CHAPTER 3: PROPERTY MANAGEMENT

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3.1 INTRODUCTION

This chapter provides an overview of the essential responsibilities for property 

management. In general, the borrower is responsible for providing management acceptable to 

the Agency both in terms of staff qualifications and management practices. The borrower must 

ensure that property operations comply with the terms of all loan or grant documents; Agency 

requirements; and applicable local, State, and Federal laws and ordinances. For many project 

management responsibilities, the Agency must approve or concur in the management decisions 

and policies of the borrower. This chapter is designed to identify those actions that require 

Agency reaction to the borrower’s decision.

Section 1 of this chapter deals specifically with property management, including Agency 

approval of the proposed management agent and management certification. It also describes the 

Agency’s requirements regarding items that must be addressed in the borrower’s management 

plan; and civil rights and accessibility requirements, self-evaluations, and transition plans.

Section 2 discusses the requirements for acceptable management entities and the 

Agency’s procedures for reviewing and approving new management entities. It also outlines 

the Agency’s procedures for removing unacceptable management entities.

Section 3 describes the program requirements regarding allowable management fees to be 

paid out of project income and Agency procedures for assessing the reasonableness of the fees. 

Section 4 addresses the required insurance coverage and real estate taxes for projects. 

Section 5 discusses the project management requirements and procedures that differ for

Farm Labor Housing projects.

SECTION 1: PROJECT MANAGEMENT [7 CFR 3560.102]

3.2 OVERVIEW OF PROJECT MANAGEMENT RESPONSIBILITIES

Borrowers must provide management acceptable to the Agency as a condition of loan or 

grant approval. The borrower requirements listed in this chapter may be complied with by the 

borrower or a person designated in writing by the borrower. Acceptable management will be 

documented in the management plan and management certification.

3.3 THE MANAGEMENT PLAN [7 CFR 3560.102(b)]

For each multi-family housing project, borrowers must develop and maintain a 

management plan that establishes the systems and procedures that will be employed at the 

project to ensure that project operations comply with Agency requirements. This plan is used by 

the Agency to guide its oversight of project operations and its monitoring of project compliance. 

The management plan should provide the Agency with information regarding site operations 

only, not about management agent central office functions.

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A management plan is initially submitted as part of the borrower’s application for 

funding. It remains in effect until such time as the Agency requires modification of the plan, the 

plan needs to be updated to reflect changes occurring in project operations, or the project is 

transferred from one borrower to another.

A. New Projects

1. Requirements for Submitting a Management Plan

For new projects, borrowers must submit a management plan that addresses the 

required items identified in Attachment 3-A in sufficient detail to enable the Agency to 

effectively monitor project performance.

If the Agency determines that a proposed management plan does not adequately 

address the required items, Loan Processing Staff will provide written notice to the 

borrower indicating the deficiencies and specifying a time period for submission of an 

acceptable plan.

No Agency loan will be closed, construction started, or transfer approved before the 

Agency has an acceptable management plan from the borrower.

2. Contents of a Management Plan

At a minimum, management plans for multi-family housing projects must address the 

items presented in Attachment 3-A.

3. Agency Review of a Proposed Management Plan

In reviewing a proposed management plan, the Agency must ensure that it does not 

contain policies that violate Agency regulations and that it provides adequate details 

regarding the items in Attachment 3-A for the Agency to effectively monitor project 

compliance with program requirements.

B. Existing Projects

1. General Requirements for Maintaining and Modifying a Management Plan

In accordance with the requirements of this chapter, the borrower must develop and 

maintain a management plan acceptable to the Agency. A borrower’s failure to maintain 

an acceptable plan is grounds for Agency termination of the management agent. This 

management plan will remain the guiding management document, as long as it accurately 

reflects project operations and the borrower remains in compliance with Agency rules 

and regulations.

Borrowers must submit an updated management plan to the Agency if project 

operations change and are no longer consistent with the current management plan on file 

with the Agency. The Agency should expect to see a modified management plan when:

• Project operations change to meet the needs of a changing tenant population;

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• Program requirements change; or

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• Changes in iin subsidy levels or types occur (e.g., HUD Section 8 is converted to 

Rental Assistance and/or units are reduced) or the property is converted to another 

allowable use (e.g., changed from a family property to an elderly property).

When a housing project is transferred from one borrower to another, the transferee 

must submit a new management plan that addresses the items listed in Attachment 3-A.

2. Agency Request for and Review of a Modified Management Plan

If the Agency determines that project operations are in compliance with Agency 

requirements; loan or grant agreements; or applicable local, State, and Federal laws but 

are not consistent with the management plan, the Agency will notify the borrower of the 

discrepancy in writing and indicate that the existing plan is no longer acceptable. Upon 

receiving notice that project operations are not consistent with the current management 

plan, borrowers must take one of the following actions within 60 days from the date of 

the Agency’s letter:

• Revise the management plan to accurately reflect housing operations;

• Take actions to ensure that the management plan is followed; or

• Advise the Agency in writing of the action taken.

If the borrower submits a modified management plan, the Agency will review the 

plan for the necessary changes and ensure that the plan adequately addresses the 

requirements of the discrepancy. The Agency may visit the project or management 

agent’s office to ensure that documented changes have occurred.

C. Three-Year Borrower Certification of Adequacy of Plan

When there have been no changes in a project’s operations, borrowers must submit a 

certification to the Agency every 3 years stating that the project operations are consistent 

with the current management plan and that the plan is adequate to ensure project

compliance with the loan documents and the applicable requirements of this part (see 

Attachment 3-B).

D. Projects with Compliance Violations

1. Agency Notification to the Borrower

If the Agency determines that there are compliance violations at a project, the 

borrower must respond to the Agency notification and update the management plan in 

accordance with the requirements below. If the borrower does not fulfill the 

requirements of this section, the Agency will deem the management plan for the project 

unacceptable, and the borrower/agent may be subject to termination of their management 

agreement.

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2. Borrower Response to Agency Notification

Upon receiving notice of compliance violations at a project, borrowers must address 

the violations in accordance with 7 CFR 3560.102(d) and update the management plan as 

follows:

• Borrowers must submit to the Agency, within 60 days, revisions to themanagement 

plan that establish the changes in project operation that will restore project 

compliance; and

• If the borrower determines that changes to the management plan are not needed 

because the compliance violations were due to a failure to follow the current 

management plan, the borrower must certify to the Agency that the management plan 

is adequate to ensure project compliance with the applicable requirements of this part. 

Borrowers must submit a written description of the actions that will be taken, 

including timeframes for restoring compliance with the current management plan and 

Agency rules and regulations.

E. Continued Management Discrepancies

If the Agency discovers continued discrepancies between a project’s management 

plan and project operations, the Agency retains the authority to terminate the current 

management agreement and require the borrower to install a new management entity 

acceptable to the Agency.

3.4 THE MANAGEMENT CERTIFICATION

As a condition of Agency approval of the management agent and the management fee, 

the borrower and the management entity must execute a Form RD 3560-13, “Management 

Certification”, and submit this to the Agency each time the borrower proposes a management 

agent and a management agreement is executed. The borrower and the management agent must

jointly submit the certification to the Agency to attest that:

• The borrower and management agent agree to operate the housing project in 

accordance with the management plan;

• The borrower and management entity will comply with Agency requirements and

contract obligations, agree that no payments have been made to anyone in return for 

awarding the management contract to the management agent, and ensure that such 

payments will not be made in the future;

• The borrower and the management agent will comply with Agency handbooks, 

notices, and other policy directives that relate to the management of the housing 

project;

• The management agreement between the borrower and the management entity 

complies with the requirements described in this chapter;

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• The borrower and the management agent will refrain from purchasing goods and 

services from entities that have identity-of-interest (IOI) relationships with the 

borrower or the management agent until the IOI relationship has been disclosed to the 

Agency and not denied by the Agency; and

• The borrower, management agent, and supplier of goods and services agree that all 

records relating to the housing project are the property of the project, the Agency, and 

the Agency’s representatives.

The management certification also requires that the borrower and the management agent 

identify any and all IOI relationships that would involve project funds. Form RD 3560-13 must 

be submitted to the Agency.

For management agents proposing IOI firms to provide goods and services to Agency 

properties, a fee schedule of these goods and services must be attached to Form RD 3560-31,

“Identity of Interest Disclosure/Qualification Certificate”. The Agency must approve the 

borrower’s use of such firms prior to the borrower entering into any contractual relationships that 

involve Agency funds with such entities.

After the borrower or management agent discloses an IOI relationship in Form RD 

3560-31, the Agency will:

• Require the borrower, management entity, and supplier of goods and services to 

provide documentation proving that use of IOI firms is in the best interest of the 

housing project;

• Require that all suppliers of goods and services agree to certify in writing to the 

Agency that the individual or organization proposed is qualified and licensed, if 

appropriate;

• Require the borrower, management entity, and supplier of goods and services to agree 

in writing to make available all records relating to the housing project to the Agency 

or the Agency’s representative; and

• Deny the use of an IOI firm when the Agency determines that using the firm is not in 

the best interest of the Federal Government or the tenants.

A. The Role of the Management Agreement

While the management certification replaces the need for the Agency to approve the

management agreement, it does not eliminate the need for the borrower and the agent to 

execute a management agreement. By executing the management certification, the 

borrower and the agent are assuring Agency staff that an acceptable agreement has been 

executed. Agency staff may review this agreement during the supervisory visit.

Borrowers operating owner-managed projects are not required to execute a management 

agreement.

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B. Agency Approval of the Management Certification

A certification must be submitted for Agency approval prior to the initial approval of 

the management agent. Subsequent certifications must be submitted for Agency approval 

when any of the following occurs:

• An increase in the management fee is requested, if the increased management fee is 

not in accordance with Attachment 3-F;

• A new management agent is proposed; or

• A management agreement expires, and a new agreement is executed or renewed.

The borrower must submit a new certification to the Agency for approval at least 45

days prior to the date of the proposed change. The Agency will return the approved or 

denied certification within 60 days of receipt.

3.5 SELF-EVALUATIONS AND TRANSITION PLANS

On June 11, 1982, USDA issued 7 CFR 15b, which required all borrowers to conduct selfevaluations of their facilities, policies and procedures for compliance with Section 504 ofthe 

Rehabilitation Act of 1973 and the Uniform Federal Accessibility Standards (UFAS), within one 

year of the USDA regulation. Information related to these compliance issues as they affect Section 

514, Section 515, Section 516, and Section 521 housing may be found in answers to frequently 

asked questions in Appendix 5. In the event that structural changes were necessary, recipients 

were required to develop transition plans that set forth the steps necessary to complete such

changes.

Borrowers may become liable for fines and penalties imposed by enforcement agencies, 

loss of tax credits, or legal actions if found in non-compliance with civil rights laws. The 

Agency does not impose these fines and penalties, but will follow regulatory, supervisory, 

servicing procedures and loan eligibility requirements when non-compliance is found.

A. Borrowers Required to Conduct Self-Evaluations and Develop Transition Plans

The following borrowers must conduct self-evaluations and develop transition plans:

• Borrowers of projects ready for occupancy on or before June 10, 1982.

• Borrowers of projects ready for occupancy after June 10, 1982, who have been found 

in non-compliance with Civil Rights law (as a remedial action).

• Borrowers who have had complaints filed against them, when the Agency determines 

it necessary.

