4350.1 REV-1

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CHAPTER 33. SPECIAL MANAGEMENT AND

SERVICING OF SINGLE ROOM OCCUPANCY PROJECTS

SECTION 1. INTRODUCTION

33-1. PURPOSE OF THE SINGLE ROOM OCCUPANCY PROGRAM. Single

Room Occupancy (SRO) mortgages insured under Section

221(d) are designed to provide affordable housing for

persons of low income and to help prevent homelessness.

It is intended that the SRO program will consist of

single rooms for individual occupancy and may include

shared bathroom and/or kitchen facilities. Although

tenant-based assistance, such as Section 8 rental

certificates and rental vouchers, may be used in an SRO

insured project, Federally-funded project-based

assistance cannot be used in conjunction with SRO

projects.

33-2. GENERAL. The potential for turnover in SRO projects is

greater than that for most HUD-insured apartment

projects. Consequently, there is a need for more

intensive project management. It is, therefore,

imperative that the Field Office provide adequate and

necessary oversight of the management agent. Except as

discussed in this Chapter, Field Offices must follow

instructions for the management and servicing of

Section 221(d)(3) and 221(d)(4) projects as indicated

in this Handbook. For information regarding the

development of the Single Room Occupancy program, Field

Offices should refer to HUD Handbook 4560.3, Mortgage

Insurance for Single Room Occupancy (SRO) Projects,

Section 221(d).

33-3. PROCESSING PROJECT APPLICATIONS. Field Office Housing

Management Division staff should provide assistance in

the review of the project application to determine:

A. In conjunction with Field Office Economic Market

Analysis Staff and Housing Development valuation

staff, that there is a need and a market for the

project.

1\. Field Office Housing Management staff should

review the market analysis and rent

comparables submitted by the applicant, and

the comments made by the Appraisers on the

applicant\'s market analysis.

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4350.1 REV-1

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2\. The market analysis should demonstrate that

employment trends of the project area and the

income levels of the targeted population can

adequately afford the projected rents.

3\. The Field Office Housing Management staff

should determine the impact on other HUD-insured

projects in the proposed project area

if the project is approved for HUD insurance.

B. Projected income is adequate to cover projected

expenses. Field Office Housing Management staff

should review the income and expense data

submitted by the applicant on HUD Forms 92013 and

92013-E.

1\. Annual income and expense data from HUD Form

92410 on similar projects in similar market

areas should be used in reviewing the

applicant\'s projected income and expenses for

the SRO project. In addition to the special

services (such as laundry, guest fees, cable

TV, etc.) offered by the project, projected

expenses should adequately reflect expenses

that are usually required for similar single

room occupancy projects in the market area.

2\. The results of the Housing Management staff\'s

review and analysis should be forwarded to

the Director, Housing Development Division.

C. Management agent is capable of providing

satisfactory management services. The management

agent must be experienced in SRO management or a

related housing project. The management agent,

once identified, should attend the pre-application

conference.

D. Management agent fees and project payroll expenses

should be adequate and comparable with other

similar single room occupancy projects in the

project area. An on-site review of management

agents of SRO projects indicates that intense

management is required due to the high turnover

rate, security needs, and project staff

requirements.

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4350.1 REV-1

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33-4. CIVIL RIGHTS REQUIREMENTS. Each project

mortgagor/owner must certify that:

A. It will comply with the Fair Housing Act and

implement regulations and administrative

procedures that prohibit discrimination in HUD

assisted projects because of race, color,

religion, sex, national origin, familial status,

or handicap.

B. Marketing will be done in accordance with the HUD

approved Affirmative Fair Housing Marketing Plan.

SECTION 2. PROGRAM ADMINISTRATION

33-5. OCCUPANCY. A unit must be the primary residence of the

occupant(s). Tenants must have sufficient income to

afford the market rents. Although there are no income

limits for admission to insured SROs, the program is

designed to provide affordable housing for persons of

low income and to help prevent homelessness. In

addition to any local government occupancy

requirements, the following occupancy requirements

apply:

A. Tenants will be subject to normal tenant selection

procedures and occupancy standards. If an

applicant is eligible, but no unit is available,

the applicant must be placed on a waiting list.

If the project, or similar projects in the market

area, are experiencing high turnover, the project

owner should be required to continue an aggressive

marketing effort in order to maintain a waiting

list with eligible applicants.

B. Tenants must execute a lease for a minimum period

of 30 days. However, the lease may provide for

rent to be collected on a weekly basis.

C. Each unit may be occupied by one or more persons,

as permitted by the local codes, the Fair Housing

Act, and the owner\'s uniform tenant selection

criteria. Additionally, facilities restricting

occupancy to particular groups, such as students,

shall not be eligible for mortgage insurance under

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this program. If more than one person occupies a

unit and one of the occupants is a minor, local

laws or statutes may require that the other

occupants be a parent (including legal guardians)

or a blood relative of the minor.

33-6 SPECIAL PROGRAM REQUIREMENTS. In addition to the

program requirements for Section 221(d) as described in

this Handbook, the Field Office Housing management

Division should make sure the project owner complies

with the following:

A. Financial Responsibility. Project financial

records and accounts must be maintained in

accordance with instructions in HUD Handbook

4370.2, Financial Operations and Accounting

Procedures for Insured Multifamily Projects.

Annual audited financial statements must be

prepared and submitted as described in IG Handbook

4372.1, Audit Guide for Use by Independent Public

Accountants for Audit of Mortgagors having HUD

Insured or Secretary Held Mortgages. Annual

audited financial statements must be reviewed by

Field office Housing Management staff in

accordance with HUD Handbook 4370.1, Reviewing

Annual and Monthly Financial Reports. The Field

Office Housing Management staff must also review

the financial statement to determine if actual

project income and expenses are consistent with

the level of income and expenses projected during

the application stage. Any inconsistencies not

caused by market-conditions, or if project

expenses exceed project income, the owner must be

notified. Field Office Housing Management

Division staff will determine the necessary

corrective actions and will inform the owner.

B. Reserve for Replacement. In addition to the

reserve for replacement for fixed realty items

(such as, major movable furniture and equipment

for common areas, office and lobby furniture,

sofas and chairs for lounge area, copy machine,

etc.) established at closing, the project owner

must also establish a separate reserve for

replacement for nonrealty unit, furnishings (For

example, bed with mattress and box springs,

desk/table, chair, dresser, etc.). The Field

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Office Housing Management staff must ensure that

the amount of monthly deposits to this account is

adequate, based on the use and projected life of

the unit furnishings.

C. Security. Since there may be a high turnover of

tenants in the project, there may be a need for

increased security. Owners should be prepared to

provide this heightened security, including

24-hour desk coverage, if necessary.

D. Management Reviews. In addition to the

requirements of a management review, Field Office

Housing Management staff must determine that the

project is adequately meeting project expenses and

is providing decent, safe, and sanitary housing to

the tenants.

E. Restriction Against Change of Use. The mortgage

note and Regulatory Agreement for an SRO project

insured under Section 221(d) shall contain a

covenant which provides that unless written

approval is received from the Commissioner and the

mortgagee, the owner (or any successor owner) may

not change the use of the project from that of an

SRO rental facility for a period of 20 years,

commencing at final endorsement of the mortgage

for insurance. This use restriction shall pertain

irrespective of whether the mortgage is prepaid by

the mortgagor within the 20-year period.

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