U.S. Department of Housing and Urban Development

H O U S I N G

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Special Attention of: Notice H 93-67 (HUD)

All Regional Administrators,

Regional Directors of Housing;

Field Office Managers, Issued: 9/10/93

Development Directors, Expires: 9/30/94

Management Directors and
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Loan Management Branch Chiefs Cross References: Handbooks

Categories A, B and C Offices 4571.1 Rev-2,

Owners/Managers of Projects with PRACs 4571.2 - 4571.5

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Subject: Housing for Elderly and Handicapped/Disabled - Capital

Advance Programs with Project Rental Assistance

Contracts

This Notice provides guidance for projects with Capital

Advance (CA) financing and Project Rental Assistance Contracts

(PRAC) authorized under Section 202 - Supportive Housing for the

Elderly and Section 811 - Supportive Housing for Persons with

Disabilities, 1990 Cranston-Gonzalez National Affordable Housing

Act (NAHA). These guidelines should be used by HUD personnel and

program participants until the Office of Housing issues more

detailed handbook instructions; Field Office (FO) Managers

must ensure that program participants receive copies of the

guidelines.

Since its inception in 1959, Congress has made a number of

changes to Section 202 legislation. The listings in Attachment 2

may help in recognizing the several types of activities

authorized under Section 202 and related programs. FOs assigned

identification numbers during the application stage using

program-wide procedures. It should be noted that guidance in

this Notice relates solely to the CA-PRAC program, not to

projects financed under the direct loan program, usually

identified as SH, EH or HH.

1\. Capital Advance Programs - NAHA revised and expanded

the Sec. 202 program as Supportive Housing for the Elderly and

created Sec. 811, Supportive Housing for Persons with

Disabilities, which supersedes Sec. 202(h), Housing for

Handicapped Families, as added by Sec. 162, Housing and Community

Development Act of 1987.

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HMEEM: Distribution : W-3-1, W-2(H),
W-3(H)(FHEO)(ZAS)(OGC)(PD&R),W-4(H),

R-1, R-2, R-3, R-3-1(H)(RC), R-3-2, R-3-3, R-6,

R-6-1, R-7, R-7-1, R-7-2, R-8, R-8-1

Previous Editions Are Obsolete HUD 21 B(3-80)

GPO 871 902

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a\. Financing. Both Sections, 202 and 811, authorize HUD

to provide funds as capital advances (CA) to nonprofit owners for

new construction or acquisition/rehabilitation of supportive

housing facilities. A project owner must maintain project use

for the specified resident category during the 40-year life of

the CA. The program utilizes a mortgage and mortgage note, but

HUD will not require note repayment as long as the owner adheres

to regulatory requirements.

An owner\'s failure to operate the project for the intended

residents or to operate within program requirements may result in

HUD declaring a default and initiating remedies provided under

the Regulatory Agreement (RA), form HUD-92466-CA, or taking other

appropriate remedial action. Even though an owner has no monthly

debt service payment, the HUD funding is not a grant, but a

non-amortizing capital advance.

b\. Controlling Documents. HUD forms used in processing

and operating projects pursuant to CA generally parallel forms

used in the Sec. 202 program with Sec. 8 subsidy. For all

required accounting documents and forms used in this program,

refer to HUD Handbooks 4571.1 Rev-2, 4571.2 and 4571.3 for

guidance.

c\. Supplemental Management Fund. The CA program contains

no supplemental management fund for either Sec. 202 or 811. A

project converted to CA, but originally processed as a Sec. 202

or 162 direct loan with a supplemental management fund, can be

reprocessed to include the fund amount when an owner submits a

written justification supporting the need for the supplemental

management fund. The Rental Housing Project Income Analysis and

Appraisal, form HUD-92264, must be revised to incorporate the

reprocessing. The Multifamily Housing Representative (MHR) must

coordinate the actions needed to reinstate the fund, including

requesting Regional Accounting Division (RAD) to disburse

approved releases (form HUD-92403-CA).

d\. Management Fees. Because the CA program requires no

monthly mortgage payment, a project\'s subsidy contract does not

include an amount for debt service thereby reducing project

income on which a management fee or allowance is based. The

amount of a management fee allowed from project income would not

necessarily be reduced, but the percentage of income it

represents will be higher due to lower total monthly income.

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e\. Insurance. FO staff should review limits of liability

under the blanket fidelity bond/employee dishonesty coverage.

Outstanding instructions generally stipulate an amount equal to

two months\' gross potential revenues or \$50,000, whichever is

greater. Because CA projects have no loan to amortize, gross

revenues may be substantially below the \$50,000 minimum. In such

cases, the bond should be reduced to an amount sufficient to

cover two months\' gross revenues.

