HB-3-3560

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TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION............................................................................................ 1-1

SECTION 1: INTRODUCTION TO THE PROJECT SERVICING HANDBOOK..........................1-1

1.1 ABOUT THIS HANDBOOK ........................................................................................................1-1

1.2 COMPANION MULTI-FAMILY HOUSING HANDBOOKS.....................................................1-1

1.3 USING THIS HANDBOOK..........................................................................................................1-2

A. Citations and Text Boxes.........................................................................................................1-2

B. Attachments and Appendices...................................................................................................1-2

C. Terminology .............................................................................................................................1-2

SECTION 2: OVERVIEW OF THE AGENCY’S MULTI-FAMILY HOUSING PROGRAMS......1-5

1.4 GOALS OF RHS MULTI-FAMILY HOUSING PROGRAMS....................................................1-5

1.5 SECTION 515 PROGRAM—OVERVIEW..................................................................................1-5

1.6 SECTION 514/516 PROGRAMS—OVERVIEW.........................................................................1-5

A. Section 514 Loans and Section 516 Grants for Off-Farm Housing..........................................1-6

B. Section 514 Loans for On-Farm Housing.................................................................................1-6

SECTION 3: GENERAL PROGRAM REQUIREMENTS ..................................................................1-7

1.7 CIVIL RIGHTS [7 CFR 3560.2]...................................................................................................1-7

A. Nondiscrimination....................................................................................................................1-8

B. Reasonable Accommodations for Persons with Disabilities ....................................................1-8

C. Limited English Proficiency [7 CFR 3560.2] ..........................................................................1-8

D. Civil Rights Impact Analysis ...................................................................................................1-8

1.8 REVIEWS AND APPEALS [7 CFR 3560.9]................................................................................1-9

A. Informing Program Participants of Their Rights......................................................................1-9

B. Adverse Decisions That Cannot Be Appealed..........................................................................1-9

C. Informal Review.....................................................................................................................1-10

D. Mediation or ADR..................................................................................................................1-10

E. Appeal.....................................................................................................................................1-13

1.9 CONFLICT OF INTEREST [7 CFR 3560.10]............................................................................1-13

A. Borrower Disclosure ..............................................................................................................1-14

B. Agency Employee Disclosure ................................................................................................1-14

C. Disposition of Real Estate Owned Properties.........................................................................1-14

1.10 OTHER FEDERAL REQUIREMENTS.....................................................................................1-15

A. Environmental Requirements [7 CFR 3560.3 and 3560.4]....................................................1-15

B. Construction Standards...........................................................................................................1-15

C. Lobby Restrictions .................................................................................................................1-15

D. Administrative Requirements.................................................................................................1-15

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1.11 EXCEPTION AUTHORITY [7 CFR 3560.8]...........................................................................1-16

ATTACHMENT 1-A: EQUAL CREDIT OPPORTUNITY ACT (ECOA)

ATTACHMENT 1-B: ATTACHMENT TO LETTER NOTIFYING CUSTOMERS OF AN 

ADVERSE DECISION THAT IS APPEALABLE

ATTACHMENT 1-C: ATTACHMENT TO LETTER NOTIFYING CUSTOMERS OF AN 

ADVERSE DECISION THAT CANNOT BE APPEALED

ATTACHMENT 1-D: ATTACHMENT TO LETTER NOTIFYING CUSTOMERS OF 

UNFAVORABLE DECISION REACHED AS A RESULT OF AN 

INFORMAL REVIEW

ATTACHMENT 1-E: ATTACHMENT FOR NOTIFYING CUSTOMERS THAT REQUEST 

MEDIATION IN STATES WITH A USDA-SPONSORED MEDIATION 

PROGRAM

ATTACHMENT 1-F: ATTACHMENT FOR REQUESTING MEDIATION OR ALTERNATIVE 

DISPUTE RESOLUTION (ADR) SERVICES

ATTACHMENT 1-G: ATTACHMENT FOR NOTIFYING CUSTOMERS THAT REQUEST 

MEDIATION OR ALTERNATIVE DISPUTE RESOLUTION (ADR) OF 

SERVICE PROVIDER

ATTACHMENT 1-H: ATTACHMENT FOR NOTIFYING CUSTOMERS THAT REQUEST 

MEDIATION OR ALTERNATIVE DISPUTE RESOLUTION (ADR) OF 

POTENTIAL SERVICE PROVIDERS

ATTACHMENT 1-I: ATTACHMENT FOR NOTIFYING CUSTOMERS THAT MEDIATION OR 

ALTERNATIVE DISPUTE RESOLUTION (ADR) DID NOT RESULT IN 

RESOLUTION OF ISSUES

CHAPTER 2: MULTI-FAMILY HOUSING PROGRAMS AND LOAN SERVICING .. 2-1

2.1 INTRODUCTION..........................................................................................................................2-1

SECTION 1: SECTION 515 PROGRAM...............................................................................................2-1

2.2 OVERVIEW ..................................................................................................................................2-1

2.3 TYPES OF PROJECTS .................................................................................................................2-1

A. Family Projects.........................................................................................................................2-2

B. Elderly Projects ........................................................................................................................2-2

C. Congregate Projects..................................................................................................................2-2

D. Group Homes...........................................................................................................................2-2

E. Rural Cooperative Housing ......................................................................................................2-2

F. Mixed Projects..........................................................................................................................2-3

2.4 TYPES OF LOANS .......................................................................................................................2-3

A. Initial Loans .............................................................................................................................2-3

B. Subsequent Loans.....................................................................................................................2-4

C. Assumed Loans........................................................................................................................2-4

2.5 AGENCY RENTAL ASSISTANCE .............................................................................................2-4

2.6 PREFERENCE FOR PROJECTS THAT LEVERAGE OTHER FUNDS ....................................2-5

SECTION 2: SECTION 514/516 PROGRAM........................................................................................2-7

2.7 TYPES OF PROJECTS .................................................................................................................2-7

A. Off-Farm Labor Housing .........................................................................................................2-7
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B. On-Farm Labor Housing ..........................................................................................................2-7

2.8 LOANS AND GRANTS................................................................................................................2-7

A. Farm Labor Housing Loans......................................................................................................2-7

B. Farm Labor Housing Grants.....................................................................................................2-8

2.9 RENTAL ASSISTANCE.............................................................................................................2-8

2.10 PREFERENCE FOR PROJECTS THAT LEVERAGE OTHER FUNDS ..................................2-8

SECTION 3: OVERVIEW OF MULTI-FAMILY PROJECT SERVICING......................................2-9

2.11 KEY PROJECT SERVICING ACTIVITIES AND THIS HANDBOOK....................................2-9

2.12 PROJECT SERVICING PROCEDURES FOR MULTI-FAMILY HOUSING PROJECTS ......2-9

A. Automated Systems (Chapter 3)..............................................................................................2-9

B. Account Servicing (Chapter 4)..............................................................................................2-10

C. Ownership and Organizational Changes (Chapter 5) ............................................................2-10

D. Determination of Project Suitability (Chapter 6)...................................................................2-10

E. Transfers of Project Ownership (Chapter 7)..........................................................................2-10

F. Security Restructuring Requests (Chapter 8) ........................................................................2-10

G. Unauthorized Assistance (Chapter 9)....................................................................................2-10

H. Compliance Violations, Defaults, and Workout Agreements (Chapter 10)...........................2-11

I. Loan Restructuring (Chapter 11)...........................................................................................2-11

J. Account Foreclosure and Liquidation (Chapter 12) ..............................................................2-11

K. Other Special Cases (Chapter 13)..........................................................................................2-11

L. Management and Disposal of Real Estate Owned Property (Chapter 14).............................2-11

M. Project Preservation (Chapter 15)..........................................................................................2-11

