4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

CHAPTER 3: THE CAPITAL IMPROVEMENT LOAN PROGRAM

SECTION 1. BASIC PROGRAM REQUIREMENTS

3-1. OVERVIEW OF THE CAPITAL IMPROVEMENT LOAN PROGRAM

This Chapter provides owners and HUD Field Offices with the

guidance needed to implement the Capital Improvement Loan

Program (CILP).

a\. The program is intended to achieve or maintain physical

soundness in eligible HUD-assisted projects, and to

assist in maintaining the low- and moderate-income

character of those projects.

b\. CILP is not an entitlement program. Notifications of

Funding Availability (NOFAs) will be issued in the

Federal Register. The Field Office works with owners

to develop their applications, and makes a

recommendation to Headquarters. Headquarters reviews

the Field Office submissions and makes a final

determination following priorities for funding

contained in the NOFA.

3-2. ELIGIBLE ACTIVITIES

a\. Eligible Activities that may be funded under the CILP

program include:

\(1\) any major repair or replacement of building

components that have failed or are likely to fail

or deteriorate seriously within 24 months (e.g.,

roof structures, ceiling, wall or floor

structures, foundations, plumbing, heating,

cooling, electrical systems and major equipment

such as elevators, including any major repair or

replacement of any short-lived building component

or equipment before the expiration of its useful

life);

\(2\) limited supplements or enhancements to mechanical

equipment needed for the health and safety of the

residents where they do not exist (e.g. air

conditioning/heating equipment, building sprinkler

systems or water softeners);

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-1 5/92

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\(3\) retrofitting for handicapped accessibility as

required by Section 504;

\(4\) cost effective energy efficiency improvements (See

Handbook
[4350.1](http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4350.1/index.cfm)
, Chapter 12); and

\(5\) lead-based paint abatement once the owner has

tested in accordance with HUD guidelines;

certified to testing; and based on the testing

results, established a cost estimate for

abatement.

b\. Prohibited Activities that may not be funded under the

CILP program include:

\(1\) regular maintenance of any item eligible for

repair or replacement; and

\(2\) repairs required due to deferred maintenance.

3-3. AMOUNT AND TERMS OF ASSISTANCE

a\. Amount of Assistance

The maximum amount of CILP assistance that may be

granted is the amount needed for allowable expenses,

less the owner contribution. Allowable expenses

include the amounts the Secretary determines are

necessary to:

\(1\) cover capital improvements at the project with

respect to capital items that have failed, or are

likely to fail or deteriorate seriously within 24

months;

\(2\) upgrade capital items to meet HUD\'s cost-effective

energy standards approved by HUD;

\(3\) comply with the Department\'s standards for

accessibility for individuals with handicaps; and

\(4\) abate lead-based paint from the complex where lead

has been found to exceed the maximum allowable

level in HUD housing (see [24 CFR
35](http://www.gpoaccess.gov/cfr/index.html)).

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5/92 3-2

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

b\. Repayment Terms

\(1\) CILP assistance is provided in the form of an

amortizing loan. Interest starts to accrue and

the loan amortization period begins when the loan

proceeds have been spent.

\(2\) The length of the loan term will be determined

based on various factors, including the useful

life of the improvement, the amount financed, and

the impact on tenant rents. For insured projects,

the term generally will be for the remaining

period of the original mortgage, and the term must

not exceed that period.

\(3\) For non-insured projects, the loan term will

generally be for the remaining period during which

the owner is under an obligation to provide

housing for low-income families, and the term must

not exceed that period.

\(4\) The standard interest rate charged by HUD will

normally not be less than three percent or more

than six percent.

The interest rate used will generally be six

percent, unless the Secretary publishes a new

rate in the Federal Register.

The Field Office may recommend that the

Secretary charge a lower interest rate for a

particular project if this is shown to be

necessary to maintain reasonable rental

rates. In determining the interest rate on

the loan the Secretary will consider factors

such as the length of the loan term and the

effect of the required debt service on tenant

rents.

If the Secretary elects to charge a lower

rate for a particular project, the approval

notification will indicate this and state

what the approved interest rate will be.

This reduced interest rate will never be less

than one percent.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-3 5/92

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

c\. Limitations on Assistance

\(1\) An owner may receive CILP more than once during

the term of the mortgage. CILP may be used to

repair or replace items that have already received

HUD-related assistance (e.g. through a previous

OAP loan, Housing Development Grant or Community

Development Block Grant) provided the capital

improvement has reached the end of its useful

life.