2\. Project Rental Assistance Contracts (PRAC).

a\. PRAC Forms. PRACs use the following forms:

Agreement to Enter into PRAC - Part I form HUD-90172-A-CA,

Part II form HUD-90172-B-CA;

PRAC - Part I form HUD-90173-A-CA, Part II form HUD-90173-B-CA

b\. Starting Date. Based on Form No. 2485, Permission to

Occupy-Project Mortgages, the effective date for permission to

occupy shall be the HUD \"Inspected\" date on the Form 2485 on

which the Chief Architect subsequently concurs, frequently

referred to by the Form\'s subsection heading, \"FHA Inspection

Report\". It should be noted that for administrative purposes,

accounting (RAD) will record the PRAC starting date as the first

day of the month in which HUD gives permission to occupy; HUD can

pay subsidy only from the \"Inspected\" date shown on the Form No.

2485\.

After the Housing Development (HD) Director notifies

the Loan Management (LM) Branch Chief that HUD has granted

permission to occupy. The staff shall advise the owner that the

first month\'s voucher must be prorated from the date of

permission to occupy to the end of the initial month, based on a

30 day month.

c\. Admission Policy. Admission to projects under Sec.

202 and Sec. 811 shall be program specific; individuals or

families must qualify for that particular type of housing. For

admission to a Sec. 202 project, including admission to an

accessible unit, an individual must be at least age 62. Note,

this differs from Sec. 202/8.

The program-eligible individual for a Sec. 811 project

must be at least age 18 and have a physical, mental or emotional

impairment, developmental disability or chronic mental illness.

With approval of Headquarters, a Sec. 811 project may be limited

to persons with similar disabilities and who require similar

supportive services in a supportive housing environment.

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An individual who qualifies for either program must

come within the area\'s very low income limits and make a total

tenant payment for rent of 30 percent of adjusted income, 10

percent of gross income or Welfare Rent, whichever is greater.

Should an applicant\'s monthly rental payment exceed the HUD-approved

operating rent, the family/individual remains eligible

for admission (unlike Sec. 8 and PAC projects where an applicant

whose payment would equal the contract rent is ineligible for

admission). Chapter 2, Hdbk 4350.3 outlines exceptions by which

owners may admit certain lower income applicants.

d\. Federal Preferences. Section 202 projects are subject

to federal preferences as detailed in Chapter 2, Hdbk 4350.3.

Although NAHA Section 545 (c) modified federal preference

requirements, the Department has not at this time issued a

regulation implementing the modification. Therefore, owners of

Sec. 202 projects must follow existing preference rules noted in

Chapter 2, Hdbk 4350.3.

e\. Model Lease. Until HUD issues a separate Model Lease

for the CA programs, the Model Lease provided as Appendix 19c to

Chpt. 4, Hdbk 4350.3 should be used. Field Office (FO) LM staff

should instruct owners to make the following modifications to the

existing lease format:

1\) Under the heading, \"For Use Under\" on page 1, add:

\"(3) the Section 202 Program of Supportive Housing

for the Elderly and Section 811 Program of Supportive

Housing for Persons with Disabilities.\"

2\) Substitute \"PRAC\" when the model lease cites \"HAP\" or

\"PAC\".

3\) Insert: For Sec. 811 projects, wherever Sec. 202

appears: \"Sec. 811 of the National Affordable Housing

Act\"

4\) Delete: Top of page 2, entire \"Whereas\....\" sentence

5\) Add: After paragraph 4, \"This paragraph does not

apply to CA programs, both Sec. 202 and Sec. 811.\"

6\) Delete: Paragraph 12 relating to income

recertification (see paragraph f. below)

7\) Add: After paragraph 16, \"This paragraph does not

apply to Sec. 811.\"

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8\) A project owner/manager may add to the lease as

paragraph 9. (d) (4):

\"Material noncompliance also includes activity that

threatens the health, safety or right to peaceful

enjoyment of the premises by other tenants or any

drug-related criminal activity on or near such

premises, engaged in by a tenant, any member of the

tenant\'s household, or any guest or other person under

the tenant\'s control.\"

f\. PRAC Administration. The PRAC provides payments to

cover project operating expenses. The \"operating rent\" cited in

the PRAC is the amount estimated to cover operating expenses for

the unit or residential space and includes an estimate for all

utilities whether paid by the owner or the resident.

Owners/managers should use form HUD-50059 for resident

certifications; see Attachment 1 for modifications to

instructions for completing form HUD-50059.

1\) PRAC operating rent equates to \"Gross Rent\" as used in

Sec. 202/8 projects. Both the PRAC and RA require the

owner to submit an annual budget which becomes the

basis for any rental rate increase.

2\) Sec. 8 very low income limits (50% of median income)

apply at admission for both Sec. 202 and Sec. 811 PRAC

projects. Definitions of income, 24 CFR Part 813,

shall be used. Chapter 3, Hdbk. 4350.3 defines

income and assets.

