> **U.S. Department of Housing and Urban Development**
>
> H O U S I N G

Special Attention of: **Notice** H 99-8 (HUD)

All Community Builders

All Multifamily Hub Directors

All Multifamily Program Center Issued: May 27, 1999

Directors, All Project Managers Expires: May 31, 2000

All Secretary's Representatives

Contract Administrators, Owners and Managers Cross References: H 98-34

> of Projects with Expiring Section 8 Contracts

Subject: Revision to Notice H 98-34 (HUD) on Project-based Section 8
Contracts Expiring in Fiscal Year 1999

**TABLE OF CONTENTS**

> [PARAGRAPH]{.underline} [PAGE]{.underline}

I PURPOSE 2

II APPLICABILITY 2

III TENANT NOTIFICATION 2

IV CONTRACT FORMS 4

V REVISED OWNER\'S OPTION CHECKLIST AND WORKSHEET 5

VI RENT COMPARABILITY STUDY 6

VII PHYSICAL CONDITION OF THE PROPERTY 7

VIII LEASE ADDENDUM 10

IX RURAL HOUSING SERVICE 515/8 PROJECTS 10

X FOR FURTHER INFORMATION 11

> Attachments
>
> 1\. REV Sample Notification Reminder Letter from HUD to Owner of
> Section 8 contract expiration/termination (for projects that meet HQS)
>
> 2\. REV Sample Notification Reminder Letter from HUD to Owner of
> Section 8 contract expiration/termination (for projects that do not
> meet HQS)
>
> 3A. Notification Letter to Tenants from Owner of Section 8 contract
> expiration/termination where Owner intends to renew
>
> 3B. REV Sample Notification Letter to Tenants from Owner of Section 8
> contract expiration/termination where Owner does not intend to renew
>
> 4\. REV Owner\'s Option Checklist and Worksheet
>
> 5\. Addendum to Lease
>
> 6\. REV Completing the Rent Comparability Study
>
> 7\. 524(a)(1) Contracts
>
> H:Distribution: W-3-1

8\. 524(a)(2) Contracts

9\. 514(c) Contracts

> 10\. Generic Contracts
>
> 11\. ACC Renewal pursuant to Notice H 98-34
>
> 12\. Addendum to Section 8 HAP Contract
>
> 13\. 514(c) OMHAR Contracts
>
> 14\. 514(c) OMHAR Riders
>
> 15\. ACC for OMHAR Contracts
>
> 16\. OMHAR-Lite Contracts
>
> 17\. Section 8 Renewal Help Desks
>
> 18\. Anticipated Abatement or Termination of Full Section 8 HAP
> Contracts
>
> **I.** **[PURPOSE]{.underline}**
>
> This notice revises and amends Notice H 98-34 (HUD) issued October 16,
> 1998 and implements certain provisions of HUD\'s FY 99 Appropriations
> Act, signed October 21, 1998.
>
> **II.** **[APPLICABILITY]{.underline}**

This notice applies to all Multifamily Housing Projects with
project-based Section 8 assistance, with the exception of Mod Rehab
projects administered by the Office of Public and Indian Housing. The
specific issues regarding rent increases do not apply to all
project-based Section 8 projects until their contract expires and is
renewed pursuant to Notice H 98-34.

> **III.** **[TENANT NOTIFICATION]{.underline}**
>
> Section 549 of the Quality Housing and Work Responsibility Act of
> 1998, Title V of HUD\'s Fiscal Year 1999 Appropriations Act, made the
> following changes regarding tenant notification:
>
> 1\. Section 549(a)(1) repealed Section 8(c)(8) of the U.S. Housing Act
> of 1937, which required owners to provide a 90-day notice to tenants
> of any rent increase which may occur as a result of the expiration or
> termination of a contract. This requirement, specified in Notice H
> 98-34, paragraph V, subparagraph C., is hereby eliminated. As a result
> of the repeal of Section 8(c)(8) (notification of rent increase)
> Section 8(c)(9) (notification of contract termination or expiration)
> has been redesigned as Section 8(c)(8)(A).
>
> 2\. Section 549(a)(1) also revised Section 8(c)(8)(A) of the U.S.
> Housing Act of 1937, which required owners to provide a 180-day notice
> to tenants of the expiration or termination of the contract. Owners
> are now required to provide

