[Federal Register Volume 60, Number 41 (Thursday, March 2, 1995)]
[Rules and Regulations]
[Pages 11844-11860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5093]




[[Page 11843]]

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Part VII





Department of Housing and Urban Development





_______________________________________________________________________



Office of Assistant Secretary for Housing--Federal Housing Commissioner



_______________________________________________________________________



24 CFR Parts 290 and 886



Disposition of Multifamily Projects and HUD-Held Multifamily Mortgages; 
Interim Rule

Federal Register / Vol. 60, No. 41 / Thursday, March 2, 1995 / Rules 
and Regulations 
[[Page 11844]] 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of Assistant Secretary for Housing--Federal Housing Commissioner

24 CFR Parts 290 and 886

[Docket No. R-95-1753; FR-3715-I-01]
RIN 2502-AG30


Disposition of Multifamily Projects and HUD-Held Multifamily 
Mortgages

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Interim rule.

-----------------------------------------------------------------------

SUMMARY: This interim rule amends the Department's multifamily property 
disposition regulations to incorporate statutory amendments affecting 
the management and disposition of HUD-owned properties and properties 
with delinquent HUD-held mortgages, and the sale of HUD-held 
multifamily mortgages.

DATES: Effective date: March 2, 1995.
    Comments due date: May 1, 1995.

ADDRESSES: Interested persons are invited to submit comments regarding 
this interim rule to the Rules Docket Clerk, Office of General Counsel, 
Room 10278, Department of Housing and Urban Development, 451 Seventh 
Street SW., Washington, DC 20410. Communications should refer to the 
above docket number and title. A copy of each communication submitted 
will be available for public inspection and copying between 7:30 a.m. 
and 5:30 p.m. weekdays at the above address. Faxed comments will not be 
accepted.

FOR FURTHER INFORMATION CONTACT: Frank Malone, Director, Office of 
Multifamily Housing Preservation and Property Disposition, Department 
of Housing and Urban Development, Room 6164, 451 7th Street SW, 
Washington, DC 20410. Telephone (202) 708-3555; TDD (202) 708-4594. 
(These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

    The information collection requirements contained in this interim 
rule were approved by the Office of Management and Budget (OMB) under 
the Paperwork Reduction Act of 1980 and were assigned OMB control 
number 2502-0204 (expiration date: 9/30/96).

I. Introduction

    On August 17, 1993 (58 FR 43708), the Department published a final 
rule amending its requirements for the management and disposition of 
HUD-owned multifamily housing projects. The regulation, at 24 CFR part 
290, implemented HUD's statutory authority, contained in section 207(k) 
and (l) of the National Housing Act and in section 203 of the Housing 
and Community Development Amendments of 1978, to handle and dispose of 
such real property.
    Section 203 was amended by section 181 of the Housing and Community 
Development Act of 1987 (1987 Act), section 1010 of the Stewart B. 
McKinney Homeless Assistance Amendments Act of 1988 (1988 Act), and 
section 579 of the National Affordable Housing Act of 1990 (NAHA). The 
final rule published on August 17, 1993 implemented the NAHA 
amendments.
    Generally, the statutory amendments specified the type of 
assistance to be provided when the Department determines to preserve 
units as affordable low- and very low-income housing, and included 
certain projects with HUD-held mortgages within the scope of section 
203. The Department has been carrying out its multifamily property 
disposition program and its servicing of delinquent HUD-held 
multifamily mortgages on a project-by-project basis in conformity with 
the requirements of section 203, as amended.
    In the Multifamily Housing Property Disposition Reform Act of 1994 
(MHPDRA) (Pub. L. 102-233, approved April 11, 1994), section 203 was 
completely revised. This interim rule, in turn, completely revises 24 
CFR part 290 to reflect the new statutory amendments.
    Before turning to a discussion of specific details of the 
implementation of the revised section 203 in this interim rule, a 
general comment on the overall format of this interim rule is in order. 
HUD is attempting to implement this complex legislation in a manner 
that is more accessible and ``user friendly'' than the typical 
government regulation, with the goal of providing clear guidance within 
a legally binding context. The structure of the statute has been 
reorganized in the regulation to correspond more with the flow of the 
disposition process as it actually happens, from general, guiding 
principles, through notification requirements, plan development, and 
the various actions the Department will take to facilitate the 
disposition process. The section headings in this interim rule are 
posed in the form of questions, to invite a broader spectrum of users 
for the interim rule and to permit all of its users to scan it and 
identify more quickly their areas of concern. Certain portions of the 
interim rule, which present an extended series of requirements or 
alternatives, have been summarized with the use of tables that appear 
within the permanent text of the interim rule itself. These tables, 
covering the subjects of rents, notification requirements, methods of 
disposition, and actions to facilitate disposition, provide a shorthand 
overview of major portions of the interim rule that will permit users 
to comprehend the interim rule and the disposition process more easily. 
The tables are cross referenced to the sections of interim rule text 
that provide a fuller explication of the requirements. HUD specifically 
invites comments on whether the public finds such innovations to be 
helpful, and welcomes suggestions for additional innovations.
    A discussion of the revisions to the multifamily property 
disposition program, organized section-by-section according to the 
amended section 203, follows.