CHAPTER 3: AUTOMATED SYSTEMS.............................................................................. 3-1

3.1 INTRODUCTION..........................................................................................................................3-1

3.2 MANAGEMENT INTERACTIVE NETWORK CONNECTION................................................3-1

A. Background ..............................................................................................................................3-1

B. Purpose and Capabilities ..........................................................................................................3-2

C. Staff Responsibilities................................................................................................................3-2

D. Benefits of MINC.....................................................................................................................3-3

E. Staff Training and Certification Requirements.........................................................................3-4

3.3 AUTOMATED MULTI-FAMILY HOUSING ACCOUNTING SYSTEM..................................3-4

A. Purpose and Capabilities..........................................................................................................3-4

B. Staff Responsibilities................................................................................................................3-4

C. Staff Training and Certification Requirements.........................................................................3-5

3.4 MULTI-FAMILY INFORMATION SYSTEM.............................................................................3-7

A. Purpose and Capabilities..........................................................................................................3-7

B. Major Components of MFIS ....................................................................................................3-8

C. Staff Responsibilities................................................................................................................3-9

3.5 PREPAYMENT TRACKING AND CONCURRENCE ...............................................................3-9

3.6 FURTHER INFORMATION.......................................................................................................3-10

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CHAPTER 4: ACCOUNT SERVICING................................................................................ 4-1

4.1 INTRODUCTION..........................................................................................................................4-1

4.2 OVERVIEW ..................................................................................................................................4-1

SECTION 1: ACCOUNT SERVICING REQUIREMENTS 

[7 CFR 3560.403 AND 7 CFR 3560.404]..........................................................................4-1

4.3 LOAN PAYMENTS ......................................................................................................................4-1

4.4 LATE FEES (PASS ACCOUNTS ONLY)....................................................................................4-2

4.5 LATE FEE WAIVERS ..................................................................................................................4-2

4.6 PAST DUE ACCOUNTS ..............................................................................................................4-2

A. Past Due Payments...................................................................................................................4-2

B. Interest on Past Due Payments (PASS Accounts Only) ...........................................................4-3

C. Special Servicing Action ..........................................................................................................4-3

4.7 CONVERSION FROM DIAS TO PASS.......................................................................................4-3

4.8 FINAL LOAN PAYMENTS .........................................................................................................4-3

SECTION 2: PROCESSING TENANT CERTIFICATIONS...............................................................4-5

4.9 OVERVIEW ................................................................................................................................4-5

4.10 REQUIREMENTS OF THE RULE.............................................................................................4-5

4.11 GENERAL PROCEDURES ........................................................................................................4-5

A. Timely Submission and Overage Charges for Late Submissions.............................................4-5

B. Waivers of Overage..................................................................................................................4-5

C. Verification and Processing of Certifications...........................................................................4-6

D. Approval of Subsidy ................................................................................................................4-6

SECTION 3: LOAN PAYMENT PROCESSING ..................................................................................4-7

4.12 OVERVIEW ................................................................................................................................4-7

4.13 NOTIFICATION TO BORROWERS OF PAYMENTS DUE....................................................4-7

A. Factors Used to Determine Payment Amount..........................................................................4-7

B. Calculating Payment Amount...................................................................................................4-7

C. Borrower Verification Of Payment Data..................................................................................4-8

4.14 PAYMENT DUE DATES ...........................................................................................................4-8

4.15 PROCEDURES FOR PROCESSING PAYMENTS ...................................................................4-9

A. Overview..................................................................................................................................4-9

B. Borrower Submission .............................................................................................................4-10

C. Application of Payments........................................................................................................4-12

4.16 ASSESSMENT OF LATE FEES...............................................................................................4-13

A. Agency Approval of Waivers Procedures for Granting Late Fee Waivers ............................4-13

B. Required Submissions from Borrower to Receive a Waiver..................................................4-14

C. Notification upon Granting A Waiver....................................................................................4-14

D. Denying Waivers....................................................................................................................4-14
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4.17 SPECIAL CIRCUMSTANCES .................................................................................................4-14

A. Reapplication of Payments.....................................................................................................4-14

B. Overpayments and Refunds....................................................................................................4-14

C. Recoverable and Nonrecoverable Cost Items.........................................................................4-15

SECTION 4: ACCOUNT TRACKING AND SERVICING................................................................4-15

4.18 OVERVIEW ..............................................................................................................................4-15

4.19 ACCOUNT TRACKING PROCEDURES ................................................................................4-15

A. Conditions for Conversion from DIAS to PASS....................................................................4-15

B. Procedures for Conversion from DIAS to PASS....................................................................4-15

C. Account Reviews....................................................................................................................4-16

4.20 SERVICING ACCOUNTS THAT ARE 30 DAYS PAST DUE...............................................4-16

4.21 SPECIAL CIRCUMSTANCES .................................................................................................4-16

A. Same Terms Transfers............................................................................................................4-16

B. Overpayments and Advance Regular Payments.....................................................................4-16

SECTION 5: FINAL LOAN PAYMENT [7 CFR 3560.404] ...............................................................4-17

4.22 OVERVIEW ..............................................................................................................................4-17

4.23 PROCESSING FINAL LOAN PAYMENTS ............................................................................4-17

A. Payment Amount Determined ...............................................................................................4-17

B. Funds Shifted from Supervised Bank Account......................................................................4-17

C. Forms Processed....................................................................................................................4-18

D. Payments Applied..................................................................................................................4-18

E. Security Documents Released ...............................................................................................4-18

F. Release of Interest in Insurance.............................................................................................4-18

G. Special Circumstances...........................................................................................................4-19

H. State Supplements .................................................................................................................4-19

I. Redelegation of Authority .....................................................................................................4-19

CHAPTER 5: OWNERSHIP AND ORGANIZATION CHANGES [7 CFR 3560.405] .... 5-1

5.1 INTRODUCTION..........................................................................................................................5-1

5.2 OVERVIEW OF CHANGES REQUIRING PRIOR AGENCY CONSENT ................................5-1

5.3 REQUIREMENTS FOR OBTAINING AGENCY CONSENT ....................................................5-1

A. Overview .................................................................................................................................5-1

B. Written Request........................................................................................................................5-2

C. Assumption of All Applicable Responsibilities by New Interests...........................................5-3

D. Assumption of Liability by Substitute General Partner...........................................................5-3

E. Satisfaction of Eligibility Requirements..................................................................................5-3

5.4 BORROWER REQUESTS FOR CONSENT................................................................................5-3

5.5 AGENCY REVIEW OF BORROWER REQUESTS....................................................................5-3

A. Overview..................................................................................................................................5-3

B. Loan Servicer and State Director Actions................................................................................5-4

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5.6 DOCUMENTATION OF CHANGES...........................................................................................5-4

CHAPTER 6: PORTFOLIO AND PROPERTY ASSESSMENT ....................................... 6-1

6.1 INTRODUCTION..........................................................................................................................6-1

6.2 KEY STEPTS TO COMPLETING PORTFOLIO ASSESSMENT...............................................6-1

A. Evaluation Tools and Asset Data Collection.............................................................................6-2

B. Property and Marketing Factors.........................................................................6-4

C. Categorize the State's Properties............................................................ ..........6-12

D. Servicing Strategies.............................................................................. ....6-13 

 

6.3 IMPLEMENTATION PLAN TO REMOVE PROPERTY FROM PROGRAM .......................6-14

ATTACHMENT 6-1 Property Categorization Worksheet 

CHAPTER 7: TRANSFERS OF PROJECT OWNERSHIP [7 CFR 3560.406] .............7-1

7.1 INTRODUCTION..........................................................................................................................7-1

SECTION 1: OVERVIEW.......................................................................................................................7-2

7.2 RURAL DEVELOPMENT'S OBJECTIVES AND GUIDING PRINCIPLES..............................7-2

A. Objectives..................................................................................................7-2

B. Guiding Principles........................................................................................7-2

7.3 KEY ANALYTICAL CONCEPTS................................................................................................7-3

