**U.S. Department of Housing and Urban Development**

H O U S I N G

**Special Attention of:** **Notice** H 99-13 (HUD)

All Multifamily Housing Directors **Issued:** May 17, 1999

All Multifamily Hub Directors Expires: May 31, 2000

All Multifamily Directors, Program Centers **Cross References:**

Subject: Revised Asset Management Procedures

Management Reform 2020 Plan, requires the elimination, streamlining,
outsourcing or centralization of many multifamily functions. This notice
revises outstanding program guidance, handbooks and instructions and
shall be implemented by all offices upon receipt. Changes to existing
instructions are noted below in *italics,* **significant changes are
noted in bold.**

**I.** **[Budget-Based Rent Adjustments]{.underline}**

HUD Handbook 4350.1 REV-1, Multifamily Asset Management and Project
Servicing, Chapter 7, outlines submission requirements and procedures
for approving a budget-based rent increase. Specifically, Paragraph
7-22C. requires that if an increase in a budgeted line item amounts to
five percent or more of the original line item, the basis for the
increase must be documented.

On October 16, 1998, Housing issued Notice 98-34, Project-based Section
8 Contracts Expiring in Fiscal Year 1999. This Notice included a list of
the Operating Cost Adjustment Factors (OCAF) for each State. These
factors will be published annually.

***Budget-based rent increases in which the total amount of the increase
in operating expenses does not exceed the prior year\'s audited
financial statements (debt service and other fixed costs (Reserve for
Replacement (RFR) excepted) by more than the OCAF may now be approved
without further review of the budget by HUD staff, provided the project
meets the following requirements:***

o Owner/managers must still document and submit requests in accordance
with 4350.1, Chapter 7 (including compliance with applicable tenant
comment procedures);

o This procedure is applicable only to projects with HAP Contracts that
will not expire during the current fiscal year (FY). (Projects with
expiring contracts are covered under HUD Notice 98-34 - Project-based
Section 8 Contacts [Expiring in Fiscal]{.underline} Year 1999.)

Distribution: W-3-1

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o Owners are limited to one increase within a calendar year.

o The project has not been designated as Troubled by the appropriate
level manager in your office.

Field Office staff are reminded that routine processing should be
adhered to when reviewing the owner\'s submission (see Paragraph 7-25C,
for submission requirements). Delays in processing often occur when
incomplete packages are submitted while staff wait for receipt of
additional items. *To expedite processing, all incomplete requests
should be returned without processing and Owners/Agents notified that,
upon receipt of a complete request, their requests will be processed*

**II.** **[Annual Budget Submission and Approval for Section 202 and
Section 811 Projects]{.underline}**

Outstanding guidance requires submission by the owner, and approval by
HUD of

an annual budget for all Section 202/811 and Section 202/8 projects.
**The following revised procedures shall be implemented, after
appropriate notification to owners and managers.**

***The provisions of the applicable Regulatory Agreements between HUD
and the Mortgagor for all properties (except those defined below), are
modified by a blanket waiver. This waiver provides that owner/mortgagors
continue to prepare annual budgets as required and maintain a copy for
their records and at the project site, but are no longer required to
submit those annual budgets to HUD for review. These budgets shall be
deemed to be approved by HUD for all purposes including meeting the
regulatory requirements for use of project funds in accordance with a
HUD approved budget. Any property which falls into one or more of the
following categories are [excepted from the waiver]{.underline} and the
budget submission and approval procedure for those properties will not
change:***

***o The owner/mortgagor is requesting a rental increase based on
operating costs which have increased more than three percent over total
operating expenses from the prior year\'s audited financial statement
(debt service and other fixed costs (e.g., RFR) excepted);***

***o Any property designated as Troubled by the appropriate level
managers in your Office;***

***o Any property specifically notified (in writing) as excluded by your
Office.***

**III.** **[Annual Requisitions for Annual Contributions Contract (ACC)
Projects]{.underline}**

Outstanding Housing guidance requires submission of quarterly
Requisitions for Partial Payment of Annual Contributions for Section 8
New Construction and Substantial Rehabilitation projects with ACCS, for
which Housing monitors the Contract Administrator (CA).

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***Beginning with their next complete fiscal year, Contract
Administrators shall now submit annual Requisitions for Partial Payments
of annual Contributions instead of** **quarterly requisitions*****.**
The annual requisition must be submitted 90 calendar days prior to the
start of the Contract Administrator\'s fiscal year, with annual budget
documents (Forms HUD 52672 Supporting Data for Annual Contributions
Estimates and HUD 52673 Estimate of Total Required Annual Contributions
and the revised Form HUD-52663 Requisition for Partial Payment of Annual
Contributions **(Attachments 1, 2 & 3)).** Conversion to annual
requisitions by Housing saves significant time for the Contract
Administrators, HUD Field Offices, and Field Accounting Divisions with
minimal risk. Funds will continue to be disbursed monthly in accordance
with the approved payment schedule (on Form HUD 52663).