\(2\) A capital improvement may not be financed partly

by OAP and partly by CILP. However, an owner may

apply for a CILP loan to cover capital

improvements and simultaneously apply for an OAP

loan to cover deferred liabilities. (Only one

application is required in such a case, but it

must include all necessary documents for both

programs.)

\(3\) Activities funded under the CILP program normally

should be scheduled for completion within a year.

However, the contract may be extended due to

unforeseen circumstances, such as bad weather. If

additional assistance is required in succeeding

years, the owner must apply for a new CILP loan.

3-4. CONDITIONS OF ASSISTANCE

a\. For Profit (PD properties) and Limited Dividend Owner

Contributions

\(1\) The owner is expected to contribute a minimum of

25 percent of the total estimated cost of the

capital improvements involved, in new capital

contributions.

\(2\) The \"total estimated cost\" of capital improvements

includes the cost of the estimate of work,

materials and labor. The Field Office must

approve this estimate as reasonable.

\(3\) Funds that may be considered as new capital

contributions include:

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5/92 3-4

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

o surplus cash;

o owner funds (e.g surplus cash) spent to

repair capital items during the 24 months

before the application if the repair was

unsuccessful and the item must be replaced;

and

o non-federal sources of funding, such as

grants or loans from state or local

governments.

Other possible sources of funding from State or

local governments should be pursued aggressively

in order to attain or exceed the required owner

contribution. Loans that are to be repaid from

project income do not qualify as owner

contribution.

\(4\) Funds that should not be considered as new capital

contributions include:

o cash taken from project income; and

o cash from the Reserve Fund for Replacements,

Residual Receipts fund and other similar

funds (e.g. a painting reserve).

\(5\) Owner distributions are not limited because of

CILP assistance.

b\. Nonprofit Owner Contributions

No specified minimum contribution is required.

Nonprofit owners should contribute as much as they can

to the effort in whatever combination of cash and

services are available to them.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-5 5/92

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

SECTION 2. OWNER APPLICATION PROCEDURES FOR

CAPITAL IMPROVEMENT LOAN PROGRAM

3-5. OVERVIEW OF THE APPLICATION PROCESS

a\. Owner and Field Office Responsibilities: Owners and

Field Office staff must work together to prepare an

application for CILP to be submitted to HUD

Headquarters. In general, the owner is responsible for

gathering the required information and documentation,

and determining what the project\'s needs are. The

Field Office staff are responsible for analyzing the

information the owner provides, and for documenting the

legitimacy of the needs the owner outlines. This may

involve the consultation of other disciplines outside

the Loan Management Branch to ensure a proper

evaluation of the Flexible Subsidy application. The

Field Office staff and the owner then work together to

develop a workable plan to meet the agreed-upon needs

of the project.

b\. Key Steps: Steps owners are generally responsible for

include:

\(1\) Analyzing the project\'s capital improvement needs;

\(2\) Determining how best to address those needs;

\(3\) Estimating costs and time frames required to

address those needs;

\(4\) Determining what funding sources are available,

including state and local grants and the owner

contribution;

\(5\) Soliciting resident input;

\(6\) Gathering required disclosures and other

documentation;

\(7\) Drawing up a draft MIO or Work Write-Up to submit

to the Field Office; and

\(8\) Working with Field Office staff to refine and

finalize the MIO Plan or Work Write-Up.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5/92 3-6

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-6. ANALYZING PROJECT CONDITIONS

a\. The owner should examine the project\'s physical

condition and determine:

\(1\) which capital improvements are necessary including

all capital items that have failed, or are likely

to fail or deteriorate seriously within 24 months;

\(2\) cost-effective energy strategies that should be

implemented; and

\(3\) steps that should be taken to assure handicapped

accessibility, as required under Section 504.

b\. The owner should obtain a minimum of three bids for any

work item expected to exceed \$5,000. If owners do not

obtain three bids, they should explain why. When

obtaining bids, owners should specify the estimated

date of performance to eliminate cost overruns due to a

time lapse between bidding and the start of the work.

c\. The owner should then estimate the costs and the time

frame required to implement each improvement and

complete:

\(1\) Form
[HUD-9835](http://www.hud.gov/utilities/intercept.cfm?/offices/adm/hudclips/forms/files/9835.pdf)
MIO Plan Part II Section A: Action

Items, and

\(2\) MIO Plan Part II Section C: Sources and Uses of

Funds, Form HUD-9835-B.