A. Eligibility .................................................................................................................................7-3

B. Feasibility.................................................................................................................................7-3

C. Improve or Maintain Risk Levels.............................................................................................7-3

7.4 DEFINITIONS...............................................................................................................................7-4

A. Transfer....................................................................................................7-4

B. Non-Program Transfers [7 CFR 3560.406(l)].........................................................7-4

C. Related Definitions........................................................................................7-5

7.5 CONDITIONS WHEN A TRANSFER MAY OCCUR AND TYPES OF TRANSFERS ............7-5

A. Conditions When a Transfer May Occur..............................................................7-5

B. Types of Transfers........................................................................................7-6

C. Level of Complexity......................................................................................7-7

D. Deceased Borrower.......................................................................................7-7

7.6 PROCESSING A TRANSFER REQUEST ...................................................................................7-9

A. Key Steps..................................................................................................7-9

B. Guidelines for Rural Development Processing of Transfer Requests..............................7-9
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C. Procedure for Incomplete Transfer Requests.........................................................7-10

D. Denial of Transfer Request............................................................................7-10

E. Payments Received while Transfer Pending.........................................................7-11

F. Uncompleted Transfer..................................................................................7-11

SECTION 2: POLICY CONSIDERATIONS........................................................................................7-12

7.7 RENTS.........................................................................................................................................7-12

A. Budget/Reasonable Rents [7 CFR 3560.406(d)(2)]...................................................7-12

B. Conventional Rents for Comparable Units ("CRCU") Limitation

 [7 CFR 3560.406(d)(2)]................................................................................7-13

C. Increased Basic Rents Because of New Debt Service..............................................7-14

7.8 SALES PRICE .............................................................................................................................7-14

A. Limitations on Sales Price......................................................................................................7-14

B. Equity Pay-Out (General).......................................................................................................7-15

C. Equity Pay-Out During the Term of an Existing RUP ...........................................................7-17

D. Non-Equity Compensation.....................................................................................................7-16

7.9 RETURN TO OWNER (RTO) ....................................................................................................7-18

A. RTO in General......................................................................................................................7-18

B. Increased RTO Because of Low Income Housing Tax Credits (LIHTC)

 Equity [7 CFR 3560.68] (Paragraph 5.12 of HB-1-3560)......................................................7-18

7.10 FEES TO DEVELOPER/BUILDER....................................................................7-20

A. Developer/Builder Fees in General..................................................................7-20

B. Deferred Developer Fee................................................................................7-21

(02-24-05) SPECIAL PN

Revised (08-09-13) PN 464

Revised (06-04-18) PN 513
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7.11 LOW INCOME HOUSING TAX CREDITS (LIHTCs)..............................................7-21

A. Relationship between Basic Rents and LIHTC Rents (General).................................7-21

B. Financial Viability When Basic Rents Exceed Maximum LIHTC Rents.......................7-22

C. "Tax Credit Tiered Rents" in LIHTC Transactions [7 CFR 3560.202(g)]......................7-22

7.12 OTHER POLICY CONSIDERATIONS...............................................................7-23

A. Principal and Interest during Construction.............................................................7-23

B. Transactions with Multiple Sources of Funds.......................................................7-23

SECTION 3: PRELIMINARY ASSESSMENT (STEP 1)...................................................................7-25

7.13 PRE-REQUEST CONSULTATION WITH BORROWER AND TRANSFEREE...................7-25

7.14 INITIAL RURAL DEVELOPMENT REVIEW FOR COMPLETENESS................................7-26

7.15 CONSULT WITH MPDL REGARDING UNUSUAL TRANSACTIONS ..............................7-26

SECTION 4: EVALUATING THE TRANSFEREE (STEP 2)............................................................7-26

7.16 DETERMINE TRANSFEREE ELIGIBILITY.........................................................7-27

A. Citizenship Requirements..............................................................................7-27

B. Organizational Requirements..........................................................................7-27

C. Legal Capability.........................................................................................7-27

D. Requirements for Existing Borrowers................................................................7-28

E. Identity-of-Interest.......................................................................................7-28

F. Insurance..................................................................................................7-29

G. Site Control..............................................................................................7-29

H. Revitalization Principle #2: Eligible Owner........................................................7-29

7.17 FINANCIAL REQUIREMENTS...............................................................................................7-29

7.18 MANAGEMENT CAPACITY..................................................................................................7-30

SECTION 5: EVALUATING THE PROJECT (STEP 3)

 [7 CFR 3560.406 (c) and (d)]............................................................................................7-31

7.19 DETERMINE PROJECT SUITABILITY..............................................................7-31

7.20 DETERMINE PROJECT ELIGIBILITY...............................................................7-31

A. Civil Rights Impact Analysis..........................................................................7-31

B. State Historic Preservation Office.....................................................................7-31

C. Flood Hazard Determination...........................................................................7-32

D. Design Review..........................................................................................7-32

E. Prohibited Conditions...................................................................................7-32

F. Other Project Eligibility Requirements...............................................................7-32

7.21 CIVIL RIGHTS AND DISABILITY COMPLIANCE..............................................................7-32

7.22 PHYSICAL INSPECTION........................................................................................................7-33

A. CNA Requirements.....................................................................................7-33

B. State Office Review of CNA...........................................................................7-34

C. Finalize Detailed Repair and Rehabilitation Plans and Costs [7 CFR 3560.406(d)(7)] .........7-34
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D. Required Repairs and the Repair Agreement .........................................................................7-35

E. Environmental Review [7 CFR 3560.406 (d)(4)]...................................................................7-36

F. Advance Rural Development Approval Required for Third Party Funded Repairs............7-37

G. Reserve Must Be Adequate to Meet 20-Year Capital Needs Based on CNA...................7-37

SECTION 6: EVALUATING FEASIBILITY (STEP 4).....................................................7-37

7.23 EVALUATE FEASIBILITY.............................................................................7-37

A. Analytical Template...................................................................................7-37

B. Compliance Issues.....................................................................................7-37

C. Repair Related Issues..................................................................................7-37

D. Third Party Funding Issues...........................................................................7-38

E. Tenant Impact...........................................................................................7-38

F. Rents and the Proposed Operating Budget..........................................................7-38

G. Sales Price/Equity Pay-Out...........................................................................7-39

H. Rural Development Loans.............................................................................7-39

I. Other Feasibility Issues.................................................................................7-40

SECTION 7: EVALUATING RURAL DEVELOPMENT LOANS AND OVERALL

 RISK (STEP 5).......................................................................................7-40

7.24 EXISTING RURAL DEVELOPMENT LOANS......................................................7-40

A. New Terms or Same Terms? (7 CFR 3560.406(j))................................................7-40

B. Existing Loans/New Terms: Amortization Period and Loan Term..............................7-40

C. Existing Loans/New Terms: Interest Rate..........................................................7-41

D. Closing Out an Existing Loan That Will Not be Assumed in Full...............................7-41

7.25 SUBSEQUENT RURAL DEVELOPMENT LOANS [7 CFR 3560.406 (h) and (i)]............7-42

7.26 VERIFY THERE IS ADEQUATE SECURITY VALUE [7 CFR 3560.406 (d)(3)].............7-42

7.27 ASSESS THE OVERALL RISK AND THE IMPACT ON RURAL DEVELOPMENT

 AND TENANTS...........................................................................................7-42

A. Is the Potential for Financial Loss to Rural Development Better or No Worse

 Than With the Existing Borrower?.........................................................................................7-43