II. Implementation of Amended Section 203

Section 203(a)--Goals

    The goals of the interim rule, which provide the general guidelines 
within which HUD makes its determinations for the management or 
disposition of multifamily housing projects, are listed in section 
203(a). They closely resemble the goals previously listed at 24 CFR 
290.5, but include three new factors. Protecting the financial 
interests of the Federal Government, adhering to fair housing 
requirements, and disposing of projects in a manner consistent with 
local housing market conditions are now explicitly listed among the 
goals which are set forth in Sec. 290.3 of this regulation.

Section 203(b)--Definitions

    Several of the nine definitions included in this section are 
combined and otherwise modified in the interim rule at Sec. 290.5. The 
Department believes that its modifications provide additional precision 
and simplify the structure of the interim rule. For example, the 
interim rule defines the term multifamily housing project as a subset, 
with references to specific statutory authorities, of multifamily 
project, which is defined in very broad terms to cover most non-single 
family projects insured or subject to a loan under one of HUD's 
statutory authorities, including such properties as hospitals, 
intermediate care facilities, and nursing homes. The actions the 
Department may take to facilitate disposition (i.e., the 
[[Page 11845]] assistance to be provided or the restrictions to be 
imposed) depend upon the type of multifamily housing project involved, 
and the statute provides definitions of subsidized project, formerly 
subsidized project, and unsubsidized project, for this purpose. The 
interim rule cuts back on the number of cross references necessary to 
determine what actions may be taken by combining the definitions for 
subsidized and formerly subsidized into a single definition of 
subsidized project. Subsidized project includes projects both before 
foreclosure and after HUD assumes ownership of the project, when the 
mortgage which governs the project has been extinguished. Subsidized 
projects and unsubsidized projects are the subsets within the category 
of multifamily housing projects.
    Although section 203(b)(8) lists market area among the definitions, 
its meaning is left to the determination of the Department. The 
Department has determined that this is a term best defined on a case-
by-case basis at the local level, particularly when the new goal of 
disposing of projects in a manner consistent with local housing market 
conditions is taken into consideration. The interim rule provides for 
the market area for a project to be defined by the local HUD Office, 
which would have the best grasp of local conditions, in terms of the 
area from which a multifamily housing project may reasonably be 
expected to draw a substantial number of its tenants.
    The statute also permits HUD to define the term useful life, used 
to determine how long certain requirements will apply to a project. The 
Department has determined to define useful life as 20 years, the period 
adopted in the August 17, 1993 final rule for maintaining a project as 
rental or cooperative housing, but it may be more or less, as 
determined by the Department.

Section 203(c)--Disposition of Property

    Section 203(c)(1) lists ``negotiated, competitive bid, or other 
basis'' as methods of disposition. The interim rule at Sec. 290.30 
lists the basic methods of disposition as: (1) Foreclosure sales, (2) 
sale of HUD-owned projects, and (3) transfer for use under other HUD 
programs.
    Method (3) is taken from section 203(f), entitled ``Discretionary 
Assistance,'' where ``transfer for use under other HUD programs'' is 
listed as an action the Department may take to facilitate disposition. 
However, in the Department's analysis, a transfer is actually a method 
of disposition, rather than a form of assistance or restriction such as 
the other actions given in section 203(f).
    The transfer option permits the Department, ``notwithstanding the 
provisions of subsection (e)'' (which lists the basic actions and the 
alternatives to the basic actions to facilitate disposition), to 
transfer a multifamily housing project for use as public housing or 
supportive housing, subject to any terms, conditions, and limitations 
determined to be appropriate by the Department. The disposition is 
complete upon the transfer.
    Section 203(c) also lists the qualities of an eligible purchaser 
(incorporated in the interim rule at Sec. 290.32); and requirements for 
an initial disposition plan and initial sales price (Sec. 290.34 of the 
interim rule). Section 203(c)(2)(D) requires the Department to obtain 
timely and appropriate input into disposition plans from the community 
and tenants. This requirement is stated in Sec. 290.34, and is also 
laid out in more detail at Sec. 290.26 in subpart C of the interim rule 
where the notification requirements are gathered. HUD views the 
requirement for community and tenant input into the disposition plan as 
a process similar to providing public notice and an opportunity for 
comment in rulemaking. Just as a proposed rule is published for 
comment, followed by consideration of the comments before a final rule 
is issued, HUD will make an initial disposition plan available to the 
community and tenants, consider the comments it receives, and then 
issue its final disposition plan.
    A requirement for a pre-foreclosure notification is included in 
section 203(c)(3), which appears in subpart C of the interim rule as 
Sec. 290.22.