• Borrowers transferring ownership.

• Borrowers of projects receiving rehabilitation or equity loans, when the Agency 

determines it necessary.

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• Borrowers receiving loans for new construction after August 20, 2002. The Agency 

will review the self-evaluation and any transition plan during the preoccupancy 

conference.

• All State and local Government borrower entities. The Department of Justice issued 

a regulation on July 26, 1991, which requires all State and local governments to 

conduct self-evaluations, unless they had already done so to meet the requirements of 

Section 504.

• Borrowers receiving loans after January 1, 2001, if a self-evaluation has not been 

conducted within the last 3 years.

B. Standards Borrowers Must Meet

Regardless of when a project was ready for occupancy, all borrowers are required to 

have policies and practices that do not discriminate against persons with disabilities. 

The architectural accessibility standards borrowers must meet will depend on when the 

project was ready for occupancy and what modifications are planned. In addition, many 

State and local governments have their own accessibility standards that must be met. 

The Agency does not have the authority to waive any accessibility requirements.

C. Self-Evaluation and Transition Plan Requirements

1. Self-Evaluations

In accordance with 7 CFR 15b, self-evaluations must:

• With the assistance of interested persons, including persons with disabilities or 

organizations representing disabled persons, evaluate their current policies and 

practices and the effects thereof;

• After consultation with interested persons, including disabled persons or 

organizations representing disabled persons, modify any policies and practices that do 

not meet the requirements of this part;

• After consultation with interested persons, including disabled persons or 

organizations representing disabled persons, take appropriate remedial steps to 

eliminate the effects of any discrimination that resulted from adherence to these 

policies and practices that do not meet the requirements of this part; and

• Maintain a record of the self-evaluation for at least three years. The record must be 

made available for public inspection and be provided to the Agency upon request. 

The self- evaluation record must contain:

◊ A list of the interested persons consulted;

◊ A description of areas examined, and any problems identified; and

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◊ A description of any modifications made, and any remedial steps taken.

2. Transition Plans

At a minimum, transition plans must:

• Identify physical obstacles in the borrower’s facilities that limit the accessibility 

of their property to disabled persons;

• Describe in detail the methods that would be used to make the facilities accessible;

• Specify the schedule for taking the steps necessary to achieve full program 

accessibility and if the time period of the transition plan is longer than one year, 

identify steps that will be taken during each year of the transition period; and

• Identify the person responsible for implementation of the plan.

When structural changes are necessary, such changes must be made as expeditiously 

as possible within three years.

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Exhibit 3-1

Three Types of Management Entities

A. Borrower/manager

B. IOI management agent

C. Independent fee management agent

In this Handbook, the term “management agent” applies to 

all three forms of management entities, unless a specific 

distinction is made because of policy or procedural 

differences.

SECTION 2: APPROVING, REMOVING, AND REVIEWING 

THE MANAGEMENT AGENT [7 CFR 3560.102]

3.6 THE MANAGEMENT AGENT

A. Acceptable Types of Management Entities

Exhibit 3-1 shows the three types of management entities.

1. Borrower/Manager

In the borrower/manager relationship, the borrower and the management agent are the 

same business entity. This is often referred to as “self-management or owner-managed”. 

A project is not self-managed if some or all of the same individuals are involved in both 

the borrower entity and the management agent, but the organizations are legally different 

business entities.

For example, if the borrower is a limited partnership and the general partner of the 

borrower entity serves as the management agent, the management agent is not a 

borrower/manager because the management agent and the borrower are different business 

entities. Instead, the management agent is an identity-of-interest management agent.

2. Identity-of-Interest Management Agent

An IOI relationship exists when an individual or entity that provides goods, 

management, or other services to the project has a relationship with the project borrower 

that is such that selection of the management agent and determination of the management 

fee will not be determined through an arms-length transaction. Exhibit 3-2 further 

describes this relationship.

Failure to disclose such IOI relationships may subject the borrower, the management 

agent, and other firms or employees among whom the IOI relationship exists to 

suspension, debarment, or other remedies available to the Agency.

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3. Independent Fee Management Agent

An independent fee management agent is a management company or individual that 

has no IOI relationship with the borrower and no financial interest or involvement in the 

project, other than earning a fee for providing management services.

B. Approval of the Proposed Management Entity

A management entity will be deemed acceptable by the Agency provided that the 

agent or staff member has a minimum of two years of experience and satisfactory 

performance in directing and overseeing the management of similar Federally assisted 

multi-family housing. Management services are a lower-tier transaction and subject to 

debarment and suspension check by the Agency in accordance with 7 CFR 3017 and RD 

Instruction 1940-M. Management entities found to have been disbarred are not eligible 

for approval by the Agency.

In addition, the Agency may issue approval to a management agent if the agent’s 

Form HUD 2530 shows that a small percentage of the properties it has managed are 

either in default or have a mortgage delinquency and either one of the following can be 

documented:

• The default or delinquency was due to circumstances beyond its control; or

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Exhibit 3-2

Identity-of-Interest Relationships

An IOI relationship exists when:

• The borrower entity, any principal of, or a general partner of the borrower 

entity; or

• Any officer or director of the borrower entity; or

• Any person who directly or indirectly controls 10 percent or more ofthe 

voting rights, or owns 10 percent or more of the borrower entity

is also

• A borrower, general partner, officer, or director of the management agent 

company or its subcontractor; or

• A person who directly or indirectly controls 10 percent or more of the voting 

rights or owns 10 percent or more of the management company or its 

subcontractor.

As used above, “person” refers to any individual, partnership, corporation, or 

other business entity. Any borrowership, control, or interest held or possessed by a 

person’s spouse, parent, child, grandchild, or sibling or other relation by blood or 

marriage is attributed to that person for this determination.

As used above, “subcontractor” refers to any individual or company that 

contracts with the management agent to provide management services to the project.
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• The agent is making satisfactory progress toward improving the problem property’s 

operations.

The Agency reserves the right to deny approval of any proposed management entity 

that does not meet such requirements. The Agency may issue a denial of a proposed 

management agent if:

• The agent and/or its staff does not have two years of experience successfully 

managing Section 514, Section 515, or Section 516 properties as relevant or other 

assisted housing;

• If the agent’s Form HUD 2530, “Previous Participation Certification”, shows that a 

substantial percentage of the properties it has managed are either in default or have a 

mortgage delinquency; or

• If the agent’s Form HUD 2530, shows that a small percentage of the properties it 

has managed are either in default or have a mortgage delinquency and the 

management agent is not addressing the property’s or properties’ deficiencies.

To request approval of the management entity, the borrower/agent must submit the 

following information to the project’s Field Office at least 45 days before the date the 

borrower wishes the new agent to assume responsibility. In the case of emergency 

replacements of management agents, the borrower/agent must submit the information 

needed for the Agency to review and approve the new management agent as soon as the 

new agent is identified. Borrowers must submit the following documents when 

requesting Agency approval of an agent:

• Management Plan. The management plan establishes the systems and 

procedures that will be employed onsite to ensure that project operations comply 

with Agency requirements. Form HUD 2530 must be included as an attachment 

to the management plan.

• Management Certification. Using Form RD-3560-13, the borrower and 

management agent together certify that they will comply with Agency requirements 

and contract obligations and will execute an acceptable management agent 

agreement, and that no payments have been made to the borrower in return for 

awarding the management contract to the agent nor will such payments be made in 

the future.

• RD Forms 3560-30 Certification of No Identity of Interest or 3560-31 Disclosure 

and Qualification of Identity of Interest, as applicable.

• Additional information required by the Field Office. Agency staff may require 

borrowers to submit additional information to clarify materials already submitted. 

Materials requested may address:

◊ Determining the management agent’s acceptability;

◊ Monitoring the agent’s compliance with Agency requirements;

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◊ Resolving project operating problems; and

◊ Justification of contractual relationship with IOI or third-party contractors. The 

 Agency must review all items listed above within 30 days of receipt. The review will 

 consist of the following:

• Review of Previous Participation Certification. If the management agent is new 

to the Agency and manages properties assisted by HUD, local public housing 

agencies, and State housing finance agencies, the servicing jurisdiction must obtain 

references from the appropriate jurisdiction on the management agent’s past 

performance. For instance, if the management agent has managed HUD properties, 

then the Agency is required to contact the appropriate HUD Field Office and obtain 

a reference or request that HUD provide a copy of the most recent Form HUD 2530.

• Review of the proposed management plan. This review ensures compliance 

with the Agency’s submission requirements and determines if the proposed 

systems and procedures:

◊ Are in compliance with Agency requirements;

◊ Can reasonably be implemented at the project; and

◊ Are reasonably tailored to the particulars of the project.

Within 30 days of receipt of information from the borrower/management agent, the 

Agency will inform the borrower of its decision in writing.

If the Agency grants approval, the borrower may enter into a contract with the

management agent to begin no sooner than 45 days from the date of submission of the 

approval package.

If the Agency issues a denial, the borrower will be provided with appeal rights. The 

borrower may not enter into a formal agreement with the management agent being 

reviewed by the Agency. If a borrower enters into an agreement with a management 

agent or begins to self-manage prior to receiving Agency approval, the Agency will place 

the borrower in non-monetary default status. The Agency will ask the borrower, if not in 

a self-management arrangement, to immediately terminate the contract with the 

management entity. Under emergency circumstances, with Agency consent, the 

borrower may enter into a temporary agreement with a different management entity for

30 days.

C. Use of Management Entities without Agency Approval

If a borrower enters into an agreement or contract with a management entity that has 

not been approved by the Agency, the Agency is authorized to immediately terminate the 

borrower’s agreement or contract with that entity. This action is not appealable.

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Exhibit 3-3

Specific Reasons for Requiring Removal of a Management Agent

A. Lack of performance:

• Failure to adhere to the provisions of the management certification;

• Repeated failure to adhere to the management plan; and

• Non-compliance with applicable State and local laws.

B. Fraud against the project and/or Government:

• Misappropriation of project funds;

• Paying kickbacks to contractors, subcontractors, or service providers; 

and

• Deliberately requesting more Rental Assistance than that to which the 

project is entitled.

3.7 REMOVAL OF A MANAGEMENT AGENT

As permitted in the management certification, the Agency reserves the right to remove 

the management agent for lack of performance or deliberate fraud against the project or the 

Government. Some specific reasons for requiring removal of a management agent are listed in 

Exhibit 3-3. Other reasons also may apply.

If the Agency determines that the management agent is in violation of the management 

certification, the Agency will:

• Send a servicing letter, Handbook Letter 301 (3560), Servicing Letter #1, notifying 

the borrower of the violation;

• State that the management agent must prove that there was no violation or that there 

were mitigating circumstances, and the borrower must respond to the Agency within

30 days of the receipt of the servicing letter;

• If the borrower does not respond satisfactory within the prescribed time period with 

either (1) documentation that the violation did not take place, or (2) a plan to address 

the violation within a certain period of time that is acceptable to the Agency, the 

Agency will send the borrower a second servicing letter, Handbook Letter 302 

(3560), Servicing Letter #2; and

• If the borrower does not respond within the prescribed time period in the second 

servicing letter, the Agency will send a third servicing letter, Handbook Letter 303 

(3560), Servicing Letter #3 indicating that the management certification will be 

terminated by a certain date. As of that date, no management fees may be paid to the 

agent from project funds. If the information reveals that management fees were paid 

to the agent subsequent to termination of the management certification, the borrower 

will be required to reimburse the funds to the project operating account.