B. Will Any Financial Impact on Current and Future Tenants be Reasonable?..........................7-43

C. Will Housing Conditions be Better or No Worse Than under the Current Borrower?...........7-44

7.28 COMPLETE AND VERIFY APPLICABLE FORMS...............................................7-45

7.29 OBTAIN MPDL CONCURRENCE.....................................................................7-45

A. Equity Pay-Out to Seller..............................................................................7-46

B. Increased Debt Service Built into the Basic Rents.................................................7-46

C. Increased Return to Owner............................................................................7-47

D. Section 515 Loan Modified............................................................................7-47

E. Basic Rents Increase More Than $25 Per Month, and There Are Unassisted Tenants.........7-47

F. Non-Equity Compensation.............................................................................7-47

G. Exceptions to Regulations.............................................................................7-47

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Revised (09-24-12) PN 458
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H. Transfers Not Meeting Viability Criteria ("Transfers With Workout")..........................7-48

I. Transfers That Have Applied For, Or Are Currently Participating In, the Multifamily

 Portfolio Revitalization (MPR) Program............................................................7-48

SECTION 8: MAKING THE DECISION (STEP 6).............................................................................7-48

7.30 OVERVIEW [7 CFR 3560.406(k)]............................................................................................7-48

7.31 MAKING THE DECISION.......................................................................................................7-49

A. Determine Current Loan Balances for Transfer.....................................................................7-49

B. Prepare the Closing Package ..................................................................................................7-50

C. Review Applicable Requirements with the Transferee ..........................................................7-51

D. Determine New Restrictive Use Period Requirement..............................................7-51

E. Prepare the Draft Letter of Conditions................................................................7-51

F. Prepare to Close the Transfer and Obligate the Subsequent Loan, if Applicable...............7-51

G. OGC Review.............................................................................................7-52

H. Approve the Transfer..................................................................................7-52

SECTION 9: IMPLEMENTING THE TRANSFER (STEP 7)............................................................7-53

7.32 CLOSING THE TRANSFER ....................................................................................................7-53

A. Overview................................................................................................................................7-53

B. Release the Seller from Liability......................................................................7-53

C. Assign Leases to Transferee...........................................................................7-54

D. Assign Rental Assistance Agreement to Transferee................................................7-54

E. Assign Other Agreements to Transferee.............................................................7-54

F. Shift Accounts, Funds, and Assets to Transferee (General)....................................................7-54

7.33 POST-CLOSING .......................................................................................................................7-54

A. Inform Borrower of Administrative Responsibilities............................................................7-54

B. Schedule a Follow-up Servicing Visit...................................................................................7-55

C. Monitoring Rehabilitation Work ...........................................................................................7-55

ATTACHMENT 7-A: REVITALIZATION GUIDANCE

ATTACHMENT 7-B-1: TRANSFER APPLICATION DOCUMENTS 

ATTACHMENT 7-B-2: MFH TRANSFER & ASSUMPTION APPLICATION SUPPLEMENT

ATTACHMENT 7-B-3: MFH TRANSFER & ASSUMPTION CONTACT LIST

ATTACHMENT 7-B-4: MFH TRANSFER & ASSUMPTION FINANCIAL STATEMENT 

 CERTIFICATION

ATTACHMENT 7-B-5: MFH TRANSFER & ASSUMPTION CERTIFICATION FOR 

 CONTRACTS

ATTACHMENT 7-C: TAX CREDIT TIERED RENTS IN LIHTC TRANSACTIONS

ATTACHMENT 7-D: TRANSFER REQUEST CHECKLIST

CHAPTER 8: SECURITY RESTRUCTURING REQUESTS............................................. 8-1

8.1 INTRODUCTION..........................................................................................................................8-1

SECTION 1: SUBORDINATIONS AND JUNIOR LIENS [7 CFR 3560.409] ....................................8-1

8.2 OVERVIEW ..................................................................................................................................8-1

8.3 REQUIRED CONDITIONS ..........................................................................................................8-1

8.4 EVALUATING BORROWER REQUESTS FOR SUBORDINATIONS 

AND JUNIOR LIENS ...................................................................................................................8-2
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8.5 PROCEDURES FOR AUTHORIZATION OF SUBORDINATIONS AND JUNIOR LIENS.....8-4

A. Borrower Requests...................................................................................................................8-4

B. Processing Borrower Requests.................................................................................................8-4

C. Recommendations to State Director.........................................................................................8-5

D. Final Decision ..........................................................................................................................8-5

E. Appraisal Procedures................................................................................................................8-5

8.6 POST-APPROVAL OF JUNIOR LIENS ......................................................................................8-5

SECTION 2: PARTIAL DISPOSITION OF SECURITY PROPERTY [7 CFR 3560.407] ..............8-7

8.7 OVERVIEW................................................................................................................................8-7

8.8 ALLOWABLE ACTIONS INVOLVING THE PARTIAL DISPOSITION 

OF SECURITY PROPERTY ......................................................................................................8-7

8.9 ALLOWABLE USES FOR PROCEEDS FROM PARTIAL DISPOSITION

OF SECURITY PROPERTY ......................................................................................................8-8

8.10 REQUIRED CONDITIONS FOR AGENCY CONSENT ..........................................................8-8

8.11 PROCESSING BORROWER REQUESTS ................................................................................8-8

A. Borrower Submission...............................................................................................................8-9

B. Agency Review ........................................................................................................................8-9

C. Agency Decision and Notice to Borrower..............................................................................8-10

8.12 AGENCY RELEASE OF SECURITY ......................................................................................8-10

SECTION 3: LEASING OF SECURITY PROPERTY [7 CFR 3560.408] ........................................8-11

8.13 OVERVIEW ..............................................................................................................................8-11

8.14 LEASES TO PUBLIC HOUSING AUTHORITIES..................................................................8-11

8.15 LEASE OF A PORTION OF THE SECURITY PROPERTY...................................................8-11

8.16 MINERAL LEASES..................................................................................................................8-11

SECTION 4: OTHER LIENS AGAINST A PROPERTY OR OTHER ASSETS 

[7 CFR 3560.409 (d)]........................................................................................................8-13

8.17 OVERVIEW ..............................................................................................................................8-13

8.18 REQUIRED CONDITIONS ......................................................................................................8-13

8.19 AGENCY PROCEDURES ........................................................................................................8-13

CHAPTER 9: UNAUTHORIZED ASSISTANCE ................................................................ 9-1

9.1 INTRODUCTION..........................................................................................................................9-1

(02-24-05) SPECIAL PN

Revised (02-15-19) PN 521
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SECTION 1: TYPES OF UNAUTHORIZED ASSISTANCE ..............................................................9-1

9.2 OVERVIEW ..................................................................................................................................9-1

9.3 ADDRESSING UNAUTHORIZED ASSISTANCE .....................................................................9-2

SECTION 2: IDENTIFYING UNAUTHORIZED ASSISTANCE [7 CFR 3560.703] .......................9-3

9.4 OVERVIEW ..................................................................................................................................9-3

9.5 REQUIREMENTS FOR IDENTIFYING UNAUTHORIZED ASSISTANCE.............................9-3

9.6 METHODS OF IDENTIFYING UNAUTHORIZED ASSISTANCE...........................................9-3

9.7 DOCUMENTATION OF UNAUTHORIZED ASSISTANCE .....................................................9-4

9.8 NOTICE TO RECIPIENT .............................................................................................................9-4

A. Agency Notice to Borrower .....................................................................................................9-4

B. Borrower Notice to Tenant.......................................................................................................9-5

SECTION 3: CORRECTING UNAUTHORIZED ASSISTANCE ......................................................9-7

9.9 OVERVIEW................................................................................................................................9-7

9.10 ACCOUNT ADJUSTMENTS – AUDIT CASES.......................................................................9-7

A. Unauthorized Loan ..................................................................................................................9-7

B. Unauthorized Subsidy Benefits Received Through Use of Incorrect Interest Rate.................9-8

C. Unauthorized Interest Credit or Rental Assistance..................................................................9-8

