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7.1 INTRODUCTION

This chapter applies to ownership transfers or sales [7 CFR 3560.406] of all or a 

controlling interest in the project ownership.

During the term of a Rural Development (RD) loan, borrowers may determine that it is 

in their best interest to transfer a project to another owner. Transfer of any RD project 

requires RD’s prior approval. RD may approve a project transfer [7 CFR 3560.406 (b)] if that 

project continues to further the objectives of the program, if the transaction is in the best 

interest of Government and the tenants, and if RD’s security is protected.

The Agency's Transfer Application Process (TAP) strives to balance the needs of RD 

and its customers. This chapter elaborates on Agency policies and defines thresholds to 

accomplish this goal. The Agency review process relies on accurate information being timely 

provided from all parties. This chapter outlines the requirementsfor project transfers and RD’s 

procedures for reviewing and approving those transfers.

The programs covered by this Chapter and authorized by Title V of the Housing Act 

of 1949 are as follows:

1. Section 515 Rural Rental Housing (RRH) that includes congregate housing, group 

homes, and Rural Cooperative Housing as defined in §3560.11; and

2. Section 514 Farm Labor Housing (FLH) loans and Section 516 FLH grants for 

farm-worker housing.

A transferee must meet the eligibility requirements found in HB-1-3560 for the 

respective loan program type (RRH or FLH) as defined in 7 CFR§3560.55 and §3560.555, 

including possessing the financial capacity and management experience to successfully own and 

manage the project. After a transfer is authorized, the property should be financially and 

operationally sustainable for the remaining term of the RD funding. The property should 

provide adequate, affordable, decent, safe, and sanitary rental units for very low-, low-, and 

moderate-income households in rural areas.

To protect RD’s security interests in a transfer, the RD underwriter must perform the 

evaluations outlined in this chapter, taking into account the requirements in Chapters 4 and 5 

of HB-1-3560 and considering the impact of the transaction on the tenants. While transfers 

offer an opportunity to improve the quality of housing through improved maintenance, 

rehabilitation, and/or better management, if not properly scrutinized, a transfer may increase the 

risk of loan default or poorer housing conditions.

For purposes of this chapter, the term applicant, transferee, or purchaser is used to refer 

to the entity that wishes to acquire the property, and borrower, transferor, or seller refers to the 

current borrower, or the entity transferring the property.

For additional guidance on loan restructuring, see Chapter 11 of this Handbook. For a 

list of documents to be submitted when requesting RD approval of a transfer,see Attachment 

7-B-1, Transfer Application Documents.

CHAPTER 7: TRANSFER OF OWNERSHIP 

7 CFR 3560.406
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SECTION 1: OVERVIEW

7.2 RD OBJECTIVES AND GUIDING PRINCIPLES

A. Objectives

The key objective of this chapter is to ensure RD Multi-Family Housing (MFH) 

projects continue to meet long-term program goals stated below by maintaining the 

affordability of needed rental housing in rural areas. This chapter guides the Loan 

Servicer/underwriter and the applicant in evaluating transfer requests to ensure the transaction 

meetsthe best interests of the Government and the tenants by:

1. Improving and maintaining the long-term physical and financial viability of the 

property;

2. Improving or maintaining the affordability of the property for RD-eligible tenants 

and applicants;

3. Completing the transaction in a timely and efficient manner; and

4. Providing a framework for the timely and consistent review of the applicant’s 

submission subject to the applicable program and statutory requirements.

B. Responsibilities

RD relies on the ability of underwriter and loan originator (hereinafter used 

interchangeably and in those cases they may be designated as a MFH specialist and may 

further serve as the loan servicer) to complete the basic eligibility determinations concerning 

both the applicant/borrower and the project to ensure the transaction complies with the 

respective MFH program authorities described in current RD Handbooks, Code of Federal 

Regulations (CFR), and statutory authorities. It is RD’s responsibility to fully evaluate the 

proposal and determine when the transaction meets applicable Agency administrative and 

program requirements. In those cases where the RD underwriter and RD loan servicer are 

two different individuals, they will jointly be involved in processing the loan transfer and 

share accountability for successfully completing the transfer by fulfilling the actions 

described in this Chapter. All transfers and Multi-Family Housing Preservation and 

Revitalization (MPR) Transactions must be in the best interests of the Government and 

tenants. These transactions must demonstrate the extended viability/sustainability of the 

project, the likelihood of full repayment under the terms being offered, and the probability of 

providing and maintaining quality affordable housing over the long-term.

The Applicant is responsible for providing complete, timely and accurate information 

and documentation throughout the transfer process to comply with all of the applicable 

program policies, procedures, and regulations. The Loan Servicer istypically the initial point of 

contract when a borrower decidesto transfer their property and will determine if the transfer meets 

these objectives subject to the applicable program and statutory requirements. If a transfer 

does not meet each of these objectives, the Loan Servicer should work with the purchaser and 

the seller in an effort to resolve issues of concern within the respective program limitations. If 

the applicant contacts the RD underwriter who is not also the designated loan servicer, the 

underwriter will inform the servicer and initiate the cooperative effort necessary to comply
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with the process described in this Chapter. It is not RD’s role to assume any responsibility for 

the individual business decisions of the borrower or applicant in ultimately determining the 

course of action they propose. RD does not negotiate the terms of the transaction that are 

between the buyer and seller. 

C. Guiding Principles

Agency underwriters will use the currently available underwriting analysis and guides 

available at the RD intranet (SharePoint) https://mfhdemoteam.sc.egov.usda.gov/ 

ProgTracking/ default.aspx to document their MFH transfer and MPR decisions. Applicants 

and borrowers may access these forms through the appropriate RD public websites 

(http://www.rd.usda.gov/programs-services/multi-family-housing-direct-loans or 

http://www.rd.usda.gov/programs-services/housing-preservation-revitalization- demonstration-loans-grants).

The key parties to the transfer include the Seller, the Purchaser, the Agency (on behalf 

of the tenants and as mortgagor), and any third-party funders (other lenders, tax credit 

agencies, syndicators/investors, etc.). The different parties may have competing or 

conflicting requirements, needs, and/or objectives and goals that must be recognized and 

addressed early in the transfer process. RD is not responsible for reconciling conflicts 

between buyers, seller or any other interested third parties. RD may, within its policy 

constraints and to protect the interest of the Government and the tenants, offer alternatives for 

conflict resolution.

An initial or preliminary conceptual meeting with the RD loan servicer, Seller, and 

Purchaser should be arranged as early in the process as possible to evaluate the potential 

suitability of the proposed transfer and formulate a mutually acceptable schedule for RD's 

internal program analysis. This meeting can also identify potential problems or issues early in 

the process that will need to be addressed before completing the transfer application. 

When initiating the conceptual discussion, RD should recommend to applicants the 

use of RD’s optional Preliminary Assessment Tool (PAT) or a suitable preliminary 

assessment tool alternative offered by other parties, as a starting point to explore the 

feasibility of the transaction. Using the PAT encourages all interested parties to contact the 

RD servicing office as early as possible to discuss program requirements and conditions. The 

PAT contains general instructions, basic underwriting thresholds and pertinent tips for RD 

customers and staff to assist in preparing and evaluating proposals. The tool incorporates the 

detailed instructions found in the applicable RD Handbooks, CFR, and other applicable 

Agency and Departmental regulations. Additional instructions and suggestions are available 

internally for Agency underwriters through the Agency SharePoint by drilling down to their 

specific needs.

The RD website (http://www.rd.usda.gov/programs-services/multi-family-housingdirect-loans) includes the PAT along with many of the other tools and additional program 

information.

Using the information provided by the applicant, Loan Servicers should assess whether 

the transfer request is consistent with the following guiding principles:

1. There is a continuing need for the property in the community. This should be 

considered in lieu of prepayment of any existing RD direct loan MFH properties. 

2. When the transaction is complete, the property will be in the hands of eligible 

owners.

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3. The transaction will address the immediate and long-term physical needs, 

including accessibility issues identified in a Transition Plan as well as any other 

fair housing requirements, and other needs of the property.

4. Any increased post-transaction rents will not displace existing tenants otherwise 

meeting the RD eligibility requirements for continued occupancy.

5. Post-transaction basic rents will not exceed the lesser of conventional rents for 

comparable units (CRCU), or the restricted rents as defined below in Paragraph D 

1, unless an exception is allowed by the Agency. Low Income Housing Tax 

Credits (LIHTC) rents are differentiated from CRCU and other restricted rents that 

may be imposed by the applicant’s participation in other funding sources such as 

HOME or individual State Housing Assistance programs. See Paragraph 7.7 B.

6. Any equity amount recognized by RD will be supported by a market value 

appraisal meeting RD appraisal acceptability and underwriting requirements.

7. The RD-recognized Seller's Equity will consider the Market Value reflected in the 

RD-approved appraisal (See Paragraph 7.7 B) less the unpaid balance of the 

outstanding RD Loans on the Property and any other amortizing debt or other real 

estate secured liens outstanding at the time of transfer as determined appropriate 

by the Agency. If any new loans will be placed on the property at the time of 

transfer that will cause the total real estate debt to exceed the RD security value, 

an exception may be made for payment of a Seller’s Equity on a case-by-case 

basis with RD Headquarters (HQ) Multi-Family Housing Preservation and Direct 

Loan Division (PDLD) approval.

8. An Exit Incentive (EI) can be paid to the Seller if the following tests are met:

a. The present RD-accepted market value appraisal does not indicate any equity 

exists in the property as is;

b. All threshold items in Paragraph 7.2 C of this handbook are met;

c. The total amount paid as EI is available from tax credits or other soft dollars 

(RD funds will not be used to fund EI);

d. All New Loans are used for eligible RD MFH program purposes; and

e. All RD Direct Loans together with any RD authorized senior or superior debt, 

such as may be incurred when the RD direct loans have been subordinated or 

were previously issued in a junior lien position, post transfer will be less than 

the Security Value determined by RD.

9. The Seller’s Equity and any EI may not both be paid on the same transfer. When 

an EI is proposed, the RD HQ must review the PAT before RD issues a letter of 

support for the buyer to obtain tax credits. RD must also review the settlement 

statement pre- and post-closing to verify the amounts that may ultimately be 

released at closing, and confirm no more than the amount authorized has been 

allowed.

10. The PDLD concurs with the equity loan amounts and the new Return-To-Owner 

(RTO) being authorized when it exceeds the seller’s originally authorized return, 

and coordinates the approval of all waivers for unique and non-recurring
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circumstances that fall outside of the normal transaction principles, RD HQ 

approvals, or revitalization-related policy issues.

11. RD encourages the use of third-party resources to secure adequate funding to 

successfully complete transfers and associated revitalization efforts. Such 

resources include Low Income Housing Tax Credits (LIHTC), grants, and 

participating lenders adhering to established RD MFH policies and programs, 

including Section 538, Guaranteed Rural Rental Housing (GRRH) loans. Lenders 

include Federally-regulated and insured institutions; State-regulated, chartered, 

and insured institutions; and other national, state, regional, or local governmental 

agencies specifically authorized to make loans and/or grants for multi-family 

housing purposes authorized under the authorities accorded to USDA.

12. Post-transaction basic rents will not exceed the lesser of Conventional Rents for 

Conventional Units (CRCU) or the restricted rents as defined below in Paragraph 

C 1, unless an exception is allowable or the rents are 100 percent Project-Based 

Section 8 with evidence from HUD that the current rents will be carried forward to 

the new borrower without anticipating any reduction for the remaining term of the 

Housing Assistance Payments Contract (HAP) contract. See Paragraph 7.7 B.

13. Each transfer will result in computation of a new Return-to-Owner (RTO) for the 

new owner. Currently the RD RRH program allows the project owner to 

potentially earn its maximum return based on original loan terms and/or prior 

modification authorized by the Agency. A new RTO will replace the previous 

owner's return amount in underwriting and future operating budgets for the longest 

remaining term of any RD direct MFH loan on the property assumed, incurred or 

modified as part of the transfer transaction.

For transfers, the following conditions are considered in determining when any 

tax-credit equity, projected-deferred developer fees, or other program adjustments 

will be used to establish the maximum total RTO the new owner may be allowed:

a. Rehabilitation costs eligible for the RD Section 515 Program purposes less all 

outstanding and new RD direct loans, together with any RD authorized senior 

or superior debt such as may be incurred when the RD direct loans have been 

subordinated or were previously issued in a junior lien position must not exceed 

the RD-determined Security Value;

b. The new maximum projected RTO at the time of transfer approval based on the 

Agency underwriting analysis of Net Operating Income (NOI) less debt service 

for all loans (without agency debt deferral);

c. NOI for payment of RTO should provide for the Debt Service Coverage Ratio 

(DSCR) of 1.15 (when RD-recognized new equity has been provided), and will 

be based upon the projected post-rehabilitation operating budget with rents not 

exceeding the lesser of CRCU or, if applicable, the LIHTC rents required by 

the tax credit application process or any other restricted rents as approved 

during RD underwriting;
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d. The budget must reflect the lesser of the Agency’s 5 percent of O&M and 

historical vacancy plus 2 percent (not to exceed maximum of 10 percent for 16 

or more units, or 15 percent for fewer than 16 units), or the industry standard of 

5 percent vacancy;

e. There must be a demonstrated ability to repay any deferred developer’s fee from 

the NOI proposed by the applicant at the time of RD underwriting approval for 

the remaining term of the RD loan using the rents approved for the transaction 

(See Paragraph 7.2 B); and

f. Each transfer request received by RD will be tracked by Agency underwriters 

and loan servicers throughout the transfer process in the electronic monitoring 

and tracking system prescribed by RD HQ.

D. Preliminary Transfer Thresholds

RD adopted the following thresholds and policies for evaluating MFH transfer 

feasibility to promote consistency in RD underwriting for MFH transfer transactions; and 

balance the needs of the Agency, customers, and the project to maintain affordability for 

eligible tenants under the RD programs. The transferee should complete a preliminary 

assessment using these standards early in the transfer process and discuss it with the RD 

office responsible for servicing the account. Careful analysis by all parties involved can 

identify the general issues that will need to be resolved as the transfer application is 

completed and submitted for formal review. Acceptance of the preliminary analysis by RD 

does not constitute final approval of any transfer proposal by RD or any other third-party 

funder. Thresholds RD considers include:

1. Post-Transfer Rents. Post-transfer rents should not exceed the restricted rents of 

the LIHTC, HOME Program (if applicable), or CRCU (as defined in existing RD 

regulations), whichever is less. The term Restricted Rents for the purpose of this 

review will be the rent restrictions of LIHTC, HOME, or other Rent Restricting 

Program(s) that will be placed on the property upon completion of the transfer. 

Post-transfer rents on properties with 100 percent Project-Based Section 8 will not 

exceed the maximum rents authorized under the HAP contract. No rent increase 

beyond the current basic rents is authorized prior to completion of the planned 

rehabilitation.

2. Rents Cash Flow in Proposed Operations. Proposed rents must be sufficient to 

meet all projected expenses including a reasonable allowance for operations and 

incidentals, and are typically included in the estimated individual operating 

expense line items. The allowance may be expressed as a percentage of total 

operating expenses and the resulting planned amount is reflected in the amount 

shown as net cash on the RD operating budget, Form RD 3560-7, Part I, Line 30. 

The minimum combined allowance for operating expenses and vacancy/bad debt 

loss must not fall below the equivalent industry standard of 5 percent vacancy loss 

or the applicable amount specified in #3 below. Net operating income (NOI) must 

also be sufficient to meet the general industry minimum standard of 1.15 Debt 

Service Coverage Ratio (DSCR) for all amortizing debt being placed on the 

property in the initial underwriting review and authorization determination based 

on the first year of typical operations (rents, O&M, etc.). If third-party lenders

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specifically require DSCR in excess of the minimum, such rate should be used for 

RD underwriting analysis during the initial three operating years. See also # 9 

below.

3. Vacancy/Bad Debt Loss. The maximum allowance for vacancy and bad debt is 10 

percent (for 16 or more units) and 15 percent (for fewer than 16 units) unless 

otherwise specified by terms of any supplemental Notice of Solicitation of 

Applications (NOSA) for which the transaction has been submitted. The

minimum allowance is the lesser of the historical average of collected rents for the 

most recent three years plus 2 percent for bad debt, or the Restricted Rent 

Program/Lender requirement when specified. If the budgeted allowance is less 

than historical average plus 2 percent, it will be considered a failure to meet the 

required threshold unless extenuating circumstances can be supported and 

documented to RD’s satisfaction.

4. Operating Expenses. The minimum amount of operating expenses required per 

unit is the greater of any specified by the Restricted Rent Program (LIHTC, 

HOME, etc.) or the third-party lender (if applicable). Generally, project 

maintenance costs are reduced as a result of the proposed rehab and generate a net 

reduction. However, any reduction must be reasonable. No more than a 10 percent 

change or variance in total project post-transfer closing operating expenses based 

on historical actual averages will be accepted for underwriting without an adequate 

justification acceptable to RD.

5. General Operating Account Minimum Requirement. The project’s General 

Operating Account (GOA) must be equal to 20 percent total operating expense as 

underwritten at the time of transfer (excluding the required prorated tax and 

insurance escrow), and there must not be any outstanding accounts payable 

exceeding 30 days. If this requirement cannot be achieved through normal project 

operations as reflected in the underwritten typical year budget, the transfer 

development budget must include an additional cash deposit to the GOA from 

non-debt, LIHTC or the applicant’s non-project resources. Any additional 

required deposit (not from normal operations) made by the applicant must be 

documented to the Agency at the time of transfer. The applicant may recoup the 

additional required cash deposit to the GOA between the second and seventh year 

of operation in accordance with HB-2-3560 Chapter 4, Section 1, 4.3.

6. Tenant Protection. RD does not permit the intentional displacement of any 

existing RD-eligible tenant because of the planned transfer, as long as the tenant 

remains eligible under RD regulations and the terms of the RD-approved lease. 

For projects not having full Rental Assistance (RA) and for all non-RA assisted 

revenue units where the transfer results in a rent increase, the applicant must agree 

to protect currently eligible tenants affected by the rent increase as long as the 

tenant resides in the project. All tenant protection costs must be included in the 

Sources and Uses analysis used in RD underwriting for the full amount needed to 

fund the initial two-year minimum period following the transfer closing for 

transfer underwriting purposes. NOTE: This does not limit the total cost of tenant 

protections the transferee may ultimately be responsible for and is solely to aid in 

completing the initial transfer underwriting analysis using the PAT. The applicant 

will establish a specific cash escrow set-aside for this purpose at the time of 

closing, and is responsible for providing, from non-project resources, any future
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tenant subsidy or protections necessary to maintain cash flows if the project does 

not have or fails to secure 100 percent RA, or other tenant subsidy necessary to 

meet LIHTC or other third-party tenant rent restrictions.

7. Capital Needs Assessment (CNA) Funding & Reserve Deposit. The minimum 

requirement per unit is the greater of any Restricted Rent Program (LIHTC, 

HOME, etc.) requirement, or third-party lender (if applicable) requirement that 

will be placed on the property upon completion of the transfer. The Reserve 

Account ending balance forecast must be positive for all 20 years of CNA.

8. New Loans for RD Section 515 Eligible Purposes. Any new loans placed on the 

property must be for Section 515 RRH-eligible loan purposes only, as defined in 7 

CFR 3560.53. The Agency will analyze Federal Government and other assistance 

provided to any MFH project to establish the maximum loan amount and to assure 

that the assistance is not more than the minimum necessary to make the housing 

affordable, decent, safe, and sanitary to potential tenants [7 CFR 3560.63(d)]. Any 

prohibited uses of loan funds as defined in 7 CFR 3560.54 must be paid from non- debt sources. However, projects using a RD Section 538 Guaranteed Rural Rental 

Housing (GRRH) loan may be allowed additional debt for purposes eligible under 

the GRRH regulations.

9. Debt Service Coverage Ratio (DSCR). RD underwriting will include annual 

trending increases of revenue at 2 percent and expenses at 3 percent (including 

reserve) for each of the first 15 years. For transfer underwriting and analysis, the 

project at a minimum must meet an initial DSCR of 1.15 through year 3, and may 

project subsequent DSCRs of 1.1 in years 4 and 5, and 1.0 for the remaining years 

solely for the purposes of the RD initial transfer analysis. Third-party lenders may 

require higher DSCR for their individual underwriting approval requirements. If 

so, the DSCR required by the third-party lenders should be used in the RD 

underwriting analysis during the initial 3 operating years.

10. Loan-to-Value. Upon completion of all planned rehabilitation/repairs and 

approved development, all Debts must be secured within the Prospective As- Improved Security Value as defined by RD in 7 CFR 3560, §3560.63. RD 

determines Security Value and includes the intangible benefits afforded by the 

interest credit subsidy of the RD loans, and the benefits of other favorable 

financing resulting from other Federal, state or local government instrumentality 

direct or authorized intermediary lending programs such as HOME, Preservation 

Revolving Loan Fund (PRLF), and Section 538 GRRH loans being made at 

below-market rates and terms, as permitted by RD regulations. Security Value

does not include any non-amortizing or deferred loans or grants regardless of the 

source; or any federal, state or local LHITC and Historic tax credits or the 

investment value thereof.

11. Loan Terms of Third-Party Debt. No balloon payment from any third-party debt 

is allowed prior to the expiration of the minimum RD Loan Term (30 years for 

RRH transfers and 33 years for FLH transfers), unless the Lender provides a 

written agreement, acceptable to the Agency, to extend the scheduled maturity on 

terms that do not require rents above comparable rents for comparable units 

(CRCU) through the term of the RD loan.

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12. Sources and Uses Must Balance. Sufficient funds must be available for all 

proposed rehabilitation, acquisition costs, and uses to meet the terms of the 

proposed transaction. Funds must be adequate to address repairs needed 

immediately, including all health and safety, fair housing and accessibility issues.

13. These may be included as part of the up-front rehabilitation that is being paid by 

third-party funds. Applicants must be able to fund any projected shortfalls from 

resources other than the project or project income. 

7.3 KEY ANALYTICAL CONCEPTS

In evaluating all the components of a transfer request, the Loan Servicer and the 

Applicant need to determine if the transfer meets RD’s objectives by collecting the 

information necessary to form the analytical foundation for Agency processing and 

authorization of the proposal. 

Using a preliminary analytical process and the processes provided in this Handbook, 

the Loan Servicer and underwriter should be able to answer, and document the proposed terms 

and conditions that will ultimately serve as part of the basis for approving the transfer request. 

Formal final approval will only be granted upon submission and acceptance of all required 

documentation in its totality, and the Agency's completion of the internal analytical analysis 

tools as prescribed. RD underwriting considers the applicant's capacity to pay the loan, 

provide sufficient capital to meet the transfer requirements, demonstrate the character 

necessary to meet operational ownership and management requirements, provide and 

maintain the project collateral, and meet the anticipated conditions necessary to close the 

transaction and complete any required construction needs. 

Applicants must have both sufficient experience and the financial capacity for the 

development and ownership of the proposed property transfer. Applicants are required to 

submit appropriate documentation to assist RD underwriters and approval officials evaluate 

and establish reasonable expectations to assure the terms and conditions of the respective 

assistance can be followed and carried in meeting the purposes intended. Applicants, 

including any affiliated entities sharing an identity of interest with the applicant (i.e., 

management, contractors, etc.), must be in compliance on all or any other Agency-financed 

projects that they may own or provide decision-making and operational authority over. Any 

noncompliance issues must have been cured or be in compliance with a workout agreement 

approved by the RD for at least 6 consecutive months as of the date that the initial application 

is due unless an exception is authorized by HQ. 

Newly formed applicant entities, may not have the ability to demonstrate creditworthiness 

and financial capacity to meet basic program eligibility determinations. RD underwriters and 

approval officials may then look at the individual key principals the applicant identifies with the 

organization, decision making and operational authority controlling the applicant organization or 

entity as necessary.

All Principals will be identified and analyzed with respect to their capacity of credit, 

experience and financial histories. Regulatory standards established in the Code of Federal 

Regulations (24 C.F.R.) Part 200 Subpart H Participation and Compliance requirements determine 

the appropriate review of previous participation in multifamily insured programs based upon their 

past performance as well as other aspects of their records. 42 U.S. Code § 1441 
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These considerations are generally categorized in each of the following areas:

A. Eligibility

The Loan Servicer must establish applicant eligibility in the same manner as during the 

loan origination process, including an in depth evaluation of the applicant and the individual 

principals of the applicant entity and any sub-entity. These requirements set the basic 

standards for all borrowers including:

1. Analysis of financial capacity (such as balance sheetsfor all principals, including the 

individual key principals involved in the organization, decision-making and 

operational authority that may control the applicant and any sub-applicant entities 

involved);

2. Credit worthiness of all principals(such as credit reports, contingent obligations, 

payment history, etc.);

3. Experience (such as previous participation certificates, CAIVRs, SAMs, etc.);

4. Incidence of ongoing or chronic adverse actions in other projects or business 

transactions;

5. Satisfactory explanation of all insufficient, incomplete, or negative factorsidentified in 

the eligibility review; and,

6. Simultaneously, completion of the planned transfer must sufficiently determine a 

continued need for affordable housing with adequate demand for continued use of the 

project by tenants meeting the RD eligibility requirements. When necessary to establish 

the continued need for a property, the loan underwriter may require additional 

documentation acceptable to RD that there is an actual need for the project considering 

any other existing or planned affordable housing in the market area.

Note: RD needs and LIHTC needs may not always serve the same market, and may 

have different demands and concerns as affordable housing. Reviewers must ensure that RD 

funds will be used in accordance with the program’s statutory requirements. The project’s 

eligibility as documented during the loan transfer process requires the loan servicer to confirm 

that the project will remain eligible after the transfer.

B. Feasibility

The Loan Servicer must determine if the proposed transfer is feasible. This 

feasibility determination requires an in-depth financial analysis of project operations, sources 

and uses of funds, and potential for future success. See Paragraph 7.23.

C. Improve or Maintain Risk Levels

The Loan Servicer must consider any financial and operational risk factors in the 

transfer that conflict with the respective MFH loan program origination and servicing 

principles.

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7.4 DEFINITIONS

As used in this chapter, the following definitions apply to ownership transfers or sales 

of all or a controlling interest in the project ownership as addressed in 7 CFR 3560.406.

