4571.3 REV-1

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CHAPTER 1. GENERAL INTRODUCTION TO SECTION 202 PROGRAM

1-1. Authority.

Section 202 of the Housing Act of 1959, as amended; 12

U.S.C. 1701q. Applicable Interim Regulations appear in the

Federal Register, dated \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, 24 CFR
Part 889.

1-2. Delegation of Authority in HUD.

Responsibility for program administration is delegated to

Regional Administrators and Field Office Managers.

Field Office Managers and their deputies will recommend

approval or disapproval of capital advances, amend fund

reservations for approved Owners, and make contracts and

execute documents. When used in this Handbook, Field

Office Managers or Housing Development Directors also means

supervisors of Multifamily Service Offices.

1-3. Purpose of Section 202 Program.

This program provides Federal capital advances and project

rental assistance under Section 202 of the Housing Act of

1959 (12 U.S.C. 1701q) for housing projects serving elderly

households. Such projects shall provide the necessary

services for the occupants which may include, but are not

limited to: health, continuing education, welfare,

informational, recreational, homemaking, meal and

nutritional services, counseling, and referral services, as

well as transportation where necessary to facilitate access

to these services.

Capital advances are available only to private, nonprofit

corporations and nonprofit consumer cooperatives to finance

the construction or rehabilitation of a structure or

portion thereof or the acquisition of a structure from the

Resolution Trust Corporation (RTC) to provide supportive

housing for the elderly and may include the cost of real

property acquisition, site improvement, conversion,

demolition, relocation and other expenses of supportive

housing for the elderly.

Project rental assistance is made available to owners for

all units.

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1-1 4/93

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4571.3 REV-1

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1-4. Applicant Eligibility.

A. Sponsor. Only a Sponsor may obtain a Section 202

capital advance fund reservation, which will be

transferred to an owner to be organized by the Sponsor.

NOTE: The term Section 202 capital advance fund

reservation (or Section 202 fund reservation), as used

throughout this handbook, means capital advance funds

that have been reserved (initially in the name of the

Sponsor) for the purpose of providing Section 202

housing units for the elderly.

1\. Definition of Sponsor.

a\. Must be a private nonprofit entity (need not be

incorporated) and must have an IRS tax

exemption ruling.

b\. May not be a public body or an instrumentality

of a public body.

c\. No part of its earnings may inure to the

benefit of any private shareholder, contributor

or individual.

d\. May not be controlled by or directed by persons

or firms seeking to derive profit or gain from

the project.

2\. Significance of Sponsor.

a\. HUD provides a Section 202 fund reservation on

basis of the Sponsor\'s management experience

(housing or services) and its pledge of

financial support to the project.

b\. Sponsor will be evaluated on the strength of

its activities as an organization and not on

the individual records of the officers, board

members, or general membership.

NOTE: The same requirements apply to all co-Sponsors

of a project.

B. Owner. The Owner corporation to be formed by the

Sponsor must comply with the requirements of Part 889,

and must be either a:

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4/93 1-2

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4571.3 REV-1

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Private nonprofit corporation, as follows:

a\. Purposes must include the promotion of the

welfare of elderly families.

b\. May not be a public body or instrumentality of

a public body.

c\. No part of its net earnings may inure to the

benefit of any private shareholder,

contributor, or individual.

d\. May not be controlled by or directed by persons

or firms seeking to derive profit or gain from

the project.

e\. Must be a single asset corporation. It may not

engage in any other business or activity or

incur any liability or obligation unrelated to

the project.

f\. Must be exempt from Federal income taxes under

either Section 501(c)(3) or (4) of the Internal

Revenue Code.

or a

2\. Consumer cooperative, as follows:

a\. If the Owner is a nonprofit consumer

cooperative and the proposed housing is to be

developed as a management type cooperative,

instructions in HUD Handbook 4550.2, except as

modified herein, would be applicable and the

requirements of Form FHA-3206, Commitment for

Insurance of Advances, would be followed.

b\. If the Owner is a private, nonprofit

corporation other than a cooperative and

intends from the outset of the application

process to convert to a cooperative, HUD

Handbook 4550.5 instructions would be

applicable, except as modified here, and the

requirements of Form FHA-3206 would be

followed. In either case, Section 202

cooperatives will follow the organization

format of Section 221(d)(3) Market Interest

Rate cooperatives.

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1-3 4/93

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4571.3 REV-1

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c\. The physical assets of the cooperative cannot

be sold for the personal gain of any of its

members. The Articles of Incorporation shall

provide that after a decision of the members to

discontinue operation as a cooperative, the

physical assets of the cooperative will be

conveyed to HUD or at HUD\'s discretion, to an

eleemosynary organization.

d\. Consumer cooperatives intending to provide

rental housing are subject to the same

provisions as nonprofit corporations providing

rental housing.

e\. Consumer cooperatives are not eligible for

exemption under Section 501 of the IRS Code.

A consumer cooperative meets the nonprofit

requirement if it:

\(1\) is formed as a nonprofit corporation or

cooperative under State law;

\(2\) will not pay patronage refunds out of

project revenues; and

\(3\) has never been liable for the payment of

income taxes.

C. Ineligible Participants.

1\. Religious Organizations.

a\. Religious bodies may not be an Owner (but may

be a Sponsor)

b\. Under Constitutional requirement for separation

of church and State, Section 202 capital

advances may not be made to religious

organizations or ones that have religious

purposes.

2\. Public Bodies and Instrumentalities of Public

Bodies.

a\. Public bodies (examples: Public Housing

Agencies and Local Public Agencies) may not

serve as sponsors or owners.

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4/93 1-4

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4571.3 REV-1

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b\. Instrumentalities of public bodies also are

ineligible.

c\. Indication of instrumentality relationship:

\(1\) Articles of Incorporation or by-laws

provide for control of corporation by

public body.

\(2\) Control may be indicated by power to name

majority of Board members or exercise of

supervisory power in operation of

corporation.

\(3\) Dissolution clause running to a public

body.

d\. Public bodies may provide housing consultant

and management services to Section 202

projects.

1-5. Resident Eligibility. Occupancy in Section 202 housing is

open to any household composed of one or more persons, one

of whom is 62 years of age or more at the time of initial

occupancy, if other occupancy requirements are met.

1-6. Program Components.

A. Capital Advances. Capital advances bear no interest

and their repayment is not required so long as the

housing remains available for very low-income elderly

persons for not less than 40 years.

1\. To determine the capital advance amount to be

reserved for new construction or rehabilitation

projects for the elderly, the following development

cost limits, shall be used:

a\. For nonelevator structures:

\(1\) \$28,032 per family unit without a bedroom;

\(2\) \$32,321 per family unit with one bedroom;

\(3\) \$38,979 per family unit with two bedrooms;

b\. For elevator type structures:

\(1\) \$29,500 per family unit without a bedroom;

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1-5 4/93

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4571.3 REV-1

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\(2\) \$33,816 per family unit with one bedroom;

\(3\) \$41,120 per family unit with two bedrooms.

c\. Increased capital advance limits:

\(1\) Field Offices may increase the cost limits

set forth above by the Headquarters

approved high cost factor of up to 140

percent. Where the cost levels require,

Headquarters may approve high cost factors

above 140 percent up to 160 percent on a

project-by-project basis.

\(2\) If high construction costs in Alaska, Guam,

Hawaii or the Virgin Islands make it

infeasible to construct dwellings, without

sacrificing sound construction, design, and

livability standards within the cost limits

provided above and adjusted by the Field

Office\'s approved high cost factor, the

amount of the capital advance may be

increased to compensate for such costs.

The increase may not exceed the limits

established after applying the Field

Office\'s approved high cost factor by more

than 50 percent.

d\. Rehabilitation Projects. A capital advance

that involves a project to be rehabilitated is

subject to the following additional

limitations:

\(1\) Property held in fee. If the Sponsor is

the fee simple owner of an unmortgaged

property, the capital advance amount may

not exceed 100 percent of the cost of the

proposed rehabilitation.