D. Unauthorized Grant Assistance ...............................................................................................9-8

E. Cases Where Recipient Has Both Authorized and Unauthorized Loans Outstanding.............9-9

F. Liquidation Pending ................................................................................................................9-9

G. Liquidation Not Initiated .........................................................................................................9-9

9.11 ACCOUNT ADJUSTMENTS – NONAUDIT CASES...............................................................9-9

SECTION 4: RECAPTURE OF UNAUTHORIZED ASSISTANCE TO BORROWERS...............9-11

9.12 OVERVIEW ..............................................................................................................................9-11

9.13 REQUIREMENTS FOR COLLECTING UNAUTHORIZED ASSISTANCE 

[7 CFR 3560.705]......................................................................................................................9-11

9.14 AGENCY RECAPTURE OF UNAUTHORIZED ASSISTANCE............................................9-12

A. Overview................................................................................................................................9-12

B. Procedures for Collection of Unauthorized Assistance ..........................................................9-13

9.15 REPAYMENT METHODS .......................................................................................................9-18

9.16 FULL PREPAYMENT ..............................................................................................................9-18

SECTION 5: RECAPTURE OF UNAUTHORIZED ASSISTANCE TO TENANTS ......................9-19

9.17 OVERVIEW ..............................................................................................................................9-19

9.18 REQUIREMENTS FOR COLLECTION OF UNAUTHORIZED 

ASSISTANCE TO TENANTS [7 CFR 3560.708]....................................................................9-19

9.19 PROCEDURES FOR COLLECTION OF UNAUTHORIZED ASSISTANCE 

TO TENANTS ...........................................................................................................................9-20

SECTION 6: REFERRAL OF DEBT TO THE UNITED STATES DEPARTMENT OF 

TREASURY (TREASURY) ....................................................................................................................9-23

9.20 GENERAL TREASURY REFERRAL REQUIREMENTS ......................................................9-23

9.21 GENERAL TREASURY REFERRAL PROCESS....................................................................9-23
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SECTION 7: CONTINUATION OF LOAN ACCOUNTS..................................................................9-25

9.22 OVERVIEW ..............................................................................................................................9-25

9.23 REQUIREMENTS FOR CONTINUATION OF LOAN ACCOUNTS [7 CFR 3560.707].....9-25

9.24 AGENCY DECISION TO CONTINUE SERVICING ACCOUNT..........................................9-25

9.25 SERVICING OPTIONS IN LIEU OF LIQUIDATION OR LEGAL 

ACTION TO COLLECT ...........................................................................................................9-25

A. Agency Actions......................................................................................................................9-26

B. Notice of Determination When Agreement is Not Reached...................................................9-26

C. Reporting to OIG....................................................................................................................9-26

D. Quarterly Reporting to the State Office .................................................................................9-27

SECTION 8: ENFORCEMENT ............................................................................................................9-29

9.26 OVERVIEW ..............................................................................................................................9-29

9.27 AGENCY ACTIONS FOR ENFORCEMENT AGAINST RECIPIENTS OF 

UNAUTHORIZED ASSISTANCE AND FOR IMPOSING CIVIL MONETARY

PENALTIES AGAINST BORROWER ENTITIES AND RELATED PARTIES ....................9-29

A. Liquidation.............................................................................................................................9-29

B. Legal Action to Enforce Collection........................................................................................9-29

C. Double Damages....................................................................................................................9-30

D. Equity Skimming ...................................................................................................................9-31

E. Civil Monetary Penalties........................................................................................................9-31

F. Money Laundering..................................................................................................................9-38

G. Obstruction of Federal Audits................................................................................................9-38

ATTACHMENT 9-A: GUIDE FOR CMP ASSESSMENT AND RECOMMENDATION

CHAPTER 10: COMPLIANCE VIOLATIONS, DEFAULTS, AND WORK-OUT 

AGREEMENTS [7 CFR 3560.453] ........................................................................................ 10-1

10.1 INTRODUCTION......................................................................................................................10-1

10.2 ADDRESSING COMPLIANCE VIOLATIONS AND DEFAULTS........................................10-1

SECTION 1: TYPES OF DEFAULTS [7 CFR 3560.452]....................................................................10-3

10.3 OVERVIEW ..............................................................................................................................10-3

10.4 MONETARY DEFAULT..........................................................................................................10-3

10.5 NONMONETARY DEFAULT .................................................................................................10-3

SECTION 2: CONDITIONS OF CONCERN, COMPLIANCE VIOLATIONS, 

AND DEFAULTS............................................................................................................10-5

10.6 AGENCY CLASSIFICATION SYSTEM ................................................................................10-5

10.7 FINDINGS................................................................................................................................10-6

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10.8 VIOLATIONS ..........................................................................................................................10-6

10.9 KEY STEPS IN ADDRESSING COMPLIANCE VIOLATIONS AND DEFAULTS............10-6

10.10 NOTIFICATION TO BORROWER OF SERVICING PROBLEMS.......................................10-7

A. Preliminary Notification.........................................................................................................10-7

B. Borrowers with Multiple Servicing Issues .............................................................................10-8

10.11 EVALUATING THE PROJECT .............................................................................................10-9

10.12 MEETING WITH THE BORROWER ....................................................................................10-9

10.13 SELECTING SERVICING OPTIONS ....................................................................................10-9

A. Poor Management and Noncompliance with Program Requirements....................................10-9

B. Acceptable Management, but Marketability and Cash Flow Problems................................10-10

C. Acceptable Management, but Lack of Project Demand .......................................................10-10

10.14 THE PROBLEM CASE REPORT.........................................................................................10-11

10.15 ENFORCEMENT ACTIONS ................................................................................................10-11

A. Liquidation...........................................................................................................................10-11

B. Debt Settlement....................................................................................................................10-12

SECTION 3: DEVELOPING A WORK-OUT AGREEMENT [7 CFR 3560.453]..........................10-13

10.16 OVERVIEW OF WORK-OUT AGREEMENTS ..................................................................10-13

10.17 CONDITIONS WARRANTING A WORK-OUT AGREEMENT .......................................10-13

A. Financial Deficiencies..........................................................................................................10-13

B. Physical Deficiencies ...........................................................................................................10-13

C. Fair Housing Deficiencies....................................................................................................10-14

D. Occupancy Deficiencies.......................................................................................................10-14

10.18 ELIGIBILITY FOR WORK-OUT AGREEMENTS .............................................................10-14

A. Program Property .................................................................................................................10-14

B. Owner Evaluation.................................................................................................................10-14

10.19 CONTENT OF A WORK-OUT AGREEMENT...................................................................10-14

10.20 CONDITIONS PLACED ON THE BORROWER................................................................10-14

10.21 PRIORITIES IN MEETING EXPENDITURES....................................................................10-15

10.22 LENGTH OF TERM AND AUTHORITIES.........................................................................10-16

A. Term of Work-Out Agreement.............................................................................................10-16

B. Authority to Approve Work-Out Agreements......................................................................10-17

10.23 AGENCY REVIEW AND APPROVAL [7 CFR 3560.453(b)]............................................10-17

A. Evaluation of Work-Out Agreement ....................................................................................10-17

B. Procedures Following Approval of Agreement....................................................................10-18

10.24 CANCELING A WORK-OUT AGREEMENT.....................................................................10-18

SECTION 4: SPECIAL SERVICING ACTIONS..............................................................................10-19

10.25 SPECIAL SERVICING ACTIONS THAT MAY BE A PART OF A WORK-OUT 

AGREEMENT .......................................................................................................................10-19
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A. Servicing Actions to Change Project Operations.................................................................10-19

B. Changes to the Loan Account...............................................................................................10-23