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If the borrower is required by the Agency to remove the management agent, they must do 

so under the timeframe required by the Agency or file an official appeal, as described in

Chapter 1, stating why they believe the agent should not be removed. Failure on the part of the 

borrower to comply with Agency demands to remove the agent may result in acceleration of the 

loan and debarment from further participation in Agency programs.

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SECTION 3: SETTING THE MANAGEMENT FEE [7 CFR 3560.102]

3.8 THE MANAGEMENT FEE

A. The Purpose of the Management Fee

The purpose of the management fee, which is an allowable expense paid from the

housing project’s general operating account, is to compensate the management agent 

for services provided to the project. These services are described in Attachment 3-D.

B. Types of Management Fees

There are two major types of fees that, when added together, make up the 

overall management fee for a project:

• Occupied unit fee; and

• Add-on fees.

The occupied unit fee is the largest component of the management fee. It must be 

quoted and calculated as a per-unit, per-month (PUPM) fee for revenue producing units 

occupied during a given month. This requirement gives the agent an incentive to 

maximize occupancy.

Add-on fees are quoted as dollar-per-unit amounts because they relate to 

project conditions that are not a function of project occupancy.

1. Occupied Unit Fee

Periodically, the Agency will review the Occupied Unit Fee. Surveys may be 

conducted to collect management fee data from other assisted housing sources such as 

local Housing and Urban Development field offices, State Housing Finance Agencies, 

Housing Authorities, local housing organizations, and non-profits. Each Region 

provides information about the organizations within its states, documents contacts and 

provides a description of the fee structure used by the source organizations. The 

description should include the amount of the management fee, how the management fee 

was established, and a ‘bundle of services’ comparability synopsis.

To provide consistency, the states are divided into Regions. The Regions are 

identified as follows:

MIDWEST: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska 

North Dakota, Ohio, South Dakota, Wisconsin;

NORTHEAST: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, 

 New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia;

SOUTH: Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina 

Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virgin Islands;

WEST: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico 

Oregon, Utah, Washington, Wyoming.

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2. Add-On Fees

Add-on fees are a flat PUPM fee paid to agents managing projects with long-term 

project characteristics and conditions that require additional management effort 

beyond the activities covered by the standard management fee. The add-on fee is 

applicable to all revenue producing units regardless of occupancy status. See Exhibit 

3-4 for types of add-on fees.

• The National Office has established a standard list of add-on fees that is applicable 

to all states.

• Exhibit 3-4 project characteristics or conditions that warrant the use of add-on fees.

Add-on fees should not cover project characteristics or conditions that are already covered in the base fee. 

Agents may not take add-on fees for management of properties with workout agreements except under limited 

circumstances, and solely at the Agency’s discretion. If it is demonstrated that conditions at the property are 

beyond the management agent’s control, the Agency may agree to allow the management agent to take add-ons 

fees for the circumstances listed in Exhibit 3-4.

Exhibit 3-4

National Office Approved Add-On Fees

Type of Add-on Fees PUPM

Management of properties with 15 units or less $5

One project that has buildings located on different non-contiguous

parcels of land (i.e. across town or in another town).

$5

Management of properties in a *remote location $5

Troubled or critical properties with workout plans and new 

management only.

$5

**Property with Multiple Subsidies $5

*Effective with FY2023 proposed budgets, “Remote Location” is defined as properties located within the USDA 

Economic Research Service (ERS) Level 4 Frontier & Remote (FAR) Area codes. https://www.ers.usda.gov/dataproducts/frontier-and-remote-area-codes/. The following states/territories do not have areas that meet the Level 4 

FAR definition: Connecticut, Delaware, Indiana, Massachusetts, New Jersey, Ohio, Puerto Rico, Rhode Island,

South Carolina, and the Virgin Islands. Properties in Alaska or Hawaii that are authorized to take the “off-road” 

management fee are not eligible to claim an additional add-on fee for remote location. If the property does not 

suffer from difficulty retaining staff, obtaining services, or if management offices are located near the Level 4 

FAR property, management should refrain from claiming this add-on fee. If a property is not located in a 

Level 4 FAR area, and management can justify a remote location add-on fee, they may request an exception.

Reasonable justification must be submitted to the MFH servicing specialist for review. Justifications could include

extensive travel time, difficulty obtaining services or retaining staff, or required unique means of travel (4-wheel

drive, ferry, etc.). If there is a question as to whether the justification is reasonable, the servicing specialist should

consult with their team lead.

**Multiple Subsidies – properties with additional subsidy that have reporting requirements in addition to and 

separate Low-Income Housing Tax Credits or project-based Section-8. Regardless of the number of layered 

subsidies, the total add-on fee for this category is $5.
HB-2-3560

The Occupied Unit Per Month State Maximum Management Fee available on 

Attachment 3-F must be reflected on the proposed budgets and are effective January 1, 

for the specified fiscal year.

The Agency’s decision regarding the amount of management fees set by the region 

and the state is unappealable.

C. Services Paid from the Management Fee

The purpose of the management fee is to compensate the Agent for 

providing oversight to the project including:

• Overseeing compliance with national, State, and local laws and regulations;

• Establishing strong project management policies and procedures; and

• Overseeing the implementation laws, regulations, policies, and procedures 

through the supervision of onsite staff.

A breakdown of items that are to be paid from the management fee can be found in

Attachment 3-D.

D. Services Paid from Project Income

In general, project income is used to pay for project-related items. Examples 

include the salary, benefits, and office expenses of onsite office staff and maintenance 

expenses for the property and costs for processing project-specific transactions (e.g., 

tenant certifications). A specific breakdown of items that are to be paid from project 

income as opposed to the management fee can be found in Attachment 3-E.

The borrower and management agent must obtain materials, supplies, utilities, and 

services at a reasonable cost and seek the most advantageous terms for the project. 

The borrower or management agent must credit any rebates, fees, proceeds, or 

commissions generated by transactions using project funds to the project.

(02-24-05) SPECIAL PN 3-17

Revised (08-26-22) PN 567
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SECTION 4: INSURANCE, BONDING, AND TAXES [7 CFR 3560.105]

3.9 OVERVIEW

Insurance protects the asset against loss or damage. Borrowers without adequate 

insurance coverage are financially responsible for:

• Property damage;

• Losses due to employee dishonesty or error; and

• Personal injuries that occur on the property.

Borrowers are responsible for acquiring and maintaining insurance on all dwellings and 

buildings that are necessary for the operation of the project in accordance with their loan or grant 

documents. Insurance must be in place at loan closing and must remain in place until the loan is 

paid in full. Reevaluation of insurance coverage is necessary when new buildings are 

constructed, or values increase or decrease materially. Any refund or rebate from the insurance 

company must be credited to the project’s account.

The Servicing Office is responsible for counseling the borrower regarding the Agency’s 

insurance requirements. Through the Multi-Family Integrated System (MFIS), Loan Servicers 

will monitor insurance policy expiration and ensure borrower compliance. The Agency will 

obtain insurance for the secured property if the borrower is unable or unwilling to do so. If a 

borrower refuses to pay the insurance premium with their own funds or fails to arrange with the 

agent for subsequent payment by premium note or otherwise, the Agency will pay the amount of 

the insurance premium and charge the premium payment amount and all costs associated with 

procurement of the required insurance to the borrower’s Agency account. The Agency considers 

a borrower’s failure to maintain adequate insurance coverage or to pay taxes as non-monetary 

default. Borrowers who fail to furnish property and hazard insurance coverage of any kind are 

responsible for the debt in the event of loss.

3.10 PROPERTY INSURANCE

Property or “all-risk” insurance protects the physical asset against loss due to damage.

Types of property insurance are described below.

A. Hazard Insurance

1. Loss or Damage Covered

Hazard insurance protects the property against fire and weather-related damage, as 

well as damage from civil commotion, aircraft, or other vehicles. These policies may 

also be known as fire and extended coverage, homeowners, all physical loss, or broad 

form policies.

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2. Coverage Requirements

The minimum property insurance coverage per building is 100 percent of the 

insurable value as reflected in the appraisal report, as referenced in Chapter 7 of HB-1-

3560. If no appraisal report is required, the Agency will perform the necessary 

evaluations and determine and document the minimum insurance coverage requirements 

in the file.

3. Deductible

If a property’s insurance policy has a deductible, the deductible must be accounted for 

in the reserve account, unless the deductible does not exceed:

• $1,000 on any project with an insurable value under $200,000; or

• One-half of 1 percent of the insurable value, up to $10,000 on a project with an 

insurable value over $200,000.

B. Flood Insurance

1. Loss or Damage Covered

Flood insurance protects the property against flooding caused by natural disasters 

such as hurricanes. This coverage is required only for those properties located in areas 

identified as flood hazard areas.

2. Coverage Requirements

Flood insurance is required for any property located in a Special Flood Hazard Area 

(SFHA), as identified by the Federal Emergency Management Agency (FEMA). FEMA 

Form 81-93, Standard Flood Hazard Determination is used to determine if a property is 

in a SFHA and whether flood insurance is available under FEMA’s National Flood 

Insurance Program. If the property is in a SFHA, the Agency will notify the borrower 

using Form RD 3550-6, Notice of Special Flood Hazards, Flood Insurance Purchase 

Requirements, and Availability of Federal Disaster Relief Assistance. The borrower 

must sign and return Form RD 3550-6 prior to loan closing. If the borrower cannot 

secure flood insurance through FEMA’s National Flood Insurance Program in a SFHA, 

the property is not eligible for Federal financial assistance.

3. Deductible

The Agency allows a maximum deductible of $5,000 per building.

C. Earthquake Insurance

1. Loss or Damage Covered

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c

Earthquake insurance covers property losses in the event of an earthquake.

Earthquake coverage is recommended in areas where earthquakes are prevalent; however, 

it is very expensive and generally has a high deductible.

2. Coverage Requirements

Although the Agency does not specifically require a project to be covered by 

earthquake insurance, it recommends a Probable Maximum Loss (PML) seismic study for 

all projects located in certain regions of the country where earthquakes are prevalent.

The coverage amount should be for 100 percent of the replacement cost of the project.

3. Deductible

In the event that the borrower obtains earthquake coverage, the Agency is to be 

named as a loss payee. The deductible should be no more than 10 percent of the 

coverage amount.

D. Windstorm Insurance

1. Required Coverage

The windstorm policy should include extended coverage for rental loss for at least 12 

months, except for coverage provided by State insurance programs.

2. Deductible

When windstorm coverage is excluded from the “all risk” policy, the deductible must 

not exceed 5 percent of the total insured value.

E. Builder’s Risk Insurance

Builder’s risk insurance protects the property against loss or damage during 

construction or reconstruction after an insured loss.

F. Elevator, Boiler, and Machinery Insurance

1. Loss or Damage Covered

Elevator, boiler, and machinery coverage may be required for any property that 

operates elevators, steam boilers, turbines, engines, or other pressure vessels.

2. Coverage Requirements

The Agency requires boiler and machinery insurance in any property that has

centralized Heating, Ventilating, and Air-Conditioning (HVAC) equipment in 

operation.

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G. Sinkhole Insurance or Mine Subsidence Insurance

1. Loss or Damage Covered

Sinkhole insurance or mine subsidence insurance is recommended for projects located 

in areas prone to these geological phenomena.