Section 203(d)--Management and Maintenance of Properties

    This subsection of the statute is the only one that explicitly 
addresses management and maintenance of HUD-owned projects, or projects 
where HUD is the mortgagee in possession (MIP). These provisions, which 
provide management standards and permit HUD to contract or require an 
owner to contract for management services, are basically identical to 
those in Sec. 290.51 of the August 17, 1993 final rule, and are 
incorporated in this interim rule at Secs. 290.10 (standards) and 
290.12 (contracting), under subpart B, titled, ``Management 
Provisions.'' Also included in subpart B are provisions for determining 
occupancy (Sec. 290.14) and rental rates (Sec. 290.16) while a project 
is managed by HUD. These provisions are based largely on the August 17, 
1993 final rule and, in general, provide that the requirements of the 
project's mortgage insurance program before HUD assumed management will 
continue to apply.

Actions to Facilitate Disposition

Section 203(e)--Required Assistance; Section 203(f)--Discretionary 
Assistance; Section 203(g)--Protection for Very Low-Income Tenants; 
Section 203(j)--Displacement of Tenants and Relocation Assistance

    Sections 203 (e), (f), (g), and (j) are discussed together because 
of their close interrelationship. The actions the Department may take 
to facilitate disposition are the common subject matter of these 
sections. The regulation organizes the statutorily permitted actions 
into four categories: ``required,'' ``basic,'' ``alternatives to 
basic,'' and ``additional.'' The table which immediately precedes 
subpart E provides an overview of these assistance and restrictions 
provisions.
    Section 203(e) is divided into three sections, each delineating 
actions that the statute requires HUD to take separately, or in 
combination with each other or with actions under section 203(f). These 
actions are the assistance that may be provided or the restrictions 
(mainly to preserve affordability) that may be imposed. The basic 
actions are established by section 203(e)(1), which identifies the 
units in subsidized projects and unsubsidized projects that are to 
receive project-based Section 8 assistance or that are to be subject to 
use or rent restrictions. The alternatives to these basic actions 
appear in: (1) Section 203(e)(1)(C), which permits project-based 
Section 8 assistance and/or use and rent restrictions in unsubsidized 
projects to be substituted for the ``basic'' project-based Section 8 
assistance in subsidized projects; (2) section 203(e)(2), which permits 
tenant-based Section 8 assistance to be provided to tenants instead of 
the project-based Section 8 assistance required under (e)(1); and (3) 
section 203(e)(3), which provides that the additional actions listed in 
section 203(f) may be used as long as, first, affordability use and 
rent restrictions are imposed on units that otherwise would have 
received the basic project-based Section 8 assistance under (e)(1), and 
second, very low-income tenants in units that otherwise would have 
received project-based Section 8 assistance under (e)(1) receive 
tenant-based Section 8 assistance.
    Section 203(f) then lists the additional actions that may be used 
in subsidized and unsubsidized projects. Included by this interim rule 
in the category of additional actions are provisions taken from the 
August 17, 1993 final rule. [[Page 11846]] These provisions, entitled 
``determination not to preserve,'' are included to provide criteria 
under which the Department will take the action of a determination not 
to preserve a project, or a part of a project, as affordable rental or 
cooperative housing, resulting primarily in demolition.
    In addition to these basic, alternative, and additional categories 
of actions is the category of required actions. Section 203(g) provides 
for required assistance for very-low income tenants, and 203(j) 
provides for required displacement assistance. The displacement 
assistance requirements in this interim rule are based upon the 
requirements of the August 17, 1993 final rule. An action from the 
August 17, 1993 final rule is also included as required, the 
nondiscrimination against Section 8 certificate holders and voucher 
holders provisions of section 183(c) of the Housing and Community 
Development Act of 1987.
    The interim rule organizes this complex system of actions to 
facilitate a disposition according to the type of project involved in a 
disposition--separate subparts address which actions are applicable to 
all multifamily housing projects, or to subsidized projects, or to 
unsubsidized projects, as follows. Subpart E contains the required 
actions applicable to all multifamily housing projects under sections 
203 (g) and (j), as well as the nondiscrimination requirements of 
section 183(c) of the Housing and Community Development Act of 1987. 
Subpart F contains the basic and alternative actions applicable to 
subsidized projects under section 203(e), with a reference to the 
additional section 203(f) actions listed in subpart H. Subpart G 
contains the same information for unsubsidized projects as subpart F 
does for subsidized projects. Subpart H lists the additional actions 
under 203(f) that are applicable to all multifamily housing projects. 
All of the actions to facilitate disposition are set out in abbreviated 
form in a table that precedes subpart E, to permit users of this 
interim rule to follow more easily the options for assistance and 
restrictions that would apply to a particular project.

