U.S. Department of Housing and Urban Development

Office of Housing

Special Attention of: Interim Notice H 95-2 I

Multifamily Directors Issued: August 28, 1995

Production Chiefs Expires: December 21, 1995

Asset Management Chiefs

Preservation Coordinators Cross Reference: 24 CFR Part 248,

Handbooks 4350.6 and 4470.1,

Notices H 92-54, H 94-42, and 95-56

Subject: Preservation Processing

I. Introduction

On June 1, 1995, Helen Dunlap, Deputy Assistant Secretary for

Multifamily Housing Programs, issued a memorandum on

Preservation funding. A number of specific questions have

arisen as a result of that memo regarding processing of

Section 241(f) loans and Transfers of Physical Assets (TPAs)

and acceptable approval and funding of Plans of Action (POAs).

A decision has been made to continue processing POAs so that

owners can continue to receive approval of their POAS. This

interim notice provides guidance related to:

a\. continued processing without section 241(f) loan

applications;

b\. processing TPA applications that have been submitted as

part of a POA; and

c\. processing oustanding Section 241(f) loan commitments.

II\. Section 241 Loan Applications

The June 1, 1995, memorandum gave a general waiver of the

handbook provision that requires Section 241(f) loan

commitments to be firm before issuance of final approval of a

Plan of Action (POA). State/Area Offices have asked whether

owners are still required to submit a Section 241(f) loan

package as part of the POA for the POA to be considered

complete. It is the Department\'s position that because there

is a real possibility that these POAs will never be funded it

is unfair to require them to pay an application fee.

HMPP: Distribution: W-3-1,W-2(H)(OGC),W-3(H)(OGC)(ZAOO),W-4(H)

(OGC),R-1,R-2,R-3-1(H),R-3-2,R-3-3,R-6,R-6-2,R-7, R-7-2,R-8

Likewise, under current legislation, these owners may only

prepay after their POA is approved, so it would be unfair to

stop processing. Therefore, please continue to process and

approve POAs that are submitted without Section 241(f)

application packages.

NO NEW SECTION 241(f) LOAN COMMITMENTS SHALL BE ISSUED UNTIL

FURTHER INSTRUCTED BY HEADQUARTERS.

III\. Fees.

Owners and purchasers who have already submitted Section

241(f) loan applications may withdraw them. The HUD State/Area

Office may return the loan package and the owner\'s application

fee. Owners or purchasers who have received a loan commitment

as a POA incentive for a POA which the Department is currently

unable to fund may request a refund of their application fee.

If additional Preservation funding subsequently becomes

available, the fee must be repaid by the owner before loan

closing.

IV\. Extension of Section 241(f) Commitments

If a State/Area Office has issued a commitment on a Section

241(f) loan, this commitment should not be extended unless

funds have already been requested and reserved to support the

POA incentives for a full five-year period beginning at

endorsement of the loan and POA implementation.

There should have been a condition in the commitment requiring

execution and/or amendment of a Section 8 assistance contract

at closing to reflect the Section 8 rents included in the

Section 241(f) processing, as well as to ensure the HAP or

AHAP contract reflects appropriate contract and budget

authority. Because there are no appropriations currently

available and access to appropriate contract and budget

authority is a requirement of the commitment which cannot be

met, where funds are not already requested and reserved to

fund the POA, the State/Area Office should allow commitments

with this condition to expire.

DO NOT OBLIGATE FUNDS ON ANY PROJECT UNDER ANY CIRCUMSTANCES

UNTIL FURTHER INSTRUCTED BY HEADQUARTERS.

V. Funding LIHPRHA Incentives with Current LMSA Contracts.

In cases where there are enough excess funds in the current

Section 8 LMSA contract to fund POA incentives for the

remaining term of that contract, but not for a full five-year

period, a State/Area Office may neither amend the LMSA

contract nor execute a Use Agreement. In cases with the

commitment condition described in paragraph IV above, no

section 241(f) loans may be closed unless there is at least

five years of Section 8 assistance available to support the

loan subseguent to loan closing.

VI\. ELIHPA Section 241(f) Loans.

Some owners of projects for which POAs have previously been

approved and implemented under the Emergency Low-Income

Housing Preservation Act of 1987 (ELIHPA) did not request

their section 241(f) equity loan as part of the POA. If such

an owner now requests a Section 241(f) equity loan, State/Area

offices should only close on these loans if there are 5 years

of Section 8 assistance available to support the loan

subsequent to the loan closing.

VII\. Transfers of Physical Assets.

Where a POA proposes a sale to a qualified purchaser, the POA

should include a TPA application package. To expedite POA

approvals and reduce staff workload, final approval of the TPA

is no longer necessary until funds become available.

State/Area Office staff should assure that the TPA application

package is generally complete. However, a full TPA review

will be postponed until funding becomes available.

VIII.Conditional Approval.