2. Coverage Requirements

The amount of coverage that the Agency recommends for properties located in areas 

prone to these geological phenomena is 100 percent of the replacement cost of the 

structure affected.

3. Deductible

The deductible for sinkhole insurance or mine subsidence insurance should be similar 

to what would be required for earthquake insurance.

H. Business Income or Rent Loss Insurance

1. Loss or Damage Covered

Business income or rent loss coverage provides coverage for the loss of rental income 

incurred due to a property loss during a 12-month period.

2. Coverage Requirements

The Agency does not require but recommends that the project be insured against loss 

of business income or rent in the event of a property loss that causes one or more units to 

be uninhabitable for a period of time. Business income coverage may be obtained in one 

of two forms:

• Actual loss sustained; or

• A fixed amount equal to the annualized amount of monthly gross potential rents.

I. Acceptable Exclusions

Acceptable exclusions from “all risk” insurance policies include:

• War or military action;

• Nuclear hazard;

• Volcanic eruptions;

• Fraudulent or dishonest acts committed by the insured;

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Dispersal, release, or escape of contaminants or pollution (biological or chemical agents); 

and

• Terrorism.

J. Property Insurance Exemptions

Property insurance is not required if:

• The building is in such a state of disrepair that the cost of insurance would be 

prohibitive;

• The building has a depreciated replacement value of $2,500 or less

K. Property Insurance Policy Requirements

The project’s property insurance policy must include the following:

• Name and location. The policy should contain the names of the borrowers who are 

owners of the property being insured. The exact location of the property should be 

described in the policy.

• Loss or damage covered. The policy must indicate that the buildings are insured 

against loss or damage by fire, smoke, lightning, windstorms, hail, earthquake, 

explosion, riot, civil commotion, aircraft, and vehicles.

• Effective date of insurance. If there are insurable buildings located on the property, 

the policy’s effective date will be on or before loan closing or assumption, or before 

the credit sale is closed, so that the policy will properly insure the borrower and the 

mortgagees. When new buildings are erected or major improvements made to 

existing buildings, such insurance will be made effective as of the date materials are 

delivered to the property. The Agency will not advance loan funds for labor or 

materials until the borrower has furnished adequate insurance to protect the interest of 

the Agency.

• Term. The borrower must furnish insurance for a term of at least 1 year, with 

evidence that a full year’s premium is paid. If the policy is the type that imposes an 

assessment only after a loss has occurred, the borrower must provide documentation 

from the insurance company that no assessment is owed. If the insurance policy is 

automatically renewable, the renewal clause must meet Agency requirements.

• Loss payee. The Agency must be named loss co-payee on all properties where it 

holds first lien position, which means if there is a damage or loss, the insurance draft 

will be made payable to the Agency. Further, the Agency must be named as an 

additional insured if its lien position is other than first.

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• Mortgage clause. The standard mortgage clause adopted by the State or the Agency 

Form RD 426-2, “Property Insurance Mortgage Clause (Without Contribution)”

must be attached to or printed in the insurance policy. Whenever a new mortgage 

clause highlighting the Agency's interest is issued after the policy has been in force, 

the new mortgage clause must be signed by an authorized agent or officer of the 

company that issued the policy.

The mortgage clause is not required if:

◊ An authorized official of an insurance company provides a statement that all 

insurance policies the company issues in the State, and in which Rural 

Development has a mortgage interest, incorporate all of the provisions of Form 

RD 426-2. This statement may be accepted in lieu of attaching the form to each 

policy. If such a blanket letter is used, Rural Development must be named in the

loss payable clause and a State instruction will be issued authorizing the use of 

this method after prior approval is obtained from the Agency.

◊ For all hazard and flood insurance policies the Agency will be named as co-payee.

◊ For builder’s risk policies the borrower must be named as the insured party, and 

the policy must convert to full coverage when the project is completed.

3.11 FIDELITY COVERAGE

A. Loss or Damage Covered

Fidelity insurance protects the property against loss due to employee dishonesty. 

The policy will provide coverage on all persons with access to project assets. Fidelity 

coverage may also be known as Blanket Crime Coverage or Fidelity Bond.

B. Coverage Requirements

The fidelity insurance policy, at a minimum, must include an insuring agreement that 

covers employee dishonesty. The minimum amount of fidelity coverage will be the 

amount calculated by multiplying an exposure index by a coverage factor. When the 

calculated amount is less than $10,000, minimum coverage of $10,000 must be provided. 

This calculation is made as follows:

• Determine exposure index: Exposure index = 25 percent of the SUM of annual cash 

receipts (rents, cash subsidy, security deposits and interest, etc.) and cash (cash 

carryover, reserves, CDs, tax and insurance escrows, etc.). Round to next higher

$1,000.

• Determine coverage: Coverage = exposure index X coverage factor taken from the 

coverage chart shown in Exhibit 3-5. Round to next higher $1,000.

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Exhibit 3-5

Fidelity Coverage

Exposure Index Coverage Factor

$100,000 or less 0.30

$100,000 to $200,000 0.28

$200,000 to $300,000 0.26

$300,000 to $400,000 0.24

$400,000 to $500,000 0.22

$500,000 to $600,000 0.20

$600,000 to $700,000 0.18

$700,000 to $800,000 0.16

$800,000 to $900,000 0.14

$900,000 to $1,000,000 0.12

$1,000,000 or more 0.10

C. Deductible

A deductible is designed to allow flexibility in balancing what the project can 

prudently pay from its own assets, at a time of loss, against the economy of annual 

premiums in its annual budget. The deductible levels shown in Exhibit 3-6 will meet 

Agency requirements. Each year borrowers must review and adjust, if necessary, their 

fidelity coverage.

Exhibit 3-6

Fidelity Coverage Deductible Levels

Fidelity Coverage Deductible Level

Under $50,000 $1,000

Up to and including $100,000 $2,500

Up to and including $250,000 $5,000

Up to and including $500,000 $10,000

Up to and including $1,000,000 $15,000

Exemptions

Fidelity insurance is not required under the following circumstances:

• When a loan is made to an individual or a general partnership, and that individual or 

general partner will be responsible for the project’s financial activities. Individuals 

cannot bond against their own actions. For land trusts where the beneficiary is 

responsible for project management, the beneficiary is treated as an individual.

• For the general partners of a limited partnership, unless one or more of its general 

partners perform financial acts coming within the scope of the usual duties.

D. Policy Requirements

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Fidelity coverage must be documented on a bond form acceptable to the Agency.

Fidelity coverage policies must state that the insurance company will provide protection 

to the insured against the loss of money, securities, and property through any criminal or 

dishonest acts by any employee acting alone or in collusion with others. The amount of 

indemnity will not exceed the amount stated in the declaration of coverage.

The portion of the insurance premium to cover project site employees and general 

partners is an eligible project expense. The premium paid by the management agent is 

part of the agent’s management expense and cannot be claimed as a project expense. 

When a project site employee is covered under the management agent’s fidelity policy, 

the pro rata portion of the premium covering the employee should be reflected in the 

management plan.

3.12 ERRORS AND OMISSIONS INSURANCE

Errors and omissions (E&O) coverage protects the borrower against loss resulting from 

negligence, errors, or omissions committed by those persons covered under the 

borrower’s fidelity insurance policy. Obtaining E&O insurance does not diminish or 

limit the borrower’s documentary obligations and responsibilities.

3.13 LIABILITY INSURANCE

A. Loss or Damage Covered

This coverage insures against any personal injury that might occur in or on the 

project’s common areas, common elements, commercial space, and public areas.

B. Coverage Requirements

The coverage must meet the requirements established below.

1. Commercial General Liability

The insurer's limit of liability per occurrence for personal injury, bodily injury, or 

property damage under the terms of coverage must be at least $1,000,000. Coverage may 

also include borrower exposure to risks such as E&O and environmental damage, or 

protection against discrimination claims.

2. Umbrella Liability Insurance

The Agency recommends, but does not require, the borrower to obtain umbrella 

liability insurance to provide coverage over and above the $1,000,000 provided for in the 

commercial general liability policy. The Agency recommends that umbrella liability 

insurance policies provide coverage as follows:

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HB-2-3560

• For projects with buildings of 1 to 3 stories, $1,000,000;

• For projects with buildings of 4 to 10 stories, $5,000,000; and

• For projects with buildings of 11 to 20 stories, $10,000,000.

3. Commercial Automobile Liability Insurance

The Agency recommends that the borrower purchase commercial automobile liability 

insurance to cover all automobiles used for business purposes related to the project. The 

recommended amount of coverage is $1,000,000 per occurrence.

C. Deductible

The Agency allows a deductible not to exceed $5,000 per occurrence.

3.14 WORKERS’ COMPENSATION

This insurance coverage, which is also known as employer’s liability coverage, is 

required by the Agency.

3.15 POLICY RENEWALS

When renewing insurance policies, if the best policy the borrower can obtain contains a 

deductible clause with amounts greater than those stated above, the borrower must submit to the 

Loan Servicer:

• The insurance policy; and

• An explanation and documentation that more adequate insurance coverage was not 

available.

3.16 BLANKET POLICIES

Blanket insurance policies for several buildings or properties located on non-contiguous 

sites are acceptable if the insurer provides proof that the secured property is as fully protected as 

if a separate policy were issued.

Blanket crime insurance coverage or fidelity bonds are acceptable types of fidelity

coverage. At a minimum, a borrower must provide the Agency with an endorsement listing all 

Agency properties and their locations covered under the policy or bond as evidence of required 

fidelity insurance. The policy or bond may also include properties or operations other than 

Agency-financed properties on separate endorsement listings.

Individuals or organizational borrowers must have fidelity coverage when they have

employees with access to Multi-Family Housing complex assets. A borrower who uses a

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HB-2-3560

management agent with exclusive access to housing assets must require the agent to have fidelity 

coverage on all principals and employees with access to the project. If project management 

reverts to the borrower, the borrower must immediately obtain fidelity coverage.

3.17 AUTHORIZED INSURANCE PROVIDERS

Borrowers are responsible for selecting an insurance provider that meets Agency 

requirements. The insurance provider must be licensed or authorized to do business in the 

State or jurisdiction where the project is located. In making the determination that an insurance 

company is reputable and financially sound, the Agency uses all relevant available information, 

including financial statements, Best’s Insurance Reports, and information from State insurance 

authorities.

The borrower and management agent are required to disclose any IOI relationships with

the insurance company.

3.18 BORROWER FAILURE TO MEET INSURANCE REQUIREMENTS

The Servicing Office is responsible for taking all actions in connection with insurance 

that are necessary to protect the security interest of the Agency. Any unusual situation that may 

arise with respect to borrower procuring or maintaining insurance should be referred to the State 

Director. The State Director may refer questions to the Office of General Counsel (OGC).

A. Unacceptable Insurance Policy

When the borrower submits a policy or binder that does not meet Agency 

requirements, the Field Office Staff will return the policy/binder to the borrower with a 

form letter that provides the reasons for the policy's unacceptability and requires an 

acceptable policy within 30 days of the date of the letter.

If acceptable coverage still is not obtained from an authorized provider and the 

determination has been made to continue with the borrower, the Loan Servicer will 

temporarily accept from the borrower the available insurance policy the Agency 

determines most nearly conforms to established requirements. Whenever adequate 

insurance becomes available, the State Director will require the borrower to deliver to the 

Servicing Office an acceptable insurance policy.