A. Transfer

A transfer occurs whenever there is a change in a project’s ownership that:

1. Places title to the property in the hands of a new owner;

2. A new owner assumes all liability for the debt; or

3. There is a change in the legal entity owning the project, such that the transferee 

is commonly considered a distinct and separate legal entity from the original 

borrower (including, without limitation, a change resulting in a new Internal 

Revenue Service Tax ID number), or 100 percent of a borrower entity's 

ownership interests will be transferred within a 12-month period (7 CFR 

3560.405 (a)).

Changes in membership within the ownership entity such as the admission of non- controlling members do not constitute a transfer, but do require RD involvement as discussed 

in Chapter 5 of this Handbook. A change in ownership due to the death or involuntary 

incapacitation of a joint owner, beneficiary of a trust owner, or in membership within the 

ownership entity such as a general partner interest being sold or bequeathed may not 

constitute a transfer as long as the incoming member meets RD eligibility requirements, and 

the State Director requests authorization on a case-by-case basis from RD HQ. The change 

must be appropriately documented without any change in the currently authorized RTO for 

the project; additional debt, liability, or encumbrance of the RD loan security; or change of 

project type or purpose. RD HQ will review the status of the project's current physical and 

operational condition and may waive any other provision of this chapter for these cases only 

when the RD approval official determines that such ownership change is in the best interests 

of the government and the tenants. Borrowers may request to transfer their project to another 

entity in which the members are involved in both the transferring and the assuming entities, 

provided the new entity be legally organized, discloses all Identity-of-Interest situations, and 

meets applicable RD eligibility requirements. (See also Paragraphs 7.5 and 7.16 E.)

A proposed transfer to an IRS-approved intermediary for purposes of a Section 1031 

exchange is a transfer for purposes of this chapter.

If the transfer being proposed is part of an Agency incentive offer as described in 

Chapter 15 of this Handbook as part of a prepayment incentive offer, a complete transfer 

application package must be submitted as described herein unless all of the following 

conditions are being met:

1. No additional sources of funding are being brought into the transaction and the 

new owner does not request any RTO consideration other than those approved 

as part of the Agency incentive offer;

2. There are also no existing physical, operational or financial needs, or 

deficiencies that must be addressed to ensure the continued success of the 

project in meeting the MFH program mission; and
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3. The State Office has consulted with PDLD and determines an exception to this 

Chapter is in the best interests of the government and the tenants.

B. Non-Program Transfers [7 CFR 3560.406 (l)]

This chapter does not apply to non-program transfers, as discussed in Chapter 5 of this 

Handbook. However, such a transfer or sale will only be considered when it is determined by 

RD to be in the best interest of the Federal Government and the objectives of the original loan 

can no longer be met.

C. Underwriting

Underwriting as used in this Chapter refers to the process of determining the financial 

and operational feasibility of the project, applicant eligibility, environmental compliance, and 

fair housing compliance of a proposed transaction based on the specific requirements 

specified in this Chapter, Agency Handbooks and guidance, and/or applicable Notice of 

Funding Availability (NOFA), and/or Notice of Solicitation of Applications (NOSA). The 

specific aspects of the transaction process such as determining applicant eligibility, assessing 

environmental compliance, or evaluating fair housing compliance are more fully addressed in 

the current RD Handbooks and Regulations, and supplemented from time to time with other 

published guidance available on the RD website.

D. Related Definitions

The following are definitions for certain related terms used in this Chapter.

• Acceptable Appraisal. The Agency will use appraisals to determine whether the 

security offered by an applicant or borrower is adequate to secure a loan, or 

determine appropriate servicing or preservation decisions. Appraisals used for 

Agency decision-making must be current unless the Agency and the applicant or 

borrower mutually agree to the use of an appraisal that is not current. A current 

appraisal is an appraisal with an effective date that is not more than one year old 

per §3560.752. All MFH appraisals that were not written by an Agency appraiser 

will be reviewed by an Agency appraiser who will write and file a technical 

review report that complies with the Uniform Standards of Professional Appraisal 

Practice (USPAP) Standard 3, and Agency requirements as prescribed in 

Handbook 1, 3560.

• Corporation. A corporation is any entity that has filed Articles of Incorporation in 

one of the 50 States, the District of Columbia, or the various territories of the 

United States including American Samoa, Federated States of Micronesia, Guam, 

Midway Islands, Northern Mariana Islands, Puerto Rico, Republic of Palau, 

Republic of the Marshall Islands, or the U.S. Virgin Islands. Corporations include 

for both profit and non-profit entities.

• Debt Deferral. A deferral of an existing RD debt. Agency debt deferral is subject 

to appropriations and may be offered to a transfer applicant selected for 

participation under the terms of an outstanding MPR Program NOSA. This 

deferral includes the deferment of the monthly principal and interest payments 

with a balloon payment at the end of the deferral period. A debt deferral 

agreement will be required for the debts assumed eligible for deferral at the time 

of closing.

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• Equity. Equity is the amount of the RD-accepted market value that exceeds the 

total of all currently outstanding RD direct loans and any other parity, or senior 

debts approved by RD, or to which RD has an outstanding subordination.

• Exit Incentive. An Exit Incentive is an amount of incentive compensation 

determined by RD that may be paid to the selling borrower to facilitate

transferring the property to an eligible buyer when there is no equity as determined 

by the RD-accepted market value used in the underwriting analysis. See also 7.2 C 

8 for mandatory applicable Guiding Principles.

• Identity-of-Interest. A relationship between applicants, borrowers, grantees, 

management agents, or suppliers of materials or services described under, but not 

limited to, any of the following conditions (7CFR 3560.102 (g)):

1. There is a financial interest between the applicant, borrower, grantee and a 

management agent or the supplying entity;

2. One or more of the officers, directors, stockholders, or partners of the applicant, 

borrower, or management agent is also an officer, director, stockholder, or 

partner of the supplying entity;

3. An officer, director, stockholder, or partner of the applicant, borrower, or 

management agent has a 10 percent or more financial interest in the supplying 

entity;

4. The supplying entity has or will advance funds to an applicant, borrower, or 

management agent;

5. The supplying entity provides or pays on behalf of the applicant, borrower, or 

management agent the cost of any materials or services in connection with 

obligations under the management plan or management agreement;

6. The supplying entity takes stock or a financial interest in the applicant, 

borrower, or management agent as part of the consideration to be paid them; or

7. There exists or come into being any side deals, agreements, contracts or 

understandings entered into thereby altering, amending, or canceling any of the 

management plan, management agreement documents, organization 

documents, or other legal documents pertaining to the property by the Agency. 

See 7 CFR 3560.11.

• Key Principle. A key principle is the party or parties involved in the organization, 

decision-making and operational authority that may control the applicant and any subapplicant entities involved and includes the actual individual(s) of any sub-entity 

(i.e., other organizations, partnerships, etc.) which cannot demonstrate financial 

ability, creditworthiness or experience in the name of the transferee or identified 

sub-entity, to mitigate any creditworthiness, financial capacity and/or experience in 

the transferee’s own right or may not have equal strength with respect to all of the 

eligibility criteria.

• Non-Equity Compensation. Non-equity compensation is a payment to the Seller, 

from the buyer when no equity exists in the property. This payment should come 

from non-loan funds and must not affect project rents at any time during the term of 

the RD direct loan or any modification thereof. See Paragraph 7.8 D.

• Portfolio Transaction. A portfolio transfer transaction is a transaction involving 

multiple projects within one State being acquired by a single purchaser.

• RD Funds. RD funds include, for example, a subsequent Section 515 loan or a 

Section 538 loan.
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• Security Value. The security value is the property value established by RD which 

is the lesser of the total development cost [exclusive of any developer's fee as 

provided by §3560.63 (d)(2)]or the housing project's security value as determined 

by an appraisal conducted in accordance with Subpart P of this part, minus any 

prior or parity liens on the housing project. 

• Third-Party Funding. Third-party funding involves sources of funds other than 

RD funds and the purchaser’s personal funds. The third-party funding is provided 

by other recognized third-party funding sources as described in 7 CFR 3565.102. 

Tax credit equity, HOME funds, and Community Development Block Grant 

(CDBG) funds are a few examples of third-party funding. 

• Transferee. The transferee is the person or entity acquiring the RD-financed 

property. In this Chapter, the term is used interchangeably with the terms 

purchaser or buyer. 

• Transferor. The transferor is the person or entity selling the RD-financed 

property. In this chapter, the term is used interchangeably with the terms borrower 

or seller.

7.5 CONDITIONS FOR TRANSFERS

A. Conditions When a Transfer May Occur

Transfer applications, documenting in writing one of more of the following 

conditions, will generally be considered for further processing: 

• The transfer facilitates the physical and financial revitalization of the property;

• The transfer is needed to remove a hardship to the current borrower that was 

caused by circumstances beyond the borrower’s control (circumstances 

constituting ‘hardship’ are discussed below);

• The transfer is a result of a court order requiring the division of security property;

• The transfer is being requested as an alternative to prepayment;

• The transfer will do no harm to RD or the current and future eligible tenants; or

• Other circumstances exist which make the transfer in the best interest of the 

Government.

Typically, RD will not consider a transfer if the borrower has owned the property for 

fewer than five years. However, if the State Director determines that a hardship is present, 

the transfer may occur without prejudice to the borrower.

Examples of hardship include, but are not limited to:

• Serious Illness or death of the borrower;

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• Serious financial difficulties beyond a borrower’s control that cause the borrower 

to shut down the business operation; or

• Inability of the borrower to obtain necessary credit on terms that would facilitate 

refinancing the debt and allow for operation of the project at affordable rents, if

the outstanding loans are eligible for prepayment.

NOTE: RD will pursue appropriate administrative and/or civil remedies with respect 

to transfers that occur without prior RD approval. RD considers these transfers to be 

unauthorized sales. An unauthorized sale also constitutes a default on the RD loan [7 CFR 

3560, subpart J].

B. Types of Transfers

There are many different characteristics and circumstances that may be present in a 

transfer. All transfer applications, unless otherwise specifically exempted in RD Regulations, 

will comply with the eligibility requirements based on the type of project and the nature of the 

transferee for the respective RD MFH program. These requirements are more fully described 

in the applicable sections of HB 1-3560.

If any project being transferred is currently subject to an RD-approved Workout Plan 

and an Identity-of-Interest as defined by RD regulations, the transferee must be in compliance 

with the workout plan in place and on schedule. In addition, the purchaser (transferee) must 

be in compliance with RD regulations or have a RD-approved workout plan in place and on 

schedule with respect to any other RD properties owned.

For a list of documents to be submitted when requesting RD approval of a transfer, see 

Attachment 7-B-1, Transfer Application Documents.

C. Coordination between RD Headquarters and State Offices

Some transfers raise complex issues and require close coordination between the 

borrower, the purchaser, and the Agency. However, simple transfers can be quickly and 

easily addressed between the borrower, purchaser, and the Agency. For example, a simple 

transfer of title to a purchaser with proven capacity, or transfer of a project without regulatory 

compliance issues that does not require a rent increase or new funding from RD, would 

proceed rapidly from application to approval to closing under the authority of the Loan 

Servicer, with a final approval from the State Director as permitted by this Chapter up to the 

amounts specified in RD Instruction 1901-A. Compliance issues could include issues with 

the physical or financial condition of the property, poor management, or noncompliance with 

civil rights and accessibility laws.

In transfers where the State Director’s approval limit is exceeded or requires 

additional concurrence (e.g. where a rent increase or a policy waiver is necessary) and 

authorization by RD HQ, the State Director will submit the request together with their 

recommendation, appropriate documentation and sufficient underwriting documentation as 

specified by Agency policy and procedures to MPDL prior to approval. Upon completion of 

the HQ review, the State Director will be provided with the appropriate concurrence and 

guidance memorandum authorizing the terms/conditions for the continued final processing, 

formal approval or denial of the transaction at the State Director level.

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MFH Transfer and MPR underwriting is used to authorize the transaction and approve 

the terms leading to approval. Often underwriting transactions becomes intertwined among 

the aspects and requirements crossing multiple interdisciplinary divisions within the Rural 

Housing Service (RHS). To minimize potential confusion for borrowers and applicants, and 

to ensure consistent application of pertinent RHS requirements, underwriters must coordinate 

loan making (direct and guaranteed when applicable) and servicing expectations when 

evaluating the proposed MFH transaction. Responsibility for successfully completing any 

MFH underwriting requires ongoing coordination of Preservation and Direct Loan Division 

(PDLD) loan making; Guaranteed Loan Division (GLD) guaranteed loan participation, and 

Portfolio Management Division (PMD) loan servicing efforts.

7.6 PROCESSING A TRANSFER REQUEST

The Loan Servicer will coordinate the review process to meet the processing 

guidelines by completing all of the steps below to move through the process of receiving a 

transfer application, evaluating the transaction, and closing the transfer. These steps are listed 

in Exhibit 7-1, Key Steps to Conduct a Transfer, and may be used to as a preliminary 

checklist for discussion with the applicant.
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Exhibit 7-1

Key Steps to Conduct a Transfer

Step Action

1 Applicant completes Preliminary Analysis and schedules Initial 

Consultation with designated RD Loan Servicer

2 Initial Consultation with Applicant, Seller, and other key participants 

having significant roles in the transaction such as other lenders, grantors, 

etc.

3 Application Provided by Applicant preliminary review starts; RD 

completeness review of application completed within 14 business days. 

Incomplete applications will be returned to applicant and processing does

not begin until the complete application is received.

4 Request Underwriter Review - Detailed review by Underwriter commences 

and processing starts. Status updates provided to applicant within every 30 

business days the application is in process at RD. If additional clarification 

or other materials are needed, the application will be considered incomplete 

and it well be returned to the applicant for resolution. Unsatisfactory

submissions will be returned as incomplete or rejected.

5 Submit application to RD HQ for Authorization. Upon completion of the 

Underwriter’s detailed review, the application will be submitted to HQ. 

Within 10 business days, HQ determines if the transfer may be authorized. 

If the transfer requires additional information from the applicant, the

application is returned to the state office for continued processing.

6 Agency Decision - Communicate to Applicant within 45 business days 

(single property) / 75 days (multiple properties) - Processing for approval is 

limited to the periods shown and does not include delays beyond the 

underwriter’s immediate control.

7 Prepare Approval Conditions for Signature of Applicant - Within 15 

business days of Agency Decision written approval conditions sent to

applicant for acceptance

8 Coordinate Closing Instructions and OGC Loan Document Approval.

9 Schedule and Close Transfer.

10 Complete post-closing review and verification that approval and closing

conditions have been met.

A. Key Steps to Process a Transfer

1. Applicant completes Preliminary Analysis and schedules Initial Consultation with 

designated RD Loan Servicer.

The applicant will complete the preliminary feasibility analysis and submit it to 

the Loan servicer or other designated State Office reviewer for the Agency's 

consideration within five business days of its receipt. If this preliminary

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feasibility analysis has used the RD Preliminary Assessment Tool (PAT) and 

the analysis appears to meet Agency thresholds or provides sufficient 

explanation to indicate preliminary feasibility, an initial consultation will be 

scheduled with the applicant, seller, and other participants as appropriate.

2. Initial Consultation with Applicant and Interested Parties.

The initial consultation will establish a common understanding of the transfer 

process, timelines, terms, limitations, responsibilities, and conditions all parties 

will be required to agree to that will affect the transfer being proposed. In 

addition to the specific transfer requirements contained in the respective MFH 

program authorities, additional discussion will further clarify the minimum 

acceptable requirements for each of the following topics. Items to be discussed 

include:

a. Identification of the transfer applicant and its principal entities or 

individuals

• Type of entity must be legally recognized and authorized to conduct 

business operations for the proposed transaction under applicable state 

governing laws, rules, regulations, licensing, etc.;

• List of all individual sponsors, registered agents, key principals, 

controlling members, and any board members and officers based on the 

type of entity; and

• Identification of the applicant’s principal ownership interests and all 

Identity-of-Interests among participants including buyer, seller, contractor, 

management, lender, etc.

b. Eligibility requirements ( 7CFR 3560.55), including

• Creditworthiness of the sponsors, the borrower entity if formed, and its 

principals should be verified with an appropriate commercial credit report,

• Applicant's experience record must be documented for the principals, 

controlling members, officers, etc.

• Project limitations and restrictions to include discussion of any 

outstanding or potential use restrictions that currently exist or will be 

imposed based on the terms, financing, or other participants in the 

proposed transaction; this includes existing LIHTC and any other 

restrictions outstanding on the property.

• Financing plans, participants, roles, amounts, terms, and conditions 

necessary to secure funding will be discussed.

• See HB1-3560, Chapters 2 and 4 for additional specific program eligibility 

requirements.

c. Site control

• Applicant must have enforceable site control throughout the transfer 

process. Adequately describe real estate and any other personal property, 

chattels, equipment, movable property and business property that is not 

real property, money or investments belonging to the project being
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acquired in compliance with state laws and practices. Applicant should 

consult with his or her own appropriate legal counsel as necessary to 

ensure adequacy and proper enforceability of the purchase agreement.

• Price and terms must be clearly defined

• See also Handbook 1-3560, Chapter 7 for additional eligibility 

requirements.

d. Appraisal requirements

• Only appraisals acceptable to RD will be used for transfer underwriting. 

Third-party appraisals may not be sufficient for RD use unless they 

comply with Agency requirements in form, timeliness, and sufficiency. 

See HB1-3560, Chapter 7.

• Applicants should discuss RD appraisal requirements including the 

statement of work prior to engaging an appraiser.

• Appraisals prepared for any other participants or lenders may not satisfy 

RD Statement of Work requirements, and may require the applicant to 

incur additional appraisal costs.

e. Capital Needs Assessment requirements

• RD requires a current CNA meeting Agency requirement for all transfers.

• CNA guidelines are available on the RD public website at: 

http://www.rd.usda.gov/programs-services/multi-family-housing-directloans

f. Scope of Work

• All planned repairs, replacements, and other development must comply 

with RD requirements as required in RD Instruction 1924-A, regardless of 

funding source.

• To coordinate construction and satisfy transfer requirements, applicants, 

their contractors, and any technical staff should discuss the details of the 

Scope of Work being planned to ensure the requirements of each 

participating funder is addressed.

g. Applicant’s Feasibility Analysis

• Verify that all parties to the transaction have been identified, and that lines 

of communication can be extended to ensure that full disclosure of the 

planned transaction will be forthcoming.

• Remind the applicant that it is his or her responsibility to provide adequate 

and accurate information in a timely manner to move forward with the 

transfer request.

• Be available to discuss deficiencies in the application, and demonstrate a 

willingness to consider appropriate compromise with the participants and 

lenders when evaluating the best interests of the Government and the 

tenants.
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• Remember a transfer request is a business and financial decision being 

made by the buyer and seller to request RD permission to effect the 

transfer under the rules, regulations, and policies that have been 

prescribed.

h. Provide a general Letter of Support based upon agreements being proposed.

• The applicant's delivery of a completed self-analysis of their transfer 

proposal using the PAT, does not guarantee final approval of the transfer 

request.

• However, this analysis should present a reasonable approximation that a 

final transfer application adhering to the fundamental assumptions that 

have been presented would, upon the completion of the full transfer 

process, likely lead to an RD transfer authorization subject to the 

regulations then in effect. 

3. Application Provided by Applicant.

The Loan Servicer will record all transfer applications into the MFH Transfer 

Tracking System in SharePoint at: 

https://mfh.usda.net/Admin/Lists/Transfer%20Tracking/AllItems.aspx and 

annotate Multi-family Information System (MFIS) with an appropriate 

servicing action as designated by RD HQ upon receipt from the applicant. The 

Servicing Office receiving the application will establish a transferee account in 

MFH records based on the information provided by entering the M1AA, M5A 

and M5B into AMAS to establish the transferee.

All transfer applications received will be reviewed within 14 business days of 

receipt for completeness, and provide appropriate notification to applicant. 

Applicants established in the tracking and servicing monitoring system will 

also be updated to include appropriate comments and follow up actions so long 

as the transfer application remains active. If the application is incomplete, it 

will immediately be returned to applicant. However, minor errors or 

administrative omissions should not prevent determination of application’s 

eligibility or feasibility.

Internal Agency reviews will commence upon determining the application is 

sufficiently complete to begin processing the PAT. To ensure that the 

processing guideline goals can be met, the Loan Servicer will typically 

schedule simultaneous reviews by one or more staff members:

• The State Office review of the CNA;

• The required on-site inspection, and completion of the analytical template; 

and

• Coordinate all other requests for reviews.

The goal is to complete the full evaluation of the complete application(s) is:

• 45 business days if one property is involved, or

• 75 business days if two or more properties are involved.

The complete application submitted by the applicant will be evaluated based on 

the application materials provided by the applicant and a review of Agency 

records, including AMAS and MFIS information for the project being 
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transferred, the applicant, and the other key principals involved in the 

transaction. The Loan Servicer must demonstrate in the case file that the 

transfer application sufficiently addresses the issues of eligibility, compliance, 

feasibility, and risk as discussed in this chapter in each of the following broad 

categories.

a. Evaluate the Transferee

Transferees must meet the basic applicant eligibility for the respective loan 

program (RRH or FLH) currently financing the property. These 

requirements are presented in more detail in HB 1-3560.

• Analyze creditworthiness of the sponsors, the borrower entity if formed, 

and its principles; order a commercial credit report for the applicant 

entity, any parent organization, affiliate, subsidiary, and all principals. 

A comprehensive commercial credit report will be order by RD for all 

transferees, including any key principles as defined in 7.4 C of this 

handbook.

• Analyze program organization requirements for all applicant entities' 

ability to meet the organizational formation and operating 

requirements/restrictions within the state in which the project is 

located, including representations regarding felony conviction and tax 

delinquency status for a corporation. Use Form AD-3030, for 

corporations to verify the corporation does not that have felony 

convictions within the past 24 months, or have unpaid Federal tax 

delinquencies.

• Require current financial statements from all entities and principals.

• Analyze the applicant's experience record and resumes from principals.

• Review Form RD 1944-37, Previous Participation Certification(s) for all 

principles.

• Order CAIVRS, SAM, and Credit Reports.

• Request initial Organizational Document review from OGC.

b. Evaluate the Property

Each property being transferred must be evaluated to determine if, upon 

closing the transaction, the property will continue to meet the respective 

loan program purposes, including:

• Evidence of continuing project need;

• Rents and occupancy; CRCU and other rent limitations;

• Property feasibility/adequacy of repair and rehabilitation, and method of 

construction; and,

• Reasonableness of costs for planned development.
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c. Evaluate the Project

The transfer further encompasses a number of other Agency requirements 

and conditions that become the complete project. This includes the 

following items necessary to satisfy the commitments imposed by other 

applicable Federal laws and regulations.

• Environmental Review (typically categorical exclusion);

• Evidence of third-party funding availability, including rates and terms;

• Coordination with other third-party participants in place;

• Request of Reviews by PSS and OGC; and,

• Civil Rights Impact Analysis.

d. Compile all information necessary to complete underwriting analytical 

analysis using the RD PAT.

e. Notify the applicant of any deficiencies, and require corrections before 

considering the application to be complete for processing. Applications 

not corrected within 30 days will be withdrawn and returned to the 

applicant for resubmission when the outstanding issues are resolved.

PAT contains general instructions, basic underwriting thresholds, and 

pertinent tips for RD customers and staff to assist in preparing and 

evaluating proposals. The tool supplements the more detailed instructions 

found in the applicable RD Handbooks, CFR, and regulations. Additional 

instructions and suggestions are available internally for Agency 

underwriters through the Agency SharePoint.

4. Request Underwriter Review.

MFH Transfer underwriting is used to authorize the transaction and the future 

servicing requirements upon closing. Responsibility for successfully 

completing any MFH underwriting relies on the ongoing coordination of loan 

making and loan servicing efforts. The underwriting review relies on the 

expertise of the RD staff currently servicing the loan, and the invaluable input 

and insights each can offer on the project, the market, the borrower, and the 

applicant. An on-going RD team effort involving both the underwriting staff 

and servicing is required to deliver a project that will be sustainable for eligible 

tenants over the life of the RD loan.

The underwriter must have the ability to complete the basic eligibility 

determinations concerning both the applicant/borrower and the project to
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ensure the transaction complies with the respective MFH program authorities 

described in current RD Handbooks, CFR, and statutory authorities. 

The Underwriter will import the CNA, appraisal information, and all other 

third-party sources and uses into the PAT (available at the RD intranet 

SharePoint https://mfh.usda.net/default.aspx) to document the MFH transfer.

All transfers, including those utilizing any MPR tools, must be in the best 

interests of the Government and tenants. These transactions must demonstrate 

the extended viability and sustainability of the project, the likelihood of full 

repayment under the terms being offered, and the potential to succeed in 

providing and maintaining quality housing over the long-term. It is not the 

Agency’s role to assume any responsibility for the individual business 

decisions of the borrower or applicant in ultimately determining the course of 

action they propose.

Each component in every transaction will be evaluated and analyzed on its 

individual merits. Common sense consideration of pertinent present and 

historical conditions, as well as recognition of justifiable future impacts, must 

all be used to judge the project’s potential to succeed over the term of 

financing being proposed. 

Key considerations may include questions such as:

• Is the project needed?

• Is the applicant eligible?

• Is the project eligible? Is there a present and continuing need for the project 

in its market area?

• Is the project economically feasible? Does the transaction cash flow use a 

reasonable operating budget comparable to other similar affordable 

properties in the market area?

• Will the project be and remain affordable upon completion of the 

transaction?

• Are the RD-eligible project construction and operating costs reasonable?

• Are the Agency’s interests secure?

• Is the transaction in the best interests of the Government and the tenants?

• Does the proposal offer adequate property and asset management to meet 

RD requirements into the future based on the information presented? 

The terms and conditions of the transaction presented by the applicant must 

reasonably address the issues that determine the potential for success. This 

includes substantiating any future tenant subsidies that may be necessary to 

ensure success of planned operations. All parties need to recognize that the 

transactional costs and fees proposed may adversely limit the amount of funds 

needed for repairs, replacements, and improvements and become detrimental to

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the Agency transfer requirements and thresholds. Ultimately, any allowable 

costs will pass to the tenants through rent increases, but tenant subsidies such 

as Rental Assistance (RA) are not guaranteed beyond their current expiration. 

Tenants who do not receive RA will be impacted directly by any rent increase, 

which they may not be able to afford. 

Agency underwriters must use the most current underwriting tools and 

guidance such as those in the PAT available at the RD intranet (SharePoint) 

https://mfh.usda.net/ProgTracking/default.aspx to document the MFH transfer 

and MPR decisions.