On September 16, 1994, the Office of Public and Indian Housing issued
Notice PIH 94-64, Revised Submission Requirements for Requisition for
Partial Payment of Annual Contributions, Form HUD-52663. This Notice
informed HUD Field Offices and Public Housing Agencies of new submission
requirements for HUD-52663, Requisition for Partial Payment of Annual
Contributions for Mod Rehab and Section 8 Existing Contracts. In place
of submitting quarterly requisitions, PHAs were permitted to submit an
annual requisition for their entire fiscal year. Housing has determined
that the same policy implemented through PIH 94-64 shall be applicable
to projects with ACCs monitored by Housing.

IV\. **[Reliance on Monitoring by Partners]{.underline}**

HUD has many partners in the delivery of assisted housing, including
Housing

Finance Agencies (HFAs) and Public Housing Authorities (PHAs). Many are
Contract Administrators for projects with ACCS. Others provide financing
as mortgagees for insured projects. In their capacity as mortgagee, they
perform many functions which are mandated by their own internal
(non-HUD) policies and procedures. These are often the same or similar
to functions ordinarily performed by HUD\'s Project Management staff for
insured and/or subsidized projects. Examples of these functions include:
management reviews, occupancy reviews, physical inspections, and reviews
of audited annual financial statements.

***Reviews by HUD staff are not required under the following
circumstances:***

***o Industry partners such as a State HFA, PHA or other partner has
performed a review of the project, AND***

***o HUD staff have reviewed the report and determined that it is
substantially similar to that required by HUD; AND***

***o The project received a Satisfactory or above rating on the most
recent HFA/PHA review, AND***

***o The latest HUD review of, or experience with the partner indicates
satisfactory performance.***

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Deferring reviews of projects, which are being monitored and found to be
acceptably performing by HUD\'s partners, poses little additional risk
to the Department and the savings in both staff time and travel
resources are significant.

**V.** **[Delegation of Signature Authority]{.underline}**

***Signature authority for routine project management activities for
projects which are not \"troubled\" shall be delegated immediately from
Directors or Chiefs of Project Management to Project Managers.***
(Management retains the responsibility for determining when/if
additional review is routinely warranted, based on the specific
experience, knowledge or ability of subordinates.) Managers remain
responsible for the actions of their subordinates and should institute
adequate quality controls to assure the delegated authority is properly
used.

**Routine project management activities include (but are not limited to)
the following:**

1\. Letters to participants requesting or providing specific information
and reports; general correspondence; including requests for information,
clarification of handbook requirements, responses to tenant complaints
and transmittals of complaints to management agents. Also, requests for
supporting documentation or clarifications and meeting summaries.

2\. Letters to participants approving budget based rent increases,
annual adjustment and operating cost factors and rent schedules
([excluding]{.underline} special rent adjustments or increases in excess
of five percent).

3 . Authorizations to release reserve for replacement funds which do not
deplete the reserve account below acceptable minimum levels (as
established by the program manager) or increases in reserve payments but
[excluding]{.underline} requests for suspension of deposits.

4\. Letters to participants transmitting results of reviews of financial
statements (except when serious infractions of the Regulatory Agreement
are found, e.g., unallowable distributions), approving requests for
extensions of due dates, and results of review of monthly accounting
reports ([except]{.underline} when serious infractions are found).

5\. Letters to participants approving management certifications
[(except]{.underline} for new management agent approvals requiring 2530
clearance).

6\. Letters to participants transmitting results of management reviews
and physical inspections reflecting satisfactory or higher ratings.

7\. Authorizing service coordinator funding draws.

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8\. Letters to participants releasing residual receipts.

9\. Authorizing approval of special claims under Section 8 contracts.

10\. Internal memoranda to other areas within the local Office of
Housing.

By delegating signature authority for routine project management
activities, we place decision making authority at the operating level,
in support of Departmental policy, reducing our processing times and
providing better service to our customers.

**VI.** **[Reserve for Replacement Processing & Bid
Approvals]{.underline}**

Outstanding guidance allows for release from the Reserve for Replacement
Account in accordance with either Paragraph 4-15 or 4-17 of Handbook
4350.1 REV-1, (issued 9/22/92) at Field Office discretion. Paragraph
4-15 requires a detailed description of the work done (or to be done),
copies of paid invoices, and bids and specifications for advances from
the fund while the Optional Method described in Paragraph 4-17
streamlined the process to expedite approvals.