3\) Tenant/Resident rent payment (rent and utilities).

Each family or individual who receives PRAC subsidy

must make a total tenant payment of 30% of adjusted

income, 10 percent of gross income or Welfare Rent,

whichever is greater for housing costs, i.e., rent and

utilities. In some cases, a resident\'s monthly

payment may exceed the PRAC operating rent. As with

HAP contracts:

a\) The monthly amount a resident pays the

owner/manager should be the Total Tenant Payment less

any HUD-approved utility allowance the tenant pays,

and

b\) The resident may receive a utility reimbursement

from the owner/manager if the resident\'s Total Tenant

Payment is less than the HUD-approved utility

allowance.

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4\) The voucher amount for payments under a PRAC shall be

the net difference between the total amount the owner

is entitled to receive and the total amount due from

residents during the month. Owners/managers should

use Parts 1 and 2 of form HUD-52670A. See Attachment

1 for modifications to instructions for completing

form HUD-52670A.

When the operating rents total exceeds resident

payments total, voucher for the amount of the

difference;

When the resident payments total exceeds operating

rents total, the project qualifies for no PRAC

subsidy that month. The owner must deposit the

amount of this difference to the project\'s Residual

Receipts account that month.

In a month when the project does not qualify for

subsidy, the owner/manager must submit a voucher for

that month.

g\. Vacancy Payments. The PRAC in either a Sec. 202 or

Sec. 811 sets vacancy payments at 50 percent of a unit\'s current

HUD-approved rent (not 80% of contract rent as with a HAP or PAC

contract). For example, if the PRAC cites a \$250 rent and the

owner meets the contract\'s requirements for a vacancy payment,

the owner can claim 50% of the rent or \$125. As noted above, the

owner would use the same forms as currently used in claiming HAP

payments, forms HUD-52671-B and HUD-52771-C. See Attachment for

modifications to instructions for completing forms HUD-52671-B

and HUD-52771-C.

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Assistant Secretary for Housing

\- Federal Housing Commissioner

Attachments

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Attachment 1

Forms - Instruction Modifications

Forms currently used in the Sec. 8 program also should be

used for PRAC in Capital Advance financed projects under Sections

202 and 811 with the following modifications to existing

instructions.

Form HUD-50059 - Owner\'s Certification of Compliance with

HUD\'s Tenant Eligibility and Rent Procedures

Item 7 : Type of Subsidy - Enter the applicable code:

7 = 202 PRAC projects 8 = 811 PRAC projects

Item 44: Contract Rent

If all utilities are included in the rent, enter

the \"operating rent.\"

If tenant pays utilities separately, enter the

operating rent minus the HUD-approved utility

allowance.

Item 46: Gross Rent - Enter \"PRAC Rent\" (operating rent)

for the unit.

If all utilities are included in the rent, this

amount should be the same as Item 44.

If tenant pays utilities separately, this amount

should equal Item 44 + Item 45.

Item 48: HCDA Percentage - Enter NA for all households

Item 49: Worksheet Used - Enter \"e\"

Item 50: Total Tenant Payment - Use Sec. 8/RAP box of

form HUD-50059 e Worksheet

Item 51: Tenant Rent - Item 50 minus Item 45

If the result is a negative number, enter 0.

Item 52: Utility Reimbursement

If Item 50 is less than Item 45, enter

the difference in Item 52

Item 53: Assistance Payment - Item 46 minus Item 50

A negative number must be reported;

enter negative number in parentheses ().\*

\* Note: Entry of a negative calculation for PRACs differs

from a Sec. 202/8 calculation.

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Attachment 1, page 2

Form HUD-52670 - Housing Owner\'s Certification & Application for

Housing Assistance Payments

Part I, Item 4: Type of Subsidy - Add \"PRAC\"

Part III, Item 10, 4: Enter N/A for all households

Form HUD-52670-A part 1 - Schedule of Tenant Assistance Payments

Due

Item 5: Type of Subsidy - Add: \"PRAC\"

Item 6: Type of Section 8 - Add: \"PRAC\"

Item 7a: Section 8 Contract Information - Enter NA for all

households

Item 14 a: Tenant Assistance Payment

Enter amount in Item 53 from tenant\'s form HUD-50059,

enter any negative number in parentheses

().

For a unit or residential space occupied for less

than a full month, adjust entry based on a 30-day

month as set forth in Hdbk. 4350.3, paragraph 6-4.

Add and/or subtract all entries.

Item 15: Totals for page

Item 15 a: Regular Tenant Assistance - Enter total from 14

a.\*

When 15 a. reflects a negative () total, deposit

the amount in the project\'s Residual Receipts

account.