B. Expired Policies

When an expired insurance policy is not renewed, the Loan Servicer will require the 

borrower to provide a new policy. The Agency will be shown in the loss payable clause 

and in the mortgage clause in the proper order of priority. Insurance coverage on each 

building usually will be the same as shown on the expired policy if it meets or exceeds 

Agency requirements. If the coverage shown on the expired policy does not meet 

Agency requirements, the borrower will obtain the proper coverage. If the insurance 

agency or broker who issued the expired policy refuses to issue a new policy, the Loan 

Servicer will have the borrower designate in writing another insurance agency or broker 

from whom the insurance can be obtained.

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C. Force-Placed Insurance

If the borrower does not furnish acceptable insurance within the required timeframe

the Loan Servicer will begin the process of procuring the required insurance. The costs 

of procuring the insurance and the premium amount will be added to the borrower’s 

Agency account.

3.19 PROPERTY DAMAGE OR LOSS

Borrowers must notify the Agency and their insurance company agents of any loss or 

damage to the insured property.

A. When Loss or Damage is Discovered

Upon being notified of loss or damage, the Loan Servicer will:

• If the Agency is listed as mortgagee in the insurance policy, collect the amount of the 

loss and may also consent to the borrower using the funds to repair or replace 

damaged or destroyed property or to apply the loss proceeds to their loan account or 

to any prior liens that might exist in the order of their priority;

• If the Agency is not listed as mortgagee in the insurance policy, contact the borrower 

to determine whether they have received the loss proceeds. If the borrower has 

received the loss proceeds but has not yet paid for improvements to repair or replace 

the property, or has not received the loss proceeds, the Loan Servicer will:

◊ Inform the borrower of their responsibility for repairing or replacing the damaged 

or destroyed property or for authorized disposition of the loss proceeds; and

◊ Notify the insurance company in writing of the Agency’s interest in the security 

property and request that the loss proceeds be made payable jointly to the Agency 

and the borrower.

B. Loss Drafts

A loss draft is payment from the insurance provider for property loss or damage. 

Loss drafts for loans secured by a first mortgage, which in the opinion of the Agency 

represents a satisfactory adjustment of the loss will be endorsed immediately without 

recourse and deposited in a supervised bank account to be used in repairing or replacing 

the damaged building, except when:

• The amount of the loss is $5,000 or less and the borrower will use the funds for 

repairing or replacing an essential building. The loss draft may be endorsed without 

recourse and given to the borrower upon satisfactory proof that the repairs or

replacements have been made.

• The essential buildings are not to be repaired or replaced and other suitable buildings 

are not to be erected.

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• A balance remains after all repairs, replacements, and other authorized disbursements 

have been made, insurance funds can be applied as follows:

◊ To prior liens;

◊ As an extra payment to the borrower’s loan account; or

◊ To the borrower’s reserve account.

◊ Make other capital improvements to the property as approved by the Loan 

Servicer.

• The indebtedness secured by the insured property has been paid in full or the draft is 

in payment for loss of property on which the Agency has no claim. A loss draft that 

includes the Agency as a joint payee may be endorsed without recourse and delivered 

to the borrower.

Loss drafts for a loan that is not secured by an Agency first mortgage will be released 

by the Agency only if the primary mortgagee agrees to the provisions set forth in the 

previous part.

3.20 REAL ESTATE TAXES

Borrowers are responsible for paying real estate taxes each year. The annual 

financial statements must include a certification that the property’s real estate taxes have 

been paid. Failure to pay taxes and assessments by the due date will be considered a 

non-monetary default.

When the Agency discovers that a borrower has failed to pay property taxes or local 

assessments, the Loan Servicer will notify the borrower in writing to pay the property’s 

taxes and that paying taxes are the borrower’s responsibility. The notification letter will 

request proof of payment of taxes within 30 days. If the borrower fails to submit proof of 

payment, the Loan Servicer will:

• Determine if taxes have been paid;

• Pay delinquent taxes and any penalties;

• Charge the cost of bringing the taxes current to the borrower’s Agency account; and

• Require the borrower to establish an account to ensure that funds are available for 

payment of taxes.

The Loan Servicer will begin servicing actions.

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SECTION 5: PROJECT MANAGEMENT FOR LABOR HOUSING

3.21 PROJECT MANAGEMENT AND FEES

A. Off-Farm Labor Housing

Project management for off-farm labor housing will be in accordance with the

procedures established in this chapter for the Section 515 program. Borrowers are

required to submit a management plan and a management certification, and to receive 

Agency approval on the proposed management agent and the management fee prior to 

paying a management fee from project income. For off-farm labor housing operated on 

a seasonal basis, the management plan must establish specific opening and closing dates.

B. On-Farm Labor Housing

Project management for On-Farm Labor Housing projects should follow the same 

basic procedures as outlined in this chapter for the Section 515 program with the 

following exceptions:

• On-Farm Labor Housing borrowers are expected to manage their own properties and 

should not need to charge a fee for this service; and

• On-Farm Labor Housing borrowers are required to maintain a lease or employment 

contract with each tenant specifying employment with the borrower as a condition for 

continued occupancy.

3.22 INSURANCE REQUIREMENTS

A. Off-Farm Labor Housing

Off-farm labor housing must comply with the same insurance requirements as 

specified for the Section 515 program in this chapter.

B. On-Farm Labor Housing

On-Farm Labor Housing borrowers must ensure that they provide hazard insurance 

adequate to cover replacement of the property in case of loss. On-Farm Labor Housing 

borrowers must comply with the same flood insurance requirements as specified earlier in 

this chapter.

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3.23 SPECIAL SERVICING REQUIREMENTS FOR SECTION 514 ON-FARM 

LABOR HOUSING

A. Background.

Prior to January 17, 1993, owners of on-farm type LH were not allowed to charge rent or 

utilities to eligible tenants residing in the housing if the requirement that the owner execute a 

loan agreement had been waived. If there had been no waiver of the loan agreement 

requirement, owners of on-farm type LH were allowed to charge rent and utilities for the unit.

Effective January 17, 1993, regulations required all owners of Section 514 on-farm type 

LH to sign a loan agreement. By signing this agreement, the owners of on-farm LH reaffirmed 

their obligation not to charge rent or utilities to eligible tenants. Owners who sign the 

agreement must obtain the Government’s prior approval for charging rent, utilities, refundable 

deposit charges or cleaning fees. Charges must be reasonable and approved in accordance with 

the procedure. Borrowers not meeting these requirements will be requested to comply with 

these requirements. Borrowers unwilling or unable to do so may be subject to the RHS 

initiating appropriate servicing action to seek compliance.

B. Policy.

Field office employees are to ensure that owners of on-farm type LH financed under 

Section 514 are not charging for rent, utilities, refundable damage deposit charges, or 

cleaning fees to residents, unless the rent, charges, and fees are approved by authorized

officials.

Where violations are evident, the owner will be asked, in writing, to come into compliance.

Tenants must receive proper notification and an opportunity to comment on proposed rent 

changes. Borrowers should arrange to request rent changes during periods when migrant 

residents can be readily contacted. Making requests during the off-farm season when tenants 

are not occupying the units does not excuse the borrower from the responsibility to make 

effective notification to tenants. Tenants must also receive notice of any approved charges 

authorized by the Agency prior to imposing charges. Borrowers imposing unauthorized charges 

must be notified, in writing by the Agency, that they must roll back rates retroactively to the last 

authorized level. The borrower must give tenants a rebate or credit for the unauthorized 

charges.

Borrowers with known violations must be brought into compliance or subjected to 

servicing actions which may include, but not be limited to, added Agency supervisory visits, 

inspections, and reviews; acceleration; suspension; debarment; and referral to local, State, or 

Federal officials for investigation and prosecution of violations of civil or criminal law.

C. Definition of Rent:

For administering the section 514 on-farm program, the term “rent” means any charge 

made by a landlord to an eligible tenant household for the use and occupancy of the housing and 

includes utilities (i.e., electricity, heat, water, waste disposal, etc.) or the requirement that the 

tenant pay the utilities directly to the utility provider.

The term “rent” is also clarified to include any deductions or off-sets made to a tenant’s wages 

for the use of a LH dwelling. Rent does not include bona-fide wage changes or reductions 

unrelated to retaining rent-free housing benefits. Agency officials should seek to obtain and 

document the following:

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• A meeting with the tenants residing in the labor housing should be convened, 

preferably without the borrower being in attendance in order to ensure objectivity. 

Solicit the information set out in the Supervisory Visit On-Farm form in MFIS. 

Letters to tenants in advance of the visit may also be used to solicit thisinformation.

• If the borrower is unable to provide utility bills, contacting the utility company to 

determine in whose name the utilities are registered. Compare the information 

solicited by tenant interviews on utilities paid with the utility company data, where 

possible.

• A review of the borrower’s farm and home plan and other financial records to 

determine whether the borrower is deriving any income from the farm labor housing 

units. Compare the information solicited by tenant interviews on rent and utility 

payments with that disclosed by the borrower.

D. Servicing Actions.

• Normal servicing letter and initial follow-up: If the borrower is not complying with 

Agency regulations (including improperly charging rent, permitting unlicensed 

occupancy or occupancy during a period for which the housing was not designed) the 

borrower should be sent the first servicing letter identifying the compliance 

deficiencies. The letter should normally be sent within 15 days of identification of 

the compliance deficiencies. Borrowers should normally be requested to issue a 

response within 15 days of the date of such a letter. When rent change violations are 

identified, the extent of the violations should be documented, including an estimate of 

the amount of the improper charges involved and the documentation relied upon to 

derive these estimates. Borrowers in violation should be requested to show evidence 

of any reimbursement or crediting of improper charges to those residents affected. 

This includes documentation of attempts to contact and reimburse former tenants for 

unauthorized charges. Where documentation shows former tenants cannot be reached 

for reimbursement of unauthorized charges, the borrower may remit the unauthorized 

charges to the Government for processing as a miscellaneous payment for crediting to 

the Rural Housing Insurance Fund.

Within 30 days of sending any letter to the borrower citing unapproved rent charges, 

officials should verify whether the borrower has stopped unapproved charging for the 

use and occupancy of the housing, and if the borrower has refunded tenants any 

improper charges previously collected. This may be accomplished by a follow-up 

visit, written communication to tenants, or other effective means. During any followup visit, RHS staff should attempt to meet with the tenants to determine if a 

borrower’s improper practice of charging for the use of the housing has ceased. The 

meeting between RHS staff and the tenants should not be in the presence of the 

borrower.

• Workout plan to achieve compliance: When a workout plan is being considered to 

bring a borrower into compliance with Agency regulations. Borrowers that are not in 

compliance may be eligible for a supplementary payment agreement calling for less 

than a full loan installment for use in refunding improper charges to residents or 

former residents. Upon the end of such workout arrangements, including deferred or 

reduced debt service payments, reamortization of the account should be considered.

3-33

(02-24-05) SPECIAL PN

Revised (08-07-20) PN 539
arging 

arged rents

HB-2-3560

Upon compliance with the rent change approval by Agency servicing officials, the 

borrower may consider waiving the authorized collections and credit residents for 

payment of the approved charges until such time as the improperly assessed charges 

are fully offset. Such arrangements should normally not exceed two years. 