**All Offices shall implement the following recommendations, after
providing notification to owners, managers and/or mortgagees, as
appropriate:**

***A. Requests for releases from the RFR account shall now be processed
under the Optional Method (Paragraph 4-17) for all projects EXCEPT those
meeting the following criteria (which must instead comply with Paragraph
4-15):***

*o Those designated as Troubled by the appropriate level managers in
your Office;*

*o Any property specifically notified (in writing) as excluded by your
Office;*

*o Requests resulting in a remaining balance in the RFR account, (after
approval of the withdrawal) which is below acceptable minimum levels (as
established by your Office); or*

*o Requests which include payment of special fees to the management
agent.*

*o Requests which include payments for identity of interest
transactions, where excessive costs for identity of interest entities
are a problem.*

**B.** **Requests for Advance Release of Funds For Work that is
To-Be-Done - Based on Bids :** When the request for Release of funds is
for work that is to be done (an advance from the account), bids must be
obtained and used to support the request. Specific submission
requirements for advances from the RFR account are addressed in Handbook
4350.1 REV-1: Paragraphs 4-15 (D) for the old method and 4-17(F) for the
Optional Method.

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***1. For projects eligible (see VII.A. above) to submit RFR release
requests using the Optional Method; when processing requests for advance
release of funds based on bids (4-17(F)), copies of all bids are now
required to be submitted for prior approval [only]{.underline} for
requests which exceed the following (revised), threshold:***

100 units or less \$25,000

101 - 250 units \$50,000

over 250 units \$100,000

2\. The required documentation unde r the old method (4-15(D)) does not
change.

3\. The process of obtaining bids for the RFR work items must still
comply with outstanding instructions relating to HUD bidding and
contracting procedures, including, but not limited to, identity of
interest issues.

4\. Managers remain responsible for program operations and should
institute reasonable quality controls and checks.

C. The Optional Procedures have been successfully implemented in several
Field Offices. Implementation nationwide, will reduce workload during
the transition and reduce HUD response times. In summary, the Optional
Method for processing releases from the Reserve for Replacement Account
requires the following:

1\. A transmittal requesting release of funds, submitted by the
Mortgagor/Agent to HUD.

2\. A Mortgagor Certification with each request in accordance with the
existing requirements of Paragraph 4-17B.1 through 9 (the owner may
combine the transmittal and certification into a standard format which
incorporates both, *see **Attachment 4** for suggested format).*

3 . No more than one request for releases will be processed each
quarter. (Exceptions shall only be considered for properties
experiencing cash flow problems and must be processed in accordance with
Paragraph 4-15.)

4\. Copies of invoices need not be submitted, as long as the request
describes the work/items (i.e., invoice number, serial number, vendor,
location, etc.) sufficiently to allow for subsequent inspection and
verification. All invoices must be retained in the property\'s file for
three years and be available for review.

5 . A form HUD-9250, Reserve Fund for Replacements Authorization,
submitted by the Mortgagor/Agent for each quarterly request.

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**VII.** **[Revised Procedures for Reviewing and Approving Transfers of
Physical Asset (Handbook 4350.1 REV-1, Chapter 13)]{.underline}**

This revises outstanding guidance in Handbook 4350.1 REV-1, Multifamily
Asset Management and Project Servicing, Chapter 13, Change in Ownership:
Transfer in Physical Assets. **The following guidance should be
implemented by all Offices, after appropriate notification to owners,
managers, and/or mortgagees.**

**The Full TPA Review Process is summarized below. Attachments 5-8 of
this Notice consolidate, to the maximum extent feasible, materials from
several sections and chapters of Handbook 4350.1, and present the
current steps for processing TPA requests, in a more methodical and
expeditious manner (they will also be forwarded as WORD documents to
facilitate their use). The Attachments are:**

Attachment 5 - a revised list of required documents for submission for
full TPA review at the Preliminary Approval Stage (modifies parts of
Appendix A, C and D of Chapter 13 of 4350.1, but does not replace in
entirety).

Attachment 6 - a detailed checklist for Field Office use in performing
full TPA review at the Preliminary Approval Stage (replaces Appendix E
of Chapter 13 of 4350.1).

Attachment 7 - a summary of the Full TPA Analysis and conclusions,
prepared by the HUD Project Manager at the Preliminary Stage
(supplements and helps summarize information contained in 4350.1,
Chapter 13, Section 3).

Attachment 8 - a revised list of all required documents to be submitted
for full TPA review at the Final Approval Stage (modifies parts of
Appendix A, C and D of Chapter 3 of 4350.1, but does not replace in
entirety).

FULL TPA REVIEW PROCESS:

**A.** **Preliminary Stage**

**1.** ***Pre-submission meeting - staff should meet with an owner and
purchaser before submission of the TPA package in order to review HUD\'s
requirements with the parties (Attachment 5) and to provide copies of
model HUD documents. Advise the mortgagor and mortgagee that the
application fee is due and payable with the application and considered
[earned]{.underline} immediately upon receipt of that application (no
refunds)*.** Such a pre-submission meeting may be particularly useful
with a purchaser who has not previously done business with the
Department and should assist in facilitating and expediting the TPA
process.

