4571.1 REV-2

CHAPTER 2

CHAPTER 2. ELIGIBILITY

2-1. PRIVATE NONPROFIT BORROWERS.

a\. Section 885.5 of the Regulations contains definitions applicable

to this program. A Borrower is defined as \"a private nonprofit

corporation or a nonprofit consumer cooperative\" which must

be incorporated at the time it submits its application for a

Section 202 Fund Reservation. The purposes of the Borrower must

include the promotion of the welfare of elderly or handicapped

families. The definition also provides that a Borrower \"may not

be a public body or the instrumentality of any public body.\" For

purposes only of determining minority participation in the

program, a minority Borrower is defined as a Borrower with more

than half its board composed of minority group members.

b\. Only a Borrower as defined in Section 885.5 of the Regulations is

eligible to submit an application for a Section 202 fund

reservation and to receive a Section 202 direct loan. As the

legal applicant, the Borrower, if selected, would receive the

fund reservation and the loan and would be responsible for the

construction, rehabilitation, ownership, and operation of the

project.

2-2. THE SPONSOR. Among the groups which typically qualify as

Section 202 sponsors are religious organizations, minority

organizations, fraternal orders, labor unions, teachers\'

associations, and similar organizations, senior citizens\' groups,

associations representing the physically handicapped, and consumer

cooperatives. In contrast to the Borrower the Sponsor is expected to

have a history of interest and successful activity in housing

generally, or housing for the elderly or the handicapped (chronic

mental illness, physically handicapped, or developmentally disabled);

or to have been involved in one or more other social or community

activities or services which provide the background and skills

which may be transferable to housing for the elderly or the

handicapped. A Sponsor Will be evaluated primarily on the

strength of its activities as an organization and not on the

individual records of those who constitute the officers or members

of the board of directors or general membership. For purposes

of determining minority participation in the program, a minority

Sponsor is defined as a Sponsor with more than half its board

composed of minority group members.

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4571.1 REV-2

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(2-2) a. The Sponsor is the organization which is expected to provide

the funds required by the Borrower to carry out the project.

The Sponsor also is expected to pledge its financial and

other support to the Borrower over the full 40-year term of

the Section 202 loan. It is largely on the basis of the

Sponsor\'s experience and its arrangements with and pledge

of support to the Borrower that HUD selects a Borrower for

a Section 202 fund reservation. Each application should

contain specific information about the Sponsor\'s experience

and its arrangements with the Borrower, rather than merely

containing generalities with regard to these matters.

b\. While religious bodies may serve as Sponsors. the Borrower

must be a separate legal entity. No religious purposes may

be included in the Articles of Incorporation or by-laws,

etc., of the Borrower corporation.

c\. No Sponsor should involve itself in this program unless it

recognizes and agrees to assume its responsibilities to the

Borrower, the project and its residents, to HUD and to the

community throughout the 40-year term of the loan. Such an

involvement will require the Sponsor\'s time, attention, and,

at least potentially, its financial support on behalf of the

Borrower and the project over the life of the loan.

2-3. COMPETITION FOR FUND RESERVATIONS. Competition for fund

reservations under Section 202 has been extremely heavy and is

expected to continue at a high level. Any group considering

involvement in a Section 202 project as a Sponsor should be aware

that demonstrated ability of the organization to perform reliably

over a period of time and an extended record of financial

dependability will weigh heavily in favor of the selection of its

Borrower associate. With the competition likely to be keen, Field

Offices probably will not be able to select all the highly qualified

applicants simply because of the limitation on fund allocations

available in a given fiscal year. Thus, an inexperienced Borrower

dependent on an inexperienced Sponsor would be an unlikely candidate

for selection for a fund reservation, and might wish to consider

other financing to achieve its objectives.

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4571.1 REV-2

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2-4. ELIGIBILITY CONSIDERATIONS.

a\. In the past. a number of applications for fund reservations have

been received from persons or groups not eligible for selection.

Some applications also have contained proposals for projects

conflicting with statutory requirements or program policy.

It should be understood that only qualified Borrowers, as

defined in Section 885.5 of the applicable HUD regulations,

will be considered for selection. A Borrower must be a

private, nonprofit corporation officially incorporated under

appropriate State law at the time the application is submitted.