Section 203(h)--Contract Requirements

    This section states the contract requirements applicable to 
project-based Section 8 assistance provided in accordance with a 
disposition. These requirements are implemented by revising the 
appropriate Section 8 regulations at 24 CFR 886.310 and 886.311.

Section 203(i)--Right of First Refusal for Local and State Government 
Agencies

    This right of first refusal provision is included among the 
notification requirements in subpart C as Sec. 290.24.

III. Sale of HUD-Held Multifamily Mortgages

    On September 22, 1994 (59 FR 48726), the Department published a 
final rule that amended 24 CFR part 290 to set forth the basic policies 
and procedures that govern the disposition of HUD-held multifamily 
project mortgages. This final rule implemented a proposed rule 
published on April 13, 1994 (59 FR 17500) and also incorporated 
amendments made by the MHPDRA. The provisions of the mortgage sale 
final rule are included in this interim rule as subpart I, with only 
slight modifications to conform to the new format of this interim rule.

IV. Other Amendments in This Interim Rule

    Section 101(d) of the MHPDRA amended the definition of owner under 
the United States Housing Act of 1937 to include ``an Agency of the 
Federal Government.'' The purpose and effect of this amendment is to 
permit HUD to collect Section 8 rental payments when it owns or manages 
a project. The conforming change to the definition of owner is made in 
24 CFR 886.302.
    The definition of eligible project or project in 24 CFR 886.302 is 
also amended to include a multifamily housing project under 24 CFR part 
290.
    Section 886.319 is amended to conform to Sec. 886.120 and state 
explicitly that HUD may contract for the administration of its Section 
8 contract functions.

V. Other Matters

    Any assistance made available to a purchaser under this interim 
rule, whether rental or other financial assistance, will be subject to 
scrutiny under section 102(d) of the HUD Reform Act, insofar as that 
statutory provision has been implemented by guidelines issued by the 
Office of Housing under 24 CFR part 12, subpart D (see, e.g., a Federal 
Register Notice published April 9, 1991 (56 FR 14436) entitled 
``Administrative Guidelines; Limitations on Combining Other Government 
Assistance with HUD Housing Assistance'').

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969. The Finding is available for public inspection between 
7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules Docket 
Clerk, Office of the General Counsel, Department of Housing and Urban 
Development, Room 10276, 451 Seventh Street SW., Washington, DC 20410.

Executive Order 12866

    This interim rule has been reviewed and approved by the Office of 
Management and Budget in accordance with Executive Order 12866, issued 
by the President on September 30, 1993 (58 FR 51735, October 4, 1993). 
Any changes to the interim rule resulting from this review are 
available for public inspection between 7:30 a.m. and 5:30 p.m. 
weekdays in the Office of the Rules Docket Clerk.

Regulatory Flexibility Act

    The Secretary, in accordance with provisions of the Regulatory 
Flexibility Act (5 U.S.C. 605(b)), has reviewed this interim rule 
before publication and by approving it certifies that it will not have 
a significant economic impact on a substantial number of small 
entities. These revisions to the policies governing the management and 
disposition of HUD-owned multifamily housing projects should not affect 
the ability of small entities, relative to larger entities, to bid for 
and acquire projects that HUD determines to sell.

Executive Order 12612, Federalism

    HUD has determined, in accordance with Executive Order 12612, 
Federalism, that this interim rule will not have a substantial, direct 
effect on the States or on the relationship between the Federal 
government and the States, or on the distribution of power or 
responsibilities among the various levels of government. While the 
interim rule would impose terms and conditions on States that acquire 
projects under this interim rule, that is clearly the intent of the 
authorizing legislation, and therefore no further review is necessary 
or appropriate.