These forms should provide enough detail about the

proposed scope of work to allow the Field Office to

assess the validity of the request (see Appendix 8).

In assessing project costs, owners should keep in mind

that they are not required to comply with Davis-Bacon

wage rates unless CDBG funds are involved, then Loan

Management Staff should reference the CDBG program

instructions.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-7 5/92

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-7. MIO PLAN AND/OR WORK WRITE-UP

a\. MIO Plan: The owner must complete a MIO Plan only if:

\(1\) the project is in default under the mortgage;

\(2\) the owner has violated the fiscal requirements or

property maintenance requirements of the

Regulatory Agreement (for other than willful or

fraudulent reasons);

\(3\) the project has received an unsatisfactory or

marginally satisfactory management review within

the past 24 months (unless the owner has corrected

the problems in a manner satisfactory to HUD); or

\(4\) there is a situation that HUD Headquarters has

determined requires a MIO Plan.

Chapter 5 describes the content of the MIO Plan in

detail.

b\. Work Write-Up

\(1\) All applicants must submit a Work Write-Up.

\(2\) A Work Write-Up must include:

o a brief narrative section describing the

actions to be taken;

o a cost estimate;

o a minimum of three formal bids for work

expected to exceed \$10,000. For work

expected to cost between \$5,000 and \$9,999,

three bids should be obtained, but need not

be submitted with the application;

o a list of any proposed transactions with

identity of interest companies for more than

\$100; and

o Form HUD 9835, MIO Plan Part II, Section A,

Action Items which has been completed to show

descriptions of Action Items, Target Dates

and Total Funds; and

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5/92 3-8

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

o Form HUD 9835-B, Lines A, A-1, A-2, A-3, A-4,

B, B-1 and B-5.

Note: Even those owners who are not required to

complete a MIO Plan may find it easiest to

follow the MIO Plan in order to assure that

their application packages are complete,

particularly since large sections of the MIO

Plan are required from all owners.

3-8. SUBMISSION PROCEDURES

a\. Once owners have gathered all of the information

discussed in this section, they should submit it to the

HUD Field Office for review. The Field Office will use

the information presented to them to determine whether

the funding request is reasonable. They may ask the

owner to gather additional information, or may want to

discuss the owner\'s interpretation of the project\'s

needs.

b\. Once the owner and the Field Office staff have agreed

on the project\'s needs and the MIO Plan or Work Write-Up

is finalized, the Field Office is responsible for

submitting the proposal to Headquarters, and for

notifying the owner of Headquarters\' final

determination. Owners should submit their draft MIO

Plans or Work Write-Ups to the Field Office in advance

of the deadline for submission to Headquarters to

assure that there is time for review and negotiation.

c\. Subject to requirements published in the NOFA, the

following items will generally be required with the

owner\'s submission:

\(1\) Either a Management Improvement and Operating Plan

Form
[HUD-9835](http://www.hud.gov/utilities/intercept.cfm?/offices/adm/hudclips/forms/files/9835.pdf),
HUD 9835-A and HUD-9835-B (see

Chapter 5), and/or an Owner\'s Work Write-Up, cost

estimate, and forms
[HUD-9835](http://www.hud.gov/utilities/intercept.cfm?/offices/adm/hudclips/forms/files/9835.pdf)
and 9835-B;

\(2\) LIHTC and Other Subsidy Layering Certification

(see Appendix 4);

\(3\) Lobbying Certification and Disclosure Forms (Byrd

Amendment \-- see Appendix 3);

\(4\) Audited Annual Financial Statement for the most

recent fiscal year;

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-9 5/92

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\(5\) Notice to residents (see Appendix 1), resident

comments, and owner recommendations;

\(6\) Certification of Identity-of-Interest (see

Appendix 5);

\(7\) List of all companies that supply goods and

services to the project that have an

identity-of-interest with the owner or management agent;

\(8\) Previous Participation Certification Form HUD-2530

(see Appendix 6); and

\(9\) Other requirements as stated in the NOFA.

