[Link to
CIM-0104](http://www.hud.gov/offices/adm/hudclips/lops/CIM-0104LOPS.doc)

[Link to
CIM-0105](http://www.hud.gov/offices/adm/hudclips/lops/CIM-0105LOPS.doc)

[Link to
CIM-0106](http://www.hud.gov/offices/adm/hudclips/lops/CIM-0106LOPS.doc)

[Link to
GHM-0045](http://www.hud.gov/offices/adm/hudclips/lops/GHM-0045LOPS.doc)

[Link to
GHM-0049](http://www.hud.gov/offices/adm/hudclips/lops/GHM-0049LOPS.doc)

[Link to
GHM-0050](http://www.hud.gov/offices/adm/hudclips/lops/GHM-0050LOPS.doc)

[Link to
GHM-0051](http://www.hud.gov/offices/adm/hudclips/lops/GHM-0051LOPS.doc)

[Link to
GHM-0061](http://www.hud.gov/offices/adm/hudclips/lops/GHM-0061LOPS.doc)

[Link to
GHM-0077](http://www.hud.gov/offices/adm/hudclips/lops/GHM-0077LOPS.doc)

[Link to
GHM-0084](http://www.hud.gov/offices/adm/hudclips/lops/GHM-0084LOPS.doc)

[Link to
CIM-0111](http://www.hud.gov/offices/adm/hudclips/lops/CIM-0111LOPS.doc)

[Link to
CIM-0112](http://www.hud.gov/offices/adm/hudclips/lops/CIM-0112LOPS.doc)

[Link to
CIM-0113](http://www.hud.gov/offices/adm/hudclips/lops/CIM-0113LOPS.doc)

Legal Opinion: CIM-0110

Index: 3.600

Subject: Preservation Eligibility

February 22, 1995

MEMORANDUM FOR: Linda D. Cheatham, Director

Office of Insured Multifamily

Housing Development, HMI

FROM: John J. Daly, Associate General Counsel

Office of Insured Housing, CI

SUBJECT: Parc Chateau Apartments

Project No. 073-55058

Indianapolis, IN

This memorandum is in response to a request from Frank Malone

for a determination of the eligibility of the above project to

participate in the Preservation program. Our office has determined

that the project is eligible for participation in the Preservation

program under either Title II of the Housing and Community Development

Act of 1987, The Emergency Low Income Housing Preservation Act of 1987,

12 U.S.C. 1715l (ELIHPA) or Title VI of the National Affordable

Housing Act, The Low-Income ousing Preservation and Resident

Homeownership Act of 1990, 12 U.S.C. 4101 et. seq. (LIHPRHA), provided
that eligibility

procedures outlined in HUD Handbook 4350.6 are followed by the

project\'s owners.

The issue raised is whether Parc Chateau Apartments, a

project which was formerly insured under Section 221(d)(3) with a

nonprofit owner at a below-market interest rate under

Section 221(d)(5), then acquired by HUD at a foreclosure sale and

subsequently sold with a purchase money mortgage (PMM) which is

currently not subject to prepayment prohibitions, is eligible for

participation under either ELIHPA or LIHPRHA. The determination

of eligibility under both ELIHPA and LIHPRHA is a two-part

inquiry. First, a project must be financed by a loan or mortgage

that is of a type specified in the statute and regulations.

Second, the project must be eligible for prepayment without the

Secretary\'s prior consent. As discussed below, the project meets

both parts of the eligibility tests under ELIHPA and LIHPRHA.

According to the relevant facts presented, Parc Chateau

Apartments was originally insured under Sections 221(d)(3)

and (5) at a below-market interest rate with a nonprofit owner.

Upon default of the mortgage, HUD acquired the project at a

foreclosure sale in 1977. HUD sold the project with a PMM to the

current limited dividend owners in 1983. The PMM was subject to

a five-year prepayment prohibition which expired in March 1988.

The owners of the project have filed a Notice of Intent

(NOI) and a Plan of Action (POA) under ELIHPA. They have also

submitted a Notice of Election to Proceed Under LIHPRHA with the

option to revert to ELIHPA (HUD form 9610, 5.b.). It is unclear,

based upon the documentation submitted to our office, whether or

not all of the transition provisions in HUD Handbook 4350.6,

Paragraph 2-7 have been followed by the owners, and whether or

not the owners have elected to proceed under LIHPRHA or to revert

to ELIHPA.

The memorandum from Mr. Malone suggests that the project

should not be eligible for Preservation because the original

owner was a nonprofit organization. While it is true that a

project with a nonprofit owner is ineligible for participation

under the Preservation program because of prepayment

prohibitions, the current owner of Parc Chateau Apartments, a

limited dividend entity, was eligible for prepayment without

prior HUD approval as of March 1988 under the PMM. The two steps

of the eligibility inquiry must be considered separately.

Under the LIHPRHA and ELIHPA statutes and 24 C.F.R.

Part 248, Parc Chateau Apartments qualifies as \"eligible low-

income housing\" for purposes of Preservation participation. See,

LIHPRHA Section 229(1); ELIHPA Section 233(1); 24 C.F.R.