Borrowers may not reduce resident wages to finance any reductions in shelter cost 

charges.

If the housing is not suitable for year-round occupancy, a rent charge approved by 

RHS may only be assessed for the period of occupancy for which the housing is 

suitable. The housing may not be occupied, and no rent may be charged for the 

period for which the housing is not suitable for occupancy. If the borrower wishes to 

make the housing suitable for year-round occupancy, RHS may approve any rent 

change request for the entire year only after the borrower makes the necessary 

modifications and obtains all necessary permits and licenses to operate the housing on 

a year-round basis.

• Secondary request letters: borrowers failing to respond to letters requesting 

compliance with Agency regulations or failing to arrange a meeting to resolve 

compliance concerns, or failing to arrange to develop an acceptable workout plan, 

must be notified of the Agency’s continued concerns and requested to comply. 

Borrowers will be advised that the servicing options available to resolve compliance 

concerns.

• Last notice to avoid more serious servicing actions: borrowers who continue to be in 

non-compliance will be requested to comply with Agency regulations and 

requirements or face the prospects of adverse servicing actions. The timeframe for 

reply to such a letter should normally be 15 days of the date of such letter. Field 

Office servicing officials will forward a problem case report for borrowers in 

violation of Agency requirements to the State Director along with recommended 

servicing actions. The time frame for this action should normally be within 30 days 

of concluding that efforts to achieve compliance have been unsuccessful.

• Processing problem case reports: the State Director should take appropriate action 

on problem case reports and request any needed guidance or action from other 

Governmental officials when warranted. This may include seeking to initiate 

foreclosure, seeking appointment of a receiver, or to initiate other appropriate legal 

remedies to enforce compliance. This may also include initiating a request for an 

audit or investigation from the Office of Inspector General (OIG) in accordance with 

the provisions of 7 CFR 2012, subpart A or 2012, subpart B.

E. Documentation accompanying problem case reports and required action:

If the borrower has not complied with the requirements set-out in earlier servicing 

attempts, a complete report of the initial visit and follow-up action should accompany any 

problem case report forwarded to the State Director for further action.

If, after sending appropriate servicing notices and the borrower does not stop ch 

unauthorized rents and does not provide refunds or credits of any improperly ch

to tenants, a problem case report is to be prepared and forwarded to the State Director. 

State Directors, with the assistance of the Office of the General Counsel, should take 

appropriate actions to enforce the owner’s agreement not to charge rent and to refund or 

credit any improperly charged rent. Borrowers, who are not able or willing to comply, or 

enter into an acceptable workout plan to achieve compliance, should:

• Consider initiating acceleration of the account.

3-34
HB-2-3560

• Be considered for a suspension or debarment in accordance with the provisions of 7 

CFR 3560, Subpart M.

F. Compliance concerns warranting attention and corrective action:

• Shelter cost changes: if shelter cost changes warrant correction, such as the 

reimbursement of inappropriate charges to residents through rebates or credits.

Borrowers must make efforts to contact and rebate unauthorized charges to former 

residents. Should the borrower be unable to rebate or credit improper shelter cost 

charges to affected residents because they cannot be located, the improper charges 

should be forwarded for processing as a miscellaneous payment for crediting to the 

revolving fund. Borrowers should not receive indirect benefit from such improper 

actions such as having any improper collections “credited” to the Government for 

application as a voluntary additional payment on loans owed the Government. 

Alteration of Form 3560-8, to reflect that rents are being charged, does not constitute 

appropriate evidence of rent change approval.

• Tenant Notification: if tenant notifications are not supported, a rent change 

violation is apparent. Corrective action such as reimbursement or credits should be

taken.

• Utility allowance documentation: corrective action should include gathering the 

required information prior to any approval actions.

• Loan agreement: corrective action should include a written demand to execute the 

agreement. Failure to comply with such request warrants forwarding a problem case 

report to the State Director. This type of non-compliance may require more 

aggressive servicing actions including additional supervisory visits. Failure to 

execute the loan agreement may be a sign that other compliance deficiencies exist. 

Scheduling a supervisory visit as soon as possible but usually not later than three 

months after the failure is warranted to verify whether other compliance deficiencies

exist.

• Record keeping and reports: borrowers are expected to keep appropriate records and 

reports. This includes the following:

◊ Financial records. when residents are not charged for residing in the housing 

unit, Form 3560-7A should be provided for the annual reporting requirements. 

When residents are charged for residing in the housing unit, adequate financial 

disclosure is required. Budget reviews should be evaluated to ensure the labor 

housing is operated in a non-profit manner (i.e., cash LH expenses for 

operations, loan installments, taxes, insurance, and upkeep are less than or equal 

to cash receipts from LH revenue from authorized rents, utilities, security 

deposits and fees).

◊ Documents needed to verify eligibility to reside in labor housing dwelling units. 

Where rent is being charged, a copy of Form RD 3560-8, “Tenant Certification”

is appropriate. This documentation should show that a substantial portion of 

income is derived from farm labor or is considered so earned if the housing was 

initially provided on a non-rental basis as part of employment compensation for 

farm labor.

◊ Documents showing compliance that tenants are being charged for rent, utilities, 

refundable security deposits, or cleaning fees. This includes evidence of tenant 

notification and reporting disclosure requirements, and current utility allowance 

documentation if residents are being charged for utilities.

3-35

(02-24-05) SPECIAL PN

Revised (08-07-20) PN 539
HB-2-3560

◊ Evidence that taxes and insurance are paid.

◊ Evidence that the property is decent, safe, sanitary, and free from health and 

safety hazards.

◊ Evidence of a management plan, when appropriate.

G. LH Compliance Concerns Detected After Promissory Notes are Paid in Full:

Compliance concerns uncovered after payment in full may warrant servicing letters to 

borrowers. This is especially appropriate under circumstances where unapproved shelter 

cost charges are detected. However, when such evidence is over six years from the date 

the borrower’s account matured, no notification is required. Where a serious violation is

discovered, the Agency may consider taking appropriate actions even though the account 

matured. The guidance of OGC may be sought in determining what corrective measures 

can be brought to bear under such circumstances. Such actions may include referral to 

OIG recommending initiation of an audit or investigation and suspension or debarment 

from participation in Federal programs under the provisions of 7 CFR 3560, Subpart M.

3-36
ATTACHMENT 3-A

MANAGEMENT PLAN REQUIREMENTS

HB-2-3560

Attachment 3-A 

Page 1 of 7

1. The role and responsibility of the owner and the relationship and delegations of authority to

the management agent. A management agreement must be provided where a management 

agent is to be used. If there is no management agent, the management plan should supply the

equivalent information concerning the management staff assigned to day-to-day operation of the 

project even when the owner provides direct management.

a) Describe and fully justify any identity of interest as described in 7 CFR 3560.

b) Identify the supervisory relationships, and to whom the incumbent of the position 

responsible for the day-to-day operation of the project is accountable.

c) Describe the conditions when the management agent must consult the owner before 

taking any action.

d) Identify the person or position in the owner's organization that is the key contact for the 

management agent.

e) Describe the type of decisions to be made by this contact person.

f) Describe the fundamental responsibilities and duties of the owner and the managing 

agent. Identify any areas of overlap and describe how the overlap will be handled.

g) Describe any pro rata divisions of singularly incurred operating expense that is common 

to the management agent and the owner (project) (i.e., fidelity coverage that may be 

divided between both).

2. Personnel policy and staffing arrangements.

a) Describe hiring practices of management and their conformance with equal employment 

opportunity requirements.

b) Include a staffing plan for the project.

c) Describe the lines of authority, responsibility, and accountability (internal controls) 

within the management entity.

d) Describe the standards and plans for training and familiarizing employees with their 

job-related responsibilities and applicable Rural Development program requirements. 

Describe how such training will generally be achieved.

(02-24-05) SPECIAL PN

Revised (08-07-20) PN 539
HB-2-3560

Attachment 3-A 

Page 2 of 7

3. Plans and procedures for marketing units, achieving and maintaining full occupancy, and 

meeting HUD Form 935.2, “Affirmative Fair Housing Marketing Plan” requirements.

a) Describe how affirmative marketing practices will be used. Describe the outreach and 

marketing efforts that will be used to reach those low-income and minority persons who 

are least likely to apply for such housing without special outreach efforts.

b) Describe the methods that will be used to achieve and maintain the highest possible level

of occupancy. When applicable, indicate any additional compensation or incentives that 

may be allowed management agents for early initial rent-up. (If this area is not covered 

in the management plan, it will not be allowed at a later date.)

c) Describe how the units will be advertised. Indicate minimum levels planned regardless

of occupancy levels.

d) Describe the appropriate communication system, auxiliary aids, or other assistance that 

will be used to ensure effective communication with applicants, tenants or members, and 

members of the public that have sight or hearing impairments.

e) Describe the kinds of reasonable accommodation the project can readily provide such as 

changing water faucets, kitchen equipment, doorknobs, assigning handicap parking 

spaces, etc.

f) Describe the process management will follow in reviewing and determining whether 

structural modification of an apartment unit is practical and feasible to reasonably 

accommodate a tenant or household member who has a disability.

g) Provide a sample waiting list.

h) Attach copies of sample forms that will be used to record unit condition and indicate 

who will receive copies of the inspection forms.

i) Describe any orientation services to be provided tenants or members to acquaint them 

with the project and care of the units. Indicate what printed project information will be 

given to applicants.

j) Identify the person or staff position responsible for determining tenant or member 

eligibility and their location on the waiting list.

k) In projects receiving tax credits, explain if special waiting lists will be required when 

eligible tenants with incomes higher than tax credit limits will be considered for 

occupancy and how this waiting list will be maintained.

4. Procedures for determining eligibility and for certifying and recertifying incomes.

a) Describe how applications and other records relevant to this function will be kept. 

If application fees are used, describe them.

________________________________________________________________________________________
HB-2-3560

Attachment 3-A 

Page 3 of 7

b) Describe the level of knowledge, skill, and ability that management official(s) will be 

expected to possess BEFORE assuming rental related duties such as application

processing, eligibility determination, selection, unit assignment, certification, 

recertification, rent or occupancy charge collection, and record keeping. This 

discussion should mention training and testing to be provided or obtained to achieve 

and maintain the level expected.

5. Leasing and occupancy policies.

a) Describe the occupancy standards for the project. (This could be shown as an annex 

to the management plan.)

b) Describe the project admissions and leasing/occupancy policies and procedures, and 

criteria for selecting tenants/members for occupancy. (This could be shown as an annex 

to the management plan.)

c) Describe the level of knowledge, skill, and ability that management official(s) will be 

expected to understand and apply regarding project lease provisions and prohibitions, 

occupancy standards, and admissions policies.

d) Describe special procedures that will be used where the marketing area includes nonEnglish speaking or reading persons to assure that such persons will understand leases or 

occupancy agreements and established rules.

6. Rent and occupancy charge collection policies and procedures.

a) Describe the project rent/occupancy charge collection policy and procedure, covering 

such matters as where the collection point is, which staff position handles the collection, 

provisions for collection after normal office hours, recording, and safeguarding of 

collections.

b) Describe the project security deposit/ membership fee policy and procedure covering 

matters similar to the preceding item. Include discussion on handling of any interest 

earned on such deposits.