Executive Order 12606, the Family

    HUD has determined that this interim rule will not have a 
significant impact on family formation, maintenance, and general well-
being within the meaning of Executive Order 12606, The Family, because 
it does not affect the eligibility of families for admission into 
multifamily housing projects that are subject to this 
rulemaking. [[Page 11847]] 

Justification for Interim Rulemaking

    This publication of this interim rule for effect upon issuance is 
required by MHPDRA section 101(f).

Regulatory Agenda

    This interim rule was listed as item number 1802 in the 
Department's Semiannual Agenda of Regulations published on November 14, 
1994 (59 FR 57632, 57657) under Executive Order 12866 and the 
Regulatory Flexibility Act.
    The Catalog of Federal Domestic Assistance Program number and title 
is 14.156, Lower Income Housing Assistance Program (Section 8).

List of Subjects

24 CFR Part 290

    Low and moderate-income housing, Mortgage insurance.

24 CFR Part 886

    Grant programs--housing and community development, Lead poisoning, 
Rent subsidies, Reporting and recordkeeping requirements.

    Accordingly, for the reasons stated in the preamble, part 290 of 
chapter II and part 886 of chapter VIII of title 24 of the Code of 
Federal Regulations, are amended as follows:
    1. Part 290 is revised to read as follows:

PART 290--DISPOSITION OF MULTIFAMILY PROJECTS AND SALE OF HUD-HELD 
MULTIFAMILY MORTGAGES

Subpart A--General Provisions

Sec.
290.1  What subjects does this regulation cover?
290.3  What are the goals of this regulation?
290.5  What definitions apply in this regulation?
290.7  May any of the provisions of this regulation be waived?

Subpart B--Management and Maintenance Provisions

290.10  What maintenance and management standards apply to 
multifamily housing projects?
290.12  How may HUD contract for management services, or require the 
owner of a multifamily project to contract for management services?
290.14  What occupancy requirements apply under this regulation?
290.16  How will rental rates be set when HUD is mortgagee-in-
possession (MIP) or owner of a multifamily housing project?

Subpart C--Notification Requirements

290.20  How will HUD provide the notifications that are required 
under this regulation?
290.22  What notification must be given before foreclosure?
290.24  Who has a right of first refusal for properties that HUD is 
selling, and what kind of notice must HUD provide?
290.26  What kind of notice must HUD provide to tenants and the 
community when HUD is selling a project?

Subpart D--Disposition Procedures

290.30  What are the different methods that may be used for the 
disposition of a multifamily housing project?
290.32  What qualities does HUD look for in a purchaser?
290.34  What kind of disposition plan will HUD prepare before 
selling a project?

Subpart E--All Multifamily Housing Projects--Required Actions

290.40  Are there any required actions that must be taken in the 
disposition of all multifamily housing projects?
290.42  What actions must be taken concerning tenants who are 
displaced by the disposition of a multifamily housing project?
290.44  What actions must be taken concerning very low-income 
tenants in the disposition of a multifamily housing project?
290.46  What restrictions concerning nondiscrimination against 
Section 8 certificate holders and voucher holders apply in the 
disposition of a multifamily housing project?

Subpart F--Subsidized Projects--Basic and Alternative Actions to 
Facilitate Disposition

290.54  What are the basic actions that may be taken in the 
disposition of a subsidized project?
290.56  What alternatives to the basic actions are available in the 
disposition of subsidized projects?

Subpart G--Unsubsidized Projects--Basic and Alternative Actions to 
Facilitate Disposition

290.64  What are the basic actions that may be taken in the 
disposition of an unsubsidized project?
290.66  What alternatives to the basic actions are available in the 
disposition of an unsubsidized projects?

Subpart H--All Multifamily Housing Projects--Additional Actions to 
Facilitate Disposition

290.70  What guidelines will HUD apply in determining which 
additional actions to take in the disposition of a multifamily 
housing project?
290.72  May HUD reduce the sales price for a project?
290.74  May HUD require additional use and rent restrictions?
290.76  May HUD provide short-term loans to facilitate the sale of a 
project?
290.78  Under what conditions may HUD provide up-front grants?
290.80  What additional tenant-based assistance may HUD offer?
290.82  How may HUD provide for alternative uses of units in the 
disposition of a multifamily housing project?
290.84  What disposition assistance may be available to rebuild a 
multifamily housing project?
290.86  What emergency assistance funds may be provided to tenants?
290.88  Under what circumstances may HUD make a determination not to 
preserve a project or a part of a project?