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2\. *Review for completeness using the attached checklist **(Attachment
6). If the package is incomplete, it should be returned without
processing (with the application fee retained by HUD) and the purchaser
and owner advised of the deficiencies*****.** (In analyzing the
processing of TPAS, the single largest factor contributing to delays is
the acceptance of incomplete TPA packages.)

3\. Review the purchaser\'s letter.

4\. *If there will be any secondary financing, the HUD Project Manager
must determine if the administrative requirements of Paragraph 13-15 of
HB 4350.1 have been met before referring the TPA application for legal
review. If the secondary financing proposal does not meet HUD\'s
administrative requirements, notify the owner of the deficiencies and
stop processing until the secondary financing either meets the
administrative requirements, the secondary financing proposal is
withdrawn or the application is withdrawn. **If acceptable exhibits are
not received within 10 business days, the application will be rejected
and HUD will retain the fee.** This is not a review of the legal
acceptability of the documents evidencing the secondary financing. That
will occur when the TPA application goes to the Office of Counsel for
review.*

5 . Refer the TPA package to the Office of Counsel for review (only
those documents identified in the preliminary review checklist for legal
review shall be forwarded to the Office of Counsel).

6\. Determine acceptability of the Purchaser and Management Agent:

a\) *Process form HUD-2530, Previous Participation Clearance for
Purchaser and Agent.*

b\) *Review Management Certification and Management Entity Profile.*

c\) ***Credit reports must now be submitted as part of the TPA
application package; must be from an acceptable credit reporting agency
and must include an original on the agency\'s letterhead.** Review
Credit reports on proposed mortgagor entity/principals.*

d\) ***HUD staff will perform management reviews for subsidized projects
only.** The extent of review required (limited versus comprehensive)
shall be determined at the local office based on project data and
history. Project files must be reviewed for all projects (subsidized or
unsubsidized) to evaluate the purchaser and proposed management agent\'s
previous performance and acceptability.*

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e\) *Review the purchaser\'s resume.*

f\) *Determine compliance with Notice H 95-66 if the purchaser is a
Limited Liability Corporation/Partnership.*

7\. Determine if the physical needs of the property will be met through
the proposed TPA.

a\) Review MIO Plan, if any.

b\) In lieu of outstanding procedures (HB4350.1, Paragraph 13 - 12.B.1.)
and allowing FO discretion whether to require a physical inspection by
HUD, or allow the Purchaser to submit a physical inspection/assessment
of the project ***henceforth, all physical inspections should be
submitted by the applicant, pursuant to Paragraph 13-12.B.2. The
inspection shall comply with the requirements of Handbook 4350.1,
Paragraph 13-12.B.2 and C as modified by the following:***

). *i) Shall be completed by a professional multifamily inspector
licensed in the state where the project is located In States without
licensing programs, the owner must submit evidence that the inspector is
experienced and qualified to inspect multifamily projects.*

*ii) At least 25% of the units must be inspected as well as all the
common areas.*

*iii) Shall include an analysis of the adequacy of the Replacement
Reserve Account including an assessment of the need for an initial
deposit and adequacy of monthly deposits.*

*iv) HUD may require that all or part of the inspection be redone if the
HUD project manager determines either the inspector is not a qualified
inspector or the inspection does not comply with these requirements.*

*c) **The cost of the inspection is not an eligible project expense.**
(An analysis of the condition of the property is standard due diligence
for any purchaser).*

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8\. Determine if the financial needs of the project are met through
review of:

a\) Pro-forma Balance Sheet,

b\) Interim unaudited financial statements,

c\) Mortgagee confirmation of escrows and reserves

d\) Sources and Uses Statement

9\. Review the checklist **(Attachment 6)** to ensure that all necessary
documents have been reviewed and complete the summary analysis
**(Attachment 7).**

10\. Determine if Flexible Subsidy has been provided to the project and
ensure that:

a\) the Flexible Subsidy funds have been or will be paid back by the
time of Preliminary Approval and

b\) that a mortgage modification or Use Agreement are in place before
the transfer occurs or will be put in place as part of the sale.

11\. Document the Full TPA Analysis and conclusions using **Attachment
7,** in conjunction with 4350.1, Chapter 13, Section 3.

12\. Recommend approval or rejection of the TPA, incorporate comments
from the Office of Counsel and issue letter (original to Purchaser with
copies to seller and mortgagee).

**B.** **Final Stage**

1\. Requirements for final review and approval, summarized in attached
Final Approval Checklist **(Attachment 8),** are unchanged from
outstanding guidance.

> William C. Apgar
>
> Assistant Secretary for Housing-

Federal Housing Commissioner

Attachments