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[Federal Register Volume 89, Number 235 (Friday, December 6, 2024)]
[Rules and Regulations]
[Pages 96860-96863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28299]

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DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3560

[Docket No. RHS-24-MFH-0041]

Multi-Family Housing Simple Transfer Pilot Program

AGENCY: Rural Housing Service, USDA.

ACTION: Extension of pilot program.

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SUMMARY: The Rural Housing Service (RHS or the Agency), a Rural 
Development (RD) agency of the United States Department of Agriculture 
(USDA), is announcing the extension of a pilot program with updates for 
simple transfers of USDA Section 514 Farm Labor Housing & 515 Rural 
Rental Housing properties through December 9, 2025. The Agency's 
intention is to evaluate the existing regulations and remove regulatory 
barriers to reduce application requirements for certain types of 
transfers, resulting in lower transaction-related costs for applicants 
and improved processing times.

DATES: The effective date of the Simple Transfer Pilot Program is 
extended to December 9, 2025, at which time the RHS may extend the 
pilot program (with or without modifications) or terminate it depending 
on the workload, budget and resources needed to administer the program, 
feedback from the public, and the effectiveness of the program. If the 
pilot program is extended or terminated, the RHS will notify the 
public.

FOR FURTHER INFORMATION CONTACT: For general information about the 
pilot program, contact Jessica Long, Asset Management Division at 
[email protected] or at 270-392-4526.
    Owners that are interested in participating in the pilot program 
should contact the project's assigned servicing specialist in the Field 
Operations Division. The assigned specialist can be found on the 
Agency's website at https://www.sc.egov.usda.gov/data/MFH.html. Select 
the file under the heading ``Multi-Family Housing 514 & 515 Property 
Assignments.'' The servicing specialist is listed in the column labeled 
``Assigned To'' and their email is in the column ``Assigned To Email.''

SUPPLEMENTARY INFORMATION:

Authority

    Title V, Section 506(b) of the Housing Act of 1949, as amended; 42 
U.S.C. 1476(b).

Background

    RHS is committed to helping improve the economy and quality of life 
in rural areas by offering a variety of programs such as loans, grants, 
and loan guarantees to help create jobs, expand economic development, 
and provide critical infrastructure investments. RHS also provides 
technical assistance, loans, and grants by partnering with agricultural 
producers, cooperatives, Indian tribes, non-profits, and other local, 
state, and federal agencies.
    The Multi-family Housing Program (MFH), an RHS program, assists 
rural property owners through loans, loan guarantees, and grants that 
enable owners to develop and rehabilitate

[[Page 96861]]

properties for low-income, elderly, and disabled individuals and 
families as well as domestic farm laborers. MFH works with the owners 
of its direct and farm labor housing loan properties to subsidize rents 
for low-income tenants who cannot afford to pay their full rent. These 
programs assist qualified applicants that cannot obtain commercial 
credit on terms that will allow them to charge rents that are 
affordable to low-income tenants.

Summary of Updates to the Pilot Program

    1. The pilot program is extended by one year until December 9, 
2025.
    2. Section 514 properties are now included in the pilot program.
    3. The RHS contact person is updated.
    4. Under Option 1, an exception for extending terms for imminent 
maturing mortgages has been added.
    5. The Agency has made clarifications to Option 2 by removing (iii) 
(c) which was repetitive of (iii)(a) and (b).