\(2\) Property subject to existing mortgage. If

the Sponsor owns a mortgaged property that

is to be refinanced with part of the

capital advance, the maximum capital

advance amount may not exceed the cost of

rehabilitation plus the portion of the

outstanding indebtedness that does not

exceed the fair market value of the land

and improvements before the rehabilitation,

as determined by the Field Office.

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4/93 1-6

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4571.3 REV-1

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e\. Property to be Acquired. If the property is to

be acquired by the Owner from an entity other

than the Sponsor, and the purchase price is to

be financed with a part of the Section 202

capital advance, the maximum capital advance

amount may not exceed the cost of the

rehabilitation plus the portion of the purchase

price that does not exceed the fair market

value of such land and improvements before the

rehabilitation, as determined by the Field

Office.

f\. Leaseholds. If the site is secured by a

leasehold estate rather than by a fee simple

estate, the amount of the capital advance

attributable to the cost of the property may

not exceed the value of the leasehold estate.

2\. Revisions to Cost Limits. Periodically, the

Department will revise the development cost limits

by market area for various types and sizes of

supportive housing for the elderly units by

publishing a notice of the cost limits in the

Federal Register in accordance with Section 889.245

of the Regulations.

3\. Annual Adjustments. The cost limits will be

adjusted at least once annually to reflect changes

in the general level of construction or

rehabilitation costs.

4\. Prevailing Cost Data. In establishing development

cost limits for a given market area, data will be

used that reflect currently prevailing costs of

construction or rehabilitation, and land

acquisition in the area.

5\. RTC Properties. In the case of existing housing

and related facilities to be acquired from the RTC

under Section 21A(c) of the Federal Home Loan Bank

Act, the cost limits shall include:

a\. The cost of acquiring such housing (or such

lesser amount as may be supported by the HUD

appraisal);

b\. The cost of rehabilitation, alteration,

conversion, or improvement, including the

rehabilitation thereof; and

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1-7 4/93

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4571.3 REV-1

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c\. The cost of the land on which the housing and

related facilities are located. In the case of

existing housing and related facilities which

require no rehabilitation and are to be

acquired from the RTC, 85 percent of the

development cost limits identified in paragraph

A. of this section shall be used to calculate

the capital advance amount to be reserved.

6\. Savings Incentive. The development cost limits

established under subparagraphs 1.a. and b. above,

adjusted by the Field Office\'s high cost factor up

to 140 percent, shall be used to calculate the fund

reservation amount of the capital advance to be

made available to individual Owners. If actual

development costs are less than the amount of the

initial fund reservation, the Owner is entitled to

retain 50 percent of the savings in a Replacement

Reserve Account. This percentage shall be

increased up to 75 percent for Owners which add

energy efficiency features which:

a\. Exceed the energy efficiency standards

promulgated by the Secretary in accordance with

Section 109 of the National Affordable Housing

Act;

b\. Substantially reduce the life-cycle cost of the

housing;

c\. Reduce gross rent requirements; and

d\. Enhance tenant comfort and convenience.

7\. Approval to Use Replacement Reserve. The

Replacement Reserve Account established may only be

used with the approval of the Field Office Manager

for repairs, replacements or capital improvements

to the project.

8\. Design Flexibility. The Owner, to the extent

practicable, has the flexibility to design housing

appropriate to the location and proposed resident

population subject to HUD\'s design and cost

standards.

9\. Funds from non-Federal Sources. An Owner may

voluntarily provide funds from non-Federal sources

for amenities and other features of appropriate

design and construction suitable for supportive

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4/93 1-8

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4571.3 REV-1

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housing for the elderly if the cost of such

amenities is not:

a\. Financed with the capital advance, and

b\. Taken into account in determining the amount of

Federal assistance or of the tenant payments.

B. Project Rental Assistance Contracts (PRAC).

1\. Annual Contract Amount. The annual contract amount

for any project shall not exceed the HUD-approved

annual operating budget for all units so occupied

(or as approved by the Secretary held for

occupancy) and any initial utility allowances for

such units, as approved by the Secretary. Any

contract amounts not used by a project in any year

shall remain available to the project until the

expiration of the contract. The Secretary may

adjust the annual amount if the sum of the project

income and the amount of assistance payments

available are inadequate to provide for reasonable

HUD-approved operating costs. The HUD-approved

operating costs may include an allowance (not to

exceed \$15 per unit per month) for services limited

to the frail and \"at risk\" elderly (see Paragraph

1-8).

2\. Operating Cost Standards. HUD shall establish

operating cost standards based on the average

annual operating cost of comparable housing for

elderly persons in each Field Office, and shall

adjust the standard annually, based on appropriate

indices of an increase in housing costs such as the

Consumer Price Index. HUD may adjust the operating

cost standard applicable to an approved project to

reflect such factors as differences in costs based

on location within the Field Office jurisdiction.

The operating cost standard will be used to

determine the initial reservation amount of the

project assistance funds. The Owner must submit

estimates based on project design, maintenance and

services provided at the time of the conditional

and firm commitment application processing stages.

3\. Term of Commitment. All units in housing assisted

under Part 889 must be available for occupancy by

very low-income elderly persons for not less than

40 years.

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1-9 4/93

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4571.3 REV-1

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The initial term of a project rental assistance

contract shall be 240 months. The Secretary will,

to the extent approved in appropriations acts,

extend any expiring contract for a term of not less

than 60 months. In order to facilitate the orderly

extension of expiring contracts, the Secretary is

authorized to make commitments to extend expiring

contracts during the year prior to the date of

expiration.

4\. Tenant Payment. A very low-income elderly person\'s

tenant payment for a dwelling unit assisted under

Part 889, shall be the highest of the following

amounts, rounded to the nearest dollar:

a\. 30 percent of the person\'s monthly adjusted

income (as defined in 24 CFR Part 813),

b\. 10 percent of the person\'s monthly income, or

c\. If the person is receiving payments for welfare

assistance from a public agency and a part of

such payment, adjusted in accordance with the

person\'s actual housing costs, is specifically

designated by such agency to meet the person\'s

housing costs, the portion of such payments

which is so designated.

If the person\'s welfare assistance is ratably

reduced from the standard of need by applying a

percentage, the amount calculated under (c)

above shall be the amount resulting from one

application of the percentage.

1-7. Financial Obligations of Sponsor.

A. Owner Deposit (Minimum Capital Investment).

The Owner must deposit one-half of one percent (0.5%)

of the HUD-approved capital advance amount (not to

exceed \$25,000 for national sponsors i.e., those with

approved projects in more than one region or \$10,000

if not a national sponsor) in a special escrow account

to assure the Owner\'s commitment to the housing. The

Minimum Capital Investment (MCI) will be placed in

escrow prior to disbursing any capital advance funds

and will be held by HUD or by a HUD-approved escrow

agent.

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4/93 1-10

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4571.3 REV-1

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If construction starts within the initial 18 months of

the fund reservation, HUD will waive one-half of the

MCI, which would be required under the aforementioned

formula, at the time the deposit would be required.

If final closing occurs within six months after

construction completion, HUD will approve the return of

all remaining funds not used to cover operating

deficits during the first three years of operation. If

final closing does not occur within six months after

project completion (unless extended by the Field Office

for up to two months due to justifiable delay) the

balance remaining at the end of three years will not be

returned and shall be deposited in the Replacement

Reserve Account.

B. Other Possible Financial Obligations.

Besides the Minimum Capital Investment, additional

funds may be required as determined during subsequent

processing stages as follows:

1\. Front-end money for any project costs (such as

individual unit balconies) which are not eligible

to be included in the capital advance.

2\. Off-site escrow for off-site drives, walkways,

etc., which may be necessary, but which may not be

included in the capital advance.

3\. Initial operating deficit escrow if an expected

slow rent-up would result in a projected operating

deficit.

4\. Unforeseen expenses incurred during construction or

operation of project.

5\. Incremental development and operational cost of

facilities not eligible for capital advances (e.g.,

amenities not covered under HUD\'s design and cost

standards).

6\. Supportive Services (see paragraph 1-8).

C. Loans. Funds for the Minimum Capital Investment may

not be borrowed, nor may letters of credit be used.