SECTION 5: MONITORING THE WORK-OUT AGREEMENT AND 

SUBSEQUENT SERVICING ......................................................................................10-25

10.26 MONITORING WORK-OUT AGREEMENTS....................................................................10-25

10.27 SUBSEQUENT SERVICING AND IMPACT ON FUTURE LOANS.................................10-25

SECTION 6: SPECIAL NOTE RENTS (SNR) ..................................................................................10-27

10.28 OVERVIEW OF SPECIAL NOTE RENTS [7 CFR 3560.210]............................................10-27

10.29 SNR ELIGIBILITY REQUIREMENTS................................................................................10-27

A. Required Project Conditions ................................................................................................10-27

B. Borrower Requirements........................................................................................................10-27

10.30 SUBMITTING AND PROCESSING SNR REQUESTS.......................................................10-28

10.31 CHANGES TO AND TERMINATION OF SNRS ...............................................................10-28

10.32 RESTRICTION ON NEW UNITS ........................................................................................10-29

SECTION 7: ENFORCEMENT ..........................................................................................................10-31

10.33 MULTI-FAMILY HOUSING ENFORCEMENT TEAM .....................................................10-31

10.34 REQUESTING ENFORCEMENT TEAM SERVICES ........................................................10-31

CHAPTER 11: LOAN RESTRUCTURING........................................................................ 11-1

11.1 INTRODUCTION......................................................................................................................11-1

SECTION 1: ALLOWABLE TYPES OF RESTRUCTURING .........................................................11-1

11.2 OVERVIEW ..............................................................................................................................11-1

11.3 LOAN AGREEMENT OR LOAN RESOLUTION 

CONSOLIDATION REQUIREMENTS [7 CFR 3560.410].....................................................11-2

11.4 LOAN CONSOLIDATION REQUIREMENTS [7 CFR 3560.410].........................................11-2

11.5 REAMORTIZATION REQUIREMENTS [7 CFR 3560.455 (b)] ............................................11-2

11.6 LOAN ADJUSTMENT (WRITEDOWN) REQUIREMENTS [7 CFR 3560.455(c)]...............11-3

SECTION 2: LOAN AGREEMENT OR LOAN RESOLUTION/LOAN CONSOLIDATION ......11-3

11.7 OVERVIEW ..............................................................................................................................11-3

11.8 BORROWER SUBMISSIONS..................................................................................................11-3

A. Loan Agreement or Loan Resolution Consolidation..............................................................11-3

B. Loan Consolidation ................................................................................................................11-4

11.9 AGENCY PROCESSING OF BORROWER SUBMISSIONS.................................................11-4

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A. Loan Agreement or Loan Resolution Consolidation..............................................................11-4

B. Loan Consolidation ................................................................................................................11-5

SECTION 3: LOAN REAMORTIZATION .........................................................................................11-7

11.10 OVERVIEW ............................................................................................................................11-7

11.11 ACCEPTABLE USES OF REAMORTIZATIONS.................................................................11-7

A. Allowable Conditions for Reamortizations............................................................................11-7

B. Requirements for Obtaining a Reamortization .......................................................................11-8

11.12 BORROWER SUBMISSIONS................................................................................................11-8

11.13 AGENCY REVIEW AND APPROVAL.................................................................................11-8

A. Field Office Actions...............................................................................................................11-8

B. Evaluating Borrower Requests...............................................................................................11-8

C. Approval Recommendation and State Office Review............................................................11-9

D. National Office Exception......................................................................................................11-9

E. OGC Guidance .....................................................................................................................11-10

F. Agency Denial of Request ....................................................................................................11-10

11.14 ADDITIONAL EVALUATION FOR REQUESTS INVOLVING 

DELINQUENCIES OR COMPLIANCE VIOLATIONS......................................................11-10

A. Project Feasibility.................................................................................................................11-10

B. Property is Adequately Maintained ......................................................................................11-10

C. Housing Remains Affordable ...............................................................................................11-11

D. Compliance with Agency Regulations is Maintained ..........................................................11-11

11.15 PROCESSING REAMORTIZATIONS.................................................................................11-11

A. Complete Reamortization Agreement .................................................................................11-11

B. Obtain Form RD 3560-52 and Assumption Agreement ......................................................11-11

C. Establish End of the Reamortization Period........................................................................11-11

D. Establish Interest Rate .........................................................................................................11-12

E. Address Delinquent Reserve Accounts ...............................................................................11-12

F. Obtain OGC Guidance As Needed......................................................................................11-13

G. Execute New Interest Credit Agreement .............................................................................11-13

H. Close the Reamortization ....................................................................................................11-13

I. Meet Other Procedural Requirements .................................................................................11-13

SECTION 4: LOAN WRITEDOWNS ................................................................................................11-15

11.16 OVERVIEW ..........................................................................................................................11-15

11.17 ALLOWABLE USES ............................................................................................................11-15

11.18 BORROWER SUBMISSIONS..............................................................................................11-15

11.19 AGENCY REVIEW AND APPROVAL...............................................................................11-16

A. Appraisal ..............................................................................................................................11-16

B. OGC Advice.........................................................................................................................11-16

C. Approval...............................................................................................................................11-16

11.20 PROCESSING WRITEDOWNS ...........................................................................................11-16
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CHAPTER 12: ACCOUNT LIQUIDATION [7 CFR 3560.456]........................................ 12-1

12.1 INTRODUCTION......................................................................................................................12-1

SECTION 1: MAKING THE DECISION TO LIQUIDATE...............................................................12-1

12.2 AN OVERVIEW OF LIQUIDATION OPTIONS.....................................................................12-1

A. Voluntary Liquidation............................................................................................................12-1

B. Foreclosure .............................................................................................................................12-2

C. Acquisition of Chattel Property..............................................................................................12-2

12.3 NET RECOVERY VALUE.......................................................................................................12-2

A. Establishing Market Value .....................................................................................................12-3

B. Environmental Considerations ...............................................................................................12-3

C. Ordering an Appraisal ............................................................................................................12-4

D. Holding Period .......................................................................................................................12-5

E. Deductions from Market Value ..............................................................................................12-5

F. Additions to Market Value......................................................................................................12-6

12.4 BASIC SECURITY LOSS.........................................................................................................12-6

12.5 ACCOUNT LIQUIDATION .....................................................................................................12-6

A. Making the Decision to Liquidate ..........................................................................................12-6

B. Possible Outcomes of Agency’s Decision to Liquidate..........................................................12-7

SECTION 2: LIQUIDATION PROCEDURES.....................................................................................12-9

12.6 OVERVIEW ..............................................................................................................................12-9

12.7 VOLUNTARY CONVEYANCE...............................................................................................12-9

A. Payment of Liens....................................................................................................................12-9

B. Required Components of an Offer of Voluntary Conveyance................................................12-9

C. Appraisals.............................................................................................................................12-10

D. Decisions..............................................................................................................................12-10

E. Closing of Conveyance.........................................................................................................12-11

12.8 FORECLOSURE .....................................................................................................................12-11

A. Making the Acceleration Decision ......................................................................................12-11

B. Acceleration.........................................................................................................................12-12

C. Review of the Acceleration Decision ..................................................................................12-13

D. Transfers and Subsequent Loans During Foreclosure .........................................................12-13

E. Foreclosure Notice ..............................................................................................................12-13

F. Determining the Government’s Bid at Foreclosure Sale .....................................................12-14

G. After Foreclosure.................................................................................................................12-14

12.9 ACQUISITION OF CHATTEL PROPERTY..........................................................................12-14

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SECTION 3: DEBT SETTLEMENT ...................................................................................................12-17

12.10 BORROWER ELIGIBILITY.................................................................................................12-17

12.11 APPLICATION REQUIREMENTS......................................................................................12-17

12.12 COMPROMISE AND ADJUSTMENT.................................................................................12-18

A. Secured Debts.......................................................................................................................12-18

B. Unsecured Debts...................................................................................................................12-18