Transfer Types: Simple and Standard Transfers

    MFH utilizes a variety of tools to revitalize and preserve the 
physical and financial health of more than 13,000 properties currently 
in USDA's rural rental portfolio. The Agency may authorize limited 
demonstration programs to test new approaches to offering housing under 
the statutory authority granted to the Secretary, as set forth in 42 
U.S.C. 1476(b) and 7 CFR 3560.53(t). Such demonstration programs may 
authorize procedures and requirements that differ from those set forth 
in statute or regulation. However, any program requirements that are 
not expressly waived, whether statutory or regulatory, remain in 
effect.
    There are two primary types of ownership changes that require 
approval by MFH which are (1) a change in the borrower entity's 
organizational structure or (2) a transfer of ownership to a new 
entity. Organizational changes that include changes in a borrower's 
current ownership entity structure are addressed in 42 U.S.C. 1485(h) 
and 7 CFR 3560.405. Transfers, which are sales of projects to new 
owners that continue to operate the projects in the 515 program, are 
detailed in 42 U.S.C. 1485(h) and 7 CFR 3560.406.
    MFH has identified the need to simplify the transfer of ownership 
for certain types of transactions. The current process places the same 
submission requirements on applicants regardless of the complexity of 
the transaction, resulting in undue burdens for relatively 
uncomplicated transfers, thereby reducing potential transfer and 
preservation activity in the portfolio. To address this issue, MFH is 
implementing the Simple Transfer Pilot Program which will offer three 
additional transfer options as a way to encourage preservation and 
revitalize its portfolio. MFH expects that by reducing application 
requirements for certain types of transfers, the result will be lower 
transaction-related costs for applicants and improved processing times. 
At the end of the pilot program, MFH will evaluate the findings with 
consideration towards, if successful, future regulatory changes that 
could be codified into 7 CFR part 3560 and applied program wide.

Discussion of the Transfer Pilot Program

    (1) Simple Transfer Pilot Program: For a simple transfer, under 
certain conditions the Agency will process an application for an 
ownership change without requiring full rehabilitation financing and or 
reserve account funding typically needed to approve a standard 
transfer. Simple transfers include restrictions on new debt, equity 
payouts, and other limitations that are not included for standard 
transfers.
    The Agency must determine that the new owner can operate the 
property successfully and that the ownership change will benefit the 
government and tenants even if there are remaining rehabilitation needs 
post-transfer. The property must meet the required conditions to be 
processed as a simple transfer. The Asset Management Division (AMD) 
will process simple transfers.
    (2) Standard Transfer: All transfers that do not meet the 
requirements for a simple transfer are considered standard transfers. 
Standard transfers often include third-party financing, such as Low-
Income Housing Tax Credits (LIHTC), and may include one property or 
multiple properties in a portfolio. Standard transfers follow the 
guidance in 7 CFR 3560.406. The Production and Preservation Division 
(P2) will continue to process standard transfers.

Implementation of the Simple Transfer Pilot Program

    Eligible properties include Section 514 Farm Labor Housing and 
Section 515 Rural Rental Housing properties. Eligibility for the pilot 
program will be based on property conditions and the ability and 
willingness of the buyer and seller to meet required simple transfer 
conditions. Buyers must meet the eligibility criteria in 7 CFR 
3560.406. Applicants must be able to clearly demonstrate that the 
property can operate successfully under new ownership. Applicants must 
abide by the regulatory requirements set forth in 7 CFR part 3560 and 
the requirements set forth in applicable statutes, except for the 
exceptions made available through this pilot program, as detailed in 
this Notice.
    Under the pilot program, three simple transfer options are 
available to address different property circumstances, which are 
outlined below:

Option 1: Simple Transfer With Expedited Ownership Change Required

    Option 1 is the most streamlined transfer process. It is available 
in circumstances where the Agency determines that an expedited 
ownership change is in the best interest of the Government, property, 
and tenants.
(1) Requirements
    (i) Property is in acceptable physical condition as determined by 
the Agency based on information submitted by the applicant, available 
in Agency files, or available from third parties, AND
    (ii) Conditions exist that require an expedited transfer, including 
but not limited to: deceased borrower or general partner, hardship, 
insolvency, receivership, imminent loan maturity, or sale to nonprofit 
under prepayment, AND
    (iii) No additional debt will be incurred by the Buyer or secured 
by the property as part of the transfer, AND
    (iv) New owner (nonprofit or for-profit) will provide a plan for 
the long-term viability of the property, which may include 
recapitalization/rehabilitation or resetting of reserves. The Agency 
must determine that the proposed viability plan demonstrates the 
continued physical and financial viability of the property.
(2) Pilot Program Modification to Current Standard Transfer 
Requirements in 7 CFR 3560
    (i) No Capital Needs Assessment (CNA) is required with the transfer 
application (the CNA requirement in 7 CFR 3560.406(d)(5) is waived for 
transfers qualifying for Option 1).
    (ii) No new valuation of the property is required with the transfer 
application (the requirement in 3560.406(d)(3)(i) and (ii) that the 
security value of the housing project be determined at the time of 
transfer is waived for transfers qualifying for Option 1).
    (iii) The maturity date and amortization period of the loan will 
not be changed or extended unless the Agency determines that an 
extension of the term is in the best interests of the Government, 
property and tenants.