Subpart I--Sale of HUD-Held Multifamily Mortgages

290.100  What is the purpose of this subpart?
290.102  What affect does this subpart have on the applicability of 
Civil Rights requirements?
290.104  What tenant protections will apply in the sale of HUD-held 
subsidized mortgages?
290.106  How will HUD sell current subsidized mortgages?
290.108  How will HUD sell delinquent subsidized mortgages?
290.110  What is HUD's policy for selling HUD-held unsubsidized 
mortgages?

    Authority: 12 U.S.C. 1701z-11, 1701z-12, 1713, 1715b, 1715z-1b; 
42 U.S.C. 3535(d).

Subpart A--General Provisions


Sec. 290.1  What subjects does this regulation cover?

    (a) Except as provided in paragraph (b) of this section, this part 
applies to the sale of multifamily projects which are or were, before 
being acquired by the Department, assisted or had a mortgage insured 
under the National Housing Act, or which were subject to a loan or a 
capital advance under Section 202 of the Housing Act of 1959. Subpart I 
of this part applies to the sale of HUD-held multifamily mortgages.
    (b) This part does not apply to multifamily projects being 
foreclosed by HUD for which the decision to foreclose has been made 
before the effective date of this part, nor to HUD-owned projects where 
the initial disposition program has been approved before the effective 
date of this part. For such projects, the procedures in the regulations 
at 24 CFR part 290 in effect immediately prior to the effective date of 
this regulation apply, unless HUD determines, on a case-by-case basis, 
to apply the new regulations.
    (c) This part applies to the sale of multifamily projects which are 
or were, before being acquired by the Department, assisted or insured 
under the National Housing Act, or which were subject to a loan under 
section 202 of the Housing Act of 1959. It also applies to the sale of 
certain loans and mortgages, and to the management of certain 
multifamily properties.


Sec. 290.3  What are the goals of this regulation?

    (a) The goals of this part are to provide for the management and 
[[Page 11848]] disposition of HUD-owned multifamily projects, and 
multifamily projects subject to HUD-held mortgages, in a manner that:
    (1) Is consistent with the National Housing Act, section 203 of the 
Housing and Community Development Amendments of 1978, and other 
relevant statutes;
    (2) Will protect the financial interests of the Federal Government; 
and
    (3) Will, in the least costly fashion among reasonable available 
alternatives, address the goals of:
    (i) Preserving certain housing so that it can remain available to 
and affordable by low-income persons;
    (ii) Preserving and revitalizing residential neighborhoods;
    (iii) Maintaining the existing housing stock in a decent, safe, and 
sanitary condition;
    (iv) Minimizing the involuntary displacement of tenants;
    (v) Maintaining housing for the purpose of providing rental 
housing, cooperative housing, and homeownership opportunities for low-
income persons;
    (vi) Minimizing the need to demolish multifamily housing projects;
    (vii) Adhering to fair housing requirements; and
    (viii) Disposing of such projects in a manner consistent with local 
housing market conditions.
    (b) The goals of this part, with respect to HUD-held mortgages, are 
to sell such mortgages in a manner that:
    (1) Reduces losses to the FHA fund;
    (2) Decreases HUD's inventory of project mortgages;
    (3) Improves the servicing of these mortgages; and
    (4) Improves the rental services provided by properties securing 
HUD-insured and HUD-held mortgages.
    (c) Competing goals. In determining the manner in which a project 
is to be managed and disposed of, HUD may balance competing goals 
relating to individual projects in a manner that will further the 
purposes of this part.


Sec. 290.5  What definitions apply in this regulation?