C. Handling Payments...............................................................................................................12-19

D. Delinquent Adjustment Agreement......................................................................................12-19

12.13 CHARGE-OFF.......................................................................................................................12-19

12.14 CANCELLATION.................................................................................................................12-19

A. Cancellation with Application..............................................................................................12-20

B. Cancellation without Application.........................................................................................12-20

C. Processing and Approving Cancellations.............................................................................12-20

12.15 REFERRAL TO THE DEPARTMENT OF TREASURY.....................................................12-20

ATTACHMENT 12-A: NET RECOVERY VALUE WORKSHEET

CHAPTER 13: OTHER SPECIAL CASES [7 CFR 3560.458 through 3560.459] ........... 13-1

13.1 INTRODUCTION......................................................................................................................13-1

SECTION 1: PROPERTY ISSUES.......................................................................................................13-1

13.2 OVERVIEW OF PROPERTY ISSUES.....................................................................................13-1

13.3 ABANDONMENT ....................................................................................................................13-2

A. Indicators of Abandonment....................................................................................................13-2

B. Contacting Prior Lien Holders................................................................................................13-2

C. Making Emergency Health and Safety Repairs......................................................................13-2

D. Appointing a Caretaker or Management Agent......................................................................13-3

E. Addressing the Agency’s Relationship with the Borrower.....................................................13-4

13.4 VALUELESS LIENS.................................................................................................................13-4

A. Declaring a Valueless Lien ....................................................................................................13-4

B. Documenting Valueless Liens................................................................................................13-5

13.5 OTHER SECURITY..................................................................................................................13-5

13.6 OBTAINING ADDITIONAL SECURITY TO PROTECT AGENCY INTERESTS ...............13-5

A. State Director Authorization ..................................................................................................13-6

B. OGC Advice...........................................................................................................................13-6

13.7 SECURITY ISSUES INVOLVING PROJECTS WITH PARTICIPATION LOANS ..............13-6

SECTION 2: BORROWER ISSUES.....................................................................................................13-7

13.8 OVERVIEW OF BORROWER ISSUES...................................................................................13-7

13.9 REQUIREMENTS FOR ADDRESSING BORROWER ISSUES ............................................13-7

A. Bankruptcy.............................................................................................................................13-7
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B. Divorce...................................................................................................................................13-7

C. Membership Liability Agreements.........................................................................................13-8

CHAPTER 14: MANAGEMENT AND DISPOSAL OF REAL ESTATE OWNED 

PROPERTY................................................................................................. 14-1

14.1 INTRODUCTION......................................................................................................................14-1

14.2 OVERVIEW OF THE CHAPTER.............................................................................................14-1

SECTION 1: MANAGEMENT OF CUSTODIAL AND REO PROPERTY .....................................14-3

14.3 OVERVIEW ..............................................................................................................................14-3

14.4 MANAGEMENT METHODS AND CONTRACTS.................................................................14-3

A. Selecting a Management Contractor ......................................................................................14-3

B. Management Contract Requirements .....................................................................................14-4

C. Management Costs.................................................................................................................14-4

D. Project Funds..........................................................................................................................14-4

14.5 TAKING POSSESSION............................................................................................................14-4

A. Taking Custodial Possession..................................................................................................14-4

B. Acquiring an REO Property ...................................................................................................14-5

14.6 INSPECTING AND SECURING CUSTODIAL AND REO PROPERTY...............................14-6

A. Inspecting and Classifying the Property.................................................................................14-6

B. Securing Custodial and REO Property ...................................................................................14-7

14.7 DISPOSITION OF NONSECURITY PROPERTY...................................................................14-7

A. Custodial Property..................................................................................................................14-7

B. REO Property .........................................................................................................................14-8

14.8 TAXES AND INSURANCE......................................................................................................14-8

A. Taxes......................................................................................................................................14-8

B. Insurance ................................................................................................................................14-9

14.9 PHYSICAL MAINTENANCE AND REPAIR .........................................................................14-9

A. Vandalism and Theft............................................................................................................14-10

B. Off-Site Repairs or Improvements .......................................................................................14-10

14.10 SPECIAL USES OF REO......................................................................................................14-10

A. Transitional Housing for the Homeless................................................................................14-10

B. Mineral Leases .....................................................................................................................14-11

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SECTION 2: DISPOSITION OF REO PROPERTY [7 CFR 3560.503]...........................................14-13

14.11 OVERVIEW ..........................................................................................................................14-13

A. Sale Methods and Pricing.....................................................................................................14-13

B. Financing..............................................................................................................................14-13

C. Warranty...............................................................................................................................14-13

14.12 PRICING AND SALES SCHEDULES .................................................................................14-13

A. Appraisals.............................................................................................................................14-14

B. Sales Schedules and Administrative Price Reductions.........................................................14-14

14.13 MARKETING AND ADVERTISEMENT............................................................................14-15

A. Fair Housing and Affirmative Fair Housing Marketing Plan...............................................14-16

B. Truth in Lending Requirements............................................................................................14-16

C. Advertising and Marketing Methods....................................................................................14-16

D. Review of Marketing for Unsold Properties ........................................................................14-17

14.14 SPECIAL MARKETING TECHNIQUES.............................................................................14-17

A. Buyer Incentives...................................................................................................................14-17

B. Broker Incentives .................................................................................................................14-17

C. Acquisition of Land, Easements, or Rights-of-Way to Effect Sale ......................................14-18

14.15 REO PROPERTY NOT MEETING PHYSICAL STANDARDS .........................................14-18

A. Notice of Occupancy Restriction .........................................................................................14-19

B. Quitclaim Deed Restrictive Covenant ..................................................................................14-19

C. Release of Restrictive Covenant...........................................................................................14-20

14.16 DISPOSITION BY PUBLIC DRAWING .............................................................................14-20

A. Listing the Property..............................................................................................................14-21

B. Submission Requirements....................................................................................................14-22

C. Receiving and Considering Offers .......................................................................................14-22

D. Cancellation of Sales Contracts............................................................................................14-23

14.17 DISPOSITION BY SEALED BID OR AUCTION ...............................................................14-23

A. Establishing the Minimum Acceptable Offer.......................................................................14-23

B. Publicizing the Sale ..............................................................................................................14-23

C. Sealed Bid Procedures..........................................................................................................14-23

D. Auction Procedures..............................................................................................................14-25

14.18 NEGOTIATED SALE ...........................................................................................................14-26

14.19 DISPOSAL OF PROPERTY FOR SPECIAL PURPOSES...................................................14-26

14.20 DISPOSAL AS CHATTEL OR SALVAGE .........................................................................14-26

SECTION 3: ENVIRONMENTAL REQUIREMENTS....................................................................14-27

14.21 OVERVIEW ...........................................................................................................................14-27

14.22 PROPERTY LOCATED WITHIN A SPECIAL FLOOD OR MUDSLIDE

HAZARD AREA OR CONTAINS WETLANDS.................................................................14-27

14.23 COASTAL BARRIER RESOURCES SYSTEMS ................................................................14-28
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14.24 NATIONAL REGISTER OF HISTORIC PLACES..............................................................14-28

14.25 UNDERGROUND STORAGE TANKS (UST) ....................................................................14-28

14.26 MANAGEMENT OF HAZARDOUS SUBSTANCES AND PETROLEUM PRODUCTS.14-28

14.27 LEAD-BASED PAINT...........................................................................................................14-29

14.28 PROTECTIVE COVENANTS RESTRICTIONS AND EASEMENTS ................................14-29

SECTION 4: PROCESSING AND CLOSING...................................................................................14-31

14.29 OVERVIEW ..........................................................................................................................14-31

14.30 SPECIAL NOTICES AT SALE..............................................................................................14-31

14.31 INSPECTION ........................................................................................................................14-32