In all cases, the Articles of the Incorporation submitted as

part of the application must be true, signed copies.

b\. The Sponsor, on the other hand, does not have to be incorporated,

but does need to be a private, nonprofit organization. However,

its acceptability as a Sponsor is subject to approval by the

Area Manager, based on a determination that the group\'s

administrative and financial capacity are satisfactory, and that

it has demonstrated its ability to carry out its

responsibilities. Financial statements and documentation of its

record and achievements in housing or other community service

activities are among the items required in submitting the

application for a Fund Reservation. Whether participating as

Sponsor/Borrower or as a Sponsor of a separate Borrower

corporation, the Sponsor must have an IRS exemption currently in

effect by the deadline date for filing the Fund Reservation

application.

c\. As indicated above in paragraph 2-4b, a Sponsor must meet all

of the requirements included in the definition of a nonprofit

organization. If the Sponsor meets all of these requirements,

the Borrower also qualifies as a nonprofit organization at

the fund reservation stage if it has at least submitted its

application to the Internal Revenue Service for nonprofit

status and already meets all of the other requirements for a

private, nonprofit corporation. Therefore, it would be eligible

to submit an application for a Section 202 Fund Reservation and

be eligible for selection. Approval of the Borrower as a

non-nonprofit corporation by the Internal Revenue Service is

required prior to initial closing.

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2-5. PUBLIC BODIES AND INSTRUMENTALITIES OF PUBLIC BODIES.

a\. Section 885.5 of the Regulations specifies in the definition

of a Sponsor that the term does not mean a public body or

the instrumentality of a public body. Accordingly, public

bodies such as local Public Housing Authorities (PHA\'s) and

local Public Agencies (LPA\'s) and other instrumentalities

are not eligible as Sponsors and also do not meet the criteria

for acceptability as a Borrower.

b\. Public bodies also may not participate indirectly through

the formation of an agent or instrumentality corporation.

Accordingly, some private, nonprofit corporations will not

be eligible as Borrowers because they are agents or

instrumentalities of public bodies. An instrumentality

relationship would exist if the group\'s articles of

incorporation or by-laws provide for control of the corporation

by a public body. Evidence or such control might include a

provision whereby 50 percent or more of the board of directors

are appointed by or elected from a public agency or agencies;

or where a public body may supervise the operations of the

corporation or regulate its planning, development, and

management, or the disposition of the corporation\'s property or

other interests. Such groups should not submit applications,

nor would such applications be eligible for selection.

c\. It should be noted, however, that public bodies may provide

management services to a Section 202 project pursuant to a

contract between the public agency and the Borrower.

2-6. INELIGIBLE PROPOSALS.

a\. Nursing homes, intermediate care facilities (ICF\'s), and

transitional care facilities, including \"half-way houses\"

are not eligible for financing under Section 202. Waivers

may be granted on a case-by-case basis for Intermediate Care

Facilities for the Mentally Retarded (ICF/MRs) for 15 or fewer

residents. Prospective Borrowers also should understand

that neither infirmaries nor nursing wings will be permitted

in Section 202 projects. It is anticipated, however, that

such faculties as a nursing home, hospital, clinic, or

other medical facilities or services will be available in

the community within a reasonable distance from the projects

financed under this program.

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(2-6) b. Facilities intended to serve single persons under tine age of

18, or families whose head of the household or spouses are

not at least 62 years of age or chronically mentally ill,

physically handicapped, or developmentally disabled, are

not eligible for financing under Section 202.

c\. Other types of facilities which are not eligible under

Section 202 include but are not limited to: mobile home

projects; senior centers; community centers, with or without

special components for senior citizen use; sheltered workshops;

centers for the handicapped, with a variety of facilities,

medical facilities for various medical professions;

headquarters for one or another organization, whether or not

involved in institutions; refinancing, with or without minor

rehabilitation; and nonhousekeeping facilities (central dining,

but without private kitchens and/or bathrooms), except in

group homes.

2-7. UNACCEPTABLE PROPOSALS. Applications proposing loans to groups

acting as \"fronts\" for profit-motivated developers or builders,

and proposals based on syndications for profit-motivated investors,

as well as proposals to finance the construction or rehabilitation

of a project, but without any provisions for occupancy under the

Section 8 Housing Assistance Payments program, all would be

unacceptable under Section 202.

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