Applicants and borrowers may access these forms through the appropriate RD 

public websites (http://www.rd.usda.gov/programs-services/multi-family- housing-direct-loans or http://www.rd.usda.gov/programs-services/housingpreservation-revitalization-demonstration-loans-grants).

At this point, the Underwriter will complete the final underwriting analysis to 

determine full feasibility and terms for the transaction. The Underwriter will 

normally conclude this analysis within 45 days (for a single property) or 75 

days (for multiple properties) from the date that the complete application(s) has 

(have) been received. The Underwriter will evaluate the application for overall 

compliance, risk to the Agency, and impact to the tenants. 

If the terms of the transfer do not meet Agency requirements, the Underwriter 

will communicate to the Loan Servicer that the assumptions used in the 

application are not reasonable and the application will rejected. The Loan 

Servicer will communicate to the applicant the Agency’s decision and follow 

the applicable requirements of RD Instruction 2033-A for file retention.

If the terms of the transfer meet the Agency’s requirements, the Underwriter 

will communicate to the Loan Servicer that the assumptions used in the 

application are reasonable and the application will proceed. The Loan Servicer 

will communicate to the applicant the Agency’s decision to continue 

processing the transfer application. 

The Loan Servicer will provide the applicant with a status update within 30 

business days of receipt of the application.

5. Submit to RD HQ for Concurrence and Authorization for approval by the State 

Director.

When the underwriter has completed the underwriting analysis using the 

information and materials supplied by the Loan Servicer, the transfer 

underwriting analytical tool or PAT, and appropriate supporting information, 

the application will be signed by the State Director and submitted for 

authorization by the RD HQ Office. The submission will include the 

underwriter’s recommended conditions and estimated closing date. 
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6. Agency Decision.

RD HQ will review the underwriter's package and recommendations. Upon 

acceptance of the information, a letter authorizing the State Director to 

formally approve the specific transfer pursuant to program regulations, 

funding, etc. will be provided to the State Director within 15 business days.

7. Prepare Approval Conditions for Signature of Applicant.

Within 15 business days of the date the authorization is signed by the RD HQ 

Office designate, the State Director will notify the applicant of the specific 

approval conditions. The Applicant will signify acceptance of approval 

conditions by endorsing and returning the duplicate set of the State Director's 

approval letter.

8. Coordinate Closing Instructions and Loan Document Approval from OGC.

The Loan Servicer will coordinate closing instructions and any necessary loan 

document approval with OGC and the closing agent within the closing 

timeframe authorized in the transfer approval letter. The Loan Servicer will 

also establish the new buyer's account in AMAS and MFIS within the 

timeframes established in the accounting system, and input necessary budgets, 

worksheets, etc. as required by the AMAS tips.

9. Schedule and Close Transfer.

The designated closing agent will coordinate the delivery of the RD closing 

documents, complete the scheduled closing as directed and deliver the 

necessary documentation to RD to properly evidence closing, recording, etc.

10. Complete post-closing review and verification.

The Loan Servicer will finalize the buyer's account in AMAS and MFIS to 

ensure the transaction complies with all of the applicable loan and operational 

conditions authorized for the transaction.

B. Procedure for Incomplete Transfer Requests

If at any point, the Loan Servicer determines that additional information is required 

from the purchaser in order to complete processing, the Loan Servicer will notify the 

purchaser in writing as follows:

• Explain the deficiency and describe what additional information is needed and 

the timeframe for submitting the additional information.

• RD’s timeframe for processing the transfer request may be extended for not more 

than 30 business days beginning with the date of the notice to the applicant.

• If the information is not submitted within the extension period, RD will consider 

the transfer request to have been withdrawn and return the application.
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C. Denial of Transfer Request

The Loan Servicer may issue a denial of the transfer request at any point during the 

process. Appeal rights should be given for denials as submitted. Grounds for denial include, 

without limitation:

1. Eligibility issues as determined by the specific program regulations for RRH 

and LH, and this Handbook:

• Ineligible transferee; or

• Ineligible project.

2. Feasibility issues, such as:

• CNA does not meet RD requirements;

• The proposed transfer does not address the property’s physical needs;

• The appraisal submitted does not meet RD requirements;

• The proposed transfer does not address all compliance issues;

• Proposed Operations and Maintenance (O&M) expenses are not adequate 

for the project’s long-term viability;

• Proposed net operating income (NOI) is not sufficient to meet the general 

industry standard of 1.15 debt service coverage ratio (DSCR) through year 

three for all amortizing debt that is being placed on the property with the 

proposed transfer transaction;

• Proposed rents exceed the lesser of CRCU or restricted rents unless an 

exception is allowable under the regulation; or

• Proposed rents are not adequate to support the property’s long-term 

viability.

3. Financial issues, such as:

• The proposed transfer would not bring all loan accounts current;

• The taxes and insurance account will not be adequately funded, with all 

outstanding bills paid; and

• The security deposit account will not be fully funded.

4. The proposed management is not acceptable as required in 7 CFR 3560.102 

and further described in RD HB 2-3560.

5. The proposed transfer will not correct all outstanding findings sufficiently to 

allow re-classification of the property to an acceptable level. In some cases

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the agreement to transfer ownership may be considered part of an

acceptable workout plan for MFIS entry together when any further servicing 

actions determined appropriate to meet the best interests of the government 

and the tenants. Some transfer requests may be unacceptable as submitted 

but could be acceptable with specific modifications. At any point during the 

process, the Loan Servicer may inform the applicant accordingly, using the 

procedure in paragraph 7.6 B. Incomplete transfer requests not corrected 

within 30 business days will be withdrawn or rejected, as appropriate.

6. Proposed sales price and/or equity payout exceeds the allowable maximum, but 

the transfer request would be acceptable if the sales price and/or equity 

payout were reduced, or the buyer demonstrates the ability to provide 

sufficient other resources not otherwise impacting proposed project rents, 

RTO or eligible cash flows, security or other RD requirements. See Section

7.4 definition for Non-Equity Compensation in this Handbook. Applications 

without sufficient resources to fully fund all proposed project costs, needs 

and uses will be rejected for lack of financial feasibility. All sources and uses 

must balance.

7. Proposed rents exceed the lesser of CRCU or rent restricted rents, but the 

transfer request would be acceptable when the applicant provides sufficient 

justification and RD agrees with the rents necessary to operate the property.

8. Proposed RTO exceeds the allowable maximum, but the transfer request would 

be acceptable when the proposed RTO is reduced.

9. The proposed management and/or management documents are not acceptable 

under the requirements of 7 CFR 3560.102, but the transfer request would be 

acceptable when acceptable management/management documents are 

substituted. See Paragraph 7.18 for a further explanation of what is 

acceptable.

10. The transfer request would be acceptable when an acceptable tenant 

protection plan is included. See Paragraph 7.27 for a further explanation of 

what is acceptable.

D. Payments Received While Transfer Pending

During the period in which a transfer is pending in the Field Office, Deputy Chief, 

National Financial and Accounting Operations Center (NFAOCS) will continue to apply any 

payments received to the transferor’s account. Such payments include any down payments 

made in connection with the transfer for reducing the amount of the debt to be assumed.

• Identification. Project Worksheets must be submitted by the transferor at least 

seven days prior to transfer closing. Project Worksheets must reflect the prior 

month’s activity that will be credited to the transferor’s account. This will ensure 

the transferor receives the RA check and has time to deposit it into the project 

account. Refer to MFIS Tip #2 (January 2008, revised August 2012) for 

additional guidance on processing transfers in AMAS.

• Payment. An interest-only installment payment may be required from the 

transferor. Refer to the AMAS Manual for further guidance on when this would 

be collected and how it is to be processed. Refer to MFIS Tip #2 (March 2008) 

for additional guidance on processing transfers in AMAS.
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E. Uncompleted Transfer

If for any reason a transfer will not be completed after approval, the Loan Servicer 

will immediately notify the State Office Loan Underwriter of the reason with a request to 

withdraw the application and resume normal servicing of the project account.

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7.7 RENTS

SECTION 2: POLICY CONSIDERATIONS

A. Budget/Reasonable Rents [7 CFR 3560.406 (d)(2)]

The Loan Servicer must review the budget submitted by the transferee to determine 

whether the budget provides for reasonable rents that the persons eligible for the units in 

question can afford. If the transferee is proposing a rent increase, the submission from the 

transferee should include information on market rents for comparable units in the area, and 

documentation that the units will be marketable at the proposed higher rents. In addition, the 

proposed basic rents for the project upon completion of the transfer must be the lesser of 

CRCU or the restricted rents. This standard is a benchmark meant to maintain the 

affordability of program units and avoid increasing RD Rents above local conventional rents, 

a situation which could lead to non-competitive rents, excessive vacancies, or demand for 

new or increased rental assistance to remedy any underutilization of units by inappropriate 

occupancy standards.

With the case-by-case approval of the RD HQ the rent standard may be exceeded in a 

transfer, but only if the buyer agrees to fund a cash escrow from non-project and nonamortizing funding sources such as grants, soft loans, etc. sufficient to cover necessary 

operating, maintenance, and reserve costs at the property being transferred for the term of the 

RD loan for any amount exceeding the CRCU rents. This might occur in areas experiencing 

an economic decline that has led to rents in conventional properties being set below break- even levels. While an increase in RTO or financing equity payout to a seller may sometimes 

be an appropriate servicing action, neither will be authorized. These are not valid factors to 

consider in assessing whether property viability creates a need to exceed CRCU.

The Loan Servicer should be particularly diligent in analyzing the budget and 

proposed rents when the transferee will also receive a subsequent loan or other third-party 

financing, or there are significant repairs or rehabilitation plans. The Loan Servicer must 

consider both the short-term impact of loan payments the transferee must make immediately 

following the transfer, and the long-term feasibility of the budget and rents to allow for a 

successful project. If there is any deficiency in the budget or rent structure, the transferee 

must take appropriate corrective action as part of the transfer actions.

Third-party debt-service increases can be built into the rent only if the new debt is 

designated for, and actually disbursed for, eligible Section 515 loan purposes unless otherwise 

used for necessary eligible purposes as prescribed when using a Section 538 GRRH loan. If 

the transaction includes a GRRH loan as part of the final underwritten transaction, a portion

of the maximum total allowable development fee may be included as part of the GRRH loan 

provided there is sufficient cash flow at the rents determined appropriate for the specific 

transaction and which do not exceed the lesser of CRCU or the allowable LIHTC rents in 

effect at the time of transfer approval. Loan Servicers will ensure the developer fee is 

reasonable, and does not exceed the maximum allowable by their state tax-credit allocating 

agency.

Eligible Section 515 loan purposes include costs that are RD-approved repairs and 

improvements, and eligible soft costs which include legal, technical, environmental, and 

professional services [7 CFR 3560.53]. For additional guidance on eligible loan purposes, see 

Paragraph 12.6 of RD Handbook 3560-3, Attachment 4-B of HB-1-3560, and 7 CFR

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3565.205 if a GRRH loan is also authorized for the transaction. If additional debt is being 

allowed for projects using a RD Section 538 GRRH loan, eligible purposes may also include 

those defined in 7 CFR 3565.205.

The effective date of any rent increase resulting from a repair/rehabilitation loan is 

following the completion of the approved repairs and/or improvements.

In addition, the Loan Servicer should review the budget:

• To determine if the project reserve levels are sufficient to allow for the necessary 

maintenance of the property over a 20-year CNA period. If there are any 

deficiencies, the borrower must take appropriate corrective action; and,

• To ensure a minimum combined operating allowance and vacancy loss is provided 

that does not fall below the industry standards outlined previously in Chapter 7.2 D 

2.

B. Conventional Rents for Comparable Units (CRCU) Limitation [7 CFR 

3560.406 (d) (2)]

In addition to RD’s contractual requirements and any HUD Section 8 requirements, 

rents in RD-transfer properties are further limited by Federal regulations. Program 

regulations [7 CFR 3560.406(d)(2)] require the buyer to agree to set Basic Rents at the 

housing project, covered by the assumed loans, at levels that do not exceed CRCU rents in the 

area.

Attachment 7-A, Revitalization Guidance, under Revitalization principles number (5) 

states that post- transaction Basic Rents will not exceed the lesser of CRCU or restricted 

rents. All the following must be reflected in project Basic Rents except as provided below:

• project equity;

• rehabilitation;

• RD or non-RD debt service;

• reserve deposits;

• operating costs; and,

• RTO.

Before determining the amount of equity pay out or the amount of the new RTO, RD 

will first establish a new reserve deposit level that is adequate to fund all reserve-eligible 

needs according to the CNA, and will establish a new O&M expense level that is adequate to 

support the project.

The CRCU rents used for transfer underwriting are established using information from 

one of the following:

1. An appraisal meeting RD requirements (See HB-1-3560, Chapter 7 and 

Attachment 7-C of HB-1-3560); or
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2. An Area Market Rent Survey (AMRS) meeting RD requirements. If an AMRS is 

used, RD’s Statement of Work (SOW) should be used. RD’s guidelines for an 

AMRS are available in any RD office.

3. When no appraisal is required, i.e., no new RD funds are provided, the transfer is 

on same rates and terms, no additional senior debt or subordination is being 

requested, and there is no change in the currently authorized RTO, and a current 

AMRS has not been provided, one of the following alternative methods may be 

used to establish CRCU rents:

a. Determinations by third parties:

• Paragraph 4.18 of HB-1-3560 discusses a market study to establish the project 

need which may be conducted by an appraiser, and a market survey by a non- appraiser to establish the market need for the units. These are two different 

types of analysis used for different purposes. The market study by an appraiser 

to establish a possible rent for valuation purposes does not establish CRCU 

rents; however a market survey by a non-appraiser would be acceptable to 

establish CRCU rents.

• If the third-party is an appraiser, an AMRS would be appropriate as discussed 

above. There is no need to order a market study.

• If the third party is not an appraiser, a market survey may be used to establish 

CRCU rents.

b. Determinations by State Office staff:

• State office review of advertised rents for comparable conventional properties.

• State Office knowledge of rents being charged in the area.

Basic Rents used in RD underwriting are capped at 100 percent of the lesser of CRCU 

or the restricted rents if the proposed transfer includes any increased RTO or an equity payout 

to the seller. Non-equity compensation cannot have an impact on rents.

In other situations when the proposed post-transfer rent increase is solely to support 

operations, including increased annual reserve deposits based on the approved CNA, Basic 

Rents may exceed CRCU, but may not exceed 150 percent of CRCU [7 CFR 3560.406(d)(2)]. 

RD HQ prior concurrence is required when Basic Rents exceed CRCU.

NOTE: Loan Servicers should note that field office authority is capped at 100 

percent of CRCU for transfer transactions. RD HQ Multi-family Preservation and Direct 

Loan (PDLD) concurrence is required for any situation in which CRCU will be exceeded for 

any transfer transactions.

A rent increase may be justified when it is solely to support operations for increased 

O&M expenses and/or an increased reserve deposit. Annual rent increases should be limited 

to not more than 10% per year. If a larger rent increase is necessary to meet required third 

party underwriting requirements, the rent increase may be phased in to meet such 

requirements.

If the rent increase includes debt service on a new loan, Basic Rents must be at or 

below CRCU. RD may consider an exception if the rent increase is solely to support 

operations if all of the following are true:

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• No equity is being paid out;

• No increase in RTO;

• 100 percent of loan proceeds are used for the hard cost of repairs and other 

eligible purposes; and

• The rents are phased in by the transferee at not more than 10% per operating 

year. Shortfalls must be offset by the transferee from non-project sources or funded 

with additional third party debt.

In cases in which the existing Basic Rents exceed CRCU, the Loan Servicer must 

document to the approval official that the above-CRCU rents were needed solely to meet 

operational requirements. No increased RTO or equity pay out was built into the pre-transfer 

rents. If this documentation cannot be provided, a violation of [7 CFR 3560.406(d) (2)] has 

occurred, and the State Office and PDLD must appropriately service the account to restore 

program compliance. This may impact the proposed transfer transaction.

C. Increased Basic Rents Because of New Debt Service

If rehabilitation will be performed, Basic Rents should not increase until after 

completion of construction/repairs and RD acceptance. Debt service on new debt (not 

construction permanent, bridge or interim/temporary) resulting from construction, 

improvements and repairs should not be included in Basic Rents until all eligible costs, 

funded with the proceeds of the new debt, have been expended. Interim rent increases may be 

considered for payment of that portion of the new permanent debt used to pay acquisition 

equity only if not otherwise funded with interim or bridge financing included with interim 

construction financing. 

Loan Servicers may begin the rent increase and tenant notification processes prior to 

completion of repairs so that Basic Rents can be increased as soon as possible following 

completion of repairs. Depending on the nature of the repairs and the length of the tenant 

notification period, processing of the rent increase may need to begin when repairs are no less 

than 50 percent complete so that rents can increase soon after completion of repairs. 

If debt service is included in the Basic Rents, the proceeds of the loan must be used 

for eligible Section 515 loan purposes or allowable Section 538 loan purposes as underwritten 

for the transfer. See [7 CFR 3560.53], Attachment 4-B of HB-1-3560, and 7CFR 3565.205. 

Often, new third-party debt is proposed to have a first-lien security position, and 

existing USDA loans are proposed to be subordinated and be in a second lien position. 

Subordination will not be allowed unless all proceeds of the new debt are for eligible RD 

uses.

7.8 SALES PRICE

A. Limitations

There is no limitation on the sales price that is paid solely from assumption of existing 

debt plus non-RD funds that do not affect Basic Rents, e.g. LIHTC equity, and the 

purchaser’s personal equity.

In all other situations, the sales price should not exceed the lower of two limitations:

1. The first limitation is the total of:

a. The appraised present market value of the real estate; and
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b. The balance of the Reserve for Replacements account. The balance itself must 

pass to the purchaser, but the amount can be included in the sales price when 

the approved transfer-underwriting Sources and Uses includes other sufficient 

non-permanent debt sources of equivalent amounts. 

2. The second limitation is the amount of sales price that can be supported within 

CRCU rents. For example, if the cash portion of the sales price is paid with thirdparty debt, the new debt service plus all other costs of operation including 

adequate O&M expenses and an adequate Reserve deposit must be supportable at 

Basic Rents that do not exceed CRCU.

B. Equity Payout (General)

The intended purpose of this section is to clarify RD’s position as it pertains to paying 

out equity depending on different loan situations. Generally, an equity payout pertains to 

transfers in which the seller desires an equity payment and the transfer will avert prepayment 

of the existing RD loan(s) and removal of needed affordable rental housing units. 

1. Equity Sources Not Affecting Basic Rents.

As long as the requirements of 7 CFR 3560.406(e) are met, RD generally does 

not place any restrictions on payments of equity funded with the purchaser’s cash, 

grants, tax credit equity, or third-party loans that do not depend on rental income for 

repayment. Such equity payments do not result in any increased RTO or in any 

adjustment to the Basic Rents. RD will not subordinate its first lien position to any 

such third-party loan. Owners who have previously received incentives not to prepay 

may receive additional equity from these sources. 

2. Equity Funded With RD Debt Repaid Through Rents.

Current RD policy is to fund equity payout with RD loans only in prepayment 

situations. These situations are not addressed in this Chapter. See Chapter 15 of HB 

3-3560.

3. Equity Funded With Third-Party Debt Repaid Through Rents.

Equity can be funded from a third-party loan including a Section 538 

guaranteed loan that is repaid from rental income only if: 

a. The equity amount is limited to the lesser of an amount documented in an 

appraisal acceptable to Rural Development (See HB-1-3560, Chapter 7 and 

Attachment 7-C of HB-1-3560), or an amount supportable at rents within 

CRCU, after allowing for adequate O&M expenses and an adequate Reserve in 

accordance with this chapter.

b. The restrictive-use period has not expired and the appraisal determines the 

reduction in value attributable to the remaining period of restricted use, using a 

method acceptable to RD. See Attachment 7-D and Attachment 7-A of

HB-1-3560.

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c. A new 30-year Restrictive-Use Provision (RUP) is required. See Paragraph 7.31 

D and [7 CFR 3560.406(g)] and the project received an initial loan to construct 

new units that was approved on or after December 15, 1989, and at least 20 

years have elapsed since the date of the closing of the loan

d. Subject to the restrictions of [7 CFR 3560.409], RD may subordinate its first lien 

position to a third-party equity loan that meets the requirements of this chapter 

provided RD determines that there is adequate Security Value to cover RD’s 

loans and any loans senior to the RD loans.

4. Buyer/seller/cash flow notes.

If full payment is not made in cash to the seller at closing, no rental income 

may be used to pay any of the remaining amount of the purchase price, no lien may be 

placed on the project assets or income, and there must be no provisions that provide 

the note holder with any present or future interest or claim in the property, income, or 

assets of the property being sold or relinquished. 7 CFR 3560.406(c)(5) further 

provides that there must not be any provision that allows the property to revert back to 

the original owner for any reason during the term that any RD loan remains 

outstanding. These types of transactions are frequently referred to as buyer, seller, 

cash flow or carryback notes and do not meet RD requirements for recognized debt 

types. Therefore, they cannot be paid with project revenues or subsidies at any time an 

RD direct loan, grant or other RD authorized assistance remains outstanding on the 

property.

5. Use of Equity Loan Proceeds.

Proceeds of a proposed equity payout must be in accordance with [7 CFR 

3560.406(e)].

The Agency cannot permit any equity payment to the borrower as part of an 

ownership transfer or sale of a property if any of the following conditions exists:

a. The borrower's indebtedness to the Agency is not being paid in full or is not 

being assumed by the transferee. The Agency will require that all or part of an 

equity payment be applied against other Agency loans owed by the borrower if 

payments on the other loans are not current.

b. Any prior non-Agency liens against the property that are not paid in full or not 

being assumed by the transferee under this Chapter.

c. Any required housing project financial accounts are not funded at required 

levels, less authorized withdrawals; or any payments due for operation and 

maintenance expenses, tax assessments, insurance premiums, tenant security 

deposits or other obligations incurred as a part of housing project operations 

are not paid in full.

d. Any management, operation and/or maintenance deficiencies cited in a 

compliance violation notice issued to the borrower by the Agency are not being 

corrected as part of the ownership transfer process.

e. The borrower entity is, at the time of the ownership transfer or sale, cited by 

the Agency or other Federal, state, or local agencies for violations of Fair 

Housing or Equal Opportunity requirements without prior consent of RD HQ.
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6. Determining Equity When Repairs Are Required.

When repairs are required to be completed before any equity is paid out to the 

seller and all parties to the transaction, including all participating lenders, mutually 

agree that such repairs cannot be completed due to seasonal opportunity or other 

circumstances beyond the seller’s control before the transfer occurs, the Repair 

Agreement (See Attachment 7-B-1, Transfer Application Documents) must include a 

guarantee acceptable to RD, that the actual repair costs will not exceed the estimated 

repair costs. This guarantee, which may take the form of a cash escrow, bond, 

enforceable letter of credit or other valid form of surety acceptable to RD, will be 

provided by either the seller or purchaser to assure timely completion of the repair.

7. RD Approval.

The State Director may authorize a transfer involving equity payout only if:

a. Any equity payout being proposed is paid from non-USDA funds,

b. The equity payout will not result in an increase to the Basic Rents,

c. No increase is proposed to the RTO,

d. There is no modification of any USDA loan, and

e. The buyer and seller do not hold an Identity of Interest (IOI) as defined by RD 

regulations.

C. Equity Payout during the Term of an Existing RUP

When the property is nearing the end of its RUP, borrowers who are considering a 

transfer sometimes want to be compensated for the profits they hope to make from a future 

prepayment. The purpose of this section is to discuss how USDA will respond to requests to 

include equity payments to the seller as a Use of Funds in transfer transactions when the 

property is still within its RUP period.

a. No equity payout is allowed from USDA loan funds.

b. Equity payout is allowed from other funds, typically using a third-party loan, 

provided that the transfer otherwise meets the requirements of this chapter. See the 

discussion above for Agency requirements for third-party equity loans.

c. RD understands that the Uniform Standards of Appraisal Practice do not permit 

the prospective value of a conversion to market-rate operations to be taken into 

account in determining market value if there are 10 years or more remaining in the 

RUP.

d. RD requires appraisers to use a discounted cash flow approach to value in 

determining market value (unrestricted) when the RUP has not expired. The 

discounted cash flow projection would reflect regulated operations through the end 

of the RUP, through a conversion period to market-rate operations.

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D. Non-Equity Compensation Payments

When there is no equity in the project, the transferee may choose to pay additional 

compensation as part of the negotiations with the transferor to reach a mutual agreement for 

the transfer. This situation is most appropriate when the buyer determines that the transfer 

will be in their best interests if they were to offer assistance to remove an existing RD 

borrower with compliance or performance problems, and RD concurs that non-equity 

compensation is less expensive than liquidating the property.

The State Director must request RD HQ to authorize the transaction. No RD loan 

funds may be used to pay the non-equity compensation. See Paragraph 7.29 F.

The proposed non-equity compensation must be applied first to satisfy any non- USDA claims, e.g. third-party loans, before any amounts may be paid to the seller/transferor.

7.9 RETURN-TO-OWNER (RTO)

A. RTO in General

The transferee’s initial investment and RTO, will be determined by RD analytical 

analysis at the time of transfer approval. The new owner's RTO will be computed based on 

the provisions of the Agency’s current transfer guidance and principles.

The maximum potential RTO for RD MFH transfers is based on the net cash flow 

from project operations, as determined by use of the RD analytical tool, PAT. The RTO 

calculation considers the amount of tax credit equity [as defined in 7 CFR 3560.406(d)] that is 

used for the RD RRH eligible hard costs of construction purposes (defined in 7 CFR 3560.68) 

and any additional owner contribution for hard construction costs in establishing the 

maximum RTO the specific project will support. The maximum potential RTO the buyer

may be eligible to earn annually throughout the term of the loan is determined by RD at the 

time of transfer approval. This maximum RTO is computed through an analysis of the 

Rehabilitation total hard costs eligible under the RD Section 515 Program less all new Loans 

that do not exceed the RD as improved Security Value determined at the time of loan 

approval.

The new RTO may not exceed the amount remaining from the projected Net 

Operating Income (NOI) less debt service for all loans without agency debt deferral as 

determined in the final RD underwriting used for the transfer approval. NOI for payment of 

RTO will be based on the project budget post-rehabilitation, using rents not exceeding the 

lessor of CRCU or LIHTC or other restricted program rents, and after deducting all operating, 

reserve, vacancy, and other cushions and approved project operating costs.

