the need for

vacancies resulting from turnover and the need to

meet growth in renter households. The determination

of a low vacancy area will be made by the Department,

using the most recent available data for the market

area on the rental inventory, renter households,

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4350.6

rental vacancy rates and other factors as

appropriate.

Mandatory Sale. When an owner submits a Second

Notice of Intent to prepay the mortgage note and

terminate the affordability restrictions because the

transfer preservation rent exceeds the Federal Cost

Limit, the owner must offer the project for sale and

must accept any bona fide offer equal to the transfer

preservation value and sell the project to the

purchaser.

Moderate Income Families. Families or persons whose

incomes are between 80 and 95 percent of median area

income, as determined by the Department, with

adjustments for smaller and larger families.

Mortgage. The mortgage, security deed or deed of

trust insured or held by the Secretary or a State or

State agency under Parts 221 or 236. Also, the

purchase money mortgage taken back by the Secretary

in connection with the sale of a HUD-owned project

and held by the Department, where such mortgage,

security deed, or deed of trust or purchase money

mortgage is secured by eligible low-income housing.

Nonprofit Organization Eligible to Purchase or

Otherwise Participate. Any private, nonprofit

organization or association that:

A. Is incorporated under State or local law;

B. Has no part of its net earnings inuring to the

benefit of any member, founder, contributor, or

individual;

C. Complies with standards of financial

accountability acceptable to the Department; and

D. Has among its principal purposes, significant

activities related to the provision of decent

housing that is affordable to very low, low, and

moderate income families.

Notice of Intent. Initial Notice of Intent or Second

Notice of Intent as defined in this Paragraph.

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4350.6

Offering Price. The price that a purchaser offers a

seller for the Project.

Owner. The mortgagor or trustor under the mortgage

secured by eligible low-income housing.

Participating Jurisdiction. For purposes of the

Resident Homeownership program established in,

Section 248.173, any State or unit of general local

government that has been designated eligible to

maintain a HOME Investment Trust Fund in accordance

with Section 216 of Title II of the National

Affordable Housing Act.

Personal Benefit Expenses (PBEs). HUD\'s or the

contract administrator\'s estimate of the average

monthly utility bills (except telephone) for an

energy-conscious household paid directly by the

tenant.

Plan of Action. A plan providing for the termination

of the low-income affordability restrictions on the

project through prepayment of the mortgage or

voluntary termination of the insurance contract, for

extension of the low-income affordability

restrictions on the project, or for the transfer of

the project to a qualified purchaser. A plan for a

Homeownership Program constitutes a plan of action

for a Resident Homeownership program.

Prepayment. Prepayment in full of a mortgage, or a

partial payment or series of partial prepayments that

reduces the mortgage term by a least six months,

except where the prepayment in full or partial

prepayment results from the application of

condemnation proceeds.

Preservation Equity. The extension preservation

equity or transfer preservation equity, as defined

under this Paragraph.

Preservation Value. The extension preservation value

or transfer preservation value, as defined under this

Paragraph.

Prevailing Rents. Gross rents established for the

relevant local market, as defined in this Paragraph,

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4350.6

and adjusted where appropriate, for projects in which

tenants pay their own utilities. It is the gross

rent a tenant is likely to pay for this particular

housing at market rate rental conditions in this

location.

Priority Purchaser. Any entity that is not a related

party to the owner and that is either:

A. A Resident Council organized to acquire the

project in accordance with a Resident

Homeownership program that meets the

requirements of Section 248.173 or 248.175; or

B. Any nonprofit organization or State or local

agency that agrees to maintain low-income

affordability restrictions for the remaining

useful life of the project.

NOTE: A nonprofit organization or State or local

agency that is affiliated with a for-profit

entity for purposes of purchasing a project

under Subpart B of Part 248 will not be

considered a priority purchaser.

Public Housing Agency. A public housing agency means

any State, county, municipality, or other

governmental entity or public body (or its agency)

which is authorized to engage in or assist in the

development or operation of lower income housing.

Purchase Price. The maximum sales price that HUD

will use to determine the amount of incentives. The

actual purchase price of the project must not exceed

the offering price minus any residual receipts that

will be transferred with the project.

Qualified Purchaser. Any entity that is not a

related party to the owner and that agrees to

maintain low-income affordability restrictions for

the remaining useful life of the project. Qualified

purchasers include for-profit entities and priority

purchasers.

Regulatory Agreement. The agreement executed by the

owner and the Department or a State agency providing

for the regulation of the operation of the project.

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4350.6

Related Party. An entity that, either directly or

indirectly, is wholly or partially owned or

controlled by the owner of the project being

transferred under Part 248, Subpart B, is under whole

or partial common control with such owner, or has any

financial interest in such owner or in which such

owner has any financial interest. However, this will

not prohibit a nonprofit organization from buying-out

the interest of its limited dividend or for-profit

partners in connection with the sale of

eligible low-income housing under Subpart B of Part

248, as long as the sale is made on an arms length

basis. Also, the partners who sell their interest

must completely divest themselves of any input in the

continued operation of the project.