[[Page 96862]]

    (iv) No equity payout can be included as part of the transaction. 
Equity payout to transferor shall not be paid for by project funds and 
shall not be secured by the property. If agreed to by both parties, 
equity may be paid outside of the transaction.
    (v) The project must meet minimum reserve account requirements as 
determined by the Agency. The Agency may require a post-transfer 
analysis to reset annual reserve deposits as a condition of the 
approved viability plan, which could include completion of a property 
conditions survey, a CNA, or another analysis acceptable to the Agency.

Option 2: Simple Transfer With Rehabilitation

    Option 2 is designed for properties that require rehabilitation and 
or resetting of the annual deposit to the reserve account.
(1) Requirements
    (i) Property is or will be fully subsidized post-transfer OR rents 
can be increased without adversely impacting occupancy and without a 
term extension, AND
    (ii) No additional amortizing debt will be incurred by the Buyer or 
secured by the property as part of the transfer, AND
    (iii) One of the following conditions applies:
    (a) Based on a CNA, rehabilitation is needed that cannot be funded 
by the current reserve account, OR
    (b) Property is in acceptable condition, with only minor upfront 
rehabilitation or repairs needed, as determined by the Agency based on 
information submitted by the applicant, available in Agency files, or 
available from third parties. Reserves are sufficient to meet any 
upfront rehabilitation needs but are inadequate to address future 
rehabilitation needs,
(2) Pilot Program Modification to Current Standard Transfer 
Requirements in 7 CFR 3560
    (i) No new valuation of the property is required with the transfer 
application (the requirement in Sec.  3560.406(d)(3)(i) and (ii) that 
the security value of the housing project be determined at the time of 
transfer is waived for transfers qualifying for Option 2).
    (ii) The Agency may approve a junior lien for deferred financing as 
provided in 3560.409, except that: (a) deferred financing must at a 
minimum be coterminous with the Agency's loan(s), and (b) the Agency 
may set a maximum per unit limit on rehabilitation that can be approved 
under Option 2.
    (iii) The maturity date and amortization period of the loan will 
not be changed or extended, except that a term extension may be 
permitted in accordance with 7 CFR 3560.409(j) if required by the 
deferred lender to preserve affordability for a longer period.
    (iv) No equity payout can be included as part of the transaction. 
Equity payout to transferor shall not be paid for by project funds and 
shall not be secured by the property. If agreed to by both parties, 
equity may be paid outside of the transaction.