If the transfer is from a non-profit to a limited-profit borrower, the initial investment 

to be shown in the loan agreement or resolution will be “None” unless the transferee 

contributes additional equity.

RTO as established for the transfer closing will remain unchanged throughout the term 

of the RD loan(s) included, assumed, or modified at the time of transfer closing unless 

modified at a future date by RD as part of an approved servicing action.

B. RTO Based on Low Income Housing Tax Credits (LIHTC) Equity [7 CFR 

3560.68] (Paragraph 5.12 of HB-1-3560)

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HB-3-3560

RTO in LIHTC properties is based on cash, not loan proceeds, invested in hard costs 

of construction as calculated in the RD PAT.

• Cash for this purpose includes LIHTC equity as defined in this Chapter.

• Hard cost for this purpose means actual material and labor cost only and does not 

include general requirements, overhead, general contractor fee/profit, or 

development fees to be paid from LIHTC syndication proceeds.

Loan Servicers should note that the authority for this RTO calculation is found in 7 

CFR 3560.406 (d). The actual calculation is carried out in the RD analytical template (PAT) 

required by RD HQ. Note that this RTO calculation for transfers differs from the RTO 

calculations for prepayment transactions and the ROI calculations used in the project's 

initial/original development.

If the new RTO approved for the transfer decreases, it will be effective immediately 

upon closing and accrue to the new owner. Increased RTO does not begin until the associated 

repairs have been completed, inspected and accepted by RD. Until repairs have been 

completed and inspected, the existing ROI/RTO authorized in the seller’s RD Loan 

Agreement/Resolution continues to be applicable and may be earned by the buyer for as may 

be provided in the purchase and sales agreement.

If the new RTO will begin in the future, there should be an addendum made to the RD 

Loan Agreement or Loan Resolution used for the respective type of transferee. The 

addendum should include language such as the following:

A maximum potential earned annual authorized Return to Owner (RTO) in the amount 

of $ ( ) has been determined allowable by RD based on the Agency's analytical 

analysis used in authorizing the transfer to the borrower named herein. The 

authorized RTO replaces any previous reference to Return-on-Investment (ROI) or the 

payment thereof which may be otherwise referenced herein. Any increase in RTO may 

only be earned starting the beginning of the first project fiscal year following the 

completion and RD approval of the agreed-upon rehabilitation.

The addendum must be submitted to the Regional OGC for review of any state law

issues.

The maximum new RTO is the amount supportable within NOI set forth in Paragraph

7.2 D 2 for the property using the post-rehab operating budget expenses, reserves and debt 

service used in the transfer underwriting analysis and documented in the PAT at the time of 

transfer approval. However, new maximum potential RTO described in 7.2 C is also limited 

to an amount that is at or below the lesser of CRCU or the LIHTC rents.

In reality, the purchaser may not be able to earn the full RTO in any given year.

• The Loan Agreement will contain the maximum potential new RTO based 

on the RD analysis and will remain the same for the term of the RD loan.

• The RTO amount in each year’s budget may be lower because there may 

not be room in that year’s proposed rents for the full RTO.

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• The amount of RTO actually earned in each year may also be below the 

maximum RTO.

• RTO will not be allowed for any amount that exceeds the maximum 

potential described in this Chapter. 

Tenant protection requirements may apply when increased RTO is approved. See 

Section 7, Paragraph 7.27 B. 

The new RTO authorized by RD is specific to the property transfer transaction and 

will apply for the remaining term of the loan unless authorized as a separate future servicing 

action by RD which allows modification of the RTO. 

7.10 FEES TO DEVELOPER

A. Developer Fees in General

In accordance with §3560.54(a) (9), payment of a developer's fee is not an eligible use 

of RD loan funds unless they are being used in conjunction with a Section 538 GRRH loan in 

the transaction. The fees may be included in the total development costs if they are paid from 

other sources when analyzing the Federal Government assistance to the project. 

• The Agency may recognize a developer's fee paid from other sources on 

construction or rehabilitation of up to 15 percent of the total development costs 

authorized for LIHTC purposes, or by another Federal Government program. 

• For transfer proposals that include acquisition costs, the developer's fee on 

the acquisition cost may be recognized up to eight (8) percent of the acquisition 

costs only when authorized under a Federal Government program providing 

assistance.

The developer's fee is not included in determining the Agency's maximum debt limit 

and loan amount. Debt service on new debt may not be included in Basic Rents unless all 

proceeds are used for eligible Section 515 loan purposes. See acceptable uses at 7 CFR 

3560.53, and 7 CFR 3565.205, if applicable. 

RD recognizes, however, that some non-RD funders may allow developer/builder fees 

that are reasonable in their specifically defined and designated circumstances but such fees 

are not eligible for payment from any project revenues or sources. There is an exception for 

Section 538 loans, which can include a developer fee, however the maximum RD allowable 

rents may not be sufficient to support the amount of Section 538 debt and will require either a 

reduction or deferral of all or part of this fee.

B. Deferred Developer Fee

In LIHTC transactions with third-party funding, the maximum developer fee 

allowable may exceed the amount that can be paid in cash from the transfer transaction’s 

sources of funds. The amount of the unpaid developer fee is referred to as a deferred 

developer fee. Sponsors expect to collect their deferred developer fee from cash flow derived 

from the future successful operation of the property. The deferred developer fee may not be 

paid from operations. They may be paid from authorized RTO that is earned by the project 

and paid to the borrower. 

RD does not permit borrowers to treat the deferred developer fee as a loan or to make 

payments toward the deferred developer fee from the operating account.
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7.11 LOW INCOME HOUSING TAX CREDITS (LIHTCs)

A. Relationship between Basic Rents and LIHTC Rents -

General (Paragraph 7.4 F of HB-2-3560)

This section applies during the term in which the LIHTC rents are in effect, generally 

15 to 30 years but may be longer for some properties and in some states.

LIHTC rent limitations require that the owner charge tenants no more than the 

maximum LIHTC rents. Therefore, LIHTC maximum rents may differ from the Basic Rents 

that are established in accordance with RD requirements. It is also possible that there will be 

different LIHTC rents for the same unit type due to differing LIHTC affordability 

requirements. See Paragraph 7.11 C. of this Handbook for a discussion of Tax Credit Rents.

The following is a summary of the relevant provisions of Chapter 7 of HB-2-3560, 

provided here for convenience, and does not modify or supersede HB-2-3560:

1. Basic Rents continue to be set by RD at the level necessary to provide for the 

physical and financial viability of the project. Basic Rents may be higher or lower 

than the maximum LIHTC rents.

2. If Basic Rents are higher than the maximum LIHTC rents, then:

• The tenant portion of rent may not exceed the maximum LIHTC rent.

• For tenants receiving RA and for tenants receiving Section 8 vouchers, the 

borrower may collect the full amount of RA or Section 8 voucher amounts not 

greater than Basic Rent without violating LIHTC requirements.

• When RA is not available, the borrower is responsible for any shortfalls in 

revenue including all overage. See 7 CFR 3560.202(g).

3. If Basic Rents are equal to or lower than the maximum LIHTC rents, then:

• The tenant portion will be based on 30 percent of the adjusted monthly income.

• If 30 percent of the tenant’s adjusted monthly income is above Basic Rent:

 If the project was allocated LIHTCs after 1990, the borrower may charge 

tenants the appropriate overage due without regard to the maximum LIHTC 

rent. [Internal Revenue Code §42(g)(2)(B)(iv)]

 If the project was allocated LIHTCs in 1990 or earlier, the borrower may 

not charge tenants more than the maximum LIHTC rent, and the borrower is 

responsible for any shortfall in overage that the borrower must pay to RD 

from non-project funds. See Paragraph 7.4, Exhibit 7-3, Example 2 of HB- 2-3560.)

 The determining factor is the allocation year for the LIHTCs. This factor 

would need to be verified with the State agency that allocated the LIHTCs.

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The LIHTC maximum rents have no bearing on Note Rate rents, which continue to be 

set in the same manner as in non-LIHTC projects.

B. Tax Credit Rents in LIHTC Transactions [7 CFR 3560.202(g)]

The same unit type may not have more than one Basic Rent. However, in a Section 

515 LIHTC property include multiple Tax Credit Rents based on the LIHTC award granted to 

the transferee. See Attachment 7-C, Tax Credit Rents in Transfer Transactions, for a detailed 

discussion of a Tax Credit Rent.

If rental income from Tax Credit Rents is less than what is needed for the property to 

cash flow, the borrower will be responsible for funding this shortfall as outlined below.

C. Financial Viability When Basic Rents Exceed Maximum LIHTC Rents

If the proposed transfer involves a revenue shortfall because Basic Rents exceed 

maximum authorized Tax Credit Rents and the estimated shortfall is less than the post- transfer RTO, the borrower will receive less than the full RTO. Each Form RD 3560-7 must 

show a positive cash flow on Line 30, and will show a level of RTO that is less than the 

maximum allowable RTO.

However, if the estimated shortfall is more than the new post-transfer RTO, the 

proposed transfer is not viable unless the borrower proposes a funding mechanism together 

with reducing the RTO to zero that is sufficient to cover the likely revenue shortfalls. An 

example of an adequate funding mechanism is an operating deficit reserve, funded from non- USDA funds that is adequate to cover projected revenue shortfalls over the LIHTC 

compliance period. A borrower’s promise to pay future shortfalls over and above reducing 

RTO to zero is not an adequate funding mechanism, unless the promise is backed by a 

guarantee from a creditworthy entity.

RD HQ will provide technical assistance to State Offices on a case-by-case basis in 

implementing Tax Credit Rents.

7.12 OTHER POLICY CONSIDERATIONS

A. Principal and Interest during Construction

If the transfer includes new financing, any payments toward the new financing during 

construction must be paid from third-party funds and may not be paid from the operating 

account. The Sources and Uses of Funds statement should include a category entitled 

Construction Loan Interest or Construction Period Interest, and should show funds sufficient 

to pay any construction-period interest and/or principal on third-party debt.

Principal and interest on the pre-existing USDA loan(s) will continue to be an 

authorized payment from the operating account during the construction period.

Loan Servicers should expect that, typically, construction loan interest will be built 

into the construction loan amount.
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B. Transactions with Multiple Sources of Funds

Transfers may involve a variety of non-USDA funds such as LIHTC equity, HUD 

funds under the HOME or CDBG programs, and various State and local government 

programs, private loans, and private grants.

1. In these complex transactions, Loan Servicers will consider the following in order 

to ensure that costs are reasonable and that Basic Rents are no higher than 

necessary:

a.RD requirement that Basic Rents not exceed CRCU. See Paragraph 7.7 B.

b. RD guidelinesto protect unassisted tenants against transfer-related rent 

increases. See Paragraph 7.27 B.

c.Subsidy-layering analyses by other government funders. Loan Servicers 

should request these analyses and should review them if provided. See the 

paragraph below on non-USDA funds.

d. The purchaser’s applications to other funders, including any updated 

applications. Loan Servicersshould require that purchasers provide these.

e.The final cost certification audit, if one is required by other funders. (This is a 

requirement for most HUD programs and for LIHTCs.) Loan Servicers 

should require that purchasers provide such documents. As a reminder, RD 

requires a cost certification audit whenever new RD funding is provided and an 

identity of interest exists, as defined by 7 CFR 1924.4 (i).

f. RD requirementsthat any loans, whose debt service will be built into the Basic 

Rents, be expended solely for eligible purposes. See Paragraph 7.7 C.

2. When non-USDA funds are involved, Loan Servicers should address the following 

items when evaluating a transfer request:

a.Loan Servicers should coordinate with other government funders so that the 

objectives of all of the funding agencies are achieved. When all the 

government funders speak with a united voice, it is more likely that the 

appropriate public purpose objectives will be achieved. The Loan Servicer 

should contact the other government funders to determine their objectives, 

concerns, and constraints, and to share USDA’s objectives, concerns, and 

constraints.

b. Government providers of funds are required to have completed a subsidy 

layering or other analysis that is similar to the USDA Sources and Uses 

Comprehensive Evaluation (SAUCE) analysis to determine all the sources

and uses of funds in the transaction, and to ensure that all government sources 

of funds are not more than necessary to carry out the transaction. This 

analysis will include determining that the proposed levels of compensation to 

the seller, purchaser, and contractor are acceptable. The Loan Servicer should 

request a copy of the subsidy layering analysis from each of the other 

government funders, including the LIHTC allocating agency. A USDA 

SAUCE analysis is required as follows:

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• A USDA SAUCE analysis is required only if a subsequent RD loan is 

proposed.

• In tax credit transactions, if the RD State Office obtains and accepts the 

tax credit agency’s subsidy-layering review, no SAUCE analysis is 

required.

c.Loan Servicers should determine whether the non-USDA funds are 

unconditionally committed, conditionally committed, or merely applied for. 

Loan Servicers should understand the conditions in other funders’ conditional 

commitments. If funds are not yet firmly committed:

• Typically, USDA would withhold approval of the transfer until firm 

funding commitments from other funders have been received.

• However, a third-party funder may need evidence of USDA’s support for 

the proposed transaction. The State Office may issue a conditional 

approval conditioned on receipt of firm funding commitments that 

specifies that USDA approval will be withdrawn if a firm commitment is 

not received, and that the transfer cannot close until a firm commitment is 

received.

• See Paragraph 7.29 H, for transfers involving a workout plan for a 

discussion of a rare situation in which it might be prudent for RD to allow 

a transfer to close prior to receiving the firm commitment for third-party 

funding.

• RD understands that purchasers who are utilizing tax credits may want to 

accelerate the timing of the transfer in order to meet the tax credit 

carryover requirement to expend at least 10 percent of total funds for the 

transaction. In these situations, State Offices are encouraged to cooperate 

with purchasers. Sometimes this will result in transfers being closed 

before all non-USDA funds are firmly committed. In such situations, the 

State Office should reach written agreements with the purchaser regarding 

what will happen if the intended non-USDA funds are not actually 

received.

d. Loan Servicers should understand the funding timetables of the other funds 

providers. They should be aware of when funding decisions will be made; 

and when initial funds will be available to be drawn by the purchaser. If the 

funding timetables of other funds providers are available early enough to 

support the viability of the transaction, the Loan Servicer should discuss the 

situation first with the other funders, and then with the purchaser and seller to 

attempt to identify solutions.

e.Loan Servicers should establish when funds will be provided. Often, loan funds 

are provided only when the purchaser has already incurred the costs and 

requests reimbursement from the funder. Typically, LIHTC equity funds are 

paid partially at the start of construction, with the balance being paid over an 

extended period typically ending at some point well after construction 

completion. These situations may lead to a need for interim 

bridge/construction financing. The Loan Servicer should request a monthly 

sources and uses of funds statement from the purchaser to verify whether

there will be sufficient sources of funds to cover each month’s estimated uses 

of funds.
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f. Loan Servicers should determine if other funders require reserves other than the 

Replacement Reserve. Often an additional operating reserve, rent up/lease up 

reserve, or some similar account may require the owner to replenish any 

withdrawals that occur over the course of the loan from project cash flows or 

excess cash. These reserves will not be replenished by any project funds or 

from project operations, and must be funded directly by the owner or from 

earned RTO.

g. Loan Servicers should understand when funds can be withdrawn and what 

approvals are required for withdrawal, and then decide whether those 

provisions are acceptable to RD.

h. Loan Servicers should determine whether there will be conflicts in regulatory 

requirements; i.e., differences in reserve requirements. If so, they should 

work with the purchaser to identify solutions acceptable to RD. An 

appropriate inter-agency or inter-creditor agreement must be in place not later 

than the time of closing.

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SECTION 3: PRELIMINARY ASSESSMENT

7.13 PRE-REQUEST CONSULTATION WITH BORROWER AND TRANSFEREE

Purchasers are encouraged to consult with RD prior to submitting a transfer request.

Prior to submitting a transfer request, either the borrower or transferee will likely 

contact the Loan Servicer to discuss what documentation is required as part of a transfer. The 

Loan Servicer should provide the transferee with the list of required documents (See 

Attachment 7-B-1, Transfer Application Documents) and should encourage discussion with 

RD as questions arise during preparation of the transfer request. The Loan Servicer should 

also explain the process and provide any documentation necessary to assist the transferee in 

understanding RD’s eligibility requirements and the basis used to evaluate a transfer 

application [7 CFR 3560.406].

Purchasers or Sellers may request that RD provide Attachment 7-E of HB 1-3560 

Appraisal Information Sheet. Purchasers may request RD assistance in assembling the 

information referenced in Attachment 7-F of HB 1-3560, Appraisal Data Package Checklist. 

The request to RD for a transfer should come from the current borrower per [7 CFR 3560.406 

(c)].

7.14 INITIAL RD REVIEW FOR COMPLETENESS

A complete application must include all of the information listed in Attachment 7-D 

of this handbook, Transfer Request Checklist, before it can be reviewed for underwriting. If 

the application is incomplete, the application will be returned to the applicant with an 

explanation in sufficient detail outlining the items needing to be addressed to consider the 

application for underwriting review.

7.15 CONSULT WITH PDLD REGARDING UNUSUAL TRANSACTIONS

Unusual and complex transactions not addressed in this Chapter should be identified 

and resolved as early as possible. State Offices should discuss unusual transaction features 

with PDLD as necessary to allow continued processing of the transfer request.

Transaction features that should be discussed with PDLD may include:

• Features that may require coordination with other agencies; e.g., the transaction 

includes new debt that is FHA-insured or Section 8 assistance provided by HUD.

• Exceptions to regulations or exceptions to this chapter that may be required.

• Transactions with proposed third-party financing in which the new debt service is 

proposed to be built into the new Basic Rents. The State Office and PDLD will 

need to discuss the USDA requirement that loan proceeds be expended for eligible 

purposes [7 CFR 3560.53 and Attachment 4-B of HB-1-3560].

• Transactions that have participated in or are participating in the MPR Revitalization 

Loan Program.

• Unusual or novel transactions likely to raise policy issues.

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SECTION 4: EVALUATING THE TRANSFEREE

7.16 DETERMINE TRANSFEREE ELIGIBILITY

This Chapter only provides guidance to transfer a project to eligible applicants as 

prescribed in the Housing Act of 1949. The Loan Servicer will evaluate the transferee’s 

eligibility based on the items submitted as part of the transfer request including evaluation 

and verification that:

• The transferee and the property satisfy the general program eligibility 

requirements;

• Identity-of-Interests are disclosed;

• Legal capability, formation, and capacity information has been provided; and

• The requirements of this Chapter are satisfied

If there are any deficiencies, the Loan Servicer will notify the transferee and, as 

appropriate, the borrower as outlined in Paragraph 7.6 B to establish a plan for their timely 

resolution.

A. U.S. Citizenship/Qualified Alien Status Requirements

Purchasers must provide to their attorney acceptable evidence of U.S. citizenship and/or 

qualified alien status.

Acceptable evidence of U.S. citizenship may include a valid U.S. birth certificate, a valid 

U.S. Passport, a valid U.S. Certificate of Naturalization, or other acceptable evidence of U.S. 

citizenship proposed by the applicant and determined by the Agency. Acceptable evidence 

of qualified alien status may include valid documentation issued by the U.S. Citizenship and 

Immigration Services (USCIS), or other acceptable documentation of qualified alien status 

proposed by the applicant and determined by the Agency.

Attorney Certification. The applicant’s attorney must review applicable evidence to verify 

U.S. citizenship and/or qualified alien status, must certify that the Agency’s U.S. citizenship 

and/or qualified alien status eligibility requirements are met by all purchaser applicants, and 

must submit the certification for Agency review.

The Loan Servicer will review the attorney certification to ensure the outlined 

citizenship/qualified alien status requirements are met.

B. Organizational Requirements

The Loan Servicer will ensure that the following requirements have been met.

• The organizational documents: (a) are properly signed; (b) include the correct 

state statute for the purchaser organization; (c) provide appropriate proof of 

organization and filing information; this may be in the form of a certification or 

opinion provided by the applicant's attorney or register; and (d) the State 

documentation and all necessary recording information is included. The Loan 

Servicer will then forward the organizational documents to OGC for review.

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• Form AD 1047/1048 Certification Regarding Debarment and Form HUD-2530 

Previous Participation Certification, will be used to identify the principals of the 

purchaser entity. The Loan Servicer will then check the principals against the list 

of debarred individuals at (https://www.sam.gov/portal/SAM/#1) and will 

document the results.

• Form RD 1910-11 Applicant Certification Federal Collection Policies for 

Consumer or Commercial Debts, will be properly completed and signed by the 

necessary parties.

C. Legal Capability

The Loan Servicer must make a determination of the transferee’s legal capability to 

successfully assume and operate the project based on an attorney’s letter and organizational 

documents submitted as part of the application. The Loan Servicer may obtain OGC 

concurrence as needed to make such a determination. If there are any deficiencies, the Loan 

Servicer should follow the procedure in Paragraph 7.6 C. 

D. Additional Requirements for Existing Borrowers

If the transferee is an existing borrower with existing or past RD loans, and is 

acquiring title under the same name, refer to [7 CFR 3560.55(b)] and Section 3: 4.16, 

Paragraph D of HB-1-3560, for a detailed discussion on further eligibility requirements for 

current or previous borrowers. (Existing borrowers currently have one or more outstanding 

loans with RD and the ownership name will remain the same.) For existing borrowers and 

key principles the transferee must:

• Be in compliance with all program requirements or have been in compliance with 

an approved workout agreement for a minimum of six months for all other 

projects owned by members of the assuming entity; 

• Have documented evidence that the conditions that resulted in any workout 

agreement were beyond the borrower’s control and were not due to inappropriate 

actions by the borrower; and 

• Have no outstanding adverse audit or investigation findings issued by the OIG. 

Any OIG audit or investigation must be closed or disposed of to the satisfaction of 

OIG. If there is an open audit or an investigation is underway, the Loan Servicer 

will contact OIG to determine if there are potential eligibility issues that may 

affect the transfer.

E. Identity-of-Interest

During the preliminary assessment, the Loan Servicer should have determined if the 

transfer involves an Identity-of-Interest (IOI) as defined in RD regulations. The Loan 

Servicer will verify that all IOI companies listed on Form RD 3560-30 have filed Form RD 

3560-31.

As with non-IOI transfers, Loan Servicers must not approve IOI transfers until the 

State Office can certify that the following conditions are met:

• All RD loan accounts being transferred must be current.

• The reserve account is on schedule, less any authorized withdrawals.
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• The taxes and insurance account is on schedule, and all outstanding bills are 

paid.

• The tenant’s security deposit account is fully funded.

• All outstanding unacceptable maintenance items have been resolved to

RD satisfaction.

• Management issatisfactory, and there is an approved management plan

and management agreement, if applicable.

• The transferee is in compliance with equal opportunity and fair

housing requirements.

Completion of this step ensures that IOI transferees receive appropriate RD assistance 

in restoring security properties to compliance through transfers.

F. Insurance

All RD properties are required to be able to obtain and maintain insurance as require 

by program regulations. Applicants incapable of providing evidence of insurability prior to 

closing, are not eligible and will be processed under Paragraph 7.6 C. Completion of this step 

ensures that RD’s security properties will be protected from all damage and loss following 

transfers.

G. Site Control

The transferee’s documentation must show enforceable control of the property as 

described in Paragraph 7.6 A 2. As explained under [7 CFR 3560.61(d)], the transferee must 

own the land when the transfer is closed, or have an RD approved leasehold interest in land. 

Most commonly in transfer situations, site control will be in the form of an option-to- purchase from the borrower or in the form of a purchase contract. If the purchaser does not 

yet have site control, i.e., the right to purchase the project without further consents from the 

seller, the Loan Servicer should decline the transfer request and return the application to the 

purchaser.

H. Eligible Transferee

Attachment 7-A, Revitalization Guidance, states that when the transaction is 

complete, the property will be in the hands of eligible owners. The post-transaction owner 

must be capable and willing to operate the revitalized property in accordance with the 

purpose and intent of the RRH program, and be considered eligible within program 

requirements.

An applicant will be considered ineligible if the applicant is currently in non- compliance with existing RD regulations including equal opportunity, fair housing, and 

accessibility requirements; or has an outstanding finding of non-compliance issued by RD 

including failing to follow any outstanding workout plans to which they are a party.

7.17 FINANCIAL REQUIREMENTS

Refer to Paragraph 4.18 C of HB-1-3560 for a detailed discussion on reviewing the 

transferee’s financial capability. The credit report and financial statement are the two 

primary documents the Loan Servicer uses to determine financial capacity. The Loan 

Servicer will follow the process outlined in RD Instruction 1910-C to order credit reports.

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Revised (01 06-17) PN 492
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As part of this financial review, the Loan Servicer must verify that:

• The transferee possesses the financial capacity to carry out the obligations required 

for the loan;

• If applying for a subsequent loan, the transferee is unable to obtain sufficient credit 

elsewhere at rates that would allow for project rents within the payment ability of 

eligible residents; and

• The transferee has the financial ability to meet the program’s requirements unless 

mitigated by the strength and ability of the key principles and documented in the 

application. In some cases, the applicant may voluntarily offer mitigation 

considerations (e.g. the principals offer evidence to document having clean credit, 

strong diversified financial capacity and the property will be managed by a third party 

management agent with relevant and positive MFH experience) to compensate for any 

short comings.

In transfer situations, the Loan Servicer’s review of transferee financial capacity can 

generally be limited to the following:

• A determination that the transferee is solvent, i.e., not in danger of financial 

failure because of debts and obligations unrelated to the project.

• By reviewing the commercial credit report, the applicant entity and the principals 

have demonstrated credit worthiness in meeting past and present financial 

obligations.

• The absence of financial issues that might call into question the transferee’s ability 

and willingness to operate the project in accordance with RD requirements, e.g. 

evidence that the transferee has a history of financial compliance violations.

• If the transaction calls for cash equity from the transferee, documentation that the 

transferee has sufficient financial capacity to provide that amount of cash equity. 

See above mitigation considerations.

7.18 MANAGEMENT CAPACITY

The transferee must demonstrate that it will provide management acceptable to RD 

under [7 CFR 3560.102(e)] to ensure successful operation of the project. The Loan Servicer 

should refer to:

• Paragraph 5.9 E of HB-1-3560 for guidance on analyzing overall management 

capacity.