Where the Sponsor entity lacks the financial resources,

it may borrow the necessary funds for any other project

purposes from third parties, under the following

conditions:

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1-11 4/93

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4571.3 REV-1

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1\. Loans from contractor or other parties standing to

gain a profit from the project are prohibited.

2\. Indebtedness must not create a situation where such

a creditor can exercise any direction or control

over the Owner.

3\. Funds used to cover items which are in excess of

those permitted under the cost guidelines may not

be repaid from project resources. Funds borrowed

outside of capital advance proceeds for other

approved purposes may be secured only by a

promissory note executed by the Owner on a Form

FHA-1710 after a prior written approval by the

Field Office. The note shall be endorsed as

follows:

\"Approval to make repayment of this loan from

Residual Receipts is hereby granted this \_\_\_\_\_\_\_\_\_

day of\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, 19\_\_\_\_\_\_.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Assistant Secretary for Housing

\- Federal Housing Commissioner by

\"Authorized Agent\"

1-8. Supportive Services. While adequate housing is a basic

necessity of life for everyone, the provision of housing

alone cannot create a stable living environment for many

elderly people, especially the frail elderly. In

establishing this program, the National Affordable Housing

Act mandated that the Secretary ensure that services are

provided which are tailored to the needs of the category or

categories of elderly persons (including frail elderly

persons) occupying the housing.

A. Who is Eligible for Services Paid for by HUD. A

portion of the service cost may be shared by the

Department (see paragraph 1-8C below). However, that

portion of the funds will be limited to those who are

determined to be frail or those \"at risk\" of being

institutionalized. This does not preclude other

tenants or a service coordinator (see paragraph 1-9

below) from arranging for services which are paid for

by the tenants or from other funds.

The following definition has been adopted based on use

in the Department\'s Congregate Housing Services Program

and as a standard accepted by State and local agencies

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4/93 1-12

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4571.3 REV-1

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participating in the programs of the Department of

Health and Human Services which serve the elderly. A

frail elderly person is defined as:

An individual who has been determined to be deficient

in three or more of the Activities of Daily Living.

The designation of an \"at risk\" elderly person will be

made on a case-by-case basis and generally will require

a determination that an individual needs assistance in

performing one or two Activities of Daily Living and an

assessment that receipt of Services is essential to

prevent premature institutionalization.

The Activities of Daily Living (ADLs) and the factors

which determine whether there is a deficiency are:

\- EATING: May need assistance with cooking,

preparing, or serving food, but must be

able to feed self;

\- BATHING: May need assistance with getting in and

out of the shower or tub, but must be

able to wash self;

\- GROOMING: May need assistance in washing hair,

but must be able to take care of

personal appearance;

\- DRESSING: May need occasional assistance,

but must be able to dress self;

\- HOME MANAGEMENT:

May need assistance in doing

laundry, housework, grocery

shopping, or getting to and from

activities such as going to the

doctor and shopping, but must be

mobile. This does not exclude

persons in wheelchairs or those

requiring mobility devices.

Each of the ADLs noted above includes a requirement

that a person must be able to perform at a specified

minimal level (e.g., to satisfy the eating ADL, the

person must be able to feed him/herself). The

determination of whether a person meets this minimal

level of performance must include consideration of

those services that will be performed by a person\'s

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1-13 4/93

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4571.3 REV-1

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spouse, relatives or other attendants to be provided by

the individual. For example, if a person requires

assistance with cooking, preparing or serving food plus

assistance in feeding him/herself, the individual would

meet the minimal performance level and thus satisfy the

eating ADL, if a spouse, relative or attendant provides

assistance with feeding the person. The Owner is not

obligated at any time to provide individualized

services beyond those offered to the resident

population in general.

The ADLs analysis is relevant only with regard to

determine a person\'s eligibility to receive supportive

services paid for by HUD and is not a determination of

eligibility for occupancy.

B. What Services May be Provided.

1\. Meal service adequate to meet nutritional needs;

NOTE: Section 202 projects selected for funding may

not operate a mandatory meals program. Any meals

program must be voluntary on the part of the residents.

(See 24 CFR Part 278, Mandatory Meals Programs in

Multifamily Rental or Cooperative Projects for the

Elderly or Disabled).

2\. Housekeeping aid;

3\. Personal assistance;

4\. Transportation services;

5\. Health-related services;

NOTE: Health care must be based in the community, not

in the project. A small multipurpose room may be

provided in a project for the elderly for emergency

use, but not overnight cars. No staff provisions may

be made for doctors, nurses, or other medical

personnel.

6\. Other services the Field Office deems essential for

maintaining independent living.

The Field Office shall ensure that Owners have the

managerial capacity to:

o Assess the ongoing service needs of residents;

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4/93 1-14

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4571.3 REV-1

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o Coordinate the provision of supportive services and

tailor such services to the individual needs of

residents; and

o Seek on a continuous basis new sources of

assistance to ensure the long-term provision of

supportive services.

C. Who Pays for the Services. Indirect costs associated

with providing supportive services shall be an eligible

cost under the Project Rental Assistance Contract.

Likewise, any costs associated with employing a service

coordinator in housing principally serving frail

elderly persons also are eligible, unless the project

is receiving congregate housing services assistance

under Section 802 of the National Affordable Housing

Act. The HUD-approved expenses for operating a project

may include 15 percent (up to \$15 per unit/per mo.) of

the service costs for the frail elderly and those

determined to be \"at risk\" of being institutionalized.

The balance of service costs (85 percent for the frail

and \"at risk\" elderly and all costs for other elderly)

shall be provided from other sources, which may include

co-payment by the tenant receiving the service. Such

co-payment shall not be included in the Total Tenant

Payment.

Even though a tenant may not be eligible to receive

assistance under the HUD portion of the payment, it

does not preclude a tenant or the service

coordinator from arranging for service(s) which are

paid for by the tenant or from other sources.

1-9. Service Coordinator.

A service coordinator is a social service staff person who

is part of the project\'s management team. The service

coordinator is responsible for assuring that the project\'s

elderly residents, especially those who are frail or \"at

risk,\" are linked to the supportive services available from

community agencies to enable them to continue living in the

project. A description of the qualifications and

responsibilities for a service coordinator may be found at

24 CFR 700.220, published in the Federal Register on

December 8, 1992.

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1-15 4/93

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4571.3 REV-1

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1-10. General Application Limits.

A. Unit Limits for Sponsors. No sponsor in a given fiscal

year may singly or as a co-sponsor (including

affiliated entities):

1\. Apply for more than 300 of the number of units

allocated in any given Region, and

2\. Apply nationwide for more than 10 percent of the

total units allocated in all Regions.

3\. Affiliated entities which submit separate

applications shall be deemed to be a single entity

for purposes of these limits.

NOTE: Any Sponsor found to exceed the above

limits will be afforded the opportunity to

withdraw the excess applications. If it

refuses, funding will be denied for all of

its applications.

B. Unit Limits for Housing for the Elderly.

No single application may propose more than the number

of units permitted by a Field Office or 125 units,

whichever is less. Reservations for projects in

metropolitan areas will not be approved for less than

40 units.

1-11. Program Requirements.

A. General Design Guidelines.

In designing housing for the elderly, the following

should be considered when determining the type of

project (elevator, nonelevator, garden, etc.):

1\. Land costs in relation to the economic feasibility

of the housing;

2\. The social environment in relation to the safety

and security of the residents;

3\. The available sites which offer adequate proximity

to community services and facilities and

accessibility to low-cost transportation;

4\. The established land-use patterns in the community.

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4/93 1-16

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4571.3 REV-1

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B. Design and Cost Standards.

1\. Limit on number of bedrooms. Resident units for

the elderly are limited to efficiencies or

one-bedroom units. If a resident manager unit is

proposed, up to a two-bedroom unit may be provided.

2\. Restrictions on amenities. Projects must be modest

in design. Amenities not eligible for HUD funding

include individual unit balconies and decks,

atriums, bowling alleys, swimming pools, saunas,

and jacuzzis (including spas). Also, dishwashers,

trash compactors, and washers and dryers in

individual units will not be funded. The use of

durable materials to control or reduce maintenance,

repair and replacement costs is not an excess

amenity.