    The following definitions apply to this part:
    Affordable means, with respect to a unit of a multifamily housing 
project:
    (1) For a unit occupied by a very-low income family, the unit rent 
does not exceed 30 percent of 50 percent of the area median income (not 
the income of the family), as determined by the Department, with 
adjustments for smaller and larger families; or
    (2) For a unit occupied by a low-income family other than a very 
low-income family, the unit rent does not exceed 30 percent of 80 
percent of the area median income (not the income of the family), as 
determined by the Department, with adjustments for smaller and larger 
families; or
    (3) The unit, or the family residing in the unit, is receiving 
assistance under Section 8 of the United States Housing Act of 1937.
    Cooperative means a nonprofit, limited equity, or consumer 
cooperative as defined under 24 CFR part 213. It may include mutual 
housing associations.
    Department means the United States Department of Housing and Urban 
Development, or HUD.
    HUD-owned project means a multifamily project that has been 
acquired by HUD.
    Low-income family means a low-income family as defined at 24 CFR 
part 813.
    Market area means the area from which a multifamily housing project 
may reasonably be expected to draw a substantial number of its tenants, 
as determined by HUD, taking into consideration the knowledge of the 
HUD office with jurisdiction over the project of the local real estate 
market and HUD's project underwriting experience. Submarkets may be 
used in large, complex metropolitan areas.
    Multifamily housing project means a multifamily project that is or 
was insured under sections 207, 213, 220, 221(d)(3) 221(d)(4), 223(f), 
231, 236, or 608 of the National Housing Act (12 U.S.C. 1701 et seq.); 
or is or was subject to a loan under section 202 of the Housing Act of 
1959 (12 U.S.C. 1701q); or was a Real Estate Owned (REO) multifamily 
project transferred by the Government National Mortgage Association to 
the Department. Multifamily housing project does not include projects 
consisting of one to eleven units insured under section 220(d)(3)(A) of 
the National Housing Act (12 U.S.C. 1715k); or mobile home parks under 
section 207(m) of that Act (12 U.S.C. 1713); or vacant land; or 
property covered by a homeownership program approved under the 
Homeownership and Opportunity for People Everywhere (``HOPE'') program.
    Multifamily project means a project consisting of five or more 
units that has or had a mortgage (even if subordinate to other 
mortgages) insured under the National Housing Act or is or was subject 
to a loan under section 202 of the Housing Act of 1959, or a hospital, 
intermediate care facility, nursing home, group practice facility, or 
board and care facility that has or had a mortgage insured, or is or 
was subject to a loan under, these authorities. Multifamily project 
does not include projects consisting of one to eleven units insured 
under section 220(d)(3)(A) of the National Housing Act, which are 
classified as single family homes.
    Nonprofit organization means a corporation or association organized 
for purposes other than making a profit or gain for itself. 
Stockholders or trustees do not share in profits or losses. Profits are 
used to accomplish the charitable, humanitarian, or educational 
purposes of the corporation.
    Preexisting tenant means a family that resides in a unit in a 
multifamily housing project immediately before the project is acquired 
under this part by a purchaser other than the Department.
    Project-based assistance means assistance that is attached to a 
structure.
    Subsidized mortgage means a mortgage, including a purchase money 
mortgage, on a subsidized project.
    Subsidized project means a multifamily housing project that is 
receiving, or immediately before its mortgage was foreclosed by HUD or 
the project was acquired by HUD, pursuant to this regulation, was 
receiving any of the following types of assistance:
    (1) Below market interest rate mortgage insurance under the proviso 
of section 221(d)(5) of the National Housing Act (12 U.S.C. 1715l) 
(hereinafter, a BMIR project);
    (2) Interest reduction payments made in connection with mortgages 
insured under section 236 of the National Housing Act (hereinafter, a 
236 project);
    (3) Direct loans made under section 202 of the Housing Act of 1959 
(hereinafter, a 202 project);
    (4) Assistance, to more than 50 percent of the units in the 
project, in the form of:
    (i) Rent supplement payments under section 101 of the Housing and 
Urban Development Act of 1965 (12 U.S.C. 1701s) (hereinafter, Rent 
Supp);
    (ii) Additional assistance payments under section 236(f)(2) of the 
National Housing Act (hereinafter, RAP);
    (iii) Housing assistance payments under section 23 of the United 
States Housing Act of 1937 (as in effect before January 1, 1975) 
(hereinafter, Sec. 23); or
    (iv) Housing assistance payments under Section 8 of the United 
States Housing Act of 1937 (42 U.S.C. 1437f note) (excluding payments 
of tenant-based Section 8 assistance) (hereinafter, project-based 
Section 8 assistance).
    Sufficient habitable, affordable, rental housing is available means 
that the HUD office with jurisdiction determines that there is an 
adequate supply of habitable, affordable housing for low- 
[[Page 11849]] and very low-income families available in the market 
area. Submarkets, consisting of portions of units of general local 
government, may be used in large, complex metropolitan areas. Local 
housing markets having an adequate supply of standard-quality rental 
housing would include housing markets in which the supply of rental 
housing available and in production is adequate to meet the anticipated 
demand (e.g., the housing market is balanced), as well as those in 
which there is an excess supply of rental housing (e.g., the housing 
market is soft). Rental markets that do not have an adequate supply 
(e.g., tight markets) are characterized by low rental vacancy rates, 
low levels of production and turnover of rental housing, and, usually, 
by high levels of rent inflation. HUD will make the determination of 
whether sufficient habitable, affordable, rental housing is available 
using established market analysis techniques, and will consider 
information that demonstrates:
    (1) The rental housing vacancy rate is at a low level relative to 
the rate required for a balanced market, typically a four percent 
vacancy rate; except that a rate lower than four percent may be 
considered in unusual circumstances if it can be demonstrated that 
there is an adequate supply of affordable housing for low-income 
families;
    (2) The number of rental housing units being produced on an annual 
basis is not large enough to satisfy demand arising from the increase 
in households, or, in markets where there is little or no growth, 
evidence that the number of additional rental units being supplied is 
not sufficient to meet the demand arising from net losses to the 
available inventory and the inadequate supply of rental housing has 
inhibited growth;
    (3) The shortage of housing is resulting in rent increases that 
exceed normal increases commensurate with the costs of operating rental 
housing;
    (4) A significant number, or proportion, of the households holding 
Section 8 certificates or rental vouchers are unable to find adequate 
housing because of the shortage of rental housing, including PHA data 
showing a lower than average percentage of units under lease and a 
longer than average time required to find units.
    Tenant-based assistance means rental assistance that is not 
attached to a structure.
    Unit of general local government means a city, town, township, 
county, parish, village, or other general purpose political subdivision 
of a State.
    Unsubsidized mortgage means any HUD-held multifamily mortgage that 
is not a subsidized mortgage.
    Unsubsidized project means a multifamily housing project that is 
not a subsidized project.
    URA means the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (42 U.S.C. 4601-4655).
    Useful life means, generally, twenty years, but it may be more or 
less, as determined by the Department.
    Very low-income family means a very low-income family as defined at 
24 CFR part 813.