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not less than one-year written notification to tenants and the Secretary
of the expiration or termination of the contract. See REV Attachments 1,
2 and 3 which replace Attachments 1, 2 and 3 in Notice H 98-34.

3\. Section 549(b)(2) revised Section 8(c)(8)(A) by prescribing specific
language to be used in cases where the owner has requested that the
Secretary renew the Section 8 contract. As a result, there are now two
tenant notification letters. Attachment 3A of this notice is the letter
that owners **must** send to tenants when the owner is intending to
renew the contract. Unlike previous notification letters, this letter is
not a \"sample.\" Owners who intend to renew the Section 8 contract must
provide tenants with the letter found as Attachment 3A of this notice.

> Attachment 3B of this notice is the sample notification letter that
> owners must send to the tenants when the owner does not intend to
> renew the Section 8 contract. This letter is a sample letter and may
> be altered as long as any alteration contains the following: (a) the
> Section 8 contract will expire on \_\_\_\_\_\_\_\_\_\_\_\_; (b) the
> owner does not intend to renew the contract; and (c) subject to
> appropriations, HUD will provide housing vouchers to eligible
> residents.
>
> Project owners with expiring contracts that gave the 180-day notice to
> tenants on or before October 20, 1998, are not required to implement
> the one-year notification for that contract. Project owners who did
> not give the 180-day notice before October 21, 1998, are subject to
> the new one-year requirement. All project owners should immediately
> give the one year notice for any other contracts that are expiring
> within the next 12 months.
>
> If adequate time is not remaining on the contract to cover the full
> one-year notification period, and the owner does not wish to sign
> another one-year contract in order to fulfill the notification
> requirement, short term renewals may be given using the generic
> contract found as Attachment IO to this notice. Short-term renewals
> are provided at current rents, ***but not to** **exceed*** ***120
> percent* *of*** ***the FMRS.***
>
> Section 219 of the Fiscal Year 1999 Appropriations Act requires:
>
> Owners of properties considered eligible low-income housing under the
> Emergency Low-Income Housing Preservation Act of 1987 (ELIPHA), and
> the Low-Income Housing Preservation and Resident Homeownership Act of
> 1990 (LIHPRHA) who prepay the FHA mortgage or terminate mortgage
> insurance for such properties in Fiscal Year 1999 are required to
> provide HUD, each tenant of their project and the chief executive
> officer of the appropriate State or local government for the
> jurisdiction within which the project is located with at least 150
> days, but not more than 270 days, written notice of their intent to
> prepay their mortgage.
>
> 3

Owners may not increase the rent at the project for 60 days following
the date of their prepayment. The Department will issue detailed
guidance of the prepayment process.

**IV. [CONTRACT FORMS]{.underline}**

> When renewing a contract, months not days should be used to calculate
> the contract expiration date. For example, if you renew a contract on
> June 1, 1999, for 3 months, the contract will expire on August 31,
> 1999. The following contracts and addendum are included with this
> notice