3\. Community spaces. Community spaces may not exceed

10 percent of the gross square foot area except as

provided in 6 below.

4\. Limitation on unit sizes. The net rentable area of

tenant units shall not exceed 415 sq. ft. for an

efficiency unit or 540 sq. ft. for a one-bedroom

unit. The manager\'s unit, if a two-bedroom unit,

may not exceed 800 sq. ft. Only one bath will be

permitted regardless of unit size.

5\. Accessibility. In projects for the elderly, five

percent of the units and all community facilities

and common areas must be designed for persons

needing an accessible unit as defined by the

Uniform Federal Accessibility Standards (UFAS) and

HUD\'s implementing regulations at 24 CFR Part 40,

Appendix A or an equivalent or stricter standard;

and Section 504 of the Rehabilitation Act of 1973

and HUD\'s implementing regulation at 24 CFR Part 8.

An additional 2 percent must be designed to meat

the needs of persons with visual and/or hearing

impairments (this requirement can be met through

subsequent installation or adaptation).

All new construction Section 202 projects must also

comply with the design and construction

requirements of the Fair Housing Act and HUD\'s

implementing regulations at 24 CFR Part 100.

6\. Exceptions. HUD may approve a project that does

not comply with the design and cost standards set

forth in this section if:

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1-17 4/93

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4571.3 REV-1

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a\. The Sponsor demonstrates a willingness and

ability to contribute the incremental

development cost and continuing operating costs

associated with the additional amenities or

design features; or

b\. The proposed project involves rehabilitation or

acquisition from the Resolution Trust

Corporation, the additional amenities or design

features were incorporated into the existing

structure before the submission of the

application, and the total development cost of

the project with the additional amenities or

design features does not exceed the cost limits

described in paragraph 1-6A, unless the Sponsor

indicates a willingness to pay the excess costs

from other than capital advance proceeds.

7\. Prohibited facilities. Project facilities may not

include commercial spaces (this does not include

areas for convenience items operated by the

project), infirmaries, nursing stations, and spaces

for overnight care.

C. Affirmative Marketing. The Owner must determine the

racial or ethnic groups least likely to apply for

project occupancy taking into consideration the

location of the project, and shall establish a plan to

inform and encourage such groups to apply (see 24 CFR

Part 200, Subpart M).

D. Certifications. The following certifications are

required for participation in the Section 202 program:

1\. Conflict of Interest. Officers and directors of

either the Sponsor or Owner cannot have any

financial interest in any contract with the Owner

or in any firm which has a contract with the owner.

This restriction applies so long as the individual

is serving on the board and for a period of three

years following resignation or final closing,

whichever occurs later.

a\. This restriction includes individuals of the

Sponsor and Owner organizations who serve as:

\(1\) a board member, officer, director, partner,

employee or authorized agent of any firm

providing services or products related to

the construction or operation of the

proposed project.

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4/93 1-18

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4571.3 REV-1

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\(2\) the attorney, general contractor, land

seller, architect, housing consultant,

among other things, in connection with the

project, EXCEPT that the:

\(i\) Sponsor or its nonprofit affiliate may

contract for a fee with the Owner to

provide management services and/or

supportive services. In such cases,

only two persons who are paid by the

Sponsor or its nonprofit management or

supportive services firm(s) may serve

as directors on the owner board and

only in a nonvoting capacity.

\(ii\) Sponsoring entity may enter into an

agreement to sell the land to the

Owner.

b\. Family members of any officer, director, or

authorized agent of the Sponsor or Owner are

prohibited from entering into any contracts for

services with the Owner or with the Sponsor

where the project is involved.

c\. When submitting its application for a Section

202 fund reservation, Sponsor must include a

Conflict of Interest Resolution (Appendix 1)

duly adopted by the Sponsor; agreeing to comply

with the Department\'s conflict of interest

requirements which must include names, titles

and dates of beginning and ending of terms of

all officers and directors.

d\. With the submission of an Application for

Conditional Commitment, both Sponsor and Owner

must file Conflict of Interest and Disclosure

Certifications (Appendix 2) for each officer,

director, and authorized agent along with a

current Incumbency Certificate.

e\. The Section 202 fund reservation is subject to

cancellation if the certifications under item

d\. above are not provided for all officers,

directors, and authorized agents of the Sponsor

and Owner.

f\. Certifications from only executive board

members are not acceptable.

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1-19 4/93

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4571.3 REV-1

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2\. Identity of Interest. An identity of interest

between the Sponsor/Owner and the development team

member or between development team members is

prohibited.

a\. Development team members include, but are not

limited to, consultant, architect, general

contractor, attorney, management agent and

seller of the land.

b\. This prohibition excludes the following:

\(1\) An identity is permitted between the

Sponsor and its nonprofit affiliate, and

the Owner.

\(2\) The Sponsor or its nonprofit affiliate may

contract for a fee with the Owner to manage

or provide services under the conditions

specified in 1a. above.

\(3\) The Owner may self-manage the project

provided the salaried employee responsible

for managing the project is not an officer,

director, or authorized agent of the

Sponsor or Owner.

\(4\) The Sponsor may be the seller of the land.

\(5\) The consulting firm may serve as the

management agent with the prior approval of

the local HUD Field Office.

\(6\) Staff of the Sponsor/Owner may perform

services typically performed by the

consultant. In such cases, no consultant

fees or expenses related to overhead

salaries for these services may be included

in the Section 202 capital advance.

\(7\) An identity of interest may exist between

the general contractor and the

subcontractors, material suppliers and

equipment lessors with the prior approval

of their contracts and the allowance for

general overhead and profit by the local

HUD Field Office.

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4/93 1-20

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4571.3 REV-1

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\(8\) An officer, director or board member of the

Sponsor or Owner or any development team

member may donate their services to the

project, except that a donation of the land

may only be made by the Sponsor or Owner or

an individual/firm/corporation which had no

other involvement in the project.

c\. A prohibited identity of interest will exist if

any development team member firm/corporation or

any officer, director, board member, partner or

authorized agent of a development team member\'s

firm/corporation:

\(1\) Is also an officer, director, board member,

partner, or authorized agent for any other

development team member.

\(2\) Has any financial interest in any other

development team member\'s firm/corporation.

\(3\) Has a family relationship with any officer,

director, board member, partner or

authorized agent of any other development

team member\'s firm/corporation.

\(4\) Advances any funds or thing of value to the

Sponsor/Owner including the land option or

the land or the cost of providing the land

option or takes stock or any interest in

the Sponsor/Owner corporation or property

as part of consideration for payment.

d\. This prohibition extends to:

\(1\) The consultant firm/corporation or any of

its officers, directors, board members or

partners who are involved as an officer,

director, board member or general partner

in a business venture with any other

development team member.

\(2\) The attorney for the Sponsor/Owner who also

serves as the attorney for a development

team member, except that the

Sponsor/Owner\'s attorney may serve as the

personal attorney for an individual

associated with a development team member

in matters not involving the Section 202

project.

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1-21 4/93

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4571.3 REV-1

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\(3\) Any firm or subsidiary having an identity

of interest with a contractor that is

providing the option or selling the land to

the Sponsor/Owner. In such cases, the

Sponsor/Owner is prohibited from selecting

that contractor or its affiliate to

construct the project for which the

Application for a Fund Reservation is being

made.

e\. Identity of Interest Disclosure Certifications

(Appendix 3) on the development team members

noted in subparagraph 2.a. above are to be

submitted along with the Owner\'s Application

for a Conditional Commitment, unless the

development team member\'s initial contract with

the Owner occurs at a later processing stage.

In such cases the certification must be filed

at that time, but no later than the initial

closing.

f\. The prohibition of an identity of interest

between development team members applies until

two years after final closing. EXAMPLE: A

management agent which has or had an identity

of interest with the contractor cannot be the

initial management agent, but could bid on the

management contract after the project had been

finally closed for two years.

