U.S. Department of Housing and Urban Development

Office of Housing

Special Attention of: Notice H 97-50

State Coordinators; Directors of

Housing; Director, Issued: August 8, 1997

Multifamily Housing Division;

Multifamily Asset Expires: August 31, 1998

Management and Development Branch Cross References:

Chiefs; Contract Administrators;

Owners and Managers of Projects with

Expiring Section 8 Contracts

Subject: Contract Non-Renewal Notice

This Notice provides further guidance with regard to the

renewal of Section 8 Housing Assistance Payments contracts

(\"Contracts\") in accordance with Section 211(b)(1) and (4) of the

Fiscal Year 1997 Appropriations Act (Pub. L. 104-204, 110 Stat.

2874, approved 9/26/96) (\"Applicable Law\"). This Notice also

details the Department\'s procedures for declining Contract

renewals. The guidance contained in this Notice supersedes any

conflicting guidance provided in Notice 96-74 , Notice 96-89, Notice

97-38 and the November 1, 1996 memorandum entitled \"Clarification

Procedures for Project-based Section 8 Contracts Expiring in Fiscal

Year 1997\" (collectively \"Clarification Memo\").

Renewal of Contracts

All projects for which renewal authority is provided under

Applicable Law, which expire after the date of this Notice

(including all which expire after being previously renewed on an

interim basis) and which are not Notice Projects (as hereinafter

defined), shall be renewed for a one year period. This includes

renewal of Contracts which may have been renewed for 60 days under

Notice H 97-38 . If an expiring Contract has been previously

renewed in FY 1997 for less than a one-year period, the Field

Offices must ensure that the total renewal period for that Contract

shall not exceed one year. Each Field Office will be informed by

memorandum of Notice Projects within its jurisdiction and will

follow the instructions in this Notice with respect to renewals of

Contracts on Notice Projects.

H: Distribution: W-3-1

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Notice Projects

There are about 450 projects with expiring Contracts prior to

the end of calendar year 1997, for which HUD records may indicate

failure to-meet HUD Regulations relating to physical condition

(\"Notice Projects\"). Field Offices upon receipt of the memorandum

identifying the Notice Projects within their Jurisdictions are

immediately to notify the owner of each such project by letter, the

form of which will be provided to the Field Offices by

Headquarters, that the project is a Notice Project. A copy of this

letter is to be provided to Headquarters, Attn: Director, Office of

Multifamily Asset Management and Disposition. The Field Office

will then review the project files in their possession to determine

whether there is sufficient evidence in the files of material

adverse managerial or financial actions or omissions by the owner

to recommend to Headquarters the non-renewal of the expiring

Contracts. In making such determinations, the Field Office should

be guided by the definition of material adverse actions and

omissions below. The Field Office shall assure that the

determination is based on documented evidence in the project files

or on the basis of other considerations that can be documented in

its recommendation of non-renewal. Field Office reviews of the

Notice Projects within its jurisdiction should be completed as soon

as practicable, but in no event later than three weeks after the

date of this Notice.

Where a Field Office makes a determination that there is

sufficient justification to warrant a finding that there have been

material adverse actions or omissions, the Field Office will submit

a recommendation to Headquarters, Attn: Director, Office of

Multifamily Asset Management and Disposition, with a memorandum

describing the basis for the determination and accompanied by

copies of the documentation upon which the determination rests (for

example, the history of physical problems at the project along with

Field Office attempts to obtain corrective actions or financial

statements or other evidence of financial irregularities). Where

the Field Office determines that there is no documented basis for

non-renewal of a Contract expiring in Fiscal Year 1997, the Field

Office shall renew the Contract for the period of time necessary to

provide the project a total renewal period not to exceed one year.

In some cases, a Contract relating to a Notice Project may

expire before HUD completes its review of the file (this includes

any which may have \'previously been renewed for 60 days). In these

cases, the Contract will be renewed for four months, during the

first two months of which time, HUD will complete its review. If

the file does not clearly demonstrate material mismanagement the

Contract will be renewed for a total of one year upon expiration of

the four-month renewal Contract (including any other previous

renewal).

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Field Offices may become aware of other properties in their

portfolios besides those specified as a Notice Project with

expiring Section 8 Contracts that meet the tests for material

adverse actions or omissions. In such cases, Field Offices should

follow the same procedures for non-renewal as established for

Notice Projects.

To clarify any possible confusion, even though HUD will be

reviewing projects whose contracts expire between now and the end

of the calendar year, the renewal policy applies only to contracts

that expire in FY 1997. Section 211 applies only to projects that

expire in FY 1997.

Non-Renewal Procedure

The Clarification Memo sets forth a discussion of nonrenewal

procedures. The Department will now distinguish between the

procedure to be followed in the context of a Contract termination

during the unexpired term of such agreement and a determination by

the Department to elect to exercise its legal right and obligation

to not renew an expiring Contract. The alternative procedure

detailed below now applies to Contract renewals.

Where a Notice Project is proposed to be non-renewed on the

basis of material adverse actions or omissions, Headquarters will

notify the applicable Field Office of such determination. The

Field Office will notify the owner in writing of such determination

and will outline the specific conditions underlying such

determination. The Owner will then be given 60 days to remedy such

condition. If at the end of such 60 day period the Field Office

determines through a site visit to the project that such cure has

not been provided, then such Contract shall not be renewed upon its

natural expiration (i.e., after its then current contract term).

Material Adverse Actions or Omissions

Material adverse financial or managerial actions or omissions

are any actions which could result in an owner default under an

FHA-insured mortgage (monetary or technical), or a documented

material violation of one or more of the obligations under the

project\'s Regulatory Agreement or Contract. Violations may

include, but are not limited to, submission to HUD of false

statements or certifications, diversion of project funds,

unauthorized distributions, project mismanagement (i.e., failure to

enforce tenant lease p revisions), and failure to maintain the

project (Section 8 New Construction, Substantial Rehabilitation,

Loan Management Set-Aside (LMSA) or Property Disposition (PD)) in

decent, safe and sanitary condition, including compliance with

Housing Quality Standards (HQS) for LMSA and PD projects.

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Minor deficiencies in the physical condition of a project do

not meet the statutory test of materiality, and would not warrant

denying renewal of a Contract. Examples of minor deficiencies

include light fixtures not working in a few units in a large

project and cracked window panes in a few units. Conversely,

serious and pervasive deficiencies meet the materiality test.

Examples of this include but are not limited to cases where: the

roof of a project is not weathertight; the exterior wall structure

has serious defects; there is no hot and cold running water in a

project; project units are infested with vermin and rodents; the

water supply in a project is contaminated; project units contain

dangerous levels of air pollution; and project units do not contain

safe, operating heating and/or cooling facilities appropriate to

the climate to assure a healthy living environment. A materiality

analysis should not be done on an isolated basis, but in the

aggregate. This means that the project\'s condition must be

reviewed on the basis of the totality of its circumstances taken as

a whole, and not simply on the basis of its elemental aspects.

For LMSA and PD projects, the HQS tend to be unit-specific.

However, once a determination is made that the HQS deficiencies are

material, this is sufficient to indicate that the owner has engaged

in material adverse financial and managerial actions with respect

to the project. Consequently, the owner will be denied a renewal

of a Contract for the entire project, not just the units failing to

meet HQS.

Questions regarding this Notice may be addressed to the Office

of Multifamily Asset Management and Disposition. Specifically,

policy questions may be referred to the Program Management Division

at (202) 708-4162. Funding questions may be referred to the

Program Support Division at (202) 708-2654.

Nicolas P. Retsinas

Assistant Secretary of Housing-

Federal Housing Commissioner