3-9. NEGOTIATIONS WITH THE FIELD OFFICE

The owner\'s role in the application process does not end

with submitting a preliminary MIO Plan or Work Write-Up.

Once Field Office staff receive a preliminary MIO Plan or

Work Write-Up, they begin the review procedure described in

Section 3. During this process, Field Office staff will

reassess the situation the owner has presented. If they

come to different conclusions, or note different issues that

need to be addressed, they will negotiate with the owner to

modify the MIO Plan or Work Write-up. Ultimately, the Field

Office will make the final decision about what is required

at the project.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5/92 3-10

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

SECTION 3. FIELD OFFICE REVIEW PROCEDURES

FOR THE CAPITAL IMPROVEMENT LOAN PROGRAM

3-10. OVERVIEW OF THE REVIEW PROCESS

a\. Field Office Obligations

Field Office staff must review the owner\'s application

for assistance and conduct its own analysis of the

project\'s condition. This includes a physical

inspection and a management review.

b\. Field Office Determinations

The Field Office must determine that:

\(1\) providing CILP is the most cost-effective way for

the federal government to provide assistance to

the project;

\(2\) the assistance is necessary, when considered with

other resources available to the project;

\(3\) the assistance will restore or maintain the

financial or physical soundness of the project;

\(4\) the project is or can reasonably be made

structurally sound, and all code violations and

physical deficiencies will be corrected as a

result of providing CILP to the project;

\(5\) the assistance will help to preserve the low- and

moderate- income character of the project;

\(6\) the project is operated competently and in

accordance with any MIO Plan approved by HUD for

the project; and

\(7\) the reserve for replacement is funded in

accordance with HUD requirements, and this amount

is still insufficient to meet the capital needs

of the project.

\(8\) contractors who have submitted formal bids are

not on the current Limited Denial of

Participation (LDP) list.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-11 5/92

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

c\. Key Steps

The Field Office must:

\(1\) Obtain comments from local government;

\(2\) Complete the required environmental review;

\(3\) Complete required Management Reviews of

Multifamily Projects Report, Form HUD-9834 (see

Appendix 9), and Physical Inspection Report, Form

HUD-9822 (Bee Appendix 10);

\(4\) Review and refine the Work Write-up and/or MIO

Plan and owner\'s analysis of the project\'s

deficiencies;

\(5\) Review available relief tools;

\(6\) Select relief tools and negotiate specific

contents of the MIO Plan or Work Write-Up with

the owner;

\(7\) Review resident comments on the proposed MIO Plan

or Work Write-Up; and

\(8\) Formalize the MIO Plan or Work Write-Up.

d\. Required Forms

The following forms will help the reviewer gather the

information necessary to demonstrate the project\'s

eligibility for CILP and determine whether it can

support a Capital Improvement Loan. These forms must

be submitted to Headquarters with any application for

CILP assistance.

\(1\) the Management Reviews of Multifamily Projects

Report, Form HUD-9834;

\(2\) the Physical Inspection Report, Form HUD-9822;

\(3\) the Project Analysis Worksheet, Form HUD-9815

(see Appendix 10);

\(4\) the Justification for Use of Flexible Subsidy,

Form HUD-9815-A (Bee Appendix 17); and

\(5\) the Field Office Worksheets (see Appendix 14).

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5/92 3-12

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-11. FLEXIBLE SUBSIDY LOG

a\. The Field Office must establish and maintain the

two-part Flexible Subsidy Control Log, Form HUD-9823-C,

and Form HUD-9823-D, shown in Appendix 15. This log

may be maintained in hard copy as provided in Appendix

15 or if the Field Office has established an automated

version, the automated version may be used. The

Control Log will:

\(1\) lists all the administrative actions which the

Field Office must complete on individual

projects; and

\(2\) provides space for recording individual project

reservations.

b\. All changes in contract terms or amounts must be

recorded on the Flexible Subsidy Control Log.

3-12. LOCAL GOVERNMENT ASSURANCES

a\. Purpose

CILP is not contingent upon approval from local

government. However, consultation with the local

government may provide the Field Office with valuable

comments concerning the project.

b\. Notification Requirements

Immediately upon receipt of an application, Loan

Management staff should consult with the appropriate

officials of the unit of local government in which the

project is located and seek the following assurances:

\(1\) the community in which the project is located is

providing, or will provide, essential services to

the project in keeping with the community\'s

general level of these services;

\(2\) the real estate taxes on the project are or will

be no greater than would be the case if the

property were assessed in a manner consistent

with normal property assessment procedures for

the community; and

\(3\) providing CILP assistance to the project will be

consistent with local plans and priorities.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-13 5/92

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

A sample letter to local governments seeking such

assurances is provided in Appendix 13.