524(a)(1) - HUD as Contract Administrator Attachment 7

\- PHA as Contract Administrator

524(a)(2) - HUD as Contract Administrator Attachment 8

\- PHA as Contract Administrator

514(c) - HUD as Contract Administrator Attachment 9

\- PHA as Contract Administrator

Generic - HUD as Contract Administrator Attachment 10

\- PHA as Contract Administrator

ACC Renewal pursuant to Notice H 98-34 Attachment 11

Addendum to Section 8 HAP Contract Attachment 12

514(c) OMHAR HUD as Contract Administrator Attachment 13

PHA as Contract Administrator

514(c) OMHAR Contract Rider Attachment 14

HUD as Contract Administrator

PHA as Contract Administrator

ACC Renewal for OMHAR Contracts Attachment 15

514(c) OMHAR-Lite Attachment 16

HUD as Contract Administrator

PHA as Contract Administrator

4

**V.** **[REVISED OWNER\'S OPTION CHECKLIST AND WORKSHEETS AND
CLARIFICATION OF HUD\'S PROCESSING REQUIREMENTS]{.underline}**

> Attachment 4 from Notice H 98-34 has been revised and is included in
> its entirety as Attachment 4 REV to this notice. The revisions
> include:

[Worksheet for Option 1:]{.underline}

1\. Adding the title \"Comparison of Section 8 Rent Potential with
Comparable Market Rent Potential\" and changing the instructions for
completing that chart to include \"all Section 8 units\" in the project,
rather than all revenue producing units in the project.

2\. Changing the calculation in column F on that chart to \"(B x D)\".

3\. Removing the requirement in Option 1, Method I that no rent increase
has been implemented within one year. If the owner feels that a rent
increase is reasonable and necessary and submits a new budget projecting
costs for the 12 months covered by the renewal contract, it can be
considered. However, HUD must still approve the amount AND the increased
rents cannot exceed the comparable market rent.

4\. Changes the certification to delete the 180-day notification of
contract termination/expiration and the 90-day notification of rent
increase.

[Worksheet for Option 3:]{.underline}

1 . Changes the certification to delete the 90-day notice of rent
increase and requires the owner to specify whether or not they satisfied
the appropriate notification of contract expiration/termination.

2\. Offers the owner the opportunity to express its willingness to
execute a short-term renewal contract to cover the one-year notification
of contract expiration/termination requirement, if necessary.

[Clarification of HUD Processing Requirements]{.underline}

1\. Projects that have Contract Administrators will continue to have
their contracts renewed by the Contract Administrators in accordance
with the requirements of this and Notice H 98-34.

2\. Projects that are uninsured with rents above market should not be
forwarded to OMHAR for contract renewal. If the owner requests renewal
pursuant to Section 524(a)(1) of MAHRA with a

> 5

reduction of the rent to comparable market rent, the field staff can
prepare the renewal. There is no need to forward the request to OMHAR
since the project is uninsured, and thus not eligible for restructuring.

3\. OMHAR will process all requests from owners of Market to Market
eligible properties for a rent restructuring (down to market) without a
debt restructuring. HUD field staff should forward the request to OMHAR
after ensuring the owner has submitted the information detailed in
Section 401.99(b) of the Regulations, and on the worksheet for option 1
(i.e. annual financial statement and owners evaluation of physical
condition). The owner\'s evaluation of physical condition must address
the items detailed in Section 401.450. Further information is in the
Mark-to-Market Program Operating Procedures Guide in Section 10-4.

4\. Requests for debt restructuring of projects with out-year Section 8
contract expirations should be forwarded to OMHAR.

**VI [RENT COMPARABILITY STUDY]{.underline}**

> Attachment 6 from Notice H 98-34 has been revised and is included in
> this Notice as Attachment 6 REV.
>
> 1\. HUD will now accept a comparability study that was completed by a
> person other than a state certified General Appraiser. The individual
> completing the comparability study must be familiar with the area.
> Further, the final report must be reviewed, signed and full
> responsibility assumed for by a state certified General Appraiser who
> works in the same firm as the person who completed the study.
>
> 2\. The number of properties to be included in the study has been
> changed from "a minimum of five unassisted comparable properties\" to
> require that the study include \"five unassisted comparable
> properties, unless there is a shortage of good comparables in which
> case a minimum of three is recommended\".
>
> 3\. In cases where the owners comparability study concludes the
> Section 8 rents are less than market but the HUD reviewer (or the
> Contract Administrator for contracts not administered by HUD) does not
> agree with the comparable market study, the Program Center Director or
> Hub Director will exercise their authority to accept or reject the
> study, utilizing whatever staff or other resources (including OMHAR)
> they feel appropriate for this purpose. If the Director rejects the
> owner\'s submission, the owner will be given the\' opportunity to
> appeal the decision in accordance with the Appeal Process included in
> Paragraph VIII of Notice H 98-34.