3\. Delinquent Federal Debt. OMB Circular A-129,

Managing Federal Credit Management Programs,

requires Owner certification relating to credit

availability from private sources and also requires

Sponsors and Owners to certify that they are not

delinquent on the repayment of any Federal debt.

The Sponsor must complete and include a copy of

Form SF-424, Application for Federal Assistance,

which includes a question regarding delinquent

Federal debt, with its Application for Fund

Reservation. The Sponsor must answer this question

and provide an explanation if any delinquent

Federal debt is acknowledged.

The Owner must provide a similar certification with

its Application for Conditional Commitment.

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4/93 1-22

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4571.3 REV-1

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4\. Lobbying Activities. Pursuant to statutory

requirements, Sponsors and Owners cannot use grant

or loan funds to lobby the Executive or Legislative

branches of the Federal Government.

A certification and a Disclosure of Lobbying

Activities Form (Standard Form -LLL) must be

submitted by:

a\. the Sponsor with its Application for a Fund

Reservation, and

b\. the Owner with its Application for a

Conditional Commitment.

5\. Drug-Free Workplace. In accordance with the

Drug-Free Workplace Act, all Sponsors and Owners must

certify that they will comply with the requirements

under the Act.

The required Certification Regarding Drug-Free

Workplace Requirements form must be submitted by:

a\. the Sponsor with its Application for a Fund

Reservation, and

b\. the Owner with its Application for Conditional

Commitment.

6\. Design and Cost Standards. The Sponsor must

certify that the project will comply with HUD\'s

design and cost standards.

7\. Certification in Connection with the Development

and Operation of a Section 202 Supportive mousing

for the Elderly Project.

The Sponsor must certify that it will comply with

the following civil rights requirements:

a\. Section 504 of the Rehabilitation Act of 1973

(29 U.S.C. 794) and implementing regulations at

24 CFR Part 8;

b\. The Fair Housing Act (42 U.S.C. 3600-3619) and

the implementing regulations at 24 CFR Parts

100, 108, 109, and 110;

c\. Title VI of the Civil Rights Act of 1964 (42

U.S.C. 2000d) and the implementing regulations

at 24 CFR Part 1;

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1-23 4/93

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4571.3 REV-1

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d\. Section 3 of the Housing and Urban Development

Act of 1968 (12 U.S.C. 1701u) and the

implementing regulations at 24 CFR Part 135;

e\. The Age Discrimination Act of 1975 (42 U.S.C

6101-6107) and the implementing regulations at

24 CFR Part 146;

f\. Executive Order 11246 as amended and the

implementing regulations at 41 CFR Chapter 60;

g\. The regulations implementing Executive Order

11063 (Equal Opportunity in Housing) at 24 CFR

Part 107;

h\. The Americans with Disabilities Act (42 U.S.C.

12101 et seq.) to the extent applicable;

i\. The Affirmative Fair Housing Marketing

Requirements at 24 CFR Part 200, Subpart M;

and

j\. Other applicable Federal, State and local laws

prohibiting discrimination and promoting equal

opportunity.

8\. Certification of Consistency with Comprehensive

Housing Affordability Strategy (CHAS). Each

applicant at the Fund Reservation Stage must submit

a certification by the jurisdiction in which the

proposed project will be located that the Sponsor\'s

application is consistent with the jurisdiction is

HUD-approved CHAS for the fiscal year in which the

application is submitted. The certification must

be made by the unit of general local government if

it is required to have, or has a complete CHAS.

Otherwise, the certification may be made by the

State, or if the project will be located in a unit

of general local government authorized to use an

abbreviated CHAS, by the unit of general local

government if it is willing to prepare such a CHAS.

All CHAS certifications must be made by the public

official responsible for submitting the CHAS to

HUD. All CHAS certifications must be submitted as

part of the application by the application

submission deadline set forth in the NOFA, except

as provided in the next paragraph. THE REQUIRED

CHAS MUST THEREFORE HAVE BEEN SUBMITTED MORE THAN

60 DAYS TO REVIEW, SINCE HUD HAS 60 DAYS TO REVIEW

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4/93 1-24

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4571.3 REV-1

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AND APPROVE THE CHAS. WHERE THE CERTIFICATION OF

CONSISTENCY IS PERMITTED TO BE SUBMITTED AFTER THE

APPLICATION SUBMISSION DEADLINE, AS DESCRIBED IN

THE NEXT PARAGRAPH, THE CHAS MUST BE SUBMITTED FOR

APPROVAL IN TIME FOR THE CERTIFICATION TO BE MADE

BY THE LATER DATE. IN NO EVENT WILL AN APPLICATION

BE CONSIDERED IF THE CHAS HAS NOT BEEN SUBMITTED

FOR APPROVAL BY THE APPLICATION SUBMISSION

DEADLINE.

If the required certification will be made by a

unit of general local government with respect to an

abbreviated CHAS, and such CHAS has been submitted

by the application submission deadline but has not

yet been approved by HUD, the deadline will not be

applied to the certification for consistency.

Instead, the application must include a written

statement from the public official responsible for

submitting the CHAS that the jurisdiction has

submitted an abbreviated CHAS for the fiscal year,

in which the application has been submitted, for

HUD approval and that the application is consistent

with the CHAS. If HUD approved the CHAS, the

required certification that the application is

consistent with a HUD-approved CHAS for the

particular fiscal year must be submitted by the

date set forth in the NOFA. AN APPLICATION WILL

NOT BE SELECTED FOR FUNDING UNLESS THE CHAS IS

APPROVED AND THE REQUIRED CERTIFICATION IS MADE BY

THE DATE ESTABLISHED IN THE NOFA. The CHAS

regulations are published in 24 CFR Part 91.

9\. Applicant Disclosure Form. The HUD Reform Act

requires all applicants requesting assistance from

HUD, in excess of \$200,000, to disclose on Form

HUD-2880:

a\. Assistance from other government sources in

connection with the project,

b\. The financial interests of persons involved in

the project,

c\. The sources of funds to be made available for

the project, and

d\. The uses to which the funds are to be put.

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1-25 4/93

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4571.3 REV-1

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NOTE: APPLICANTS FOR FUNDING UNDER SECTION 202

ARE REQUIRED TO PROVIDE THEIR SOCIAL SECURITY NUMBERS

OR EMPLOYEE IDENTIFICATION NUMBERS ON FORM HUD-2880.

10\. Executive Order 12372 (EO 12372). The Sponsor\'s

certification that the appropriate State agency

(Single Point of Contact) under EO 12372,

Intergovernmental Review, has been contacted to

determine if the Section 202 program is covered

under that State\'s review process, and, if

applicable, the date the application was submitted

to the State and a copy of the accompanying Form

SF-424.

11\. Uniform Relocation Assistance and Real Property

Acquisition. The Sponsor\'s certification that it

will comply (or has complied) with the acquisition

and relocation requirements of the Uniform

Relocation Assistance and Real Property Acquisition

Policies Act of 1970 (URA), as amended, and

implementing regulations at 49 CFR Part 24 and 24

CFR Section 889.265(e).

NOTE: This certification is required by all Sponsors

regardless of whether they are aware of any required

relocation.

E. Facilities for Religious Observances. Facilities

cannot be set aside for use only for religious

purposes; however, a multipurpose room may be used for

religious services and other related purposes.

Religious articles or equipment may not be installed

permanently and must be removed at the conclusion of

any service or observance. Any room or space used for

such purposes must be available for equitable use by

all groups composing the tenancy.

F. Location of Project. The importance of a good location

in the success of a project for the elderly cannot be

overstated. Sites should not be isolated and must be

close to services likely to be required by occupants

and to shopping and other facilities that will enhance

the capacity of occupants to live as independently as

possible. The site and the area around the project

must be safe and convenient public transportation

should be available as many elderly tenants do not have

cars. In more rural areas, Sponsors must compensate

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4/93 1-26

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4571.3 REV-1

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for locations which may not be as easily accessible as

urban sites and for the lack of a public transportation

system. (Also see Paragraphs 3-21 and 3-22 of this

Handbook.)