If a local government responds negatively to the Field

Office\'s request for assurances, the Field Office

should take this into account when reviewing the

application.

3-13. DETERMINING NEED

a\. Review of Project Reserves

Field Offices should assess whether a project\'s

reserves could support the cost of the proposed

capital improvements without CILP assistance. CILP

assistance will be provided only if:

o the project\'s replacement reserve (including any

surplus cash, residual receipts or other funds

from the project or escrow outside the project

account that could be used to fund the reserve)

is insufficient to finance both the capital

improvements for which assistance is being

requested and other capital improvements that are

reasonably expected to be required within the

next 24 months; and

o the owner has funded the reserve in accordance

with HUD requirements.

b\. Use of Reserve Funds

Reserve funds should be made available for capital

improvements if the criteria for using them are met.

However, these funds may only be tapped to cover

needed capital improvements if the reserve exceeds

\$1,000 per unit. If the reserve funds are in excess

of \$1,000 per unit on the date the CILP loan is made,

only 50 percent of the amount in excess of \$1,000 per

unit may be used for capital improvements.

In this context, \"replacement reserve\" does not

include residual receipts. Residual receipts may be

used to fund capital improvements with the approval or

at the direction of the Field Office in accordance

with HUD directives.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5/92 3-14

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-14. ABILITY TO SUPPORT CILP LOAN

If the project\'s replacement reserves are not sufficient

to cover the costs of the proposed capital improvements,

Field Office staff must assess the project\'s ability to

support the costs of the proposed improvements if they are

proposed to be funded through the CILP program. To do

this, the reviewer should verify the project\'s current

income and expenses, and assess the probable impact that

the improvements will have on tenant rent and the

project\'s future income and expenses.

a\. Estimated Current Operating Expenses

\(1\) The reviewer should use past years, financial

data to estimate the project\'s current operating

expenses. Operating expenses are defined as

those expenses deemed to be typical, reasonable,

and necessary to operate the project, assuming

prudent management.

Typical, reasonable and necessary costs would

include, but are not limited to, taxes,

utilities, maintenance and repairs, management,

insurance and reserves. They do not include

deferred maintenance, non-cash expenditures such

as depreciation, a return on equity to the owner,

or major capital expenses that are not included

on the current period\'s financial statement but

are listed on the Statement of Cash Flows and

depreciated over time.

\(2\) These costs are simply those normally included in

determining the project\'s rent structure.

Therefore, it is likely that the annualized

expense estimate will be approximately the same

as that included in the last approved rent

increase.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-15 5/92

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

b\. Estimated Future operating Expenses

\(1\) The proposed improvements may have several

different effects on the project\'s operating

expenses. The cost of repaying the loan will

raise the debt service for the project. At the

same time, the improvements may help lower other

costs. For example, any cost-effective energy

conservation measures implemented as part of the

capital improvements should help reduce the

project\'s operating costs.

\(2\) In some cases, the Field Office can help the

owner find additional ways to reduce the

project\'s operating expenses. For example, many

states have legislation which exempts Section 202

projects from real estate taxes for the full term

of the HUD mortgage. In such a case, the Field

Office should advise owners of the tax exemption

provisions, and require the owner to apply for an

exemption. However, for those Section 202

projects that are not in states that allow

exemptions, and those projects that have not yet

received them, these taxes will have to be

considered as expenses.

\(3\) The reviewer should take all factors that may

affect the project\'s costs into consideration,

and should develop an estimate of the project\'s

future operating expenses.

c\. Current Income

The reviewer should use past years, financial data and

data in any recently HUD approved rent increase to

estimate the project\'s current income. This

information will serve as a baseline for calculating

the effect that a CILP loan will have on the project\'s

rents.

d\. Rent Structure

\(1\) Since the CILP loan will almost always result in

some increase in rents, the Field Office should

follow the rent increase procedures described in

HUD Handbook 4350.1, Chapter 7, Section 2.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5/92 3-16

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\(2\) Rent increases resulting from a CILP loan at a

project subject to a Plan of Action under 24 CFR

248 are governed by the rent agreements entered

into as part of that Plan of Action.