6

4\. The 60-day limit on the age of the rent comparability study has been
revised. Studies completed within 90 days of submission by the owner to
HUD are now acceptable.

> 5\. Projects that are ready to close a debt restructuring or rent
> reduction under the Portfolio Reengineering Demonstration program are
> not required to provide a rent comparability study for the initial
> one-year contract; the appraisal which was the basis of the
> reengineering may be used to establish the rents.

**VII. [PHYSICAL CONDITION OF THE PROPERTY]{.underline}**

> The physical condition of a property is an important component in
> deciding whether or not to renew a Section 8 contract. The Real Estate
> Assessment Center (REAC) will complete a physical inspection that will
> assist field staff in making this important decision. Based on the
> results of the inspection, HUD can either renew, terminate or simply
> let a contract expire. The vast majority of properties will not show
> serious problems and will have their contract renewed. However, some
> properties will be shown to be in material violation of their
> agreements with HUD. The course of action that the field staff will
> take will depend on the score the property receives on the report and
> whether the owner corrects the deficiencies in an acceptable and
> timely manner.
>
> In cases where there are multiple contracts or stages on one property,
> there will only be one inspection each year. The Project Manager
> should refer back to the results of the earlier inspection and the
> owner\'s response. If the owner submitted a Plan to complete the
> repairs, as described below, the Project Manager should assess
> compliance with that Plan when making a recommendation on renewing the
> contract. If in the owners plan, it is not determined that the repairs
> have or will be made, or if the owner is not in compliance with the
> approved plan, the contract should not be renewed. (If a contract is
> not renewed or terminated, see [Section]{.underline} VII, D.)
>
> **How the Receipt of an Exigent Health and Safety (EHS) Deficiency
> Notice or a Full Physical Inspection Report from REAC May Affect
> Renewals of Section 8 HAP** **Contracts**
>
> [EHS Deficiency Notice]{.underline}
>
> Field staff should NOT take action to terminate the contract or refuse
> to renew the contract based solely upon receipt of the EHS Notice.
> However, if the Condition is not promptly corrected or mitigated, the
> Section 8 subsidy should be abated on individual units depending on
> the severity of the deficiency. Abatement on units identified on the
> Deficiency Notice should occur only if the units are clearly
> identified, the deficiency is deemed exigent and the owner cannot or
> will not repair or mitigate the problem. However, if EHS deficiencies
> are numerous and
>
> 7
>
> are not quickly corrected (within 72 hours) the Field Office should
> give careful consideration to not renewing the contract in addition to
> abating the Section 8 on individual units and or the field should
> consider requesting an expeditious special inspection from
> Headquarters to quickly determine the extent of the EHS problem
> throughout the project. A special inspection can be ordered within 30
> days.

[Full Physical Inspection Report]{.underline}

> Upon receipt of a full inspection report the Field Office has a
> complete picture of the condition of the property; and, subject to the
> owner\'s response to the inspection, is prepared to assess how to
> handle renewal of the Contract.

A. For inspections where the **score is 60 or above,** follow the
renewal procedures in Notice H 98-34 and prepare to renew the Contract
for one year **if** all EHS deficiencies were corrected or mitigated.

B. Where the **score is 60 or above** and the owner does not correct
EHS, follow the procedures listed in \"(D)\" below.

C. For inspections where the **score is 59 or below,** and **if** all
EHS deficiencies and repair items have been corrected or mitigated
**or** the owner submits an acceptable repair Plan within the prescribed
time, renew the Contract for one year. If the repair Plan continues into
the term of the new Contract, the owner must agree to execute the new
HAP Addendum (see Attachment 12) regarding physical conditions in
addition to the Plan. Follow the renewal procedures and renew for one
year.