G. Relocation, Displacement and Real Property Acquisition.

1\. Applicable Relocation and Real Property Acquisition

Rules. The Supportive Housing for the Elderly

Program is subject to the following requirements:

a\. The Uniform Relocation Assistance and Real

Property Acquisition Policies Act of 1970 (URA)

and implementing regulations at 49 CFR Part 24.

These requirements are described in Chapters 1

through 6 of HUD Handbook 1378, Tenant

Assistance, Relocation and Real Property

Acquisition. Additional guidance on Section

202 projects for the elderly is contained in

Section 12 of Chapter 8 of Handbook 1378.

b\. Section 24 CFR 889.265(e). These additional

policies are described in this Section G.

2\. Definition of Displaced Person. For purposes of

providing relocation assistance (at URA levels),

the term \"displaced person\" is generally described

in Paragraph 1-8 of HUD Handbook 1378. However, 24

CFR 889.265(e)(6) provides the following additional

guidance:

a\. The term \"displaced person\" includes, but may

not be limited to:

\(1\) A person that moves permanently from the

real property after receiving a notice from

the Sponsor/Owner that requires such move,

if the move occurs on or after:

\(a\) The date of the submission of the

application to HUD for assistance for

the project which is later approved, if

the Sponsor has control of the site; or

\(b\) The date that the Sponsor obtains

control of the site, if such control is

obtained after the submission of the

application to HUD.

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1-27 4/93

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4571.3 REV-1

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\(2\) Any person, including a person who moves

before the date described in Paragraph G-2a(1),

if either HUD or the Sponsor/Owner

determines that the displacement directly

resulted from acquisitions rehabilitation,

or demolition for the project.

\(3\) A tenant-occupant or a dwelling who moves

permanently from the building/complex after

execution of the Agreement between the

Sponsor/Owner and HUD, if the move occurs

before the tenant in provided written

notice offering him or her the opportunity

to lease and occupy a suitable, decent,

safe, and sanitary dwelling in the same

building/complex, under reasonable terms

and conditions, upon completion of the

project. Such reasonable terms and

conditions shall include a monthly rent and

estimated average monthly utility costs

that do not exceed the \"total tenant

payment,\" as determined under

24 CFR 813.107.

\(4\) A tenant-occupant of a dwelling who is

required to relocate temporarily and does

not return to the building/complex, if

either:

\(a\) The tenant is not offered payment for

all reasonable out-of-pocket expenses

incurred in connection with the

temporary relocation (including the

cost of moving to and from the

temporarily occupied unit and any

increased housing costs), or

\(b\) Other conditions of the temporary

relocation are not reasonable.

\(5\) A tenant-occupant of a dwelling who moves

from the building/complex permanently after

he or she has been required to move to

another unit in the building/complex, if

either:

\(a\) The tenant is not offered reimbursement

for all reasonable out-of-pocket

expenses incurred in connection with

the move, or

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4/93 1-28

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4571.3 REV-1

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\(b\) Other conditions of the move are not

reasonable.

b\. Persons Not Eligible. Notwithstanding the

provisions of Paragraph G-2a, a person does not

qualify as a \"displaced person,\" if:

\(1\) The person is excluded under Paragraph 1-8c

of HUD Handbook 1378; or

\(2\) The person has been evicted for serious or

repeated violation of the terms and

conditions of the lease or occupancy

agreement, violation of applicable Federal,

State or local law, or other good cause,

and HUD determines that the eviction was

not undertaken for the purpose of evading

the obligation to provide relocation

assistance; or

\(3\) The person moved into the property after

the submission of the application and,

before signing a lease and commencing

occupancy, was provided written notice of

the project, its possible impact on the

person (e.g., the person may be displaced,

temporarily relocated or suffer a rent

increase) and the fact that the person

would not qualify as a \"displaced person\"

as a result of the project.

3\. Definition of Initiation of Negotiations. For

purposes of providing the appropriate notice under

Paragraph 2-3b of HUD Handbook 1378 and determining

whether a person displaced from a dwelling

qualifies for a replacement housing payment under

Paragraph 3-3 or Paragraph 3-4 of HUD Handbook 1378

(as opposed to paragraph 3-5), the term \"initiation

of negotiations\" means the execution of the

Agreement between the Sponsor/Owner and HUD.

4\. Application Requirements. To evaluate the

feasibility of a proposed project and assess

training, technical assistance and monitoring

needs, the Sponsor/Owner must provide HUD the

information described in Exhibit 7 of the

section 202 Application Package. When preparing

an estimate of the cost of required relocation

payments and services, the applicant may wish to

consult with the HUD CPD Relocation Specialist

serving the community.

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1-29 4/93

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4571.3 REV-1

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5\. Minimizing Displacement. Consistent with the other

goals and objectives of the Supportive Housing for

the Elderly Program, the Sponsor/Owner shall assure

that all reasonable steps have been taken to

minimize displacement as a result of an assisted

project.

6\. Appeal by Lower-Income Person. Under the

supportive Housing for the Elderly Program, a

lower-income person, who is dissatisfied with the

determination of the Sponsor/Owner on his or her

appeal under Paragraph 1-33 of HUD Handbook 1378,

may request HUD to review that determination as

described in Paragraph 1-33i of that handbook.

7\. Compliance Responsibility of Sponsor/Owner.

a\. Certification. Before receiving HUD financial

assistance, the applicant must certify to HUD

that it will comply with the URA, 49 CFR Part

24, and 889.265(e) (see paragraph 1-11(D)(11)

above). The Sponsor/Owner is responsible for

ensuring compliance with such requirements, as

described in HUD Handbook 1378, notwithstanding

any third party\'s contractual obligation to the

Sponsor/Owner to comply with such provisions.

b\. The cost of required relocation assistance is

an eligible project cost in the same manner and

to the same extent as other project costs.

However, such assistance may also be paid for

with funds available from other sources.

c\. The Sponsor/Owner must maintain records in

sufficient detail to demonstrate compliance

with the provisions of HUD Handbook 1378, as

described in Chapter 6 of that handbook.

H. Site Control.

1\. Documentary evidence that the Sponsor has site

control is required for fund reservations for all

projects. The Owner must have site control in its

name prior to submission of the Application for

Conditional Commitment.

2\. Site control may be evidenced by:

a\. a copy of a contract of sale;

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4/93 1-30

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4571.3 REV-1

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b\. a site option agreement or other legal

commitment (MUST BE GOOD THROUGH THE END OF THE

FISCAL YEAR PLUS A RENEWAL CLAUSE TO EXTEND

THE OPTION FOR AT LEAST AN ADDITIONAL SIX

MONTHS);

c\. a deed; or

d\. a request with all supporting documentation,

submitted either prior to or with the

Application for Fund Reservation, for a partial

release of a site covered by a mortgage under a

HUD program.

3\. When sites are to be acquired from a public body,

satisfactory site control consists of evidence that

the public body:

o possesses clear title to the land and

o has entered into a legally binding written

agreement to convey the property to the Sponsor

when it receives a Section 202 Fund

Reservation.

A mere recitation of intent to convey the land made

by an official of the public body to the sponsor or

preliminary actions (such as initiating

condemnation proceedings or being under

consideration by the City Council) on the part of

the public body are not adequate evidence of site

control. The contract of sale, option agreement,

or other legal agreement must have been executed

prior to the application deadline date.

4\. If the public body does not own the land or public

hearings have to be conducted at a later date,

sufficient evidence of site control by the Sponsor

does not exist. Under these circumstances, the

threshold requirement for site control would not

have been met and the application would have to be

rejected.

5\. However, since time constraints of the funding

round may not permit all of the required official

actions (e.g., approval of Community Planning

Boards as required by New York City) which are

necessary to convey city-owned sites, a letter in

the application from the Mayor or Director of the

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1-31 4/93

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4571.3 REV-1

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appropriate local agency indicating their approval

of conveyance of the site contingent upon the

necessary approval action is acceptable.

6\. The proposed site cannot be optioned or acquired

from a general contractor (who is to be the project

contractor) or any other development team member.

7\. Applications from two or more Sponsors proposing to

use the same publicly-owned site are acceptable for

processing in the normal manner if the locality has

agreed to make the sits available to more than one

Sponsor, conditioned in each case on the particular

Sponsor being the one selected for funding by HUD.