\(3\) Rents should be limited to the amount necessary

to cover the project\'s operating costs, including

taxes and reserves, the debt service requirements

(existing debt service plus additional debt

service created by the CILP loan) and a

reasonable equity return to the owner, if

applicable.

\(4\) The projected rental rates must not include

consideration of the owner\'s equity contributions

made in connection with the CILP loan. For

example, if an owner\'s allowable distribution of

6 percent on equity of \$250,000 (before a Capital

Improvement Loan) is used in determining the

rental rates, the equity basis for determining

rents after a Capital Improvement Loan will

remain \$250,000 regardless of additional equity

contributions. The rents will remain under this

restriction after approval of the Capital

Improvement Loan.

e\. Estimated Future Income

In estimating the project\'s future income, the Field

Office should use the rental rates that will be

required to support the CILP loan. If a rent increase

is in process, this also may be factored into the

estimated income. The reviewer should use the

occupancy factor from Form HUD-92264 prepared during

underwriting processing in calculating the project\'s

expected income.

3-15. ASSESS VIABILITY

The Capital Improvement Loan is an amortizing loan that

must be repaid on schedule. Before a CILP loan will be

awarded, there must be a reasonable expectation on the

part of ownership, management and HUD that the loan will

be repaid in the regular course of business. The reviewer

should compare the project\'s expected income level to its

expected operating expenses to determine whether the

project can reasonably support the CILP loan that is being

requested.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-17 5/92

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

The project and its existing residents must be able to

absorb any rent increases required to meet the debt

service requirements of the CILP Loan.

Projects that are fully subsidized by Section 8, Rent

Supplement or RAP should have very little difficulty in

this regard. A problem is more likely to arise in those

projects that are not receiving deep subsidy benefits.

Such projects are likely to be 202s, 236s and BMIRs. A

proposal for a Capital Improvement Loan should not be

recommended for approval if the loan would adversely

affect the occupancy level of the project.

3-16. REVIEW OPTIONS

If it appears likely that the existing residents could not

pay the higher rents required to support the loan, the

Field Office must assess the viability of several

alternatives.

a\. Increase the Owner Contribution. First, Field Office

staff should ask the owner to increase the owner\'s

contribution from 25 percent if the owner has

additional funds. If the owner indicates a

willingness to increase this contribution, Field

Office staff should re-analyze the rent structure

needed to support the loan and the impact the revised

rents would have on occupancy.

b\. Reduce the Interest Rate or Increase the Loan Term.

Next, Field Office staff should analyze the rent

structures that would be required for a loan with:

\(1\) an interest rate of one percent; and/or

\(2\) an increase in the term of the loan (but not to

exceed the remaining term of the mortgage.

If the occupancy problem could be alleviated with such

modificational Field Office staff should forward the

application package to HUD Headquarters, emphasizing

one or both of these recommendations.

c\. Delay Action Until Additional Assistance is Available.

If neither of these alternatives solves the problem,

the Field Office should advise the owner that the loan

application will be held in abeyance until additional

forms of financial relief can be made available.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5/92 3-18

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Field Office staff should advise the owner that the

application can be forwarded to Headquarters but that

it might not be approved unless further financial

relief is obtained. For example, the project owner

may request OAP or Loan Management Set-Aside Section

8\. In this case, the Field Office staff should

forward the application package to Headquarters with a

memorandum emphasizing this need, and provide their

analyses and recommendations.

3-17. ASSESS COSTS

Field Office Staff should review the owner\'s proposed

capital improvements and cost estimate from the MIO Plan

or the Work Write-Up to determine whether the proposed

costs are reasonable. Formal or informal review by the

Field Office Cost Analyst is encouraged, as long as this

review does not delay processing the loan application. If

the costs do not seem reasonable, the Field Office should

negotiate with the owner until agreement is reached on a

reasonable set of costs.

3-18. REVIEW AVAILABLE TOOLS

a\. CILP is designed to be used in conjunction with other

sources of income. As part of crafting a relief plan

for the project, Loan Management staff should conduct

a detailed review of the relief tools that may be used

to assist the project. For example, the Field Office

can encourage owners to seek out assistance from

states and municipalities that offer below market

loans or grants for energy conservation equipment.

b\. Loan Management staff must then select the most

appropriate set of tools to provide the needed capital

improvements at a minimum cost to the Department.