7. Procedures for requesting and implementing a rent or occupancy charge change.

a) Describe the process to be followed for preparation and request of a change of 

rents/occupancy charges and/or utility allowances, and to notify tenants of such change, 

to meet Rural Development requirements.

b) Identify which staff position or person will process change requests.

c) Describe when such change requests will normally be made in terms of economic need 

and timing within a fiscal year of operation.

8. Plans and procedures for carrying out an effective maintenance, repair, and replacement 

program.

(02-24-05) SPECIAL PN
HB-2-3560

Attachment 3-A 

Page 4 of 7

a) Describe the project objective and general plan for preventive maintenance.

b) Describe where the project's as-built plans and specifications will be located and identify 

the staff position responsible for updating it as modifications occur.

c) Describe the general maintenance procedures and schedules or cycles to: (this list 

could be attached as an addendum)

(1) Check and service appliances and mechanical equipment.

(2) Perform safety checks of smoke/fire alarms, fire extinguishers, outside lighting, 

and ice removal, etc.

(3) Inspect and perform maintenance and redecoration incident to tenant/member 

move-out and move-in.

(4) Perform major interior and exterior painting and redecorating.

(5) Perform major repairs and grounds maintenance.

(6) Remove garbage and trash.

(7) Perform common areas clean up (parking lot, entryways, hallways, community 

room, etc.)

d) Describe the project policy and procedure for tenants/members to prepare and submit 

maintenance requests.

e) Describe the general timing for handling purchase orders and payments.

f) Describe the project policy for budgeting for and/or requesting use of reserve funds for

funding major maintenance or replacement items.

g) In migrant or seasonally occupied labor housing (LH), describe the above items in terms 

of season opening and closing dates.

9. Plans and procedures for providing supplemental services.

a) Describe the types of supplemental services such as laundry and vending machines that 

will be provided to benefit occupants.

b) Explain whether this equipment will be owned and operated by the owner or a consignee 

(vendor).

c) Describe the safekeeping and recording practices (internal control) of any cash 

collections from use of the equipment.

d) Describe who will be responsible for maintaining the equipment and stocking any 

vending machines.
HB-2-3560

Attachment 3-A 

Page 5 of 7

e) When a consignee will operate the equipment, describe the general terms of the 

consignment contract.

f) Describe Tenant Services Coordinator responsibilities, programs, and equipment in 

use (i.e., language and computer learning classes).

10. Plans for accounting, record keeping, and meeting Rural Development reporting 

requirements.

a) Briefly describe the type of project accounting methods (i.e., cash or accrual) and records 

that will be used, how will they be maintained, and which staff position will prepare and 

maintain them.

b) Describe how interest earned on project reserve funds will be prorated and accounted 

"separately" if such funds are deposited jointly with funds of another project owned by 

the same borrower.

c) Describe whether the project bookkeeping chart of accounts and bank accounts is 

compatible with Form RD 3560-7, "Multiple Family Housing Project Budget," 

requirements, and if not, what adjustments will be made when reporting actuals on the 

form.

d) Identify which staff member or position will be responsible for the preparation and 

submission of the quarterly and annual reports required by Rural Development.

e) Provide assurance or explanation that the person or firm who will perform and prepare 

the annual audit, or verification of review, is not associated with the project, other than to 

perform the audit or review.

f) Discuss the proposed tenant or member record maintenance system including retention of 

records and identify which person/position will handle and maintain the records.

g) Identify where records subject to Rural Development review will be kept andwhich 

person/position Rural Development will contact to review the records.

11. Energy conservation measures and practices.

a) Describe the plan to inform and encourage tenants/members in use of energy 

conservation practices they can use in their unit to save utility expense (and thus 

minimize utility allowances and conserve rental assistance).

b) Describe the plan to utilize energy conservation practices in the common areas of the 

project (to conserve operating expense and help minimize rent/occupancy charge levels).

c) Describe the project objective in implementing energy conservation measures.

12. Plans for tenant participation in rural rental housing (RRH) project operations and tenant's

relationship with management.

a) Describe any plans for a tenant organization and how management and staff will work 

with the organization.

(02-24-05) SPECIAL PN

 (Revised 09-30-22) PN 569
HB-2-3560

Attachment 3-A 

Page 6 of 7

b) Describe where the Tenant Grievance and Appeals Procedure will be posted in the

project and otherwise made available to tenants. Identify which person or staff 

position will be responsible for responses to and consideration of a tenant/member

grievance.

13. Plans for member participation in rural cooperative housing (RCH) project operations.

a) Describe who will explain to the members the types of committees the cooperative will

be using.

b) Describe what the cooperative will do to attract member participation on committees.

c) Describe how the board members will participate with the committee.

d) Describe where the cooperative will post, and otherwise make available to members, the 

Tenant Grievance and Appeals Procedure. Identify which person or staff position will 

be responsible for response to and consideration of a member grievance.

14. Plan for carrying out management training programs.

a) Describe the standards of training and proficiency that management or board members 

will be expected to attain and maintain to perform their duties and responsibilities in 

carrying out project objectives, including compliance with applicable Federal, State, and 

local laws.

b) Describe the plan to conduct internal training and to otherwise use external training 

sources to maintain levels of attained proficiency.

c) For RCH, describe the actions the board will take if a board member(s) does not 

participate in training.

d) For RCH, describe the role the board will assume in making sure the RCH membership 

as a whole understands its role and functions in the cooperative.

15. Termination of leases or occupancy agreements and eviction.

a) Identify which person or staff position is responsible for knowing and administering State 

and local laws and Rural Development's requirements regarding termination of leases or 

occupancy agreements and evictions.

b) Identify which person or staff position is responsible for knowing and administering State 

and local laws and Rural Development's requirements regarding the notification that must 

be given to a tenant or member when termination of lease or occupancy agreement is 

proposed and subsequent eviction procedures through the State or local judicial process.

16. Insurance.

a) Identify which person or staff position is responsible for knowing and complying with 

Rural Development requirements for fidelity coverage and acquiring such coverage.
HB-2-3560

Attachment 3-A 

Page 7 of 7

b) Identify which person or staff position is responsible for knowing and complying with 

Rural Development's insurance coverage requirements and acquiring such coverage.

17. Management agreement. Attach a copy of the management agreement, when applicable. 

(If an initial loan, attach a copy of the proposed management agreement, when applicable.)

18. RCH board of director/adviser relationship. Discuss the relationship of the adviser and 

its effect on decisions made by the board.

19. Management compensation.

a) If management is provided directly by the owner, describe the amount of management 

fee, how it will be determined, and how it will be paid.

b) In the case of a cooperative, describe the amount of compensation to be paid to the 

adviser by the board.

20. On-site management.

a) Describe who (owner, site manager, caretaker, board) will perform on-site management 

duties and responsibilities.

b) Describe the duties and responsibilities of the on-site management staff.

c) Identify whether the site manager will live in the project in a rent-free unit, pay rent,or 

live off-site.

d) Describe established office hours and indicate where they will be posted.

21. Validity of the management plan. The plan must provide space at the end for the date, 

title, and signature of borrower or borrower’s authorized representative.

22. Compliance with the requirements of VAWA 2013. Describe the policies and procedures covering 

VAWA rights and protections that support and assist actual and imminent victims of domestic violence, 

dating violence, sexual assault or stalking as well as children and members of the household from being 

denied housing or from losing their housing as a consequence of domestic violence, dating violence, sexual 

assault or stalking, including a person or position in the owner's organization that is the key contact for the 

management agent regarding VAWA, as described in Section K of Attachment 6-K. (This could be shown 

as an annex to the management plan.)

(02-24-05) SPECIAL PN 

Revised (09-30-22) PN 569
HB-2-3560

Attachment 3-B

Page 1 of 1

ATTACHMENT 3-B

BORROWER CERTIFICATION THAT NO CHANGES ARE 

REQUIRED TO THE MANAGEMENT PLAN

(To be submitted once every 3 years if no changes are needed to the management plan 

during that period)

I, , certify that there have been no changes in the project’s 

operations during the last 3 years, that the project operations are consistent with the current 

management plan, and that the plan is adequate to ensure project compliance with the loan 

documents and the applicable Agency requirements.

(Date) (Borrower)

(02-24-05) SPECIAL PN

Revised (09-19-18) PN 516
HB-2-3560

Attachment 3-C 

Page 1 of 2

ATTACHMENT 3-C 

FREQUENTLY ASKED QUESTIONS (FAQ)

NON-DISCRIMINATION POLICIES

AND PRACTICES BORROWERS MUST ADDRESS

• How will applicants and tenants be made aware that the owner will provide reasonable 

accommodations?

• How will requests for reasonable accommodations be handled and who is authorized to 

approve or deny any such requests?

• Does the project have a Telecommunication Device for the Deaf (TDD) or an equally 

effective communication system? (Note: If the complex has Section 8 assistance from 

HUD, the complex is required to have a TDD)

• If the project has a TDD, is the public made aware that there is a TDD? For example, is the 

TDD telephone number given each time the project's telephone number is given?

• If the project relies on a relay service as an equally effective communication system (rather 

than having a TDD), who operates the relay service? Is the relay service available 24 hours a 

day and without any added cost to the disabled person?

• Have procedures been established to accommodate hearing- and sight-impaired applicants 

and tenants? Examples of methods the borrower might use include readers, sign language 

interpreters, Braille, etc.

• Does management give priority for fully accessible units to persons who are in need ofthe 

special design features of an accessible unit? Is priority given first to those living in the 

complex and then to persons on the waiting list?

• Before accessible units are temporarily rented to people who do not need the special design 

features, have there been diligent marketing efforts to market the units as accessible units? 

Have those efforts been documented? Are lease clauses used? Do marketing efforts 

continue after renting the unit to someone who does not need the special design features?

• Is management's policy for verifying a person's disability limited to only that which is needed 

to establish eligibility and is verification required only after a tenant or applicant has asked 

that their disability be considered by management?

• Does management provide their employees with civil rights training?

• When marketing an elderly project, has there been an effort to reach all eligible people? 

Persons with disabilities (of any age) are every bit as eligible as persons who are 62 or older. 

Marketing efforts should be designed to reach both population groups.

(02-24-05) SPECIAL PN
HB-2-3560

Attachment 3-C 

Page 2 of 2

• Does the borrower/management agent notify the public that they do not discriminate on the 

basis of disability? Do materials published by the borrower contain such a notice? Use of 

the Equal Housing Opportunity logo is one means of doing so (the logo is the house with the 

equal sign and the words Equal Housing Opportunity underneath the house).

• Does management have a policy that permits persons with disabilities to have service and/or 

companion animals?

• Does management give persons with disabilities the same choices other applicants are given? 

For example, the choice to pick either first or second floor apartments.
HB-2-3560

Attachment 3-D

Page 1 of 3

ATTACHMENT 3-D

COSTS AND SERVICES TO BE PAID 

FROM THE MANAGEMENT FEE

The following items and services are provided in return for the management fee:

A. Supervision by the management agent and staff (time, knowledge, and expertise) of 

overall operations and capital improvements of the site.

B. Hiring, supervision, and termination of onsite staff.

C. General maintenance of project books and records (general ledger, accounts payable 

and receivable, payroll, etc.). Preparation and distribution of payroll for all onsite 

employees including the costs of preparing and submitting all appropriate tax reports 

and deposits, unemployment and Workers’ Compensation reports, and other IRS or 

State-required reports.