Section 248.201; and 24 C.F.R. Section 248.101. Pursuant to

LIHPRHA and ELIHPA the determination of \"eligible low-income

housing\" is a two-part process. LIHPRHA defines \"eligible low-

income housing\" as:

\"any housing financed by a loan or mortgage-

\(A\) that is-

\(i\) insured or held by the Secretary under

section 221(d)(3) of the National Housing Act and

receiving loan management assistance under

section 8 of the United States Housing Act of 1937

due to a conversion from section 101 of the

Housing and Urban Development Act of 1965;

\(ii\) insured or held by the Secretary and

bears interest at a rate determined under the

proviso of section 221(d)(5) of the National

Housing Act;

\(iii\) insured, assisted, or held by the

Secretary or a State or State agency under

section 236 of the National Housing Act; or

\(iv\) held by the Secretary and formerly

insured under a program referred to in clause (i),

(ii), or (iii); and

\(B\) that, under regulation or contract in effect

before February 5, 1988, is or will within 24 months

become eligible for prepayment without prior approval

of the Secretary.\" ELIHPA Section 233(1) and the implementing
regulations at

24 C.F.R. §Section 248.101(a) and (b) contain the same definition of
\"eligible

low income housing\" as found in LIHPRHA Section 229(1) except that
ELIHPA

Section 233(1)(B) appears as follows:

\"(B) that, under regulation or contract in effect

before the date of the enactment of this Act, is or

will within 1 year become eligible for prepayment without prior

approval of the Secretary.\" LIHPRHA Section 229(1) (emphasis

added).

The above statutory provisions of LIHPRHA were implemented by

24 C.F.R. Sections 248.101(1) and (2).

Pursuant to the statutory provision quoted above, a project,

to be eligible for participation under LIHPRHA or ELIHPA, must,

first, be financed by a certain type of loan or mortgage. The

relevant type for our analysis is one that is \"held by the

Secretary and formerly insured. . .\" at a below-market interest

rate as provided for under Section 221(d)(5) of the National

Housing Act. LIHPRHA Section 229(1)(A)(iv); ELIHPA

Section 233(1)(A)(iv). Second, the project loan or mortgage must

be eligible, \"under regulation or contract,\" for prepayment

without HUD\'s prior consent. LIHPRHA Section 229(1)(B); ELIHPA

Section 233(1)(B).

The regulations at 24 C.F.R. Section 248.101, which

implement the LIHPRHA eligibility test under Section 229(1),

clarify what type of loan or mortgage is referred to in LIHPRHA

Section 229(1)(iv). This provision provides that a project is

eligible for participation under LIHPRHA if it is:

\"financed by a loan or mortgage (1) That is\--(iv) A

purchase money mortgage held by the Commissioner with

respect to a project which, immediately prior to HUD\'s

acquisition, would have been. . .(ii) Insured or held

by the Commissioner under \[Section 221 of the National

Housing Act\] and bearing a below market interest

rate. . .\" 24 C.F.R. Section 248.101(1) The first part of the
eligibility

test under the regulations governing

eligibility under ELIHPA, 24 C.F.R. Section 248.201(a), is similar to
that

found in the regulations implementing the LIHPRHA eligibility test at

24 C.F.R. Section 248.101(1). (emphasis

added).

Parc Chateau Apartments is currently subject to a PMM which

is held by the Commissioner. Moreover, immediately prior to

HUD\'s acquisition of Parc Chateau Apartments at the foreclosure

sale, the mortgage loan was insured under Sections 221(d)(3)

and (5) at a below-market interest rate. Therefore, the project

clearly satisfies the first part of the eligibility analysis

under the ELIHPA and LIHPRHA statutes and implementing

regulations.

The ELIHPA and LIHPRHA statutes and the regulations at

24 C.F.R. Part 248 provide, relating to the second part of the

eligibility inquiry, that the project loan must be eligible for

prepayment without the Secretary\'s prior consent. As previously

quoted, LIHPRHA requires that the project be subject to a loan or

mortgage that, under \"regulation or contract\" executed prior to

February 5, 1988 \"is or will within 24 months become The statutory

language \"is or will within 24 months\" has been

interpreted to mean that the project owner must be eligible to prepay on
the

date of submission of the NOI or within 24 months of that date.\"
eligible

to prepay without the Secretary\'s prior approval.

LIHPRHA Section 229(1)(B). ELIHPA requires that the project be

subject to a loan or mortgage that \"under regulation or contract\"

executed prior to the date of ELIHPA\'s enactment February 5, 1988.,

\"is or will within 1 year become The statutory language \"is or will

within 1 year\" has been interpreted

to mean that the project owner must be eligible to prepay on the date of

submission of the NOI or within one year of that date. \" eligible to

prepay without the Secretary\'s prior approval.

The fact that Parc Chateau Apartments was originally subject

to prepayment prohibitions does not prevent the project from

meeting the second requirement. Parc Chateau Apartments was sold

with a PMM which was executed in 1983, prior to the February 5,

1988 date required by both ELIHPA and LIHPRHA. Furthermore,

under the PMM contract, the mortgage was eligible for prepayment

without the Secretary\'s prior consent in March 1988. It appears

from the documentation submitted to our office that the first NOI

under ELIHPA was filed in February of 1990, and the Notice of

Election to Proceed under LIHPRHA was submitted in May of 1992.

The project owners were eligible to prepay without prior HUD

approval prior to both dates. Accordingly, the project meets

the second part of the eligibility test under both ELIHPA and

LIHPRHA and the implementing regulations. You should ensure that

the dates relied on above are accurate.

In view of the foregoing, Parc Chateau Apartments is

\"eligible low-income housing\" for purposes of participation in

the Preservation program under either ELIHPA or LIHPRHA. As

stated above, however, you should ensure that all relevant HUD

procedures in HUD Handbook 4350.6 have been followed by the

owners.

If you have any questions, please contact Athena Katcheves

at 708-3667.