Option 3: Simple Transfer With Future Rehabilitation/Recapitalization 
Plan

    Option 3 provides flexibility to nonprofits and government agencies 
to complete an acquisition of a preservation-worthy property even if 
resources for rehabilitation of the property are not available at the 
time of the transfer. An appraisal and CNA are required as part of the 
transfer application.
(1) Requirements
    (i) Based on a CNA, rehabilitation is needed that cannot be fully 
funded by the current reserve account or resetting of the existing 
reserve deposits, AND
    (ii) The purchaser is a nonprofit organization or government 
agency, AND
    (iii) The new nonprofit or government agency owner will pursue a 
strategy to rehabilitate/recapitalize the property with Agency and or 
third-party funds within two years of the transfer closing date. The 
Agency must determine that the recapitalization plan will meet the 
physical and financial needs of the property, the new owner is likely 
to obtain the Agency and or third-party funds, and the property can 
function successfully until either rehabilitation or recapitalization 
is complete.
(2) Pilot Program Modification to Current Standard Transfer 
Requirements in 7 CFR 3560
    (i) The Agency will waive the necessary reserve requirement 
adjustment under 7 CFR 3560.406(d)(5). The new owner must address the 
rehabilitation needs identified in the CNA over a period not to exceed 
two years after the closing date of the transfer. The Agency must 
approve the new owner's proposed rehabilitation plan and the new 
owner's plan to obtain funding for the rehabilitation prior to approval 
of the transfer.
    (ii) The Agency will monitor the progress and implementation of the 
approved plan as part of routine project servicing. The new owner may 
propose changes to the approved plan; however, RD must authorize in 
writing any changes before they are implemented.
    For all simple transfer options, health, safety, environmental, 
civil rights, and applicable accessibility requirements must be 
resolved at the time of transfer. The property must be rated 
``performing'' in the internal risk rating tool unless an exception is 
approved by the Agency.
    In cases where MFH determines that none of the simple transfer 
options are viable for a project, the property owner should follow the 
standard transfer requirements in 7 CFR 3560.406. The Agency may also 
determine that other servicing actions are more appropriate based on 
the property's circumstances.
    Standard transfer requirements have not changed and are outlined in 
7 CFR 3560.406 (https://ecfr.federalregister.gov/current/title-7/subtitle-B/chapter-XXXV/part-3560/subpart-I/section-3560.406). A 
checklist and other information have been developed and are available 
by: (1) going to the MFH website at https://www.rd.usda.gov/programs-services/multifamily-housing-programs/multifamily-housing-direct-loans 
(click on the To Apply tab), (2) contacting the assigned servicing 
specialist, which can be found at USDA Service Center Agencies Online 
Services; or (3) refer to the FOR FURTHER INFORMATION CONTACT section 
in this Notice.

Transfer Processing Steps

    A property owner should contact the assigned Field Operations 
Division (FOD) servicing specialist if interested in a transfer under 
the pilot program. The servicing specialist will take lead in intake of 
the information and in partnership with AMD and lead the concept call 
with the applicant. After the conversation with the applicant, the 
package will either be transferred to AMD for processing, or the 
servicing specialist will notify the applicant in writing of the 
decision to not proceed with the simple transfer process and the 
reasons.

Paperwork Reduction Act

    The regulatory waivers for this pilot contain no new reporting or 
recordkeeping burdens under OMB control number 0575-0179 that would 
require approval under the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35).

Non-Discrimination Statement

    In accordance with Federal civil rights laws and USDA civil rights 
regulations and policies, the USDA, its Mission Areas, agencies, staff 
offices,

[[Page 96863]]

employees, and institutions participating in or administering USDA 
programs are prohibited from discriminating based on race, color, 
national origin, religion, sex, gender identity (including gender 
expression), sexual orientation, disability, age, marital status, 
family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs). Remedies and complaint filing 
deadlines vary by program or incident.
    Program information may be made available in languages other than 
English. Persons with disabilities who require alternative means of 
communication to obtain program information (e.g., Braille, large 
print, audiotape, American Sign Language) should contact the 
responsible Mission Area, agency, staff office; or the 711 Relay 
Service.
    To file a program discrimination complaint, a complainant should 
complete a Form AD-3027, USDA Program Discrimination Complaint Form, 
which can be obtained online at https://www.usda.gov/sites/default/files/documents/ad-3027.pdf, from any USDA office, by calling (866) 
632-9992, or by writing a letter addressed to USDA. The letter must 
contain the complainant's name, address, telephone number, and a 
written description of the alleged discriminatory action in sufficient 
detail to inform the Assistant Secretary for Civil Rights (ASCR) about 
the nature and date of an alleged civil rights violation. The completed 
AD-3027 form or letter must be submitted to USDA by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 
20250-9410; or
    (2) Fax: (833) 256-1665 or (202) 690-7442; or
    (3) Email: [email protected].

Joaquin Altoro,
Administrator, Rural Housing Service.
[FR Doc. 2024-28299 Filed 12-5-24; 8:45 am]
BILLING CODE 3410-XV-P
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