\* Owners/managers voucher HUD for the net

difference between the total amount the owner is

entitled to receive and the total amount due from

residents during the month.

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Attachment 1, page 3

Form HUD-52671-B - Section 8 Special Claims for Vacancies During

Rent-up

Item (4) HUD\'s Limitation - Reduce to .50

For PRAC, enter 50%, not 80% indicated

Form HUD-52671-C - Section 8 Special Claims for Regular Vacancies

Part A: Add: \"PRAC\"

Item 9, Part A: For PRAC enter 50%, not 80% of line 8

Item 24, part B: For PRAC enter 50%, not 80% of line 23

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Attachment 2

Section 202 and Related Programs

Identification Numbers

1\. Project Identification: Example: 999-EE001

Field Office Number - three numbers (999)

Program Designation - two letters (EE)

Sequential Number - three numbers (001)

a\. Program Designation - Direct Loans:

SH - Original Section 202 program, 1959

Housing Act, Initially elderly housing

only, amended to add physically handicapped

(1964); new construction; term: 50-year

loan

EH - Housing and Community Development Act of

1974 Revised Section 202 program added Sec.

8 subsidy, Deleted \"physically\" to extend

eligibility to persons with developmental

disabilities;

New construction or substantial

rehabilitation in projects for the elderly

plus acquisition with or without moderate

rehabilitation in projects for the

handicapped; term: 40-year loan

1978 Housing and Community Development

Amendments added group homes and extended

eligibility to chronically mentally ill

persons;

Projects retained EH designation and added

three letter suffix after sequential

number

HH - 1987 Housing and Community Development

Act added Section 162 - Housing for the

Handicapped with project rental assistance

contracts (PAC); construction same as EH

for group homes and independent living

facilities; term: 40-year loan

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Attachment 2, page 2

b\. Program Designation - Capital Advances (CA):

EE - 1990 Cranston-Gonzalez National

Affordable Housing Act, (NAHA) Section 801,

Supportive Housing for the Elderly, Capital

Advance and project rental assistance

(PRAC); Non-amortizing financing for new

construction, rehabilitation or acquisition

from Resolution Trust Corp. (RTC); term:

40-year capital advance

HD - 1990 NAHA, Section 811, Supportive

Housing for Persons with Disabilities,

Capital Advance and project rental

assistance (PRAC); Non-amortizing financing

for new construction, rehabilitation or

acquisition from RTC; term: 40-year capital

advance

Note: To assist with identification, a project

converted from direct loan to CA financing

retains its original direct loan program

designation, EH or HH. HUD required a

project approved under the direct loan

program which had not achieved initial loan

closing by 12-31-91 to convert to CA

financing.

c\. Program Designation - Suffix Letters:

NP - Nonprofit

WAC - Wholly for the elderly, with central

dining facilities

WAH - Wholly for the elderly, not congregate

CMI - Wholly for persons with chronic mental

illness

WDD - Wholly for persons with developmental

disabilities

WPD - Wholly for persons with disabilities

(not covered by CMI or WDD)

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Attachment 2 page 3

2\. Rental Subsidy Identification: Example: ZZ99 - X994 - 001

a\. Alpha/Numerical Codes

State/Geographical Designation :

positions 1,2,3 and 4

two letters and two numbers (ZZ99)

Program Designation - position 5 (X)

(see specifics below)

Funding Year - positions 6 and 7

two numbers (99)

Invitation number within Funding Year :

position 8

one number (4)

Sequential Contract Number :

positions 9\*, 10 and 11

three numbers (001)

\* contracts executed prior to 1978

used \"2\" in position 9

b\. Program Designation - position 5

9 - Section 202 prior to 1978

T - Section 202 elderly pursuant to the

1978 revised program including

handicapped program through FY 88

D - Section 162 handicapped program for FYs

89 and 90

S - Section 202 elderly starting FY 91

(CA including conversions)

Q - Section 811 disabled starting FY 91

(CA including conversions)

C - Section 202 elderly - funds solely for

Service Coordinator activities

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Attachment 2, page 4

c\. Subsidy contracts vary depending on the type

of funding that applied when an application

was selected.

SH - An original program project processed in

1965 or later may have had a Rent

Supplement contract which could have

been converted to a Sec. 8 Loan

Management Set-Aside contract

EH - HAP (Housing Assistance Payment)

contract either new construction or

substantial rehabilitation

HH - PAC (Project Assistance Contract) either

new construction or substantial

rehabilitation; lower income families

and individuals

EE - PRAC (Project Rental Assistance

Contract) - Section 202 CA, either new

construction, rehabilitation or

acquisition from Resolution Trust

Corp. (RTC) very low income families

and individuals

HD - PRAC - Section 811, either new

construction, rehabilitation or

acquisition from RTC very low income

families and individuals