Section I of the Project Analysis Worksheet Form

HUD-9815 provides an opportunity for the reviewer to

summarize the various tools available to the project,

and to determine how much CILP Assistance will

actually be required.

c\. The Loan Management Branch Chief should review the

Project Analysis Worksheet to assure that the facts

and reasoning followed support the reviewer\'s

conclusions and recommended relief tools.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-19 5/92

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-19. JUSTIFY CILP ASSISTANCE

After completing the Worksheet, the reviewer must

summarize the reasons the project requires CILP Assistance

on Form HUD-9815-A. This form explains why other types of

tools are not sufficient to meet the project\'s needs. It

provides a place for the Field Office to justify any

exceptions it has made regarding the owner\'s contribution

or in rent increases. It also provides a place to convey

any concerns expressed by residents or the local

government.

3-20. EMERGENCY REPAIRS AFTER APPLICATION AND BEFORE CONTRACT

EXECUTION

Repairs and replacements included as Action Items on the

MIO Plan or in the Work Write-Up and made by the owner on

an emergency basis before contract execution may be funded

with CILP only if the owner has received advance approval

from the Field Office to proceed with the emergency

repair.

Loan Management staff should remind owners of this

requirement when they apply for CILP Assistance. Field

Offices must document their approval of the emergency

repair in the project file.

3-21. REVIEW FOR PREVIOUS CILP ASSISTANCE

Project owners may request and receive CILP Assistance

more than once during the term of the mortgage. However,

a repair or replacement item is normally eligible for CILP

Assistance only if it has not previously received

HUD-related assistance (e.g. previous CILP Assistance, Housing

Development or CDBG grants) unless it has reached the end

of its useful life.

Owners are asked to submit a list of previous federal

funding to help Field Office staff determine what previous

assistance the project has received and what it was used

for, and not allow items to be funded again under the CILP

program unless it has reached the end of useful life.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5/92 3-20

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-22. REVIEWS FOR OTHER FEDERAL REQUIREMENTS TRIGGERED BY

FLEXIBLE SUBSIDY ASSISTANCE

The Field Office should review the submission carefully to

assure that the following requirements (described in

Chapter 1) are adequately addressed.

o Low Income Housing Tax Credit Restrictions;

o Other Subsidy Layering Restrictions;

o Environmental Review;

o Section 504, Handicapped Accessibility;

o Energy Conservation requirements;

o Lead-Based Paint Abatement Requirements as established

in Chapter 19, Handbook 4350.1;

o Lobbying Restrictions (Byrd Amendment);

o Identity-of-Interest;

o URA; and

o Previous Participation.

3-23. NEGOTIATIONS WITH THE OWNER

a\. The process of developing the MIO Plan is an

interactive one, and requires ongoing cooperation

between the owner and the Field Office staff. After

reviewing the owner\'s draft MIO Plan or Work Write-Up,

the Field Office should set up a meeting with the

owner to discuss concerns and seek clarifications.

Field Office staff should review their assessment of

the project\'s needs and abilities with the owner.

b\. Using the information and analyses in the Project

Analysis Worksheet as a guide, Loan Management staff

and the owner should discuss areas of the preliminary

MIO Plan or Work Write-up to be revised. Loan

Management staff should seek agreement on specific

action items and target completion dates. Several

discussions may be required before agreement is

reached and the owner is able to submit a revised MIO

Plan or Work Write-Up.

c\. When negotiating the contents of the MIO Plan or Work

Write-Up, Loan Management staff should encourage the

owner to:

\(1\) procure supplies and labor from small minority

and female-owned firms;

\(2\) involve project residents in planning and

carrying out the MIO Plan or Work Write-Up.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-21 5/92

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-24. FIELD OFFICE RECOMMENDATION

a\. A series of Field Office Worksheets (see Appendix 14)

has been developed to help Field Office staff assess

CILP projects. They include:

o a Field Office Certification;

o a Project Evaluation;

o a Project Summary;

o a Least Cost Worksheet (for non-Plan of Action

o Projects); and

o a Checklist for Evaluation of the Flexible

o Subsidy Application.