In such instances, however, both the Field Office

and the Regional Office must take steps to assure

that duplicate selections are not made for the same

site.

8\. Site Occupancy Data. The Sponsor must provide the

information requested in the Data on Project

occupancy, Displacement and Real Property

Acquisition. The data include an identification of

the number of persons (families, individuals,

businesses and nonprofit organizations) occupying

the property on the date of the submission of the

application for a Section 202 fund reservation (or,

date of initial site control, if later) the

estimated cost of relocation payments and other

services, and the staff organization that will

carry out the relocation activities.

The cost of required relocation assistance is an

eligible project cost in the same manner and to the

same extent as other project costs. Such

assistance may also be paid for with funds

available from other sources. When funds are to be

provided by other sources, submit evidence of a

firm commitment of the funds.

9\. Explain steps taken to comply with applicable real

property acquisition requirements. (See Paragraph

5-1 of HUD Handbook 1378, Tenant Assistance,

Relocation and Real Property Acquisition.)

I. Site and Neighborhood Standards. All sites must meet

the following site and neighborhood requirements:

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4/93 1-32

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4571.3 REV-1

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1\. The site must be adequate in size, exposure and

contour to accommodate the number and type of units

proposed, and adequate utilities (water, sewer, gas

and electricity) and streets must be available to

service the site.

2\. The site and neighborhood must be suitable from the

standpoint of facilitating and furthering full

compliance with the applicable provisions of Title

VI of the Civil Rights act of 1964, the Fair

Housing Act, Executive Order 11063 and implementing

HUD regulations.

3\. New construction sites must meet the following site

and neighborhood requirements:

a\. The site must not be located in an area of

minority elderly concentration except as

permitted under subparagraph 3(e) of this

section, and must not be located in a racially

mixed area if the project will cause a

significant increase in the proportion of

minority elderly to non-minority elderly

residents in the area.

b\. A project may be located in an area of minority

elderly concentration only if:

\(1\) Sufficient, comparable opportunities exist

for housing for minority elderly households

in the income range to be served by the

proposed project, outside areas of minority

concentration (see subparagraph 3(c) of

this section for further guidance on this

criterion); or

\(2\) The project is necessary to meet overriding

housing needs that cannot be met in that

housing market area (see subparagraph

3(e)(8) of this section for further

guidance on this criterion).

c\. \"Sufficient\" does not require that in every

locality there be an equal number of assisted

units within and outside of areas of minority

concentration. Rather, application of standard

should produce a reasonable distribution of

assisted units each year which over a period of

several years will approach an appropriate

balance of housing opportunities within and

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1-33 4/93

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4571.3 REV-1

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outside areas of minority concentration. An

appropriate balance in any jurisdiction must be

determined in light of local conditions

affecting the range of housing choices

available for very low-income minority elderly

households and in relation to the racial mix of

the locality\'s population.

d\. Units may be considered to be \"comparable

opportunities\" if they have the same household

type (elderly) and tenure type (owner/renter);

require approximately the same total tenant

payment; serve the same income group; are

located in the same housing market; and are in

standard condition.

e\. Application of this sufficient, comparable

opportunities standard involves assessing the

overall impact of HUD-assisted housing on the

availability of housing choices for very

low-income minority elderly households in and

outside areas of minority concentration, and

must take into account the extent to which the

following factors are present, along with any

other factor relevant to housing choice:

\(1\) A significant number of assisted housing

units are available outside areas of

minority concentration.

\(2\) There is significant integration of

assisted housing projects constructed or

rehabilitated in the past ten years,

relative to the racial mix of the eligible

population.

\(3\) There are racially integrated

neighborhoods in the locality.

\(4\) Programs are operated by the locality to

assist minority elderly households who

wish to find housing outside areas of

minority concentration.

\(5\) Minority elderly households have

benefitted from local activities (e.g.,

acquisition and write-down of sites, tax

relief programs for homeowners,

acquisitions of units for use as assisted

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4/93 1-34

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4571.3 REV-1

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housing units) undertaken to expand choice

for minority households outside of areas

of minority concentration.

\(6\) A significant proportion of minority

elderly households have been successful in

finding units in non-minority areas under

the Section 8 Certificate and Housing

Voucher programs.

\(7\) Comparable housing opportunities have been

made available outside areas of minority

concentration through other programs.

\(8\) Application of the \"overriding housing

needs\" criterion, for example, permits

approval of sites that are an integral

part of an overall local strategy for the

preservation or restoration of the

immediate neighborhood and of sites in a

neighborhood experiencing significant

private investment that is demonstrably

changing the economic character of the

area (a \"revitalizing area\"). An

\"overriding housing need\", however, may

not serve as the basis for determining

that a site is acceptable if the only

reason the need cannot otherwise be

feasibly met is that discrimination on the

basis of race, color, creed, sex, or

national origin renders sites outside

areas of minority concentration

unavailable or, if the use of this

standard in recent years has had the

effect of circumventing the obligation to

provide housing choice.

\(9\) The neighborhood must not be one which is

seriously detrimental to family life or in

which substandard dwellings or other

undesirable conditions predominate, unless

there is actively in progress a concerted

program to remedy the undesirable

conditions.

\(10\) The housing must be accessible to social,

recreational, educational, commercial, and

health facilities and services, and other

municipal facilities and services that are

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1-35 4/93

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4571.3 REV-1

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at least equivalent to those typically

found in neighborhoods consisting largely

of unassisted, standard housing of similar

market rents.

1-12. Using a Housing Consultant. Although Sponsors are not

required to submit the consultant\'s contract and obtain

approval until after the Notification of Selection for a

Section 202 Fund Reservation is received, they should be

aware of the fee schedule and policies concerning the

selection and payment for housing consultants.

A. Definition.

An individual or firm experienced and competent in

organizing and planning housing projects, housing

market evaluation and marketing, procurement of

financing, evaluation and selection of attorneys,

architects, building contractors, property managers and

other required participants in the development and

management of a Section 202 project. The consultant

may not have any other role on the development team,

except as managing agent if the individual or firm has

management capability and is approved by the Field

Office Manager.

OTHERWISE, THE INDIVIDUAL OR FIRM MUST HAVE AN

ARMS-LENGTH RELATIONSHIP WITH THE SPONSOR, OWNER AND ALL

MEMBERS OF THE DEVELOPMENT TEAM.

B. Use of Consultants.

1\. Consultants are used to:

a\. Expedite development of the proposal;

b\. Improve quality of the building design, and

lower construction and other costs; and,

c\. Assist the Sponsor and Owner in handling all

aspects of project development through to final

closing.

2\. Consultant efforts must be directed exclusively

towards serving the nonprofit Sponsor and the Owner

to be formed.

3\. HUD permits reasonable consultant fees to be

included in the Section 202 Capital Advance. (See

subparagraph E below.)

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4571.3 REV-1

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4\. HUD permits, with the approval of the Field Office

Manager, a qualified consultant to be retained to

act as management agent for the same project.

5\. A consultant is not required for participation in

the Section 202 program.

C. Identity of Interest.

1\. Neither the Sponsor nor the Owner may receive a fee

as consultant. If staff of the Sponsor/Owner

performs the services typically provided by the

consultant:

a\. The capital advance cannot cover the cost of

salaries and overhead associated with these

services; however,

b\. The Sponsor/Owner is entitled to a typical

organizational expense to cover actual costs of

establishing the Owner entity and submitting

the application (i.e., photo-copying, stamps,

etc.).

2\. No individual or entity having an identity of

interest with the Sponsor (or Owner) may earn a fee

for providing services that would otherwise be

provided on a fee basis by a housing consultant

(for example, an executive director or other

employee of the Sponsor).

D. Selection of a Housing Consultant.

1\. Responsibility of the Sponsor/Owner.

a\. Select the consultant.

(NOTE: Selection of a housing consultant who

is located far from the project site is

discouraged.)

b\. Enter into a contract with the consultant,

using Form HUD-92531A-CA, Contract for Housing

Consultant Services.

c\. Enforce the terms of the contract.