• Chapter 3 of HB-2-3560 contains detailed information on analyzing the 

management plan and the management certification, if applicable.

• IOI management companies being retained by a transferee must be held to the 

same standards as all other management agents successfully managing RD 

properties.

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SECTION 5: EVALUATING THE PROJECT

[7 CFR 3560.406(c) and (d)]

7.19 DETERMINE PROJECT SUITABILITY

The purchaser’s written statements and the financial and operational history of the 

project will typically demonstrate that there is still a need for the project, and that the project 

is not obsolete. If there are questions, however, the Loan Servicer should refer to Chapter 6 

of this Handbook to determine if additional analysis is required to verify that there is still a 

need for the project and the project is not obsolete. Any additional analysis should be 

prioritized in order to meet the timeframes for processing the transfer request.

Prior to entering into a transfer or other revitalization process, RD must be satisfied 

that favorable patterns in housing and population statistics indicate the property will be 

needed to provide affordable rental housing to eligible tenants in the community.

• The determination of need will be documented in the case file. More complete 

documentation will be required if vacancy exceeds 10 percent during the most 

recent 12 months.

• [7 CFR 3560.651 through 3560.663] may also be used during the transfer process 

for guidance in making this determination.

7.20 DETERMINE PROJECT ELIGIBILITY

The Loan Servicer should ensure that major components of project eligibility were 

verified during the loan origination process and are not affected by a transfer. However, the 

Loan Servicer should take the necessary steps to ensure that the project remains an eligible 

property. Typically, the purchaser’s written statements (See Attachment 7-B-1, Transfer 

Application Documents) and the project’s operational and financial history will provide the 

primary foundation for determining that the project will continue to be eligible.

The following addresses the various aspects of the project eligibility that are required 

in Paragraph 4.17 of HB-1-3560 and that were reviewed when the project was originally 

developed. In processing the transfer request the Loan Servicer should consider all of the 

following.

A. Civil Rights Impact Analysis

This requirement is satisfied through the civil rights review discussed in Paragraph

7.21. In addition, the State Civil Rights Coordinator is invited to participate in the site 

inspection. See Paragraph 7.22 B.

B. State Historic Preservation Office

This requirement is generally not applicable. See [7 CFR 1700] for additional 

guidance.
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C. Flood Hazard Determination

See Paragraph 7.22 E 3 for a discussion of when Form FEMA 81-93 Standard Flood 

Hazard Determination will be required.

D. Design Review

If required by local building codes or enforcement agencies, or due to the scope and 

nature of the planned rehabilitation, the applicant, loan servicer and underwriter should 

consult RD Instruction 1924-A, any outstanding CNA guidance, and the respective program 

requirements for rehabilitation and repair designs that may require professional and technical 

assistance.

Applicants also intending to participate in the LIHTC program should discuss any 

additional design reviews that may be required to receive tax credits with the RD staff to 

coordinate development plans. See also Chapter 7.21 to determine if additional design 

review is needed to ensure full compliance with requirements.

E. Prohibited Conditions

An example of prohibited conditions for a transfer is high vacancy in the area. This 

requirement is not applicable as an eligibility factor unless additional RD funding is

proposed, in which case the Loan Servicer will consider Prohibited Conditions in connection 

with the new funding. See Paragraph 4.17 of HB-1-3560. High vacancy in the area would, 

of course, be a significant factor affecting project feasibility. Any other affordable housing 

projects in the market area also need to be evaluated to determine if there is a continuing need 

for the property being transferred.

F. Other Project Eligibility Requirements

The Loan Servicer must verify that all Required Written Statements for a transfer as 

outlined in this Chapter were provided. See Attachment 7-B-1, Transfer Application 

Documents.

A restrictive-use agreement will be required [7 CFR 3560.406 (g)]. See also 

Paragraph 7.31 D.

7.21 CIVIL RIGHTS AND ACCESSIBILITY COMPLIANCE

1. The Civil Rights Coordinator or designee will conduct a civil rights and 

accessibility compliance review, provided one has not been completed in the past 

12 months. This review is usually conducted during the physical inspection. The 

review must be conducted to ensure that the project complies with the:

• Section 504(c) of the Americans with Disability Act, which covers accessibility 

requirements;

• Section 504 of the Rehabilitation Act of 1973;

• Title VI of the Civil Rights Act of 1964; and

• Title VIII of the Fair Housing Act of 1968.
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2. The transferee must take action to mitigate any civil rights and accessibility 

concerns identified. Examples of civil rights deficiencies may include, but are not 

limited to, the following:

• Failure to market units in accordance with Form HUD 935.2A, Affirmative Fair 

Housing Marketing Plan (AFHMP) - Multifamily Housing;

• Inconsistent treatment of applicants when screening for occupancy;

• Inconsistent treatment of tenants when assigning units;

• Borrower failure to have documented the self-assessment review of civil rights 

and accessibility practices;

• Improper waiting lists and tenant selection routines;

• Delaying or deferring maintenance; and

• Handicapped accessibility concerns.

Any project in which civil rights and accessibility concerns have been identified will 

not be approved for transfer without review by the Civil Rights Coordinator. The transfer file 

must include the civil rights and accessibility review by the Civil Rights Coordinator.

7.22 PHYSICAL INSPECTION

All transfers require completion of a Capital Needs Assessment (CNA). For 

properties of nine units or more, an independent third-party CNA is required.

For properties with eight units or fewer, this requirement may be satisfied in either of 

the following ways:

1. A third-party CNA.

2. The purchaser accepts RD underwriter’s average CNA needs for projects of 

similar age and condition.

• RD underwriters will compile the amount of CNA needs approved for transfers 

and MPR transactions for the present fiscal year and most recent past 2 fiscal 

years to determine the approximate total CNA needs per unit in their 

respective state office areas and obtain HQ PDLD concurrence prior to 

utilization.

• The average needs would be entered into the PAT and adjusted to add inflation 

for years 2-20 using the same inflation rate as used for O&M expense 

assumptions in the specific project’s underwriting.

• RD HQ may publish from time to time a revised per-unit-per-year amount 

reflecting the average needs from recent CNAs on a national basis which may 

be used if the state data is insufficient to present representative CNA cost 

estimates.

• Underwriters should contact their respective HQRU for assistance.
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Based on this information, transfers may require re-sizing of the reserve balance, i.e., 

a one-time additional deposit to the reserve may be required at the closing of the transfer; 

and/or re-sizing of the ongoing deposits, i.e., a higher on-going deposit may be required, so 

that future major repairs and replacements can be funded solely from the reserve.

The CNA includes an evaluation of any accessibility needs [7 CFR 3560.406(d)(9)] 

and must identify all immediate and long term repair and rehabilitation needs.

See [7 CFR 3560.406(d) (5)].

A CNA provides a repair schedule for the property in its present condition, indicating 

repairs and replacements necessary for a property to function properly and efficiently over a 

span of 20 years. It is not an estimate of existing rehabilitation needs, or an estimate of 

rehabilitation costs. If any rehabilitation of the MFH property is planned as part of the 

proposed transfer, the rehabilitation repair list (also called a “Scope of Work”) should be 

developed outside of the CNA and must fit within the available funding resources being 

proposed. This rehabilitation repair list may be developed by the owner, a project architect, or 

an outside party (such as the CNA Provider, when qualified) hired by the owner. A copy of 

the rehabilitation repair list or Scope of Work should then be provided to the CNA Provider 

and will be reviewed and incorporated into the transfer underwriting analysis. The cost of 

such repairs and rehabilitation will be shown in the Sources and Uses in the PAT. The as- improved CNA/Reserve Analysis section of the PAT, will reflect only those capital items not 

initially fully cured in the RD approved Scope of Work and will be required to repaired or 

replaced within the 20-year analysis period of the PAT 

A. CNA Requirements

See the current RD CNA Unnumbered Letter at http://www.rd.usda.gov/files/02-18- 16%20CNA%20UL.pdf or contact your local RD office for more specific information about 

RD CNA requirements.

At a minimum, CNA submissions must contain all of the components identified 

within the 20-year cycle specified by RD. Incomplete CNAs will be returned and the 

application may be rejected upon the applicant’s failure to supply this information for any 

application over eight units.

For transactions that do not include third-party fully funded rehabilitation, the CNA 

scope of work requires the CNA provider to assess and evaluate the current ‘as-is’ physical 

condition of the property and, using the Estimated Useful Life table that is included as part of 

the Statement of Work, develop a 20-year Replacement Reserve schedule showing the timing 

and costs for the maintenance, repair, and replacement of all capital items at the property.

For transactions that include third-party funded rehabilitation, e.g., transactions 

involving the acquisition of tax credits, the scope of work requires the CNA provider to use 

the proposed and RD -approved third-party funded rehabilitation scope, and develop a 20-year 

Replacement Reserve schedule that assumes that the third-party funded rehabilitation will 

occur as planned. Because the rehabilitation will not be funded from the reserve, RD does not 

require the CNA to include the rehabilitation, and does not require the CNA provider to review 

the rehabilitation costs or scope.

Typically, the draft CNA is subsequently revised based on input from RD, the 

purchaser, and/or other funders to project the “Post Rehab” CNA indicating what repairs are 

planned for the property in the coming 20 years based on conditions after the rehabilitation is
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completed. Items to be replaced during rehabilitation, such as appliances, that will need to be 

replaced again during the 20 years will be included in the “Post Rehab” CNA. Items, such as 

a new roof, that will not need replacement during the coming 20 years may also be included 

in the “Post Rehab” CNA- if the EUL is more than 20 years. The line item should not be 

removed from the CNA, but no data input will be necessary until an updated CNA is 

required. Appropriate comments should be included in the CNA report to acknowledge the 

scope of work or rehabilitation repairs that were considered.

B. State Office Review of CNA

A draft of the completed CNA should be submitted by the CNA provider to the State 

Office for review by the State Designated CNA Reviewer. The State Designated CNA 

Reviewer will advise the CNA provider of any deficiencies in the report and, when these 

have been addressed by the provider, the state designated CNA reviewer will sign off on the 

final report. Processing of the CNA will begin when the State Designated CNA Reviewer’s 

approval of the CNA has been provided.

After receipt of the draft CNA, the Loan Servicer will make an on-site inspection of 

each vacant unit and 10 percent of the remaining units in the project being transferred. When 

substantial rehabilitation issues are involved, additional units may be inspected. The State 

Architect and Civil Rights Coordinator are encouraged to participate in the on-site inspection.

The purpose of the inspection is to ensure that the transferee’s plans are adequate to 

ensure that RD’s decent, safe, and sanitary criteria are met. The inspection will also help RD 

assess compliance with applicable civil rights, accessibility, and environmental requirements.

The Loan Servicer will conduct a compliance review if one had not been completed in 

the past 12 months prior to the physical inspection. Pictures of any deficiencies will be made 

part of the applicant’s file.

C. Finalize Detailed Repair and Rehabilitation Plans and Costs 

[7 CFR 3560.406(d) (7)]

For RD-funded repairs, the detailed repair and rehabilitation plans and costs will be 

based on the CNA. The Loan Servicer should consider whether some or all of the repairs 

should be supported by contractor bids. For third-party funded repairs that were excluded 

from the CNA, the detailed repair and rehabilitation plans and costs will be based on similar 

analyses conducted for the purchaser and third-party funder that the Loan Servicer will 

review.

RD and the transferee must agree to and document all necessary repairs to make the 

housing decent, safe, and sanitary. The funds with respect to any work that will be completed 

after the transfer will be escrowed or otherwise placed under funding controls acceptable to 

the RD, and a plan for such work must be submitted. The plan will identify each repair, the 

time frame for completion, an estimate of costs for each item, who will do the work, and any 

Identity-of-Interest between the transferee and the parties doing the work or providing 

materials or services. RD must concur with the plan as part of the approval of the transfer.

If any tenants will be temporarily relocated during the rehabilitation, the transferee 

must have a detailed plan, acceptable to RD, for providing housing and services to these 

tenants. RD must concur with the plan as part of the approval of the transfer. The relocation
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Exhibit 7-2

Funding Sourcesfor Repairs

The following is list of funding sources that may be used for any improvements or 

repairs.

• Transferee’s cash contribution;

• Syndication proceeds;

• Reserve amount being transferred if the amount remaining will be adequate to 

meet near-term repair and expense needs;

• Transferor funds;

• Third-party funding sources;

• Junior liens;

• Subordination; and

• Rural Development loan funds only to the extent needed for essential repairs to 

ensure that the housing is decent, safe, and sanitary if no other funding sources 

are available.

plan should detail the number of tenants who will be relocated, the number of days each 

tenant will be displaced, the daily estimate for lodging and meals, and details of other costs as 

applicable; e.g., temporary storage costs and transportation costs.

The level of review and documentation of a transferee’s repair and rehabilitation plans 

should be adequate based on the level of repairs and rehabilitation required for the property. 

The objectives of the analysis are to ensure that the property is in full compliance with 

program requirements, the plans meet the best interest of the tenants, and the transferee has 

the financial and management capacity to fulfill the plans.

Exhibit 7-2, Funding Sources for Repairs, lists acceptable funding sources used to pay 

for improvements or repairs.

D. Required Repairs and the Repair Agreement

The Repair Agreement (See Attachment 7-B-1, Transfer Application Documents) 

between the seller and purchaser must address all repairs that RD will require in connection 

with the transfer to be completed within the first 12 months of operation under the new 

owner.

These repairs will be identified in the CNA for completion in year 0 (for health and 

safety related repairs) or year 1.

• Year 0 health and safety-related repairs must always be addressed in the Repair 

Agreement.
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• Year 1 repairs must be addressed in the Repair Agreement unless the Loan 

Servicer directs otherwise. For example, the Loan Servicer might agree to exclude 

year 1 items that are currently functioning but are estimated to require replacement 

within one year so long as they are specifically identified and addressed in 

underwriting and the PAT.

The Repair Agreement must ensure satisfactory and timely completion, generally 

within 12 months following closing. Satisfactory arrangements could include any of the 

following:

• Completion of urgent repairs as a precondition to RD's acceptance or approval of 

a transfer request, or the closing of the transfer.

• Withholding of funds to pay for repairs from proceeds of the transaction with the 

funds being under RD’s control.

• Funding of RD required repairs from the proceeds of a subsequent Section 515 

loan.

• Inclusion of funding for RD-required repairs in a repair escrow that is 

administered by a third-party lender, under procedures acceptable to RD.

E. Environmental Review [7 CFR 3560.406 (d)(4)]

1.Environmental Review under the National Environmental Policy Act (NEPA).

RD approval of a transfer will normally qualify as a categorical exclusion and 

will not require preparation of any environmental review document, provided the 

proposed transfer will not alter the purpose, operation, location, or design of the 

project as originally approved. If the transfer includes additional financial 

assistance, the appropriate level of environmental review will be completed in 

accordance with 7 CFR part 1970 and Chapter 3, Section 3 of HB-1-3560.

2.Due Diligence.

When additional RD financial assistance is involved, due diligence will be 

performed for a transfer in accordance with the procedures identified in Chapter 

3, Section 3 of HB-1-3560. Normally, due diligence will be completed in 

conjunction with the appraisal, if one is being done.

3.Documentation of Flood Hazard Determination.

Form FEMA 81-93 will be completed for all transfers involving new RD 

funding, and for any projects that did not have a flood hazard determination at 

the time of original development.

4.Correction of Deficiencies and Documentation.

Both the NEPA review and the due diligence report, as appropriate, will be made 

a part of the transfer file. Any outstanding concerns noted in either document 

must be resolved prior to approval of the requested action. The State 

Environmental Coordinator should be consulted for further evaluation and 

guidance on any such problems.

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F. Advance RD Approval Required for Third-Party Funded Repairs

When there are third-party funded repairs, RD must approve the repair plan and cost 

estimate for the third-party funded repairs. Costs in the final plan will be evaluated by RD 

using cost data sources recognized by the housing industry.

G. Reserve Must Be Adequate to Meet 20-Year Capital Needs Based on CNA

Funding of the reserve account should be adequate in accordance with CNA 

requirements to meet estimated reserve-eligible needs over a 20-year analysis period. If 

appropriate, a one-time additional reserve deposit to be made at the closing of the transfer

will be included in the costs of the transaction, and may affect the revitalization transaction’s 

feasibility. Increases to annual reserve account funding will be included in the estimation of 

post-transaction rents and may affect the revitalization transaction’s feasibility. The Loan 

Servicer will implement the reserve account changes approved in the transfer as required by 7 

CFR 3560.306(j) which provides guidance for any change to reserve account requirements.

The minimum reserve deposit that RD may consider will be the greater of (a) the amount 

required by the most restrictive rent program or third-party lender that will be in place on the 

property upon completion of the transfer and all repairs; or (b) rehabilitation or other 

improvements. Reserve accounts shall not be used to meet the CNA needs during the period 

covered to such an extent that the project will no longer have sufficient amounts to meet the 

routine servicing needs typically anticipated in the annual budget cycle unless appropriate 

servicing actions have been initiated by the RD servicing office.
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SECTION 6: EVALUATING FEASIBILITY

7.23 EVALUATE FEASIBILITY

Feasibility analysis is the process by which RD determines that the proposed transfer, 

if implemented, would support the property’s long-term viability.

Feasibility analysis involves, without limitation, assessment of the proposed budget, 

the CNA, the proposed reserve deposit, any proposed payment to the seller, the proposed 

financing, and the proposed rents. For transfer analysis, the underwriting tool (PAT) 

considers the ongoing future operations by assuming that Basic Rents rise no faster than 

inflation to be consistent with typical third-party lending principles that the property should 

be viable for at least the 20-year CNA analysis period provided it also complies with required 

RD servicing regulations. This analysis assumes the new owner will comply with the ongoing 

terms and conditions over the term of the RD direct loan program servicing requirements.

A. Analytical Template

In order to evaluate feasibility, the Loan Servicer will complete an analytical template 

(PAT) in the format prescribed by PDLD, and found on SharePoint. The template is designed 

to support decision-making regarding feasibility, and to serve as a record of feasibility 

decisions in processing the transfer.

B. Compliance Issues

The transfer must address all known compliance issues whether relating to physical 

condition, financial condition, management findings, occupancy findings, civil rights and 

accessibility findings, or other issues that must be resolved in order to maintain compliance 

with RD requirements.

C. Repair Related Issues

The Loan Servicer will ensure that the CNA complies with the statement of work, that 

it accurately reflects the property’s physical needs, and that the transfer is otherwise 

acceptable to RD.

• If the transferee is planning to make substantial repairs or undertake rehabilitation 

of the property, the Loan Servicer will consider whether the transferee’s initial 

plans seem reasonable and that the estimated repair costs seem reasonable.

• If the transferee is proposing significant up-front rehabilitation, that there are 

adequate provisions for supervising the work, inspecting the work, and controlling 

the repair funds.

• The Loan Servicer will ensure there are sufficient sources of funds to carry out 

repairs and to pay other costs of the proposed transaction.

D. Third-Party Funding Issues

The Loan Servicer will determine whether:

• All sources of funds are committed. If not, whether it is plausible that firm 

commitments will be received in time to close the transfer as planned;
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• Any third-party funding sources impose additional restrictions on the real 

property;

• Any third-party funding sources impose additional affordability requirements; or

• Any third-party funder requires a balloon payment prior to the expiration of the 

proposed RD loan terms.

The Loan Servicer should document any additional requirements and determine how 

they affect the operation of the project. For example, LIHTC and HOME funding involve 

additional restrictions on tenant eligibility and the maximum rents that may be charged.

E. TenantImpact

If the proposed transfer is likely to result in the physical displacement of tenants, e.g., 

because of planned rehabilitation work, the Loan Servicer will consider whether the proposed 

transfer includes an adequate tenant relocation plan.

If it is likely that the proposed rent increase will result in the economic displacement 

of tenants, unless adequate protections are in place, the Loan Servicer will consider whether 

the proposed transfer includes adequate protections for tenants and the terms, conditions and 

funding source for such protections.

F. Rents and the Proposed Operating Budget

The Loan Servicer will consider the following to determine if the rents and proposed 

operating budget are sufficient for the operation of the housing as follows:

• Whether the CRCU rents are sufficient; see Paragraph 7.7 B;

• Whether the proposed transfer requires a rent increase; if so, determine 

whether the proposed rents will be at or below the lesser of CRCU or restricted 

rents;

• Whether the proposed O&M expenses are sufficient to support the property’s 

long-term viability;

• Whether the proposed budget meets the minimum combined cushion and 

vacancy loss, see Paragraph 7.2 D 2;

• Whether the NOI is sufficient to meet the industry standard debt service coverage 

ratio (DSCR); see Paragraph 7.2 C 13 or 7.2 D 2;

• Whether the level of rent loss. i.e., vacancy plus bad debt, is reasonable in 

relation to the property’s historical performance and local market conditions; see 

Paragraph 7.2 D 3;

• Whether the proposed operating budget includes an adequate operating margin 

equal to 20 percent of the total operating expense as underwritten (See Paragraph 

7.2 D 5) so that the property can absorb reasonable, foreseeable fluctuations in 

revenues and expenses without risking deferred maintenance, default on RD loans, 

or other financial stresses;
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• Whether the Debt Service Coverage Ratio (DSCR) is within the established 

Agency thresholds, see Paragraph 7.2 C 13 or 7.2 D 2;

• Whether the proposed rents are adequate to support adequate O&M 

expenses, an adequate Reserve deposit, and other costs of operation;

• Whether the proposed rents are otherwise achievable, e.g., in relation to tenant 

incomes; and

• Whether it is likely that the purchaser will need a future rent increase above the 

rate of inflation in order to provide for property viability; if so, the transfer does not 

satisfy viability principles and is not approvable; see Paragraph 7.29 H for a 

potential exception.

G. Sales Price/Equity Payout

If the transfer calls for equity distributions to the existing owner:

• The appraisal reportshould meet RD requirementsfor determining 

equity;

• The proposed equity payoutshould comply with RD requirements; 

and

• The proposed transfer includes adequate provisions to ensure that the 

seller has met all applicable requirements before equity is paid.

H. RD Loans

Normally a transfer will involve assumption of the entire balance of the borrower’s 

existing loan. If, however, there is insufficient Security Value that will result in a shortfall, 

the Loan Servicer should determine the borrower’s intentions to address any outstanding 

balance, and whether a write-down may be required as part of the transfer. See Chapter 11 of 

this Handbook for more information on write-downs.

After the transfer, the Loan Servicer should confirm:

• All RD loans will be current;

• The taxes and insurance account will be adequately funded, with all 

outstanding bills paid; and

• The security deposit account will be fully funded.

If the transferee is requesting a subsequent loan, the proposed amount of the 

subsequent loan should be reasonable and sufficient, based on the information and supporting 

documentation reviewed by the Loan Servicer. If any RD requirements are not likely to be 

met, the Loan Servicer and Underwriter, through negotiations with the applicant, should enter 

into a credible plan to cure all of the most serious deficiencies within 12 months and the 

remainder within the first 3 years using funds provided by the applicant unless the general 

operating account is adequately funded thru planned project operations under a detailed 

workout plan, or the application should be rejected and provide the applicant with appropriate 

appeal rights.
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I. Other Feasibility Issues

The Loan Servicer will consider whether the proposed transfer will result in a project 

classification of A or B in the MFIS system; and if there are any other conditions in the 

proposed transfer or the proposed budget, that either RD or the project’s tenants may find 

objectionable. See Chapter 4 of this Handbook.
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SECTION 7: EVALUATING RD LOANS AND OVERALL RISK

7.24 EXISTING RURAL DEVELOPMENT LOANS

A. New Terms or Same Loan Terms [7 CFR 3560.406 (j)]

Loan Servicers will review the account to determine which type of transfer needs to 

occur. RD generally completes transfers on new rates and terms to extend the amortization 

period thereby reducing the amount of debt service needing to be included in tenant rents. 

RD may allow transfers at same rates and terms even if the transfer does not involve an 

increase in rents. In order for this latter type of transfer to take place, it is incumbent upon 

the borrower to demonstrate how a transfer under same rates and terms is in the best interest 

of the Government. For example, if the new owner under a transfer has applied for tax 

credits, and to qualify for 9 percent credits it is necessary to retain same rates and terms, a 

same-rates-and-terms transfer may be justified on a case-by-case basis by RD HQ.

Before making a recommendation on the transfer, the Loan Servicer should determine 

if the transfer will be on new terms or the same terms, and address any issues or obstacles that 

this may present.

B. Existing Loans/New Terms - Amortization Period and Loan Term

New rates and terms transfers require that the remaining term of the loan, i.e., the 

maturity date, does not extend past the lesser of (a) 30 years from the date of transfer; or (b) 

the remaining useful life of the property. The loan may be re-amortized over a period not to 

exceed 50 years or the remaining economic life of the property as determined by the appraisal 

report of the property, whichever is less.

The Loan Servicer typically will determine the remaining economic life of the 

housing based on the appraisal. However, the Loan Servicer may consider other information, 

including knowledge and experience of RD staff. If the remaining economic life as 

determined in the appraisal is not used, the Loan Servicer must document in the file why a 

different economic life was selected.

C. Existing Loans/New Terms - Interest Rate

Transfers on new terms are subject to the interest rate conditions described below. If 

rents are increased due to the transfer, the transfer will be done under new rates and terms if 

RD determines that this is in the best interest of the Government.

• The interest rate charged for all loans, except Labor Housing loans, will be 

the current rate being charged for those loans at the time of loan closing or the 

interest rate at the time of loan approval, whichever is lower.

• The interest rate on Labor Housing loans will be the rate specified in the note, 

generally 1 percent, except those on farm loans at the exception rate when credit 

elsewhere is available.
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D. Closing Out An Existing Loan That Will Not Be Assumed In Full

Typical transfers will result in the seller assuming the entire balance of the existing 

loan(s). If, however, there is insufficient Security Value and the existing loan balance will 

not be assumed in full, the Loan Servicer and the existing borrower must agree on the debt 

settlement of the existing loan. This is particularly important if the transfer will result in a 

loan shortfall or the borrower is requesting an equity payment because no equity will be paid.

The remainder of this paragraph discusses considerations that the Loan Servicer 

should take into account when the full balance of the existing loan will not be assumed by the 

purchaser.

The Loan Servicer should ensure that the agreed-upon resolution of a shortfall 

maximizes the borrower’s repayment ability, and avoids or minimizes loss to the Government 

unless it is in RD’s best interest to accept an option that is less than the lowest-cost option.