When required by the Notice, these worksheets should

all be completed and submitted to Headquarters with

every CILP application.

b\. Once the Field Office has completed its analysis of

the project, the Loan Management staff must make a

recommendation as to whether to fund the project under

the CILP program. The NOFA will provide information

about whether or not the project will qualify for

assistance in any given year. If it does, and if the

analysis indicates that the project can support the

requested CILP loan, it should generally be

recommended for funding.

c\. If the Field Office decides to recommend that the

project receive CILP, the final MIO Plan or Work

Write-Up should be submitted to Headquarters for

funding consideration, along with all other required

documentation.

d\. The Field Office assessment and recommendation should

be written up and submitted with the application

package.

3-25. SUBMISSION REQUIREMENTS

a\. General Submission Information

\(1\) The owner must provide a range of information to

the Field Office, and the Field Office is

responsible for assuring that a completed package

is submitted to Headquarters. Appendix 18

provides a checklist of all items that must be

included in the submission.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5/92 3-22

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\(2\) All CILP applications the Field Office recommends

for funding except for those submitted as part of

a Plan of Action must be submitted to the

Headquarters Program Support Branch, Operations

Division, Office of Multifamily Housing

Management. Submission information will be

contained in NOFAs published in the Federal

Register.

\(3\) CILP applications submitted as a part of a Plan

of Action should be submitted to the Affordable

Housing Branch.

b\. Owner Submission Items

\(1\) Flexible Subsidy Application Form HUD-9826 and

Letter;

\(2\) MIO Plan and/or Work Write-Up, Cost Estimate,

Form
[HUD-9835](http://www.hud.gov/utilities/intercept.cfm?/offices/adm/hudclips/forms/files/9835.pdf)
Part II Section A, Action Items,

and Form HUD-9835-B Sources and Uses of Funds;

\(3\) LIHTC and Other Subsidy Layering Documentation;

\(4\) Lobbying Certification or Disclosure (Byrd

Amendment);

\(5\) Audited Annual Financial Statement for the most

recent fiscal year;

\(6\) Notice to residents, resident comments, and owner

recommendations;

\(7\) Certification of Identity-of-Interest;

\(8\) List of all companies that supply goods and

services to the project that have an

identity-of-interest with the owner or management agent;

\(9\) Previous Participation Certification - Form

HUD-2530; and

\(10\) Other requirements as stated in the NOFA.

c\. Field Office Submission Items

\(1\) Current Form HUD-9822, Physical Inspection

Report;

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-23 5/92

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\(2\) Current Form HUD-9834, Management Review Report;

\(3\) Form HUD-9815, Project Analysis Worksheet;

\(4\) Justification of Flexible Subsidy Funding Form

HUD 9815-A;

\(5\) Copy of most recent audited financial statements;

\(6\) Certifications submitted by HFA, if applicable;

and

\(7\) Field Office Worksheets.

3-26. SPECIAL PROCEDURES FOR HFA FINANCED PROJECTS

a\. State Agencies must conform, in full, to the Field

Office CILP processing requirements. Applications

submitted through a State Agency must include all of

the certifications and documentation required from

Field Offices. Mortgage delinquencies and delinquent

accounts payable may not be included in the MIO Plan

for any State Agency-owned project.

b\. Field Offices must review the State Agency application

for completeness. In addition, the Field Office must

schedule a physical inspection of the project promptly

to ensure that the scope of the work is accurate and

cost estimates included in the MIO Plan are

reasonable. Field Offices should submit only projects

recommended for funding to Headquarters for further

processing. The Field Office must also monitor the

State Agency\'s administration of the CILP program as a

part of the State Agency review.

c\. For uninsured projects the Field Office CILP same

procedures and processing requirements will apply,

except that in lieu of an inspection by the Field

Office, the HFA will provide a copy of its own

inspection report along with a certification stating

that all items that will be funded are eligible under

the CILP guidelines.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5/92 3-24

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4355.1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

d\. Many HFA-financed projects have built up substantial

reserve accounts over the years, which have names such

as Development Cost Escrow, that differ from those

used in projects financed with HUD-insured mortgages.

The application must include the following

certification signed by the HFA\'s Chief Executive

Officer:

\"This is to certify that the undersigned has

reviewed the status of all project escrow

accounts and has determined that the amount

of funds available from such accounts is

insufficient to finance the capital

improvements for which the assistance is

being requested and other capital

improvements that are reasonably expected to

be required within the next 24 months.\"

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3-25 5/92