Because the POAs without Section 241(f) loan applications will

only include rough estimates of debt service needs (see

paragraph IX., below), State/Area Offices must condition POA

approval upon the following:

A. Complete processing of the Section 241(f) loan. Final POA

incentives would be based on information received from

Section 241(f) processing.

B. Reassessment of repair needs due to the time lag between

approval and funding of POA incentives.

C. Reprocessing of rents.

D. Complete processing of TPA and final TPA approval.

E. The owner adhering to modified tenant and State or local

government notification requirements. See paragraph XI

below.

F. Future availability of LIHPRHA appropriations.

IX\. Preservation Rent Estimates/Funding Requests.

A. In order for the Department to maintain estimates of

funding needs, State/Area Offices must continue to

process rents and continue to submit funding requests

when a POA is conditionally approved.

B. Owners/Purchasers who do not submit Section 241(f) loan

applications as part of their POAs, should submit either

a Form HUD-92013, Application for Multifamily Housing

Project (2013) or a proposed loan sheet. If the

applicant submits a 2013, it should check Preliminary

Proposal in Section B. No application fee is necessary.

If an owner submits a one-page loan sheet it should

include estimated repair costs based on the PCNA and

equity/acquisition loan amounts based on value

determinations in the Form HUD-9607, Calculation of

Information to be Returned to Owner (9607). The proposed

loan sheet should also include estimated interest rates,

loan terms and initial deposits to the Reserve for

Replacement Account.

C. The State/Area Office should determine that all estimated

loan information submitted with the POA is reasonable and

that the estimated initial deposit to the Reserve for

Replacement Account would fund the anticipated project

needs for 5 years. The State/Area Office must then

process rents based on the loan and escrow estimates

submitted.

D. For POAs conditionally approved under the above

guidelines, FAX to the Preservation Division in

Headquarters the following information:

1\. Date POA was conditionally approved.

2\. Estimated new and existing contract and budget

authority needed.

3\. Number of Section 8 eligible units.

4\. Number of total units.

5\. Estimated Preservation Equity.

6\. Estimated repair or rehabilitation needs.

X. Approval Language. The conditional POA approval letter to an

owner or purchaser should explain:

A. The conditional approval is to be considered final

approval for purposes of Sections 224 and 225 of LIHPRHA.

Section 224 addresses owners\' prepayment rights and

responsibilities. Section 225 outlines the Department\'s

statutory timetable for approving POAs.

B. The ability to apply for a Section 241(f) loan is

conditioned on the availability of additional

appropriations for the preservation program.

C. The unsubsidized appraised value (repaired value) for the

property is good for 30 months from the time the 9607 was

issued. However, the preservation value listed on the

9607 would have to be recalculated based on repair needs

and outstanding debt at the time of the Section 241(f)

loan commitment.

D. The owner\'s prepayment rights and responsibilities if we

are unable to fund in the statutory time frames. This

language was previously sent to State/Area Offices in

sample letters to owners who receive approval and for

which the Department has no funds.

E. There could be a significant delay between POA approval

and final execution of the Housing Assistance Payment

Contract, should additional funding become available.

This is because the loan, rents, and TPA must be

processed and the repair needs must be reassessed.

XI\. Amended Notification Requirements.

When a POA is conditionally approved, owners must notify

tenants and State or local government agencies in accordance

with Handbook 4350.6 paragraph 8-28. State/Area Office should

provide sample notification letters for owners. The

notification should include:

A. A clear statement that the POA is conditional, and that

if additional funds become available certain parts of the

POA uill be reviewed including:

1\. Rents

2\. Repair needs

3\. Equity/acquisition loan amounts

B. A statement that tenants and State and local government

agencies will be re-notified of final approval of POA,

rents and repairs.

C. Estimated rents and proposed repairs.

D. Information on the statutory time frame when an owner can

prepay without the Department\'s approval and the owner\'s

rights and responsibilities should the Department be

unable to fund. This language was previously sent to

State/Area Offices in sample letters to owners who

receive approval and for which the Department has no

funds.

E. Protection for current tenants. This language is

included in the sample letter previously sent to

State/Area Offices.

XII\. Ongoing Asset Management Functions.

Because new appropriations for funding Preservation incentives

are on hold indefinitely, normal asset management functions

should continue.

A. Owners must address critical repair needs identified in

the PCNA.

B. State/Area Offices should process normal rent increases

and releases from the Reserves for Replacement account,

particularly, if these are a component of meeting current

repair needs.

XIII\. Waiver Authority

My delegation of waiver authority to the field (published in

the Federal Register on November 2, 1993) at 58 Fed. Reg.

58560\) does not extend to the instructions included in this

notice

If you have any questions on this, please contact the

Preservation Division in Headquarters at (202) 708-2300.

Nicholas P. Retsinas

Assistant Secretary for Housing-

Federal Housing Commissioner