The Loan Servicer should ensure that the necessary actions to resolve any issues with the 

existing borrower are completed, or sufficiently complete to allow for the approval of the 

transfer. The Loan Servicer should:

• Determine if the transfer will result in a shortfall on the existing loan. If a 

write-down is needed,see Chapter 11 of this Handbook for more information;

• Initiate the debt settlement process, in accordance with Chapter 12 of this 

Handbook, if appropriate; and

• Determine if RD should pursue legal remedies against the borrower.

If there is insufficient Security Value to support the existing RD debt, the seller will 

not have equity in the property. If the seller does have equity that is supported by an 

appraisal meeting RD requirements and equity payout is proposed, consultation with PDLD 

would be appropriate. If the seller does not have equity, and non-equity compensation is 

proposed, see Paragraphs 7.8 D and 7.29 F.

7.25 SUBSEQUENT RD LOANS [7 CFR 3560.406 (h) and (i)]

RD may provide a subsequent loan or approve one from a third-party source in 

conjunction with an ownership transfer or sale of a housing project. An RD subsequent loan 

may be:

• a parity loan; sharing the first lien position with the existing RD loan;

• a junior loan; junior to an existing non-RD loan and sharing the second lien 

position with the existing RD loan; or

• a soft second from a non-RD third-party.

A third-party subsequent loan may have the first lien position, with the existing RD 

loans accepting second lien position if the loan(s) are sufficiently secured. RD will execute 

its standard Subordination Agreement.

In any case, the Government must be in a secure position. If the transferee is 

requesting or receiving a subsequent RD loan, the Loan Servicer should refer to Chapter 10

of HB-1-3560 to ensure that the transferee’s application is complete and being processed. The 

Loan Servicer should verify:
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• The subsequent loan process will be completed to coincide with the transfer closing 

to ensure a smooth closing process; and

• The subsequent loan and its impact are accurately reflected in the transferee’s budget 

and repair and rehabilitation plans.

7.26 VERIFY ADEQUATE SECURITY VALUE [7 CFR 3560.406 (d) (3)]

The Security Value (determined in accordance with the regulations cited above) of the 

project covered by RD loans to be assumed by the transferee must be sufficient to ensure that 

all RD loans being assumed and all subsequent loans offered as a part of the transfer can be 

secured to a level that fully protects RD. Soft second and deferred loans are not included in 

this determination.

The proposed debt, including existing debt being assumed and any additional debt, 

shall be counted for determining the Security Value limitations set out in [7 CFR 3560.63]. 

Third-party soft second mortgages secured only by proceeds from a future sale of the 

property may be excluded from the debt ceiling and Security Value calculations.

In all cases, Agency-approved appraisals will be required when new debt is added or 

when the transfer will be approved and closed with new rates and terms. The amount of 

indebtedness to be assumed will be based on an appraisal that complies with the Uniform 

Standards of Professional Appraisal Practices (USPAP). In no instances may appraisals be 

inflated to defer loan losses and write- offs, to avoid adverse tax consequences, or to support 

a higher tax credit basis.

7.27 ASSESS THE OVERALL RISK AND IMPACT ON RD AND TENANTS

The Loan Servicer compiles the evaluation of the eligibility, transferee, and the 

property and decides whether to recommend the transfer. Regardless of the level of detail the 

Loan Servicer went into in evaluating the transfer, the questions and process that the Loan 

Servicer must follow remain the same.

Based on the transferee’s application and the Loan Servicer’s knowledge of the 

existing borrower and property condition, the Loan Servicer should ask three questions as 

discussed in the following.

A. Is the Potential for Financial Loss to RD Better or No Worse Than With 

the Existing Borrower?

For both the seller and purchaser, the Loan Servicer should consider financial 

strength, managerial strength, and prior experience. The Loan Servicer should examine the 

security for any increase in per unit debt for RD funding. The Loan Servicer should consider 

whether any proposed third-party funds are fully committed; if not, the transfer approval 

should be contingent upon receipt of a binding commitment for the third-party funds.

B. Will Any Financial Impact on Current and Future Tenants be Reasonable?

The Loan Servicer should consider any significant change in property rents in relation 

to tenant incomes. If post-transfer rents approach or exceed CRCU and not all units are
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covered by RA or Section 8, the Loan Servicer should consider whether the non-assisted units 

will be marketable at the proposed rents.

For current unsubsidized tenants, RD may require the tenant protections described 

below as a condition of approval, in order to determine that the transfer is in the best interests 

of residents and the Federal Government pursuant to [7 CFR 3560.406(b)].

a. In these situations, RD may require that post-transfer rents for unsubsidized 

tenants be subsidized by the owner foregoing any authorized RTO, to the extent 

necessary to reduce the rental payment to the pre-transfer rent, or 30 percent of 

adjusted income, if higher.

b. If RD requires the above condition be met, the applicant/transferee will only be 

required to subsidize the difference in rents that exists at the time of the transfer 

closing for any unsubsidized tenant that is negatively impacted by the post-transfer 

rents. For example, if at the time of the transfer, the 2BR rent increased by $75, 

one unsubsidized tenant was negatively impacted, and that tenant occupied a 2BR 

unit at the time of the transfer, the subsidy to be provided by the applicant to the 

affected tenant remains at $75 per month without regard to subsequent changes to 

the Basic Rents.

c. Annual operating budgets are to reflect the amount of foregone RTO to fund the 

temporary rent protections. The obligation with respect to each unsubsidized 

tenant in place at the time of the transfer will end when the tenant:

• Receives rental assistance;

• Receives a housing voucher;

• Voluntarily leaves the property;

• Is evicted for proper cause; or

• Has income increased to pay the post-transfer Basic Rent without being rent 

over-burdened. If, for example, the pre-transfer rent is $250, at each 

recertification the unsubsidized tenant will pay the greater of $250 or 30 

percent of adjusted income, until the tenant can pay the full post-transfer Basic 

Rent.

d. The following is loan agreement language that may be used as an addendum to 

document this requirement:

As of [date],[number] income-producing units were unsubsidized units, of 

which [number] were occupied by the following Affected Tenants:

[Unit number, unit type, tenant name, pre-transfer Basic Rent, post-transfer 

Basic Rent]. Notwithstanding the authorized Return to Owner (RTO) level 

discussed in paragraph [x], the owner is responsible for any shortfall in 

overage that the borrower must pay to RD from non-project funds to subsidize 

the rents of all affected tenants. The subsidy for each unit is the difference 

between the pre-transfer Basic Rent and the post-transfer Basic Rent; that is, 

the rent to be paid by each affected tenant will be the then current Basic Rent 

minus the subsidy. The subsidy shall not increase or decrease based on

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subsequent adjustments in Basic Rents. The owner is to fund the subsidy by 

foregoing otherwise allowable Return to Owner. Annual operating budgets 

are to reflect the amount of foregone Return to Owner to fund the temporary 

rent incentives.

This obligation will end when the last of the Affected Tenants is either 

assigned rental assistance, receives a housing voucher, voluntarily leaves the 

property, has his or her tenancy properly terminated for cause, or achieves 

increased income sufficient to afford the then current Basic Rent without 

exceeding 30 percent for rent and utilities. Furthermore, the borrower at all 

times remains obligated to observe all applicable occupancy and tenancy 

requirements of USDA regulations, including 7 CFR part 3560. When 

proposing and approving rent changes during the transition, the borrower 

and USDA agree that the Basic Rent rates and utility charges for a unit will 

not be affected by whether the tenant is an Affected Tenant.

All addendums will be reviewed by the Regional OGC.

C. Will Housing Conditions Be Better or No Worse Than under the

Current Borrower?

The Loan Servicer should consider existing property conditions, any repair plans, or 

plans to increase available reserves. In addition, the Loan Servicer should examine the 

purchaser’s demonstrated record of managing property effectively, maintaining good physical 

conditions, and providing services to tenants while keeping expenses reasonable and 

necessary in comparison with comparable RD properties in the state or region.

The Loan Servicer must be able to answer these questions and explain the answers 

through the transfer application and case file documentation. The Loan Servicer must answer 

yes to all questions in order to recommend the transfer. If the Loan Servicer answers no to 

one or more questions, continue to work with the transferee to resolve any outstanding issues 

before recommending the transfer. The information the Loan Servicer receives as part of the 

application and documentation completed during the review process will account for most of 

the documentation required. However, the Loan Servicer should include a narrative 

statement in the case file explaining how the Loan Servicer reached the conclusion that the 

transfer meets RD objectives.

7.28 COMPLETE AND VERIFY APPLICABLE FORMS

Throughout the review process, the Loan Servicer must prepare relevant forms to 

facilitate the transfer and ensure that each form is prepared correctly. The forms listed below 

must be filled out to complete a transfer:

• To transfer multiple housing loans to borrowers assuming the obligations, Loan 

Servicers must prepare Form RD 3560-21. One signed copy of this form 

should be given to the transferee, another signed copy kept in the Field Office 

case file, and the original form kept in a secure location such as the Field Office 

safe.

• To transfer rental assistance, Loan Servicers need to prepare Form RD 3560-55.
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• To record borrower eligibility to receive interest credit or rental assistance, 

Loan Servicers need to prepare Form RD 3560-9.

• The proposed transfer conforms to the applicable procedural requirements and that 

determinations of hardship status, eligibility, etc. are clearly documented in the case 

file;

• Each form is prepared correctly according to the Forms Manual Insert (FMI) or other 

appropriate regulations; and

• Items such as names, addresses, and the amount of the indebtedness to be assumed 

are the same on all forms in which those items appear.

7.29 OBTAIN PDLD CONCURRENCE

When the Loan Servicer determines that all conditions have been met and is ready to 

recommend approval of the transfer, the Loan Servicer forwards the application docket and 

the official case file, with comments and recommendations, to the State Office.

If PDLD concurrence will be needed, the Loan Servicer will include in the docket the 

appropriate analytical template and any other information that will be needed for PDLD’s 

review. When requesting PDLD concurrence, the State Office will forward only the 

materials needed for PDLD’s review. The docket itself will not be forwarded to PDLD 

unless requested by PDLD, but the Loan Servicer needs to include in the docket all materials 

that the State Office will need to forward to PDLD.

To request PDLD concurrence, the State Director emails RD HQ to request PDLD’s 

concurrence, attaching only those materials that are needed for PDLD’s review. The 

following should be attached to the email:

• A transmittal summary outlining the areas in which concurrence is requested, 

discussing the relevant aspects of the proposed transfer, and certifying that the 

proposed transfer meets applicable RD transfer requirements. Use Form RD 

3560-20, Multi-Family Housing Transfer and Assumption Review and 

Recommendation.

• If an appraisal is required by this chapter, the cover letter will certify that the 

appraiser evaluated the impact of any remaining RUP using methods acceptable to 

RD, and that the appraisal was otherwise completed in accordance with applicable 

RD requirements.

• The analytical template; either PAT or in the format prescribed by PDLD.

• Any additional information that may be needed for PDLD to perform its review; 

e.g., Loan Servicer memorandum concerning proposed business terms of new 

third-party debt.

The State must also email a pdf or fax a copy of the signed request letter to RD HQ.

Prior to forwarding the docket to OGC for review, PDLD’s review and concurrence 

should be obtained and documented in the circumstances discussed below.
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PDLD review and concurrence is required for all prepayment-related transfers; i.e., 

properties being transferred pursuant to Chapter 15 of this Handbook, and any transfers that 

include changes in the terms of RD’s financing or additional investment of funds by RD.

For non-prepayment-related transfers unless otherwise stated below, PDLD’s review 

will be limited to the analytical template (PAT or in the format prescribed by PDLD) supplied 

by the Loan Servicer.

A. Equity Payout to Seller

Using the PAT supplied by the Loan Servicer, PDLD will verify that the equity 

payout amount was correctly calculated and that the Basic Rents, including an adequate 

reserve deposit and adequate O&M expenses, do not exceed CRCU.

B. Increased Debt Service BuiltInto the Basic Rents

Using the PAT analytical tool supplied by the Loan Servicer, PDLD will verify that 

Basic Rents including an adequate reserve deposit and adequate O&M expenses do not 

exceed CRCU. On a case-by-case basis, PDLD may also ask the Loan Servicer to submit the 

Loan Servicer’s determination that all uses of loan proceeds are eligible uses. In addition, the 

Loan Servicer must include in the docket, for PDLD review, a memorandum stating that the 

Loan Servicer has reviewed the proposed business terms of the new debt to verify the 

applicable RD guidelines listed below have been satisfied:

• The debt is fully amortizing;

• The maturity date is after the maturity date of all RD debt; and

• There is an agreement by the third-party lender, acceptable to PDLD, to 

extend the scheduled maturity on terms that do not require rents above CRCU.

C. Increased Return to Owner

Using the PAT supplied by the Loan Servicer, PDLD will verify that the new RTO 

has been correctly calculated as discussed in Paragraph 7.9. PDLD will verify that the 

proposed Basic Rents, including an adequate reserve deposit and adequate O&M expenses, 

do not exceed CRCU. If there are unsubsidized tenants, the Loan Servicer must include in 

the docket, for PDLD review, documentation that applicable tenant protection requirements 

have been satisfied as discussed in Paragraph 7.27.

D. Section 515 Loan Modified

If the underlying Section 515 loan(s) will be modified, e.g., change in rate, change in 

maturity date, change in Interest Credit payment or Note Rate payment, subordination, or 

modification to balance due, the Loan Servicer will document in the analytical template each 

of the proposed modifications. PDLD will review the proposed modification(s) to verify that 

applicable RD requirements have been satisfied.
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E. Basic Rents Increase More Than $25 per Month, and There Are Unassisted 

Tenants

If Basic Rents increase more than $25 per month and there are unassisted tenants, the 

Loan Servicer must include in the docket, for PDLD review, a discussion of:

• Whether the proposed Basic Rents include an adequate reserve deposit and 

adequate O&M expenses; if not, a workout agreement should be included.

• Any measures already taken to minimize the increase in Basic Rents.

• Any commitments by the State Office to transfer unused RA to this project, 

including an estimate of when unused RA might become available to this project.

• The impact of the proposed increase on current unassisted tenants.

• Any commitments by the purchaser to minimize the impact on current 

unassisted tenants.

F. Non-Equity Compensation

PDLD’s concurrence is required and PDLD will review the analytical template if the 

transfer involves non-equity compensation. See Paragraph 7.8 D.

G. Exceptions to Regulations

If elements of the proposed transaction are not in accordance with applicable 

regulations, PDLD’s approval of those elements must be obtained. PDLD will coordinate the 

approval of any exceptions that are required. Requests for exceptions must be made in 

accordance with [7 CFR 3560.8].

H. Transfers Not Meeting Viability Criteria (Transfers with Workout).

This chapter requires post-transfer Basic Rents must support an adequate reserve 

deposit so that all projected reserve-eligible needs can be funded from the reserve, and are 

adequate to pay O&M expenses. However, from time to time, State Offices may propose for 

approval transfers that do not meet these criteria; for example, when there are compelling 

reasons such as outstanding physical issues and there is a credible plan to secure additional 

funding after the closing of the transfer.

When proposing a Transfer with Workout, the Loan Servicer must include in the 

transmittal letter to PDLD:

• A comparison between the proposed post-transfer rents and the (higher) rents that 

would otherwise be required under this chapter.

• The purchaser’s plans for achieving financial viability and the time frame in 

which the purchaser plans to achieve viability.

• The written agreements between the State Office and the purchaser concerning 

the consequences to the property and the purchaser if the purchaser’s plans cannot 

be implemented. If the proposed consequences include higher Basic Rents, a 

discussion of tenant impact must be included, covering the issues outlined in 

Paragraph 7.27 B.

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I. MPR Program Tools

For transferees that have applied for or are currently participating in the MPR 

Program, awards of MPR Tools such as debt deferral of existing RD loans, grants, deferred 

payment or soft loans may be offered under an MPR NOSA. These require PDLD prior 

approval.

J. Authorization

RD HQ will provide the respective RD State Director with project-specific 

authorization based on the underwriting proposed and recommended by the state office. 

Authorities will include any appropriate waivers, exceptions, or other special conditions for 

the specific transaction. Each authorization is unique to the individual transfer transaction 

and does not establish policy or precedent. Each transfer stands on its own merits.
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SECTION 8: MAKING THE DECISION

Once RD has made the decision to approve a transfer and issue closing instructions, it 

must undertake a number of steps to implement the transfer. The steps RD takes to process 

and close a transfer on either new or same terms are similar to each other.

7.30 OVERVIEW [7 CFR 3560.406 (k)]

RD has established specific requirements for implementing project transfers to ensure 

that the obligations and responsibilities of the transferor are formally passed to the transferee 

and that RD’s security interests are protected. Specifically, these requirements ensure that:

• All accounts, property, and subsidy as applicable, with advice from regional OGC 

are properly assigned to the transferee;

• A proper loan agreement or loan resolution for the type of transferee is in effect and 

secured in the mortgage or deed of trust (typically a same rates and terms transfer 

does not require a new mortgage or deed of trust unless required by the Regional 

OGC);

• The transferor is released from liability when all RD security is transferred and 

the total outstanding debt is assumed; and

• Applicable restrictive-use provisions are required for the transferred loans. 

Exhibit 7-3, Basic Steps in Implementing Transfers, summarizes the steps Loan

Servicers and Underwriters should take to implement approved transfers and may the order 

may be adjusted to meet the specific timelines necessary to successfully complete the 

transaction. These steps should be reviewed and coordinated with the RD Underwriter 

processing the transfer request and the RD Servicer.

Exhibit 7-3

Basic Steps in Implementing Transfers

1. Determine current loan balances for transfer;

2. Prepare the closing package;

3. Review applicable closing requirements with the transferee;

4. Determine the new RUP;

5. Prepare and discussthe Letter of Conditions with applicable parties;

6. Obligate the subsequent loan, if applicable;

7. Approve the transfer;

8. OGC review for closing;

9. Close the transfer;

10. Release the seller from liability when authorized by OGC;

11. Assign leases and other legal documents to transferee;

12. Shift accounts, funds, and assets to transferee;

13. Inform new borrower of administrative responsibilities;

14. Schedule a follow-up servicing visit; and 

Monitor rehabilitation work.
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7.31 MAKING THE DECISION

A. Determine Current Loan Balances for Transfer

1. Determine the Loan Balance

To determine the current loan balance for transfer, the Loan Servicer must execute 

Form RD 3560-21 according to the FMI. The unpaid principal balance and accrued interest 

to be shown on Form RD 3560-21 is determined by accessing the project account record via 

field terminal. The Loan Servicer should contact NFAOC to verify the correct amounts and 

dates to be used in closing the transaction. The Loan Servicer will advise the transferee of:

• The total amount paid as of the closing date that has not been credited to the 

account;

• The payment required to place the account on schedule as of the previous 

installment due date;

• Payment required to bring any monthly or annual payment current; and

• The amount needed to bring the reserve account current less any authorized 

withdrawals.

The Loan Servicer must base the amount of indebtedness to be assumed on current 

appraisal regulations.

In the case of a transfer with assumption of less than the full debt, the Loan Servicer 

will attach a copy of Form RD 3560-52 to Form RD 3560-21 MFH Assumption Agreement, 

and place it in the field office safe.

2. Adjustments to the Account

Same-terms transfers, when the transferor has been converted to Predetermined 

Amortization Schedule System (PASS), must take place in a current loan status on the date of 

transfer. Thus, transferors must bring any delinquent principal and interest current prior to 

the transfer.

Overpayments and advance regular payments made on PASS accounts result in the 

creation of a future paid status account under Automated Multi-Family Housing Accounting 

System (AMAS). The Loan Servicer must work with NFAOC to determine the disposition of 

future payments; e.g., as a refund to transferor or applied as an extra payment to the 

transferee's account. Loan Servicers should refer to the AMAS Manual, Chapter 4, for 

additional guidance and document the verified information with NFAOC prior to closing.

B. Prepare the Closing Package

1. Basic Components of the Docket

The Loan Servicer should verify that any items listed in the Transfer Request 

Checklist (Attachment 7-D) and not provided earlier; e.g., evidence of insurance, have been 

submitted by the transferee.
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2. Other Supplemental Documentation 

Other transfer docket items may include: 

• Letter of Conditions;

• Mortgagee title policy;

• Title evidence or report of lien search;

• Original or certified copy of deed to any property;

• Purchase contract or other instrument of ownership;

• Assignment of HUD Section 8 Housing Assistance Payments contract; and

• Information on prior or junior mortgage(s).

Completion of this step ensures that the entire history of the transfer, from request 

through final approval, is adequately and legally documented. Maintenance of this history 

allows RD to hold transferees accountable for compliance with all agreements signed during 

the transfer process.

C. Review Applicable Requirements with the Transferee

After closing instructions have been issued but before the transfer is closed, the Loan 

Servicer will carefully review with the transferee the applicable loan program regulations, 

and loan agreement or resolution if this was not fully completed during the preliminary 

request meeting in accordance with Paragraph 7.13. 

D. Determine New Restrictive Use Period Requirement

Exhibit 7-4, RUPs for Transfers Outside the RD Prepayment Process does not address 

borrowers who are in the prepayment process (including re-amortizations in conjunction with 

incentives to avert prepayment).

For borrowers outside the prepayment process, restrictive-use provisions must be 

included in: (a) the release documents; (b) a restrictive-use agreement acceptable to RD and 

signed by the borrower; and (c) a deed restriction.

Exhibit 7-4

RUPs For Transfers Outside the RD Prepayment Process

[7 CFR 3560.406(g) and 7 CFR 3560.662 (b)]

Type of Transfer (Outside the Prepayment Process) 20-Yr 30-Yr

Third-party with debt for equity; USDA is not the lender 30-yr

All other transfers outside the prepayment process 

(no equity paid with loan funds of any type) 20-Yr
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For transfers occurring in the prepayment process, the State Office should work 

closely with PDLD, and the new RUP will be determined in accordance with applicable 

regulations and other guidance. See Chapter 15 of this Handbook.

E. Prepare the Draft Letter of Conditions

Prepare the draft Letter of Conditions, containing the proposed conditions to RD’s 

approval for the purchaser and seller to close the transfer. Review the draft Letter of 

Conditions with the purchaser. See also Paragraph 7.29.

F. Prepare to Close the Transfer and Obligate the Subsequent Loan

Normally, a new Loan Agreement/Resolution will be required for all transfers with 

guidance from the Regional OGC. The following forms are always required if changes must 

be made to the existing loan agreement or the transfer is a new terms transfer.

1. Form RD 3560-33, Loan Agreement

2. Form RD 3560-34, Loan Agreement

3. Form RD 3560-35, Loan Resolution

4. Form RD 3560-51, (Required if new RD funds are being provided).

The Loan Servicer enters the required data on borrower and project characteristics 

into the appropriate AMAS screens. The account and project numbers is updated by AMAS 

to identify the transferee when completing the transfer closing documents.

The Loan Servicer must also ensure that the proper type of loan agreement or loan 

resolution is in effect, and secured by the mortgage or deed of trust at the time of transfer.

G. OGC Review

After receiving any required PDLD concurrence, the State Director will forward the 

docket to OGC for review and preparation of final closing instructions. When transmitting 

the docket to OGC, include the draft Letter of Conditions for OGC review unless otherwise 

instructed by OGC.

If the transfer is approved, OGC will issue closing instructions. The State Office 

forwards any comments and conditions to the Field Office and gives them authority to issue 

the Letter of Conditions to the transferee. Within 10 days of receipt, the transferee will return 

a copy of the Letter of Conditions, signed and dated, to the Servicing Office. After receipt, 

the Field Office will schedule a meeting with the transferee to execute the obligating 

documents.

H. Approve the Transfer

When the transfer is approved, the Loan Servicer completes Form RD 3560-20. Form 

RD 3560-20 is primarily a record of RD’s determinations regarding the transfer.

Form RD 3560-20 should summarize all transactions involved relating to equity 

including disposition of syndication proceeds between the transferee and transferor, method 

and source of payment, payment of recoverable costs items, disposition of future payments, 

assignment of project accounts, and leases and disposition of any equipment purchased with 

loan or project funds.
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The Loan Servicer documents:

1. That the transfer will result in post-transaction balances in the project’s operating, 

reserve, taxes and insurance, and tenant security deposit accounts to at least equal 

pre-transaction levels.

2. Any necessary actions to bring the project into compliance with regulations and 

loan instruments, such as Identity of Interest Statements, delinquent payments, 

under-funded reserves, accessibility issues, and deferred maintenance.

3. That any Required Repairs that were to be completed prior to closing have been 

completed. See Paragraph 7.22 D.

If Required Repairs were determined necessary, the Loan Servicer ensures that the 

Repair Agreement (See Attachment 7-B-1, Transfer Application Documents) provides for 

completion of the Required Repairs and states which party will be responsible and the source 

of funds.

The seller and purchaser will sign page 6 of Form RD 3560-20 to certify their 

agreement with the statements within the Form that relate to the purchase contract. The 

purchase contract between the buyer and seller is attached to the form as an addendum.

Upon receipt of the transfer authorization memo from RD HQ, the State Director or 

authorized designee will prepare and issue to the Applicant the formal approval letter based 

on that authorization, including any waivers, exceptions, or other special conditions; and any 

other specific conditions unique to the individual transfer transaction deemed necessary and 

appropriate.

Frequently, the transfer approval and closing conditions are addressed in the same 

letter. However, this should be discussed with the individual regional OGC to ensure the 

timely and efficient closing of the approved transaction.

Transfers that have been underwritten, reviewed and authorized will require 

reconsideration by RD HQ if they are not closed within six months from the date of the 

transfer authorization memo.
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SECTION 9: IMPLEMENTING THE TRANSFER

7.32 CLOSING THE TRANSFER

A. Overview

RD will close the transfer according to the closing instructions received from OGC. 

After the transfer is approved, the Loan Servicer enters the transfer into the AMAS system 

within five business days after closing. The transferee has now become the new borrower.

Upon completion of the transfer, there must be no liens, third-party loans, judgments, 

or other claims against the security being transferred other than those by RD and those to 

which RD has previously agreed, unless prior written approval is obtained from RD HQ.

The parties to the transfer are responsible for obtaining legal services necessary to 

accomplish the transfer.

• A for-profit or limited-profit organization transferee may use any designated 

attorney or title insurance company to close the transfer according to the 

applicable closing instructions from OGC. The attorney or title insurance 

company and its principals or employees must not be members, officers, 

directors, trustees, stockholders, or partners of the transferee or transferor entity.