D. If the inspection score is **59 or below** or whenever the Owner
**fails to complete the EHS repairs or provide an acceptable Plan for
other repairs,** and either the owner indicates that they can not or
will not bring the property into compliance **or** the Project Manager
is certain that based on what the owner has submitted as a Plan that the
owner can not bring the property into compliance, generally, the
Contract **should not** be renewed. However, the decision to not renew
the Contract will depend on whether there is sufficient time to obtain
vouchers to protect the residents. **Any decision not to renew a
Contract or terminate must be made by the Program Center Director or a
Supervisor in the Hubs. Generally, the decision should be to not renew
if serious physical problems exist at the property that threaten the
health and safety of the tenants, unless the owner has a viable plan
underway and is current under that plan. The Hub Director must be
informed prior to any termination in order to advise Headquarters of the
potential termination (see Attachment 14). Every effort should be made
to obtain compliance from the owner. The Project Manager should continue
to actively service the asset to correct the physical problems of the
property up until the time the vouchers are**

> 8
>
> **about to be issued. The Project Manager should utilize all resources
> that are available to restore full compliance, including the proposed
> sale of the property to a new owner (Transfer of Physical Assets).** A
> **supplemental site visit is advisable as well as involving the
> Community Builder to address local issues. Appeals regarding any
> decision should go to the Hub Director.** The process to obtain
> vouchers to assist residents is expected to take NO MORE THAN 180 DAYS
>
> 1\. [If MORE THAN 180 Days Remain on the Contract]{.underline}
>
> a\) Notify the owner that because the EHS repairs were not corrected
> or the owner did not submit an acceptable Plan, HUD intends to not
> renew the Contract.
>
> b\) Follow Notice H 98-34, Attachment 5, to immediately begin
> processing vouchers; however, allow UP TO 180 DAYS.
>
> c\) Monitor the processing of the vouchers with the owner, PIH and the
> assigned public housing agency.
>
> 2\. [If LESS THAN 180 Days Remain on the Contract]{.underline}
>
> a\) Notify the owner that because the physical condition of the
> property remains uncorrected, HUD intends to end the project-based
> subsidy. However, to protect tenants in the interim, HUD is renewing
> the Contract on a short-term basis (not to exceed 180 days) in order
> for HUD to process vouchers for residents. The owner must also sign
> the new HAP Addendum.
>
> b\) Do not sign the Contract renewal with the owner immediately.
> However, make all necessary preparations to get funding for housing
> vouchers in place. Do not sign the renewal Contract with the owner
> until very near the expiration of the existing contract.
>
> c\) Enter into a short-term renewal of the Contract utilizing either
> of the appropriate generic Contracts, at current rents, not to exceed
> 120 percent of Fair Market Rent (FMR).
>
> d\) Follow Notice H 98-34, Attachment 5, in order to obtain the
> vouchers, allowing UP TO 180 DAYS, if necessary.
>
> e\) Terminate the Contract after vouchers have been issued to eligible
> tenants and sufficient search-time has been provided to locate
> eligible housing units with the tenant-based assistance.
>
> 9

3\. [Owner Appeals of Termination Decisions]{.underline}

> If the Contract is about to expire and the owner appeals the decision
> to not renew the Contract under this notice, the Project Manager
> should renew the Contract for one year with the new HAP Addendum,
> pending the appeal. If the Owner subsequently becomes compliant or
> prevails with the appeal and the Field Office changes its decision,
> leave the Contract in place. If the Owner does not prevail in the
> appeal, request vouchers to protect the tenants and coordinate with
> PIH. Terminate the Contract after vouchers have been issued to the
> eligible families and sufficient search time has been provided to
> locate eligible housing units with the tenant-based assistance. Should
> an Owner want to appeal the Physical Inspection upon which certain
> decisions were made, see the Instructions for the Field for REAC
> Inspections.