14.32 PRORATING REAL ESTATE TAXES AND/OR ASSESSMENTS ...................................14-32

14.33 COMMISSIONS....................................................................................................................14-32

14.34 TRANSFERRING TITLE......................................................................................................14-32

14.35 REPORTING SALE ..............................................................................................................14-32

SECTION 5: PROCESSING CREDIT SALES ON NON-PROGRAM TERMS...........................14-33

14.36 OVERVIEW ..........................................................................................................................14-33

14.37 TERMS OF A NON-PROGRAM CREDIT SALE................................................................14-33

14.38 ACCEPTING OFFERS..........................................................................................................14-33

14.39 APPROVAL...........................................................................................................................14-34

14.40 CLOSING SALE ...................................................................................................................14-34

14.41 SERVICING THE NON-PROGRAM LOAN .......................................................................14-35

ATTACHMENT 14-A: LEAD-BASED PAINT DISCLOSURE FORM

CHAPTER 15: PROJECT PRESERVATION .................................................................... 15-1

15.1 INTRODUCTION......................................................................................................................15-1

15.2 OVERVIEW OF THE CHAPTER.............................................................................................15-1

SECTION 1: PRESERVATION AND ELIGIBILITY FOR PREPAYMENT...................................15-3

15.3 OVERVIEW.............................................................................................................................15-3

15.4 BORROWERS ELIGIBLE TO REQUEST PREPAYMENT [7 CFR 3560.652]....................15-3

15.5 MEETING WITH THE BORROWER.....................................................................................15-3

15.6 TENANT NOTIFICATION REQUIREMENTS [7 CFR 3560.654].......................................15-4

15.7 REQUIREMENTS FOR PREPAYMENT REQUESTS [7 CFR 3560.653]............................15-5

15.8 RECEIPT OF PREPAYMENT REQUESTS............................................................................15-6

15.9 COMPLETENESS REVIEW...................................................................................................15-6

15.10 DETERMINATION OF PREPAYMENT FEASIBILITY.......................................................15-7

A. Borrower’s Funds...................................................................................................................15-7

B. Third-Party Lender.................................................................................................................15-8

C. Sale.........................................................................................................................................15-8

15.11 ELIGIBILITY DETERMINATION ........................................................................................15-8

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SECTION 2: LOANS CLOSED BEFORE 1979 OR LOANS WITH NO RESTRICTIVE 

AGREEMENTS ................................................................................................................15-9

15.12 PREPAYMENT WAITING LIST ...........................................................................................15-9

15.13 MAKING THE INCENTIVE OFFER—OVERVIEW............................................................15-9

15.14 GENERAL INCENTIVE OFFER............................................................................................15-9

15.15 SPECIFIC INCENTIVE REQUIREMENTS [7 CFR 3560.656] ............................................15-9

15.16 TYPES OF INCENTIVES [7 CFR 3560.656(c)]..................................................................15-10

A. Rental Assistance .................................................................................................................15-11

B. Increase in Annual Return....................................................................................................15-11

C. Excess HUD Section 8 Rents...............................................................................................15-11

D. Project Conversion or Modification of Interest Rate............................................................15-11

E. Agency Equity Loans ...........................................................................................................15-11

F. Third-Party Equity Loans .....................................................................................................15-12

15.17 DEVELOPMENT OF THE INCENTIVE OFFER................................................................15-12

15.18 AGENCY OFFER OF INCENTIVES ...................................................................................15-12

15.19 BORROWER ACCEPTANCE OF INCENTIVES AND SUBSEQUENT ACTIONS 

[7 CFR 3560.657] ..................................................................................................................15-13

A. Borrower Acceptance...........................................................................................................15-13

B. Closing the Incentive Offer ..................................................................................................15-13

C. Transfers...............................................................................................................................15-14

15.20 INSUFFICIENT FUNDING FOR INCENTIVES.................................................................15-14

15.21 BORROWER REJECTION OF INCENTIVE OFFER AND SUBSEQUENT ACTIONS 

[7 CFR 3560.658] ..................................................................................................................15-14

15.22 DETERMINATION OF PREPAYMENT IMPACT .............................................................15-16

A. Prepayment Impact on Projects without Rental Assistance .................................................15-16

B. Prepayment Impact on Projects with Rental Assistance.......................................................15-17

C. Processing the Prepayment...................................................................................................15-18

D. Monitoring Compliance with the Use Restrictions..............................................................15-18

SECTION 3: LOANS CLOSED BETWEEN 1979 AND 1989 WITH A RESTRICTIVE 

AGREEMENT ................................................................................................................15-19

15.23 APPLICABILITY..................................................................................................................15-19

15.24 REQUEST BORROWER TO REMAIN IN PROGRAM......................................................15-19

15.25 SALE TO A NONPROFIT OR PUBLIC BODY [7 CFR 3560.659]....................................15-19

15.26 ESTABLISHING THE PROJECT VALUE ..........................................................................15-20

15.27 MARKETING REQUIREMENTS ........................................................................................15-20

15.28 SELECTING AN OFFER......................................................................................................15-21

15.29 LOANS MADE BY THE AGENCY OR OTHER SOURCES TO NONPROFIT 

ORGANIZATIONS AND PUBLIC AGENCIES ..................................................................15-22

15.30 POSTSALE REQUIREMENTS ............................................................................................15-23

15.31 REQUIREMENTS FOR BORROWERS IF AN ACCEPTABLE PURCHASER IS 

NOT FOUND.........................................................................................................................15-24

SECTION 4: SPECIAL CIRCUMSTANCES ....................................................................................15-25

15.32 PROPERTIES UNDER BANKRUPTCY OR FORECLOSURE..........................................15-25

15.33 ADVANCE PAYMENT OF ACCOUNTS............................................................................15-25
HB-3-3560

Table of Contents

Page 23

ATTACHMENT 15-A: OVERVIEW OF PREPAYMENT PROCESS

ATTACHMENT 15-B: EXPLANATION OF INCENTIVE OFFERS

ATTACHMENT 15-C: SAMPLE LETTER TO TENANTS - Initial Tenant Notification of Owner’s 

Intent to Prepay and Voucher Availability

15-C-1: TENANT NOTICE OF PREPAYMENT REQUEST WITHDRAWAL

15-C-2: SAMPLE LETTER TO TENANTS – Final Tenant Notification of 

Prepayment Acceptance Notice to Owner’s

15-C-3: RURAL DEVELOPMENT (USDA) VOUCHER INFORMATION –

ELIGIBILITY AND VOUCHER AMOUNT DETERMINATION

15-C-4: Intentionally Left Blank

15-C-5: NOTIFICATION OF ACCEPTANCE OF INCENTIVES TO AVERT 

PREPAYMENT

15-C-6: NOTICE OF OFFER TO SELL TO A NONPROFIT

15-C-7:Intentionally Left Blank

15-C-8: PREPAYMENT REQUEST FOR [NAME OF PROPERTY]

ATTACHMENT 15-D: INCENTIVE CALCULATION WORKSHEET AND DIRECTIONS

ATTACHMENT 15-E: RESTRICTIVE-USE PROVISIONS AND AGREEMENT MATRIX

ATTACHMENT 15-F: BORROWER PREPAYMENT APPLICATION CHECKLIST

ATTACHMENT 15-G: LEASE ADDENDUM

 ATTACHMENT 15-H: PREPAYMENT AND DISPLACEMENT PREVENTION GRANT 

 AGREEMENT

 ATTACHMENT 15-I: SUBORDINATION AGREEMENT

APPENDICES

Appendix 1: Text of 7 CFR Part 3560

Appendix 2: Text of 7 CFR Part 11

Appendix 3: Forms Referenced in this Handbook

Appendix 4: Handbook Letters Referenced in this Handbook

(02-24-05) SPECIAL PN

Revised (09-27-23) PN 592