• Non-profit organization transferees may use a designated attorney who is a

member of their organization if the cost is reasonable, typical for the area, and 

earned.

B. Release the Seller From Liability

RD should release the seller from liability from any debts owed to RD when the 

housing project and all equipment, related facilities, and housing project financial accounts 

have been transferred or sold to the transferee and the transferor’s outstanding RD debts have 

been assumed or satisfied.

If all of a transferor’s outstanding RD debt is not assumed or paid off at the time of 

the transfer or sale, RD will not release a borrower from liability unless RD determines that 

the borrower is unable to pay the remaining debt from assets taken as security through the 

debt settlement procedures.

Refer to Chapter 12 of this Handbook for debt settlement procedures.

C. Assign Leasesto Transferee

All leases must be assigned to the transferee no later than the date of closing.

D. Assign Rental Assistance Agreement to Transferee

When a transferee assumes a rental assistance agreement, the Loan Servicer will 

complete Form RD 3560-55, and attach it to Form RD 3560-27, Rental Assistance 

Agreement. In addition, they will process the transfer of RA through the AMAS system. If 

the transferee does not assume an existing agreement, the units will be considered unused and 

will be recaptured in accordance with 7 CFR 3560.259.
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E. Assign Other Agreements to Transferee

If a project operates under the HUD Section 8 program, the Housing Assistance 

Payment contract must also be assigned to the transferee with prior HUD approval.

When the full amount of the debt is being assumed and an amount has been advanced 

for insurance premiums or for any other purpose, the transfer will not be completed until 

NFAOC has charged the advance to the transferor’s account.

F. Shift Accounts, Funds, and Assets to Transferee (General)

Following the assignment of leases, responsibility for the accounts, funds, and assets 

listed below is shifted from the transferor to the transferee:

• Project operating accounts;

• Reserve account;

• Tenant security deposits;

• Supervised bank accounts;

• Any fundsremaining in rental assistance contract; and

• Equipment purchased with project funds.

7.33 POST-CLOSING

A. Inform Borrower of Administrative Responsibilities

Following completion of a transfer, the transferee has several reporting and other 

administrative responsibilities that need to be satisfied. The Loan Servicer must inform the 

transferee of these requirements shortly after the transfer is closed. RD HQ may also conduct 

post-closing reviews and analysis as they deem appropriate for program monitoring and 

administration.

B. Schedule a Follow-Up Servicing Visit

The Loan Servicer should schedule a servicing visit within 90 days after closing to 

verify the transferee’s compliance with all applicable program requirements.

C. Monitor Rehabilitation Work

RD will monitor all repairs and approve payments using the procedures outlined in 

Chapter 9 of HB-1-3560. Completing this step allows RD to verify that the property will 

continue to operate in a decent, safe, and sanitary condition.

D. Reporting

Following the transfer, transferees must submit monthly or quarterly project financial 

reports to RD to document the financial viability of the project.
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E. Tenant Certifications

Transferees must ensure that current executed tenant certifications are on file with RD 

or provided for each tenant following the transfer.

F. Identification of All Creditors

At completion of the transfer, transferees must establish that there are no liens, 

judgments, or other claims against the security being transferred other than those by RD and 

those to which RD has previously agreed.

G. Verify All AMAS/MFIS Data

At completion of the transfer, the Loan Servicer will verify that all AMAS/MIFS data 

has been input or updated to accurately reflect the loan approval and closing conditions as 

underwritten, including the approved CNA and reserve funding schedules within 30 days of 

closing.

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ATTACHMENT 7‐A

PAGE 1 of 2

ATTACHMENT 7-A 

REVITALIZATION GUIDANCE

This Attachment contains Revitalization Principles adopted by Rural Development to guide 

all multifamily housing activities.

This Attachment provides guidance on using Rural Development’s regulatory authorities to 

revitalize and preserve the existing MFH portfolio through transfers and assumptions.

Prolonged reduced program funding, the portfolio’s increasing age, and existing owners 

seeking viable program exit strategies are key reasons why exceptional efforts are now 

needed to revitalize the portfolio. It will take extensive cooperation by existing owners, 

potential purchasers, non-Rural Development financiers, and Rural Development to help 

preserve this irreplaceable affordable rental housing option in rural America.

Rural Development will seek to find solutions to extend and enhance the use of each MFH 

property that continues to serve the affordable housing needs in its community. This 

attachment establishes guidance for revitalizing MFH projects using the transfer authority of 

[7 CFR part 3560].

Revitalization Principles. The goal of revitalization is to refocus resources on existing 

properties so they can meet affordable rental housing needs well into the future. Basic 

revitalization principles are summarized below.

1. There is a need for the property in the community.

2. When the transaction is complete, the property will be in the hands of eligible owners.

3. The transaction will address the physical needs of the property.

4. Existing tenants will not be displaced because of increased post-transaction rents.

5. Post-transaction basic rents will not exceed comparable market rents.

6. Any equity loan amount will be supported by a market value appraisal.

7. The PDLD concurs with equity loan amounts and new RTO, and coordinates the 

approval of waivers, National Office approvals, or revitalization related policy issues.

These principles must be documented by Rural Development’s loan servicer.

Use effective processing strategies. Rural Development must work effectively to help 

purchasers to meet timeframes and other requirements of third-party funding sources. Key 

methods to foster cooperation and efficiencies within State Office jurisdictions include:

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ATTACHMENT 7‐A 

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1. The State MFH Preservation Contact coordinates State revitalization activity.

2. Develop and maintain standard transfer processing guidance and checklists.

3. For each transaction, establish an up-front understanding for assessing capital needs, 

establishing the scope of rehabilitation and determining the appraised value.

4. Develop a good working relationship with third-party funding sources.

5. Understand processing timeframes and requirements for third-party funding sources.

6. Process and approve transactions to assist owners to meet timeframes and other 

requirements of third-party funding sources.

Fully use servicing authorities. Rural Development must creatively consider and use when 

practicable other servicing authorities to facilitate revitalization. These authorities include:

1. Subordination for third-party equity or rehabilitation loans.

2. Accept parity or junior liens for equity or rehabilitation purposes.

3. Accept pre- or post-transaction consolidations to facilitate efficient management.

4. Re-amortization of existing Rural Development debt to reduce debt service.

5. Reallocate unused RA units to assure affordability by existing tenants.

6. Allow for post-transaction asset management fee to a non-profit or public body.

7. Other waivers and National Office approvals as necessary.
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ATTACHMENT 7-B-1 

TRANSFER APPLICATION DOCUMENTS

The following is a list of the documents constituting a complete application for Rural 

Development approval of a proposed transfer. Rural Development processing will begin 

only when a complete transfer request package has been submitted.

Transfer requests must be submitted at least 45 days prior to the proposed transfer approval 

date. [7 CFR 3560.406 (c)]. Unless otherwise noted, all documents are to be submitted at the 

time of application. Form numbers and references to applicable guidance are shown in 

italics.

The Proposed Transaction

1. Executive Summary. An executive summary of significant aspects of the proposed 

transaction. Because each of the following will be supported by more detailed information 

that will also be provided, discussion should be brief in the executive summary. The 

following should be discussed:

A. Acceptable Reason for Transfer. Why the transfer satisfies at least one of the following 

(see paragraph 7.5).

• Facilitates the physical and financial revitalization of the property.

• Needed to remove a hardship to the current borrower that was caused by 

circumstances beyond the borrower’s control (circumstances constituting 

‘hardship’ are discussed in Paragraph 7.5.

• The transfer is a result of a court order requiring the division of security property.

• The transfer is being requested as an alternative to prepayment. Chapter 15 of 

HB-3-3560.

• The transfer will do no harm to Rural Development or tenants.

• Other circumstances exist which make the transfer in the best interest of the 

Government and the tenants of the project.

B. How the proposed transaction will improve or maintain:

• The viability of the property. Discuss the nature and extent of repairs. If the 

project is in an area experiencing economic stress, or if the project is experiencing 

occupancy challenges, discuss plans for ensuring that the project remains viable.

• The likelihood of loan repayment to Rural Development.

• The quality of housing for the tenants.

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C. Any concerns previously identified by Rural Development (e.g., maintenance issues, 

compliance findings) and how these concerns will be addressed.

D. Proposed purchaser.

E. Proposed management.

F. Establish that the purchaser has site control. For example, sit control can be established 

through an option to purchase, or through a purchase and sale agreement.

G. If the new proposed Return to Owner (RTO) differs from the RTO currently applicable to 

the seller, explain the reason for the proposed change and show that the proposed change 

is in accordance with applicable Rural Development requirements. See paragraph 7.0 

and Exhibit 7.3

H. Any financial commitments, financial concessions, or other economic benefits proposed 

to be provided by Rural Development. For example:

• A change in rents

• A change in interest rate or loan term or amortization.

• Rental Assistance.

• A subsequent Section 515 loan.

• Subordination in lien position.

I. Third-party funding. For each third-party funding source, discuss briefly (providing 

highlights of the more detail information called for under items 19 through 23 below):

• Funding provider (names of debt/equity providers).

• Commitment status (e.g. application submitted, conditional commitment 

received). Unless all non-USDA funds are fully committed, including a 

discussion explaining how the proposed transaction will change if some or all of

the conditionally committed funds are not realized.

• Timing issues, including:

◊ Any deadlines for Rural Development approval of the transfer, or for 

closing the transfer.

◊ When the proposed third-party funding is expected to be available to the 

project.

◊ For loans, when it is anticipated that debt service payments will start, and 

how debt service payments will be funded prior to the time that Rural 

Development will allow project operating funds to be used to pay debt 

service.

• Any restrictions that will be applicable to the project and/or the purchase, for 

example rent limitations, tenant eligibility requirements, and regulatory 

agreements. Discuss the nature and duration of any such requirements.
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(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492

• Whether any accommodation by Rural Development (such as subordination in 

lien position) is proposed.

J. Any proposed compensation to parties having an identity of interest with either the seller 

or purchaser.

K. Any proposed interim financing (for example, a construction or bridge loan) that may be 

needed to pay for uses prior to the time that third-party funding sources become 

available.

2. Required written statements. If there are exceptions, the statement should be worded 

accordingly and should include an explanation of any exceptions. For example, “there is no 

identity-of-interest ... except that [include explanation].” If information is being provided by 

key principles to mitigate shortcomings in the transferee they will be added to this section 

and signed by the parties involved.

A. Joint Statement Concerning Project Equipment and Accounts. Acknowledgement by 

the seller and purchaser that, “Rural Development will require the borrower to transfer all 

equipment, related facilities, and housing project financial accounts to the transferee 

including the operation and maintenance account, reserve account, tenant security deposit 

account, tax and insurance escrow account”. See [7 CFR 3560.406(k)].

B. Joint Statement Concerning Identity of Interest. “A statement disclosing any identityof-interest between the borrower and the party to which the housing project ownership is 

being transferred or sold.” See [7 CFR 3560.406(c)(1)].

C. Joint Statement Concerning Environmental Review. Statement by the seller and 

purchaser that, “The proposed transfer will not alter the purpose, operation, location, or 

design of the project as originally approved.”

D. Joint Statement Authorizing Release of Information to Rural Development (if thirdparty funding is proposed). Authorization from both the seller and purchaser to each 

third-party funder authorizing the third-party funder to release information to Rural 

Development.

E. Seller Statement Concerning Project Financial Condition. The seller’s statement 

“Certifying that the housing project’s financial accounts are funded at required levels, 

less authorized withdrawals, and that payments due for operation and maintenance 

expenses, tax assessments, insurance premiums, any required tenant security deposit 

accounts, and other obligations incurred as a part of the housing project operations are 

paid in full with no overdue balances or a statement explaining the housing project’s 

financial situation and the reasons for overdue payments or under-funded accounts.” See 

[7 CFR 3560.406(c)(2)].

F. Purchaser Statement Concerning Transfer. The purchaser’s written statement, signed 

by the proposed transferee or buyer, “Certify that the transferee or buyer will assume the 

borrower responsibilities and obligations specified in Rural Development program
HB‐3‐3560

ATTACHMENT 7‐B‐1 

PAGE 4 OF 14

requirements including requirements in a promissory note, loan agreement or other 

documents related to Rural Development loans held by the borrower entity.” See [7 CFR 

3560.406(c)(4)].

G. Joint Statement Concerning No Reversionary Interest. “A certification from the 

borrower and the proposed transferee or buyer that the borrower does not and will not 

have a reversionary interest in the housing project.” See [C CFR 3560.406(c)(5)].

H. Purchaser Statement Concerning Tenant Certifications. The purchaser’s plan for 

complying with the requirement that transferee must, “Ensure that tenant certifications in 

compliance with subpart D of this part for all occupied rental units are on file with Rural 

Development.” [7 CFR 3560.406(d)(10)].

I. Purchaser Statement Concerning Financial Reports. “The purchaser’s agrees to 

submit financial reports to Rural Development as required under 7 CFR part 3560, 

subpart G.”[7 CFR 3560.406(d)(12)].

J. Purchaser Statement Concerning Credit (if applying for a subsequent loan). The 

purchaser’s statement (accompanied by documentation acceptable to Rural Development) 

that, “The purchaser is unable to obtain sufficient credit elsewhere at rates that would 

allow for project rents within the payment ability of eligible residents.” Documentation 

may include letters from lenders or a certification from the applicant which identifies the 

lenders contacted along with rates and terms quote from lenders.

K. Seller Statement Concerning Five-Year Requirement (if applicable). If the seller has 

owned the project less than five years, “The sellers acknowledges that the sellers will be 

ineligible for further Rural Development loans for the remainder of the 5-year period 

beginning on the date the seller acquired the project.” Paragraph 7.5 A.

L. Purchase Statement Regarding Appraisal. A statement by the purchaser that that 

reflects, “The market value appraisal referenced in item 13 below was completed in 

accordance with HB-1-3560, Chapter 7, Attachment 7-C.” In addition, the purchaser 

must acknowledge whether there are any current restrictions or prepayment prohibitions 

on the property and must state that, “All restrictions and prepayment prohibitions were 

considered by the appraiser in determining the market value.”

3. MFH Transfer & Assumption Application Supplement. Attachment 7-B-2.

4. Partial Release or Subordination (if applicable). If the proposed transaction includes 

partial release or subordination of Rural Development’s lien, include Application for Partial 

Release. Form RD 3560-1.

5. Purchase and Sale Agreement. Submit the applicable document, executed by purchaser 

and seller, in its entirety, including all attachments and amendments. Include any side 

agreements. The document must clearly recite all consideration to be paid to the seller, [7 

CFR 3560.460 (d)(6)]. Purchasers and sellers may use Form RD 440-34 as the purchase and 

sale agreement.

6. Current Preliminary Title Report. 7 CFR 3560.406.(d)(13)]. May be omitted for 

Deceased Borrower transfers (Paragraph 7.5 D.)
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(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492

7. Legal Services Agreement. [7 CFR 3560.62(a)]. Provide a copy of any written contract for 

legal services that will be paid with Rural Development loan funds.

The Project and Proposed Repairs

8. Capital Needs Assessment (CNA). See Paragraph 7.22. The CNA will be reviewed by the 

Rural Development CNA Reviewer and may need to be revised or adjusted to conform to 

Rural Development program requirements. Final approval of the CNA must be provided by 

the Rural Development CNA Reviewer prior to final approval of the transfer. May be 

omitted for Deceased Borrower transfer (Paragraph 7.5 D).

9. Current Self Evaluation/Transition Plan. See HB-2-3560, Chapter 3, Paragraph 3.5. 

Submit a current (less than 3 years old) Self Evaluation/Transition Plan, if applicable and 

completed in accordance with 7 CFR 3560 15b.

10. Repair Agreement [7 CFR 3560.406 (d)(7)]. May be omitted for Deceased Borrower 

transfer (Paragraph 7.8 B 6). This should be developed in light of the CNA and should 

address the following:

A. Must be signed by seller and purchaser.

B. Must address known compliance issues.

• Must identify all repairs known by the borrower to be necessary to bring the 

project into compliance with Rural Development requirements.

• Must include any repairs required to correct any compliance violations previously 

cited by Rural Development.

• Repairs to correct compliance issues must either be completed by the seller prior 

to transfer, or be subject to a workout agreement between the Rural Development 

and the purchaser.

C. If the CNA was prepared on the assumption that certain repairs have been completed, 

provide:

• Evidence of Rural Development approval of the repair agreement and cost 

estimate for the third-party funded repairs.

• Cost estimate for the repairs.

• Month-to-month estimate for repair expenditures.

• How the repairs are proposed to be funded.

D. Tenant relocation costs if tenant relocation is necessary to rehabilitate the property.
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E. The repair agreement must identify each up-front repair or enhancement item, the 

timeframe for completion, estimate of costs for each item, funding source for each phase 

of completion, who will do the work, and any Identify of Interest between the transferee 

and the party doing the work or providing materials and services.

F. Division of responsibility for repairs between purchaser and seller.

G. If equity is proposed to be paid out prior to completion of repairs, a guarantee acceptable 

to Rural Development that any repair costs in excess of the estimate will be paid from 

non-project funds.

11. Cost Estimate (if applicable). Form RD 1924-13. “Estimate and Certificate of Actual 

Cost”. Applicable if repairs will be funded by Rural Development.

Documentation of Market Rents and Value

Rural Development strongly recommends that purchasers consult with Rural Development 

before ordering appraisal products, to verify that the correct instructions are being provided 

to the appraiser. See HB1-3560, Chapter 7 and Attachment 7-C for Rural Development 

requirements regarding instructions to the appraiser. Purchasers may request that Rural 

Development provide Attachment 7-D of HB-1-3560 Information Sheet. Purchasers may 

request Rural Development assistance in assembling the information referenced in 

Attachment 7-F of HB-1-3560 Appraisal Data Package Checklist. In all cases, appraisals 

will be required when new debt is added or when the transfer will be using new rates and 

terms. For transfers processed on ‘same rates and terms’ where no new Rural Development 

debit is requested, the Loan Servicer may waive the appraisal requirement if the Loan 

Servicer determines that the security is adequate for the Rural Development indebtedness 

being assumed. Appraisal fees are purchaser/seller expense and may not be paid from 

project funds. Loan Servicers must document their review and determinations based on a 

review of Rural Development reports conducted in accordance with the requirements of [7 

CFR part 3560, subpart H (3560.3511 through 3560.400)].

12. Market Value Appraisal “Prospective Market Value, Subject to Restricted Rents within 

7 CFR 3560.752 (b) (1) (i)”. Rural Development staff will use this appraisal in order to 

determine security value. See HB-1-3560, Chapter 7 and Attachment 7-C for appraisal 

guidance.

A. The instructions to the appraiser must include language specified by Rural Development 

(see HB-1-3560, Attachment 7-C).

B. This appraisal is required if the sum of the USDA loan balance at the time of transfer, 

plus any subsequent loan, will exceed $100,000. This may be omitted for Deceased 

Borrower transfer (Paragraph 7.5 D).

13. Market Value Appraisal – “Market Value, within 7 CFR 3560.752 (b)(1)(ii) with any 

current restrictions or prohibitions currently existing on the property taken into
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(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492

consideration”; or “Market Value with 7 CFR 3560.752 (b)(1)(ii) Premised upon a 

Hypothetical Condition As-If Unsubsidized Conventional Housing.” This appraisal 

establishes a value for used in analyzing the Rural Development’s limitations on sale price 

and equity pay-out. See HB-1-3560, Chapter 7 and for appraisal guidance.

A. This appraisal is required whenever an equity pay-put is proposed to the seller.

B. The instructions to the appraiser must include language specified by Rural Development 

(See HB-1-2560, Chapter 7, Attachment 7-C).

C. If, at the time of the appraisal, a Restrictive-Use Provision or Restrictive-Use Covenant 

will be in effect, see HB-1-3560, Chapter 7, Attachment 7-C regarding Rural 

Development requirements that restrict (and may prohibit) the inclusion as a component 

of market value any value of the hypothetical future ability of the owner to convert the 

property to conventional housing use.

14. Rent Comparability Study (RCS) or Area Market Rents Study (ARMS). If neither of 

the preceding appraisal products is required for this transaction, an acceptable RCS or ARMS 

may be required to establish Conventional Rents for Comparable Units (CRCU).

A. See Paragraph 7.7 B regarding when an RCS may be used.

B. If an RCS is used, Rural Development’s Statement of Work must be used. See Paragraph

7.7 B.

15. If No Appraisal Product is required. Submit the purchaser’s best available evidence for 

CRCU. See Paragraph 7.8 F. May be omitted for Deceased Borrower transfers (Paragraph 

7.5 D).

Financial Aspects of the Transaction

16. Application for Federal Assistance. Form SF-424. Required for all transfers other than 

Deceased Borrower transfers (Paragraph 7.5 D).

A. Application for Federal Assistance. Form SF-424.

B. Budget – Construction Programs. Form SF-424C.

C. Assurances – Construction Programs. Form SF-424D.

17. Proposed Project Budget. Required for all transfers. Purchaser’s proposed project 

operating budgets covering the first year of operation following the transfer or sale. This 

budget form should set forth the project’s current Rural Development – approved budget in 

the “Current Budget” columns and the projects’ proposed budget after acquisition in the 

Proposed Budget columns.
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A. Form RD 3560-7.

B. Narrative justification of changes in budget. It is important that any and all differences 

between the current and proposed budget be fully explained and justified.

18. Sources and Uses of Funds Statement. May be omitted for Deceased Borrower transfer 

(Paragraph 7.5 D). Must be accompanied by a certification that:

A. All sources of funding contemplated by the purchaser are included.

B. Itemizes each proposed use of funds to be paid to the seller, the purchaser, any affiliate of 

the seller, or any affiliate of the purchaser. Each such use will identify the proposed 

amount, identify the entity to whom it is to be paid, disclose the nature of any identify of 

interest or affiliation with seller and/or purchaser, and discuss why the proposed amount 

is reasonable. If any portion of the amount to be paid to the seller will remain unpaid 

after the closing of the transfer, the purchaser must certify that no project revenue or 

assets (other than authorized RTO earned and paid to the purchaser) may be used to pay 

such amounts and that the purchaser’s obligation to pay such amounts will be unsecured.

Note Regarding Evidence of Insurance Coverage. See Paragraph 7.16 F and [7 

CFR 3560.406(d)(11)]. Evidence of insurance coverage is not required as part of the 

transfer application package. However, the transfer cannot be closed until Rural 

Development has approved the purchaser’s insurance coverage.

Third-Party Funding (If Applicable)

19. Application for Funding. Any application submitted by the purchaser to the

proposed funder.

20. Financial Pro Forma Information. Include any estimates of repair costs, any information 

regarding proposed sources and uses of funds, and any revenue and expense projections 

submitted to the proposed funder, whether or not such documents were included in the 

application.

21. Environmental Information. Any environmental reports or analyses submitted by the 

purchaser to the proposed funder.

22. Commitment Letter or Equivalent (if applicable). Commitment letters may be conditional 

at the time of application. For LIHTC/TCAP/TCEP funding, provide a copy of the 

following: the reservation letter, any subsequent correspondence from the state allocating 

agency, and any Letter of Intent or similar correspondence from the proposed equity investor 

describing terms and conditions of its proposed investment. Before the transaction may be 

closed, the following will be required:

A. Commitment Letter

B. Documentation that any conditions in the commitment letter have been 

satisfied.
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(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492

23. Regulatory Requirements. Documentation for any requirements to be imposed on the 

project and/or the purchaser as a condition of the proposed third-party funding.

A. For Low-Income Housing Tax Credits:

• The proposed Land Use Restriction Agreement or equivalent, showing the LIHTC 

set-aside by income level and unit type; and

• The current LIHTC income limits and maximum rents for the county in which the 

project is located.

B. For a proposed loan, a copy of the proposed loan agreement, note, security instrument (if 

applicable) and regulatory agreement (if applicable).

C. For a proposed grant, a copy of the proposed grant agreement and regulatory agreement 

(if applicable).

24. Interim Financing.

A. Include a month-by-month projection of interim financing draws and interest cost. This 

projection should take into account:

• Applicable Rural Development requirements regarding the use of project 

operating funds to pay debt service. See Paragraphs 7.7 C and 7.12 A.

• Any net interest cost for permanent loan funds that are borrowed up front but not 

available to the project until funding conditions (such as completion of 

rehabilitation) have been satisfied.

• Monthly costs for rehabilitation and other costs.

• Monthly receipts from other sources of funds such as tax credit equity.

B. If a source of repayment is from tax credit equity, the schedule of equity pay-in from the 

syndicator.

C. If a source of repayment is from permanent financing, the funding conditions that must 

be satisfied before the permanent financing will be available to the project.

25. (Advisory to purchasers, no submission required) Sources and Use 

Comprehensive Evaluation (SAUCE) Analysis. Purchasers proposing to use a subsequent 

Rural Development loan should note that Rural Development must prepare a SAUCE 

analysis, or accept the tax credit agency’s sources and uses analysis, as a pre-requisite to the 

closing of the transfer. A SAUCE analysis is not required for transfers not utilizing a

subsequent Rural Development loan.

The Proposed Purchaser

For purposes of the following documents, the terms “principal” and “affiliate” and 

“participation” are defined in Form HUD-2530 Previous Participation Certification.
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ATTACHMENT 7‐B‐1 

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26. Purchaser’s Resume. May be omitted for Deceased Borrower transfers (Paragraph 7.5 D).

A. Proposed organizational structure.

B. Resume for each principal of the purchaser who has no previous participation with Rural 

Development. Resumes should be in sufficient detail for Rural Development to 

understand the nature of the new principal’s real estate experience.

C. Disclosure of any proposed role(s) in the ownership or management of the project by 

affiliates of the purchaser or affiliates of the seller.

27. Previous Participation Certification (Form HUD-2530). This form reflects the 

participation by principals of the proposed purchaser in other HUD and USDA multifamily 

projects over the past ten years. May be omitted for Deceased Borrower transfer (Paragraph 

7.5 D).

28. Identity of Interest Certification. As applicable, either:

A. Certification of No Identity of Interest, Form RD 3560-30; or

B. Identity of Interest Disclosure, Form RD 3560-31.

29. Debarment/Suspension Certification. As applicable, either:

A. Certification Regarding Debarment, Suspension and other Responsibility Matters

Form AD 1047; or

B. Certification Regarding Debarment Suspension: Ineligibility and Voluntary Exclusion

Form AD 1048.