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4571.3 REV-1

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2\. Responsibility of HUD:

a\. Review the suitability and qualifications of

the proposed consultant;

b\. Review the quality and the adequacy of the

proposed services;

c\. Approve, approve with modifications, or

disapprove the proposed contract based on Form

HUD-92531A-CA, Contract for Housing Consultant

Services, and its Addendum (Appendix 4), to

determine if the contract contains clauses or

provisions which violate Section 202

regulations and Identity of Interest and

Disclosure Certification requirements.

d\. Evaluate the previous experience of the

consultant based on Form 2530;

e\. Determine if the proposed fee to be paid from

the Section 202 Capital Advance is within

allowable limits set forth in the fee schedule

in subparagraph E below and is related to the

services to be provided; and

f\. Conduct a credit investigation of the

consultant.

E. Maximum Fees Allowable.

1\. Initial Fund Reservation Base Fee

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Up to \$1,500,000 \$20,000

from \$1,500,000 to \$20,000 plus 1%

\$3,500,000 of excess over

\$1,500,000

over \$3,500,000 \$40,000

2\. Percentage of Fee Earned. The following services

are specified in Form HUD-92531A-CA. If services

proposed are less than the full range allowed, the

proposed fees must be reduced in accordance with

the schedule of maximum percentages shown below.

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4571.3 REV-1

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Service to be Performed by Percentage of

the Housing Consultant Total Fee Earned

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Initial meeting with

non-profit sponsor and formation

nonprofit corporation 6%

Selection of Development Team 4%

Preparation and submission of

Fund Reservation Application 8%

Preparation and submission of

the Conditional Commitment

Application 22%

Preparation and submission of

the Firm Commitment Application 12%

Initial Closing 8%

Construction Period - site visits,

preparation of construction draws,

preparation of and advice regarding

change orders and any application(s)

for an increase in the capital

advance 15%

Cost Certification 7%

Final Closing 9%

Rent-Up 9%

EXAMPLE: Assume an initial fund reservation of

\$4,000,000. The maximum allowable consultant fee

would be \$40,000. If the consultant\'s contract

includes all services except construction related

activities, the maximum allowable would be reduced

by 15%, accordingly, the upset price would be

\$34,000.

If a processing stage is by-passed, the percentage

attributable to the by-passed phase will be added

to the next phase.

3\. Incentive Payments. Consultants may receive

additional payments of up to \$10,000, depending

upon the initial fund reservation amount, as an

incentive for bringing the project to a prompt

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4571.3 REV-1

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initial closing, construction start, completion of

an acceptable cost certification and final closing.

The incentive payment schedule is as follows:

Initial Incentive

Fund Reservation Payment Schedule

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Up to \$1,500,000 \$5,000

From \$1,500,000 to \$5,000 plus 1/4

\$3,500,000 of 1% (.25%) of excess

over \$1,500,000

Over \$3,500,000 \$10,000

The factors for approving incentive payments and

the method for calculating such payments is

described as follows:

Percentage of

Services Performed Incentive

and Time Frames Payment

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Submission of a Conditional

Commitment Application

acceptable for processing

within 120 calendar days

from the date of the Sponsor\'s

acceptance stated on the

Notification of Selection

Letter. 10%

Submission of a Firm commitment

Application acceptable

for processing within 120

calendar days of the date

of issuance of the

Conditional Commitment 10%

If the Conditional

Commitment stage is bypassed,

submission of a Firm

Commitment Application

acceptable for processing

within 180 calendar days

from the date of the Sponsor\'s

acceptance stated on the

Notification of Selection

Letter 20%

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4571.3 REV-1

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Initial closing and/or start

of construction within 18

months from the date of the

Fund Reservation 30%

Submission of an acceptable

cost certification within

45 Days from the cut-off

date used for cost

certification purposes 25%

Final closing Within 180

calendar days from the

project completion date 25%

EXAMPLE: In calculating the consultant\'s fee,

assume that the consultant will be providing the

full range of services for a project with an

initial fund reservation of \$3,000,000 and the

project is developed within the above timeframes.

The maximum consultant fees that may be included in

the capital advance would be \$43,750 (a base amount

of \$35,000 plus an incentive payment of \$8,750).

The following chart is a breakdown of the total fee

the consultant would be entitled to receive:

Actions Completed Base Fee Incentive Payment

Within Time Frames % Amount\* % Amount Total

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Conditional

Application\--Up to 40% \$14,000 10% \$875 \$14,875

Firm

Application\--Up to 52% \$18,200 20% \$1,750 \$19,950

Initial Closing/

Start of

Construction\--Up to 60% \$21,000 50% \$4,375 \$25,375

Construction Period

and Cost

Certification\--Up to 82% \$28,700 75% \$6,563 \$35,263

Rent-Up and Final

Closing \-\-\-\-\-\-- Up to 100% \$35,000 100% \$8,750 \$43,750

\* Refer to subparagraph E.1. above for

the percentage breakdown related to the

consultant\'s base fee.

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4571.3 REV-1

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4\. Upset Price \-- Contract Amount

a\. The addendum in Appendix 4 which provides for

the incentive payment shall be made a part of

the consultant\'s contract (HUD-92531A-CA).

b\. The maximum allowable incentive payment plus

the base fee cannot exceed \$50,000.

c\. If any time frames are missed or for any

service not provided by the consultant under

the contract, the consultant will not be

entitled to receive the portion of the

incentive payment related to that service.

d\. The initial capital advance amount shall

include the maximum possible consultant fee

(base fee plus incentive payment amount).

e\. If the consultant agrees to a fee which in less

than the amount HUD could allow, the lesser

amount shall be included in the capital

advance.

F. Payment of the Consultant\'s Fee. Payment of the fee is

approved by Mortgage Credit using the following

schedule:

1\. Up to 60 percent of base fee plus 50 percent of

incentive payment at initial closing.

2\. Up to 75 percent of base fee (an additional 15

percent) during the construction period.

3\. Up to 82 percent of base fee (an additional 7

percent) plus 75 percent of incentive payment (an

additional 25 percent) at cost certification.

4\. The base fee balance of 18 percent plus incentive

payment balance of 25 percent at final closing.

1-13. How Section 202 Works.

A. Application Process.

1\. Headquarters will allocate funds on a \"fair share\"

basis to the HUD field or regional offices,

depending on the available funds. Fifteen (15)

percent of the funds appropriated must be allocated

to non-metro areas.

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4571.3 REV-1

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2\. Headquarters will publish annually a Notice of Fund

Availability (NOFA) in the Federal Register to

announce the availability of the funds.

3\. Each field office will mail the NOFA to all persons

or organizations on its mailing list and conduct a

workshop to discuss the current year\'s program

requirements, including the date and time of the

workshop. (See Paragraph 2-1 below.)

4\. Field offices will receive, process, and rate

applications.

5\. Regional offices will review field offices\'

processing for consistency and compliance with

program requirements, complete the rating and

ranking of applications, and submit selection

recommendations to Headquarters.

6\. Headquarters will review regional offices

submissions, approve applications, and announce

those applications selected for funding.

B. Competition for Fund Reservation. Due to funding

limitations, competition for Section 202 fund

reservations is intense. Since funding depends on

strong sponsorship, unsuccessful applicants may wish to

strengthen their applications by obtaining experienced

and financially sound cosponsors. To be considered

for funding, a new application will have to be

submitted for each Notice of Fund Availability.

1-14. Ineligible Proposals.

o Nursing homes, infirmaries and medical facilities.

o Mobile home projects.

o Community centers, with or without special components

for senior citizen use.

o Headquarters for elderly organizations.

o Refinancing of sponsor-owned facilities without

rehabilitation.

o Nonhousekeeping accommodations (central dining, but

without private kitchen and/or bathrooms).

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4571.3 REV-1

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1-15. Unacceptable Proposals.

o Applications from \"front\" organizations for

profit-motivated developers.

o Proposals based on syndication for profit-motivated

investors.

o Proposals to finance construction or rehabilitation of

a project, but without provision for assisted units.

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