D. Preparation and submission of proposed annual budgets and negotiations for approval 

with RHS, HUD, or other governmental agencies and the borrowers.

E. Preparation and distribution of RHS, HUD, Housing Finance Authority (HFA), or other 

governmental agency and normal financial reports to borrowers, RHS, HUD, HFA, or 

other governmental agency.

F. Preparation and distribution of required year-end reports to RHS, HUD, HFA, or other 

governmental agency and borrowers.

G. Preparation of requests for reserve withdrawals, rent increases, or other required

adjustments.

H. Arrangement of preparation by outside contractors of Energy Audits and Utility 

Allowance analysis. Implementation of appropriate changes.

I. Preparation and implementation of Affirmative Fair Housing Marketing Plans 

(AFHMPs) as well as general marketing plans and efforts.

J. Reviews of tenant certifications and submission of monthly Rental Assistance requests, 

overage, and monies collected for occupancy surcharge. Submission of payments 

where required.

K. Preparation, approval, and distribution of operating disbursements and oversight of 

project receipts and reconciliation of deposits.

L. Overhead of management agent including:

(02-24-05) SPECIAL PN
HB-2-3560

Attachment 3-D 

Page 2 of 3

• Establishment, maintenance, and control of an accounting system adequate to carry 

out accounting supervision responsibilities.

• Maintenance of agent office arrangements, staff, equipment, furniture, and services 

necessary to communicate effectively with the properties, RHS, HUD, HFA, or 

other governmental agency and with the borrowers and the main office.

• Postage expenses related to the normal responsibility for mailings to the properties, 

RHS, HUD, HFA, or other governmental agency, the tenants, the vendors and the 

borrowers.

• Expense of telephone and facsimile communication to the properties, tenants, RHS, 

HUD, HFA, or other governmental agency and the borrowers.

• Direct costs of insurance (fidelity bonds covering central office staff, computer and 

data coverage, general liability, etc.), directly related to protection of the funds and 

records of the borrower.

• Central office staff training and ongoingcertifications.

• Maintenance of all required profession and business licenses and permits. (This 

does not include site office permits or licenses.)

• Insurance coverage for Agents office and operations (Property, Auto, Liability, 

Errors and Omissions (E&O), Casualty, Workers’ Compensation, etc.).

• Travel of Agent staff to the properties for onsite inspection, training, orsupervision 

activities.

• Agent bookkeeping for their own business.

M. Attendance at meetings (including travel) with tenants, borrowers, investors, and/or 

RHS, HUD, HFA, or other governmental agency.

N. Development, preparation, and revision of management plans and/or agreements.

O. Coordination of HUD vouchers with tenants including reporting to all pertinent 

agencies and borrowers.

P. Direct the investment of project funds into required accounts.

Q. Maintenance of bank accounts and monthly reconciliations.

R. Preparation, request for, and disbursement of borrower’s initial operating capital (for 

new projects), as well as administration of annual return to borrower.

S. Account maintenance, settlement, and disbursement of security deposits.
HB-2-3560

T. Work with auditors for initial setup of audits and annually thereafter for audit

Attachment 3-D 

Page 3 of 3

preparation and review. Assistance with supplemental letters and preparation of 

Form RD 3560-10, “Borrower Balance Sheet”, as well as other RHS, HUD, HFA, 

or other governmental agency reports.

U. Storage of records and adherence to records retention requirements.

V. Assistance to onsite staff with tenant relations and problems. Assistance in severe 

actions (eviction, death, insurance loss, etc.).

W. Oversight of general and preventive maintenance procedures and policies.

X. Development and oversight of asset replacement plans.

Y. Oversight of preparation of Section 504 reviews, development of plans, and 

implementation of improvements necessary to comply with plans and Section 504 

requirements.

Z. Reporting to general and limited partners and State Agencies for LIHTC compliance 

purposes.

(02-24-05) SPECIAL PN
HB-2-3560

Attachment 3-E

Page 1 of 3

ATTACHMENT 3-E

COSTS AND SERVICES TO BE PAID FROM PROJECT INCOME

There are some generally accepted project expenses that may be paid out of the project 

operating account. These expenses are listed below.

A. Actual costs for direct personnel costs of permanent and part-time staff assigned directly 

to the project site. These will include managers, maintenance staff, and temporary help 

and can include the following specific items:

• Gross salary;

• Employer Federal Insurance Contributions Act (FICA) contribution;

• Federal unemployment tax;

• State unemployment tax;

• Workers’ compensation insurance;

• Health insurance premiums;

• Cost of fidelity or comparable insurance;

• Leasing, performance incentive, or annual bonuses;

• Direct costs of travel to offsite locations by onsite staff for property business or

training; and

• Retirement benefits.

B. Legal fees directly related to the operation and management of the property including 

tenant lease enforcement actions, property tax appeals and suits, and other project-related 

matters.

C. All outside account and auditing fees, if required by RHS, directly related to the 

preparation of the annual audit, partnership tax returns, and Schedule K-1, as well as 

other outside reports and year-end reports to RHS, HUD, FHA, or other governmental 

agency.

D. All repair and maintenance costs for the project, including:

• Maintenance staffing costs and related expenses;

• Maintenance supplies;

• Contract repairs to the projects (heating and air conditioning, painting, roofing, etc.);

(02-24-05) SPECIAL PN
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• Make-ready expenses, including painting and repairs, flooring replacement, and 

appliance replacement, as well as drapery/mini-blind replacement (turnover 

maintenance);

• Preventive maintenance expenses, including occupied units repairs and maintenance, 

as well as common area systems repairs and maintenance;

• Costs of snow removal;

• Costs of elevator repairs and maintenance contracts;

• Costs of Section 504 compliance;

• Costs of landscaping maintenance, replacements, and seasonal plantings;

• Costs of pest control services; and

• Other related maintenance expenses.

E. Specific costs that may be charged to the project include:

• The costs of obtaining and receiving credit reports, police reports, and other checks 

related to tenant selection criteria for prospective residents.

• The costs of duplicating forms for those properties not owning a copier. This will 

include the costs of producing or purchasing forms and mailing or delivering those 

forms to the project site.

• All bank charges related to the property including purchases of supplies (stamps, 

checks, deposit slips, returned check fees, service fees, etc.).

• Costs of site-based telephone, including initial installation, basic services, directory 

listings, and long distances charges.

• All advertising costs related specifically to the operations of that project. These can 

include advertising for applicants or employees in newspapers, newsletters, radio, 

cable TV, and telephone books.

• Postage and delivery costs from the site, including expenses to RHS, HUD, or other 

governmental agencies; tenants; verifying third parties; central management offices; 

etc.

• Partnership filing expenses, including State taxes and other mandated State or 

local fees. Costs of continuation financing statements and site license and permit

costs.

• Expenses related to site utilities, including actual costs and surcharges, as well as 

deposits and expense of utility bonds in lieu of bonds.
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• Site office furniture and equipment including site-based computer and copiers. 

Service agreements and warranties for copiers, telephone systems, and computers are 

also included (if approved by RHS and make good business sense).

• Real estate taxes (personal/tangible property and real property taxes) and expenses 

related to controlling or reducing taxes.

• All costs of insurance, including property liability and casualty, as well as fidelity or 

crime and dishonesty coverage for onsite employees and the general partners.

• Costs of collecting rents onsite, including bookkeeping supplies and record keeping 

items.

• Costs of preparing and maintaining tenant files and processing tenant certifications 

including all office supplies, copies, and other associated expenses.

• Public relations expenses related to maintaining positive relationships between the 

local community and the tenants with the management staff and the borrowers. For 

example, Chamber of Commerce duties, contributions to local charity events, 

sponsorship of tenant activities, etc.

• Tax Credit Compliance Monitoring Fees imposed by HFAs.

• All insurance deductibles, as well as adjuster expenses.

• Professional service contracts (audits and compilations, tax returns, energy audits, 

utility allowances, architectural, construction, rehabilitation, and inspection contracts, 

etc.).

• Site manager salary for additional hours associated with congregate housing.

(02-24-05) SPECIAL PN
Fiscal Year 2024

Per Occupied Unit Per Month State Maximum Management Fee

STATE 2023 Fee 

(Rounded up to 

nearest Dollar)

Increase based on 

FY 2023 HUD 

OCAF (%)

2024 Fee

(Rounded up to the 

Nearest Dollar)

Alabama $71.00 5.8 $76.00 

Alaska $74.00 6 $79.00 

Alaska -offroad $88.00 6 $94.00 

Arizona $71.00 5.7 $76.00 

Arkansas $78.00 5.9 $83.00 

California $83.00 7.1 $89.00 

Colorado $76.00 5.9 $81.00 

Connecticut $84.00 6.1 $90.00 

Delaware $76.00 5.8 $81.00 

Florida $70.00 6.1 $75.00 

Georgia $71.00 5.6 $75.00 

Hawaii $88.00 7.3 $95.00 

Hawaii -offroad $99.00 7.3 $107.00 

Idaho $70.00 5.1 $74.00 

Illinois $65.00 7.3 $70.00 

Indiana $65.00 6.4 $70.00 

Iowa $64.00 5 $68.00 

Kansas $69.00 5.5 $73.00 

Kentucky $64.00 6.4 $69.00 

Louisiana $78.00 5.9 $83.00 

Maine $84.00 8.3 $91.00 

Maryland $77.00 6.6 $83.00 

Massachusetts $88.00 6.1 $94.00 

Michigan $65.00 5.5 $69.00 

Minnesota $70.00 7.3 $76.00 

Mississippi $74.00 6.2 $79.00 

Missouri $64.00 5.2 $68.00 

Montana $77.00 5.4 $82.00 

Nebraska $69.00 5.9 $74.00 

Nevada $74.00 6.2 $79.00 

New Hampshire $83.00 5.7 $88.00 

New Jersey $76.00 5.3 $81.00 

New Mexico $65.00 6 $69.00 

New York $74.00 7.6 $80.00 

North Carolina $76.00 5.7 $81.00 

(08-26-22) SPECIAL PN 

Revised (08-04-23) PN 589

HB-2-3560

Attachment 3-

F

 
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Attachment 3-F

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Fiscal Year 2024

Per Occupied Unit Per Month State Maximum Management Fee

STATE 2023 Fee 

(Rounded up to 

nearest Dollar)

Increase based on 

FY 2023 HUD 

OCAF (%)

2024 Fee

(Rounded up to the 

Nearest Dollar)

North Dakota $75.00 6 $80.00 

Ohio $65.00 6.2 $70.00 

Oklahoma $77.00 4.9 $81.00 

Oregon $76.00 5.6 $81.00 

Pennsylvania $75.00 5.8 $80.00 

Puerto Rico $61.00 6.3 $65.00 

Rhode Island $86.00 5.3 $91.00 

South Carolina $75.00 5.6 $80.00 

South Dakota $77.00 4.8 $81.00 

Tennessee $65.00 5.7 $69.00 

Texas $79.00 5.7 $84.00 

Utah $68.00 5.6 $72.00 

Vermont $79.00 6 $84.00 

Virgin Islands $73.00 5.8 $78.00 

Virginia $77.00 6 $82.00 

Washington $77.00 5.9 $82.00 

West Virginia $68.00 6.6 $73.00 

Wisconsin $67.00 6.6 $72.00 

Wyoming $67.00 5.6 $71.00