1\. The purchaser and the owner will not be deemed

related parties on the basis that financing is

provided to the purchaser by the seller or a

management company affiliated with the seller,

as long as:

A. Only a loan, and not a grant, is provided;

B. The financing is provided for the

acquisition of the project, the

rehabilitation of the project, or both;

C. In the case of financing for the

acquisition of the project, the sum of the

principal amount of the loan, plus the

amount of the Section 241(f) acquisition

loan and any Federal grant to cover

acquisition of the project, does not exceed

the sum of the sales price and the expenses

associated with the acquisition, loan

closing and implementation of the plan of

action and, in the case of financing for

the rehabilitation of the project, the

principal amount of the loan does not

exceed the equity requirements applicable

to the rehabilitation loan or capital

improvement loan obtained by the purchaser

under Part 241 or Part 219;

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4350.6

D. The loan is not a condition of accepting a

bona fide offer or entering into a sales

contract;

E. The seller has no input in the continued

operation of the project as a result of the

loan; and

F. In the case of a loan provided by a

management company that is affiliated with

the seller, the execution of a management

contract between the purchaser and the

management company is not a condition of

the loan.

2\. This rule does not bar an owner, or former

owner, from membership on a nonprofit

organization\'s board of directors, as long as:

A. The owner, or former owner, participates

only in its personal capacity, without

compensation, and holds a nonvoting

membership; and

B. The purchaser and the owner will not be

deemed related parties solely by reason of

the purchaser\'s retention of a property

management entity of a company that is

owned or controlled by the owner or a

principal thereof, if retention of the

management company is neither a condition

of sale nor part of consideration paid for

the project and the property management

contract is negotiated by the qualified

purchaser on an arm\'s length basis.

Relevant Local Market. An area geographically

smaller than the market area established by the

Department for purposes of determining the Section 8

existing fair market rent. The area is identifiable

as a distinct rental market area in which similar

projects and units would effectively compete with the

subject project for potential tenants.

Relocation Expenses. Relocation expenses consist of

payment for:

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4350.6

A. Advisory services that include timely

information, counseling (including the provision

of information on a resident\'s rights under the

Fair Housing Act), and referrals to suitable,

affordable, decent, safe and sanitary

alternative housing; and

B. Actual and reasonable moving expenses.

Remaining Useful Life. With respect to eligible

low-income housing, the period during which the physical

characteristics of the project remain in a condition

suitable for occupancy, assuming normal maintenance

and repairs are made and major systems and capital

components are replaced as becomes necessary.

Reserve for Replacements. The escrow fund

established under the Regulatory Agreement for the

purpose of ensuring the availability of funds for

needed repair and replacement costs.

Resident Council. Any incorporated nonprofit

organization or association in which membership is

available to all the tenants, and only the tenants,

of a particular project and:

A. Is representative of the residents of the

project;

B. Adopts written procedures providing for the

election of officers on a regular basis; and

C. Has a democratically elected governing board,

elected by the residents of the project.

Residual Receipt Fund. The fund established under

the Regulatory Agreement for holding cash remaining

after the distribution of all allowable distributions

from surplus cash as it is defined in the Regulatory

Agreement.

Return on Investment. The amount of allowable

distributions that a purchaser of a project may

receive under a Plan of Action under Section 248.157

or 248.161.

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4350.6

Secretary. The Secretary of Housing and Urban

Development.

Second Notice of Intent. An owner\'s notification of

its intent to transfer the project. An owner submits

a Second NOI after it receives the information which

HUD staff developed and sent to it after evaluating

data from the appraisal(s).

Section 8 Assistance. Rental assistance provided

under Parts 880 through 887.

Special Needs Tenants. Those elderly persons, 62

years of age or older, elderly families, or families

that include disabled persons, as defined in Section

812.2. Special needs tenants also means large

families requiring units with three or more bedrooms.

State Assisted or Subsidized Mortgage. A mortgage

which is assisted or subsidized by an agency of a

State government without any Federal mortgage

subsidy.

Tenant Representative. A designated officer of an

organization of the project\'s tenants, a tenant who

has been elected to represent the tenants of the

project, or a person or organization that has been

formally designated or retained by an organization of

the project\'s tenants to represent the tenants with

respect to Subpart B of Part 248.

Termination of Low-income Affordability Restrictions.

The elimination of low-income affordability

restrictions under the Regulatory Agreement through

termination of mortgage insurance or prepayment of

the mortgage.

Transfer Preservation Equity. The transfer

preservation equity of a project is:

A. The transfer preservation value of the project

determined under Section 248.111; less

B. The outstanding balance only of the

federally-assisted mortgage(s) secured by the

project prior to the granting of incentives.

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4350.6

Transfer Preservation Rent. For purposes of

receiving incentives pursuant to a sale of the

project, transfer preservation rent is the gross

income for the project that would be required to

support:

A. Debt service on the loan for acquisition of the

project;

B. Debt service on any rehabilitation loan for the

project;

C. Debt service on the federally-assisted mortgages

secured by the project;

D. Project operating expenses; and

E. Adequate reserves.

Transfer Preservation value. The fair market value

of the project based on its highest and best use.

Very Low-Income Families. Families or persons whose

incomes do not exceed the level established for very

low-income families under Section 813.102.

Voluntary Sale. When an owner submits a Second

Notice of Intent to transfer the project, it must

offer the project for sale to a qualified purchaser

if the transfer preservation rent does not exceed the

Federal Cost Limit. The owner, however, is not

obligated to accept any offer under this category.

Voluntary Termination of Mortgage Insurance. The

termination of all rights under the mortgage

insurance contract and of all obligations to pay

future insurance premiums.

Windfall Profits. Receipt of incentives under this

Act by owners who, in the absence of Title VI, would

not have prepaid their mortgages given local market

conditions. To prevent windfall profits, the

Secretary may make available incentive payments only

to owners in those rental markets where there is an

inadequate supply of decent, affordable housing or

where necessary to accomplish the other public policy

objectives under Title VI.

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