[REMS and Reporting Requirements]{.underline}

A. All activities related to bringing a property into Regulatory an
Contractual compliance because of a REAC physical inspection must be
entered in the Project Action Screen of REMS. It is important to Owners
for HUD to document compliance since that is part of the asset
management record which may influence future decisions; and it is
important to HUD to have an accurate administrative record should HUD
proceed with enforcement. All close-out activity regarding Physical
Inspections must be tracked in REMS.

B. The Hub Director must submit Attachment 14, Anticipated Abatement or
Termination of Full Section 8 HAP Contracts on a monthly basis to Frank
Malone, Director of Portfolio Management, Headquarters. The report will
be used to track the number of anticipated abatements or termination of
full Section 8 Contracts, as well -as to identify owners and the
properties within a particular Hub or Program Center which may have
abatements of Section 8 subsidy. In all cases, the Hub Director should
contact Frank Malone prior to the actual abatement or termination of any
full Contract.

**VIII. [LEASE ADDENDUM]{.underline}**

> Notice H 96-89 included a Lease Addendum which contained amended
> Termination of Tenancy provisions which address the one-year contract
> termination and owner notification requirements. For easy reference,
> this Lease Addendum is included in this Notice as Attachment 5. It
> should be executed according to the following schedule:
>
> 10

o When a new tenant moves into the project.

> o Upon expiration of the tenants original one-year lease.
>
> o Upon receipt of the owner\'s one-year tenant notification in
> accordance with Section (c)(8)(A), and the tenant has lived there more
> than one year.

**IX. [RURAL HOUSING SERVICE 515/8 PROJECTS]{.underline}**

> Owners of Section 515/8 projects must submit their project budget
> approved by the Rural Housing Service (RHS) if they request a contract
> renewal pursuant to Section 524(a)(2) of MAHRA. HUD staff are not
> required to review and approve these budgets. As long as the budget
> has been approved by RHS, the budget-based rent should be accepted by
> HUD. Their budget-based rent is the \"basic\" rent. If the basic rent
> reflected in the RHS approved budget is determined to be the
> \"lesser\" of the budget-based rent and the current rent adjusted by
> an OCAF, the contract rents should be reduced to the basic rent
> reflected in the approved budget. During our negotiations with RHS
> staff on this process, we were advised that the budgets that are being
> submitted with the requests for renewal were approved by their staff
> prior to publication of Notice H 98-34 and the limitation of owner\'s
> distributions on equity to 8 percent. We have agreed to accept those
> approved budgets for this process with the understanding that future
> years\' budgets will reflect the appropriate 8 percent.

If the owner requests a renewal pursuant to Section 524(a)(1) of MAHRA,
renewal will be at existing rents, not to exceed comparable market
rents, unless the Owner requests a budget-based rent increase. In those
cases, RHS would also review and approve the increased budget prior to
the owner\'s submission to HUD.

**X. [FOR FURTHER INFORMATION:]{.underline}**

> Section 8 Renewal Help Desks have been established in each Hub and
> certain Program Centers to provide technical assistance to Project
> Owners, managers and contract administrators who have questions
> regarding the Section 8 contract renewal process. Attachment 13
> includes a complete list of all Section 8 Renewal Help Desk.

11

Information is also available on the following HUD web pages:

The Multifamily Business Page: http://www.hud-gov/fha/fhamf.html

HUDCLIPS: http://www.hudclips.org

To ask a Section 8 question regarding expiring contracts, write to:

sec_8_expiring_contracts@hud.gov

To read the Section 8 questions: http://www.hud.gov/fha/mfh/mfhsec8.html

William C. Apgar

> Assistant Secretary for Housing -
>
> Federal Housing Commissioner

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