30. Purchaser’s Financial Statements. May be omitted for Deceased Borrower

transfers (Paragraph 7.5 D). Current financial statements for:

A. The applicant (i.e., the entity that will own the project). If the applicant is an entity that 

has not yet been formed, financial statements should be pro forma (after completing the 

proposed purchase).

B. Each proposed principal.

C. Non-profit applicants/principals may satisfy this requirement by submitting their current 

IRS Form 990 “Return of Organization Exempt from Income Tax” (with Schedules A & 

B).

D. Attachment 7-B-4, MFG Transfer & Assumption Certification for Financial Statements, 

must be included with all financial statements.

31. Credit Report Fees. May be omitted for Deceased Borrower transfers (Paragraph 7.5 D), 

Purchaser’s check, made out to USDA, for the required credit reports obtained initially as 

part of the transfer application and subsequently for any additional credit reports necessary 

prior to closing to verify the applicant’s continued eligibility for participation in the transfer 

Contact your local Rural Development Office to verify what the current credit reports fees 

are (current fees as of February 2008 are $28 for each individual and $40 for each other 

principal; e.g. a corporation or partnership).
HB‐3‐3560

ATTACHMENT 7‐B‐1 

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A. The purchaser.

B. Each general partner of a purchaser that is a partnership, and spouse.

C. Each managing member of a purchaser that is an LLC, and spouse.

D. Each other partner/member who will have a 10 percent or greater interest.

E. If an entity is existing or newly-formed, order a credit report. If an entity is to-beformed, order a credit report (s) for existing principal(s) of the entity.

32. Attorney Certification of Eligible U.S. Citizenship/Qualified Alien Status. The purchaser’s 

attorney must review all applicable evidence to verify U.S. citizenship and/or qualified alien 

status, must certify that the Agency’s U.S. citizenship and/or qualified alien status eligibility 

requirements are met by each proposed principal applicant, and must submit the certification 

for Agency review.

Proposed Management

33. Management Plan. The purchaser may satisfy this requirement by accepting the existing 

Rural Development-approved management plan and lease and occupancy rules of the seller. 

The management plan should include:

A. A narrative description of the proposed record-keeping system.

B. A copy of the proposed lease.

C. A copy of the proposed occupancy rules.

34. Attorney Opinion Regarding Proposed Lease. This is required only if the purchaser will 

not continue to use the Rural Development-approved lease currently used by the seller. 

Transferee attorney’s opinion regarding legal sufficiency and compliance of lease with 

State/local laws, ordinances and Rural Development regulations.

35. Management Certification. Form RD 3560-13. Required for all transfers, each time a 

management agreement or management plan is executed.

36. Affirmative Fair Housing Marketing Plan. Form HUD 935.2A. May be omitted for 

Deceased Borrower transfers (Paragraph 7.5 D).

Proposed Organizational Documents of the Purchaser

37. Purchaser’s Organizational Documents. May be omitted for purchasers who are 

individuals. If the Transferee is an entity that has not yet been formed, draft documents may 

be submitted. The submission must include all amendments.

A. Purchaser is a corporation: provide the charter, articles of incorporation and bylaws, or 

equivalent.

B. If the Transferee is a non-profit the following should also be submitted.

(02-04-05) SPECIAL PN

Revised (12-08-22) PN 572
HB‐3‐3560

ATTACHMENT 7‐B‐1 

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• Tax-exempt ruling from the IRS conferring 501(c)(3) or 501(c)(4) status.

• List of members on Board of Directors Purchaser is a partnership: provide the 

partnership agreement.

C. Purchaser is a partnership: provide the partnership agreement.

D. Purchaser is a trust: provide the trust agreement.

E. The documents shall show that the corporation, partnership or trust is authorized to 

operate the property and to execute and be bound by the Regulatory Agreement.

F. The documents (or minutes of meetings, as applicable) should establish clearly the 

authority of the persons executing the Regulatory Agreement and other documents for the 

Transferee.

38. Attorney Certification. Letter from the purchaser’s attorney certifying the legal sufficiency 

of the organizational documents. The attorney must certify:

A. The transferee’s legal capacity to successfully assume and operate the project for the life 

of the Rural Development loan.

B. That the organizational documents comply with the requirements of Paragraph 4.16 B of 

HF-1-3560 and [7 CFR 3560.55].

C. For partnership purchasers, that the term of the partnership extends at least through the 

latest maturity of all existing and proposed Rural Development debt.

D. For partnership purchasers, that the partnership agreement requires the General Partner(s) 

to maintain a five percent financial interest in the residual or refinancing proceeds of the 

partnership.

E. That the organizational documents required prior written Rural Development approval for 

any of the following: withdrawal of a general partner/managing member, admission of a 

general partner/managing member, amending the organizational documents, and selling 

all or substantially all of the assets of the purchaser.

Other

39. Assurance Agreement. Form RD 400-4, Certifying civil rights compliance.

40. Equal Opportunity Agreement. Form RD 400-1.

41. Lobbying Certifications (s).

A. Attachment 7-B-5, MFH Transfer & Assumption Certification for Contracts. Required.

B. Lobbying Disclosure. Form SF-LLL. If applicable.

42. Certification Regarding Drug-Free Workplace Requirements. Either:

A. Form AD 1050 (for individual purchasers); or

B. Form AD 1049 (for other purchasers).

43. Certification Regarding Collection Policies. Form RD 1910-11.
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ATTACHMENT 7‐B‐1 

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Other

44. (For Projects with HUD Section 8 Housing Assistance Payments (HAP) Contracts). 

Applicant should submit a letter from HUD indicating HUD’s approval of the Section 8 HAP 

funding transfer. Formal approval from HUD is a pre-requisite for the closing of the 

transaction. Purchasers should note that HUD Section 8 rents are adjusted in accordance 

with HUD procedures and that generally, no rent adjustment should be expected in 

conjunction with the transfer.

45. Request for Rental Assistance. Form RD 3560-25. If Rental Assistance is being requested.

(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492
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ATTACHMENT 7‐B‐1 

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HB‐3‐3560

ATTACHMENT 7‐B‐2

PAGE 1 of 9

ATTACHMENT 7-B-2

MFH TRANSFER & ASSUMPTION APPLICATION 

SUPPLEMENT

Name of Project:

Street Address of Project (w/zip code) 

Name of Project’s Current Owner 

The following information supplements Form SF-424. This information is submitted

along with an application to assume the USDA debt associated with the above-mentioned

security property. A complete application is or will be submitted promptly.

The undersigned is in accordance with the terms of the security instruments held by 

USDA Rural Development (hereinafter referred to as “USDA”) on their property is 

applying for release or subordination of the liens of said security instruments and consent 

to the following transaction: 

1. Transfer of the USDA security property in full as outlined below.

2. Assumption of the full balance of all USDA loans associated with the security property on 

new rates and terms.

3. Subordination of the USDA security instruments as outlined below.

4. Other (explain). 

A. Applicant/Buyer/Transferee Information

The following information is supplied about the applicant (i.e., the legal entity to 

acquire title to the property, not the developer/sponsor): 

Applicant Legal Name:

Provide exact legal name of the entity that will take title to the real property and be 

USDA’s borrower at the conclusion of the transaction – e.g., “Happy Valley Associates, 

LP, a Maryland limited partnership”. 

Type of organization:

e.g. limited partnership, general partnership, non-profit, corporation, LLC, tribe, public 

body, cooperative, individual 

Tax ID #: 

Date of Formation: 

Official Mailing Address:

Developer/Sponsor Name

(If there is a developer sponsoring the applicant entity).

(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492
HB‐3‐3560

ATTACHMENT 7‐B‐2 

PAGE 2 OF 9

Primary contact person for this transaction: 

Capacity:

Organization: 

Address: 

Phone: Fax: Email: 

Disclose any identity of interest relationship between borrower/seller and transferee/buyer (if 

none, indicate this): 

B.Member/Owner Information (complete one)

If applicant is a limited partnership: (Please provide exact legal names) 

Role Exact Tax Non- % Mailing Authorized

Legal ID # Profit? Share Address Sign &

Name Title

If applicant is not a limited partnership: (Please provide exact legal names) 

Role Exact 

Legal

Name

Tax 

ID # 

NonProfit?

%

Share

Mailing 

Address

Authorized 

Sign &

Title

C. Transaction Information

USDA Rural Development’s approval is requested for the following preservation transfer 

& assumption:

Negotiated purchase price $ (Please attach copy of purchase agreement)

Purchase Agreement expires: (USDA typically needs 120 days to complete 

such transactions). 
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ATTACHMENT 7‐B‐2

PAGE 3 of 9

Proposed disposition of project & project assets:

RRH project assets Transferred to buyer? (yes/no, explain)*

Real property

Furnishing, fixtures & equipment

Replacement reserve account

Tax & insurance escrow account

General operating account

Security deposit account

Other

*Note: if any project assets are not transferred in their entirety, the buyer will be 

responsible for funding their full replacement value from equity funds. 

Timetable

Estimate timetable for acquisition, with key deadlines for funding commitments:

This Transfer must close by no later than because

D. Sources & Uses of Funds

Funding Uses * Amount

Total acquisition costs $

Total rehab costs $

Total all other costs $

TOTAL PROJECT 

FUNDING $

(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492
HB‐3‐3560

ATTACHMENT 7‐B‐2 

PAGE 4 OF 9

Permanent 

Funding 

Sources

Amount Status: 

Date/Commit 

ted or 

Pending

Anticipated 

rates/terms

Lien 

position 

proposed

Assumption 

of USDA 

loan

$ Pending 1%, 50-yr

amortization, 30 

year term

Borrower 

contribution

$ n/a

9% Low 

Income 

Housing Tax 

Credit

$ n/a

4% Low 

Income 

Housing Tax 

Credit

$ n/a

Loan From: $

Loan From: $

Other: $

Other: $

Other $

Other $

Total Project 

Funding

$

*See attached “Preservation Transfer Development Budget (Sources & Uses of 

Funds)” for details.
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ATTACHMENT 7‐B‐2

PAGE 5 of 9

E. Effect of transfer on affordability, rents and tenant subsidy

Applicant/transferee/buyer will enter into a new Restrictive-Use Agreement with 

USDA for:

[ ] 30 years [ ] 20 years [ ] remaining useful life of project [ ] Other 

Rent information:

Tenant Subsidy at project:

Current PostTransfer

USDA Rental

Assistance (RA)

HUD project-based

Section 8

RHCP

Other

Other

Total subsidized

units:

If project currently lacks 100 percent subsidy coverage on incoming-producing units, 

explain plan to maintain affordability, obtain additional subsidy and avoid adverse 

impact on tenants. 

(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492

Bedroom 

Size

Units Current 

Basic Rents

Post Transfer 

Basic Rent

Estimated 

Market Rent in 

Area

0 Bedroom

1 Bedroom

2 Bedroom

3 Bedroom

4 Bedroom

Total Units
HB‐3‐3560

ATTACHMENT 7‐B‐2 

PAGE 6 OF 9

F. Planned method of management and operation

Management services provider and identification of any IOI or other related party 

affiliations to the seller or buyer:

[ ] Contract Manager (Identify: ) [ ] Borrower [ ] Other

General discussion of management plan: 

7. Certifications

Have you or any member, stockholder, partner or joint operator of the entity borrower been 

convicted under Federal or State law of planting, cultivating, growing, producing, harvesting, 

or storing a controlled substance since December 23, 1985? (yes / no) 

If this application is approved, the undersigned applicant(s) agree to comply with such terms 

as may be prescribed by USDA and to disposition of the proceeds as required by USDA 

pursuant to its regulations, including the method of applying payment to the applicant(s)’ 

loan accounts. It is expressly understood that unless a separate written instrument of 

subordination is executed and delivered by USDA pursuant to this application, approval by 

USDA of this application will merely constitute and evidence its consent, as lienholder, to 

the proposed transaction without in any way subordinating its lien, releasing any of its 

security, modifying the payment terms of the loan, or otherwise affecting any rights of 

USDA. 

The applicant(s) agrees that none of the funds obtained as a result of any subordination 

covered by this application will be used for a purpose that will contribute to excessive 

erosion of highly erodible land or the conversion of wetlands to produce an agricultural 

commodities, as explained in Exhibit M of subpart G of part 1940 of title 7 of the Code of 

Federal Regulations.
HB‐3‐3560

ATTACHMENT 7‐B‐2

PAGE 7 of 9

CERTIFICATION

I hereby certify that the information given above concerning agreements between us 

and the transferor/seller is correct and fully understood by us. 

I/we certify the information is a true and accurate reflection of proposed transfer & 

assumption project. This information is given for the purpose of inducing the United States 

of America to make a loan or to enable the United States of America to make a determination 

of continued eligibility of the applicant for a loan as requested in the loan application of 

which this statement is a part.

Neither the applicant nor its principals are delinquent on any Federal debt nor barred 

from participating in Federal housing programs. 

 Signed: 

Date Applicant/Transferee

(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492
HB‐3‐3560

ATTACHMENT 7‐B‐2 

PAGE 8 OF 9

This page is intentionally left blank
MFH Transfer Development Budget (Sources & Uses of Funds)

Project: Sample Apartments preservation transfer to Preservation Associates, LP

HB‐3‐3560 

ATTACHMENT 7‐B‐2

PAGE 9 of 9 

PERMANENT SOURCES OF FUNDS

USE OF FUNDS TOTAL Tax

Credits

USDA

Assumption Rural town Bank City Other Other

Total Acquisition $ $ $ $ $ $ $

Total Rehab $ $ $ $ $ $ $

Total Relocation $ $ $ $ $ $ $

Total New $ $ $ $ $ $ $

Total $ $ $ $ $ $ $

Total Survey & $ $ $ $ $ $ $

Total $ $ $ $ $ $ $

Total Permanent $ $ $ $ $ $ $

Total Attorney $ $ $ $ $ $ $

Total Reserve $ $ $ $ $ $ $

Total Appraisal $ $ $ $ $ $ $

Total $ $ $ $ $ $ $

Total Other $ $ $ $ $ $ $

Total Developer $ $ $ $ $ $ $

TOTAL 

PROJECT COST

BALANCED

Permanent Financing Detail (for all sources other than USDA & tax credits)

Funding Source Loan

Amount Interest Rate Amortization(yrs.) Term (yrs.) Monthlypayment

Indicate if residual receipts,

deferred, etc.

Rural town Bank $ 0. 3 3 $

City $ 0. 3 3 $ Residual receipts

Other $ 0. 3 3 $

Other $ 0. 3 3 $

Interim Financing Detail (for all sources other than USDA)

Funding Source Loan

Amount

In3terest

Rate

Amortization

(yrs.)

Term (yrs.) Monthly

payment

Indicate if residual receipts,

deferred, etc. 

(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492
HB‐3‐3560

ATTACHMENT 7‐B‐3

PAGE 1 of 2

(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492

ATTACHMENT 7-B-3

MFH TRANSFER & ASSUMPTION 

FINANCIAL STATEMENT CERTIFICATION

Financial Statement Certification

(This certification is to be attached to all financial statements submitted to the Agency).

Financial Statement of: 

Date of Financial Statement: 

I/we certify the attached is a true and accurate reflection of my/our financial condition as of the 

date stated herein. This statement is given for the purpose of inducing the United States of America to 

make a loan or to enable the United States of American to make a determination of continued eligibility 

of the applicant for a loan as requested in the loan application of which this statement is a part.

Name Date

Signature Title
HB‐3‐3560

ATTACHMENT 7‐B‐3 

PAGE 2 OF 2

This page is intentionally left blank
HB‐3‐3560

(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492

ATTACHMENT 7‐B‐4

PAGE 1 of 2 

ATTACHMENT 7-B-4

MFH TRANSFER & ASSUMPTION CERTIFICATION FOR CONTRACTS 

CERTIFICATION FOR CONTRACTS, GRANTS AND LOANS

The undersigned certifies, to the best of his or her knowledge and belief, that:

1. No Federal appropriated funds have been paid or will be paid, by or on behalf of the undersigned, to any 

person for influencing or attempting to influence an officer or employee of any agency, a Member of 

Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with 

the awarding of any Federal contract, the making of any Federal grant or Federal loan, and the extension, 

continuation, renewal, amendment or modification of any Federal contract, grant or loan. 

2. If any funds other than Federal appropriated funds have been paid or will be paid to any person for 

influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an 

officer or employee of Congress, or an employee of a Member of Congress in connection with this Federal 

contract, grant or loan, the undersigned shall complete and submit Standard Form – LLL, in accordance with 

its instructions.

3. The undersigned shall require that the language of this certification be included in the award documents 

for all sub awards at all tiers (including contracts, subcontracts, and sub-grants under grants and loans) and 

that all sub-recipients shall certify and disclose accordingly.

This certification is a material representation of fact upon which reliance was placed when this transaction 

was made or entered into. Submission of this certification is a prerequisite for making or entering into this 

transaction imposed by section 1352, title 31, U.S. Code. Any person who fails to file the required 

certification shall be subject to a civil penalty of not less than $10,000 and not more than $100,000 for each 

such failure.

(Signed) (Date)

(Name)

(Title)

(Name of certifying entity)
HB‐3‐3560

ATTACHMENT 7‐B‐4 

PAGE 2 OF 2

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HB‐3‐3560

ATTACHMENT 7‐C

PAGE 1 of 3

ATTACHMENT 7-C

TAX CREDIT RENTS IN TRANSFER TRANSACTIONS

[7 CFR 3560.202(g)]

Under applicable USDA regulations, borrowers are allowed to utilize Tax Credit Rents in Section 515 

properties participating in the LIHTC program. The following discussion explains how the same unit type 

may have multiple Basic Rents in a Section 515 property with LIHTC. Rural Development refers to these 

situations as Tax Credit Rents. Note Rate Rents are not affected and continue to be set in the same manner as 

in non-LIHTC properties.

In most States, the competition for LIHTCs is intense. Most LIHTC allocation agencies provide priorities for 

proposals that provide for deeper affordability than the LIHTC minimum. Accordingly, a USDA borrower 

will sometimes propose transfers with multiple Tax Credit Rents in which a single unit may encompass two 

or more area median income levels.

Unit 

Type

LIHTC

Allocation

# Units Maximum 

LIHTC

Rent

RD Basic 

Rent

LIHTC

Credit 

Rent

Note Rent

1 BR 40% AMI 2 units $283 $356 $283 $522

1 BR 50% AMI 2 units $389 $356 $369 $522

1 BR 60% AMI 4 units $455 $356 $435 $522

2 BR 40% AMI 8 units $312 $420 $312 $597

2 BR 50% AMI 8 units $410 $420 $412 $597

2 BR 60% AMI 16 units $508 $420 $489 $597

3 BR 40% AMI 2 units $341 $515 $341 $772

3 BR 50% AMI 2 units $410 $515 $451 $772

3 BR 60% AMI 4 units $562 $515 $545 $772

Total 48 $250,320 $244,896 $244,896 $353,472

For proposed transfers involving Tax Credit Rents, the Loan Servicer must determine whether the 

proposed rents will provide sufficient revenue to cover project costs including an adequate Transfer 

to Reserve. If sufficient revenue will not be available, the proposed transfer is not viable unless the

borrower proposes an adequate plan for addressing the shortfall

A property with Tax Credit Rents is more difficult for the borrower to manage and more difficult for the 

USDA staff to monitor. Rural Development staff members are not responsible for assuring that borrowers 

are satisfying LIHTC compliance requirements. The LIHTC allocating agency is responsible for LIHTC 

compliance monitoring. Rural Development staff is, however, responsible for:

• Ensuring that tenants are not charged rents in excess of maximums allowed under USDA 

requirements.

• Ensuring that borrowers pay the correct amount of overage to USDA.

• Ensuring that borrowers cover shortfalls in revenue from reduced RTO and non-project funds.

(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492
HB‐3‐3560

ATTACHMENT 7‐C 

PAGE 2 OF 3

In LIHTC properties, borrowers have powerful incentives to rent units only to households with incomes in 

the appropriate bracket to avoid losing LIHTC for that unit during the entire period of occupancy. One 

practical implication is that the borrower will need to maintain multiple waiting lists for the various LIHTC 

allocations. Accordingly, Rural Development staff should expect that borrowers will hold units vacant if 

there is no one on the waiting list in the appropriate income bracket, which could lead to increased vacancy 

losses in these projects. Rural Development staff should consider these factors carefully in judging the 

viability of the proposed transfer and in approving the proposed rent, vacancy allowance, and O&M 

expenses.

In LIHTC properties, it would be desirable if Rural Development could require that the LIHTC allocation be 

assigned to a specific unit. However, this is not possible and, the units will float throughout the property as a 

result of tenant turnover.

At the time that the Tax Credit Rents are implemented, Rural Development will require that the affected 

units be assigned based on tenant incomes (for example, the lowest 2 BR rent will be assigned to units 

occupied by the 2 BR tenants with the lowest incomes), and without regard to whether tenants are receiving 

RA.

Available RA will be assigned in accordance with existing Handbook requirements, see HB-2-3560, 

Paragraph 8.10. This guidance does not permit borrowers to shift RA to units with the highest Tax Credit 

Rents

The RD HQ will provide technical assistance to State Offices on a case-by-case basis in implementing Tax 

Credit rents, including assistance in assigning available RA.
HB‐3‐3560

ATTACHMENT 7‐C

PAGE 3 of 3

This page intentionally left blank

(02-04-05) SPECIAL PN

Revised (01-06-17) PN 492
HB‐3‐3560 

ATTACHMENT 7‐D

PAGE 1 of 2

ATTACHMENT 7-D: TRANSFER REQUEST CHECKLIST

The following list of required documents constitutes a complete application for Agency approval of a 

proposed transfer. Agency processing will begin only when a complete transfer request package has been 

submitted as set forth below and as described in Attachment 7-B-1. The application package and all 

documents must have original signatures. Transfer requests must be submitted at least 45 days prior to the 

proposed transfer approval date. All documents must be submitted by the application.

Proposed Transaction

∆ Yes ∆ No ∆ N/A Executive Summary (narrative)

∆ Yes ∆ No ∆ N/A Required written statement/certifications

∆ Yes ∆ No ∆ N/A MFH Transfer & Assumption Application Supplement (Attachment 7-B-2)

∆ Yes ∆ No ∆ N/A Application for Partial Release, Subordination or Consent (Form RD-3560-1)

∆ Yes ∆ No ∆ N/A Purchase and Sales Agreement

∆ Yes ∆ No ∆ N/A Current Preliminary Title Report

∆ Yes ∆ No ∆ N/A Legal Services Agreement

The Project and Proposed Repairs

∆ Yes ∆ No ∆ N/A Capital Needs Assessment

∆ Yes ∆ No ∆ N/A Repair Agreement

∆ Yes ∆ No ∆ N/A Cost Estimate, if applicable (Form RD 1924-13, Estimate & Certificate of 

Actual Cost)

Documentation of Market Rents and Value

Financial Aspects of the Transaction

∆ Yes ∆ No ∆ N/A Application for Federal Assistance (Form SF 424 & attachments)

∆ Yes ∆ No ∆ N/A Proposed Project Budget (Form RD 3560-7)

∆ Yes ∆ No ∆ N/A Sources and Uses of Funds Statement

Third-Party funding (if applicable)

∆ Yes ∆ No ∆ N/A Application(s) for Funding

∆ Yes ∆ No ∆ N/A Financial Pro Forma Information

∆ Yes ∆ No ∆ N/A Environmental Information

∆ Yes ∆ No ∆ N/A Commitment Letters or Equivalent

∆ Yes ∆ No ∆ N/A Regulation Requirements

∆ Yes ∆ No ∆ N/A Interim Financing

(02-04-05) SPECIAL PN

Revised (12-08-22) PN 572

∆ Yes ∆ No ∆ N/A Appraisal for USDA Security Value

∆ Yes ∆ No ∆ N/A Appraisal As-Is Unrestricted

∆ Yes ∆ No ∆ N/A Rent Comparability Study/ARMS

∆ Yes ∆ No ∆ N/A Purchasers best available evidence to support CRCU, if no appraisal
HB‐3‐3560 

ATTACHMENT 7‐D 

PAGE 2 OF 2 

The Proposed Purchaser

∆ Yes ∆ No ∆ N/A Purchaser’s Resume

∆ Yes ∆ No ∆ N/A Previous Participation Certification (Form HUD 2530)

∆ Yes ∆ No ∆ N/A Identity of Interest Certification (Form RD 3560-30 or 3560-13)

∆ Yes ∆ No ∆ N/A Debarment/Suspension Certification (Form AD 1047 or AD 1048)

∆ Yes ∆ No ∆ N/A Purchaser’s Financial Statements w/Attachments 7-B-3 MFH Transfer &

Assumption Certification

∆ Yes ∆ No ∆ N/A Credit Report Fees

∆ Yes ∆ No ∆ N/A Attorney Certification of Eligible U.S. Citizenship/Qualified Alien Status 

submitted for Agency review

Proposed Management

Proposed Organizational Documents for Purchaser 

Other:

∆ Yes ∆ No ∆ N/A Complete Management Plan

∆ Yes ∆ No ∆ N/A Attorney Opinion Regarding Proposed Lease & compliance with State/local

laws & RD regulations

∆ Yes ∆ No ∆ N/A Management Certification (Form RD 3560-13)

∆ Yes ∆ No ∆ N/A Affirmative Fair Housing Marketing Plan (Form HUD 935.2A)

∆ Yes ∆ No ∆ N/A Purchaser’s Organizational Documents

∆ Yes ∆ No ∆ N/A Attorney Certification certifying legal sufficiency

∆ Yes ∆ No ∆ N/A Assurance Agreement (Form RD 400-4)

∆ Yes ∆ No ∆ N/A Equal Opportunity Agreement (Form RE 400-1)

∆ Yes ∆ No ∆ N/A Lobbying Certification (Att. 7-B-4, MFH Transfer Certification &

Form SF-LLL, if applicable)

∆ Yes ∆ No ∆ N/A Certification Regarding Drug-Free Workplace Requirements

(Form AD 1049 or AD 1050)

∆ Yes ∆ No ∆ N/A Certification Regarding Collection Policies (Form RD 1910-11)

∆ Yes ∆ No ∆ N/A Letter from HUD concurring to transfer of HAP Contract & 

concurrence in post transfer rents

∆ Yes ∆ No ∆ N/A Request for Rental Assistance (Form RD 3560-25)