Sec. 290.7  May any of the provisions of this regulation be waived?

    The Assistant Secretary for Housing may waive any provision of this 
part, subject only to statutory limitations. Each waiver must be in 
writing, and must be supported by documentation of the facts and 
reasons which formed the basis for the waiver. HUD will publish a 
Federal Register notice informing the public of all waivers granted 
under this section in accordance with the HUD Reform Act of 1989 and 
HUD policies regarding publication of waivers.

Subpart B--Management and Maintenance Provisions


Sec. 290.10  What maintenance and management standards apply to 
multifamily housing projects?

    (a) Scope. The provisions of this section apply to any multifamily 
housing project:
    (1) That is HUD-owned;
    (2) For which HUD is mortgagee-in-possession; or
    (3) That is subject to a mortgage held by HUD.
    (b) Maintenance and management standards. With respect to projects 
within the scope of this section, HUD or the owner, as appropriate, 
shall:
    (1) To the greatest extent possible, maintain all occupied projects 
in a decent, safe, and sanitary condition, and in compliance with any 
standards established by the Department and under applicable State or 
local laws, rules, ordinances, or regulations relating to the 
accessibility and physical condition of the housing;
    (2) Maintain full occupancy;
    (3) Maintain projects for purposes of providing rental or 
cooperative housing; and
    (4) Manage projects in accordance with the requirements of the Fair 
Housing Act (42 U.S.C. 3601-19) and implementing regulations at 24 CFR 
parts 100 et al, which prohibit discrimination in the sale or rental of 
housing and in related transactions on the basis of race, color, 
religion, sex, national origin, handicap, or familial status; section 
504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) and implementing 
regulations at 24 CFR part 8 that prohibit discrimination against 
disabled individuals in Federally-assisted activities, and 24 CFR part 
9, which prohibit discrimination against disabled individuals in 
Federally-conducted activities; Title VI of the Civil Rights Act of 
1964 and implementing regulations at 24 CFR part 1, which prohibit 
discrimination based on race, color, or national origin in programs 
receiving Federal financial assistance; the Age Discrimination Act of 
1975 and implementing regulations at 24 CFR part 146, which prohibit 
discrimination based on age in programs receiving Federal financial 
assistance; and Executive Order 11063, as amended by Executive Order 
12259 (Equal Opportunity in Housing) and implementing regulations at 24 
CFR part 107.


Sec. 290.12  How may HUD contract for management services, or require 
the owner of a multifamily project to contract for management services?

    (a) Scope. The provisions of this section apply to any multifamily 
housing project:
    (1) That is HUD-owned;
    (2) For which HUD is mortgagee-in-possession; or
    (3) That is subject to a mortgage held by HUD.
    (b) Contracting for management services. (1) With respect to 
projects within the scope of this section, HUD may, or may require the 
owner to, contract for management services for the project with for-
profit and nonprofit entities and public agencies, including public 
housing agencies, on a negotiated, competitive bid, or other basis, at 
a price determined by HUD to be reasonable, with a manager determined 
by HUD to be capable of:
    (i) Implementing a sound financial and physical management program 
that is designed to enable the project to meet anticipated operating 
and maintenance expenses to ensure that the project will remain in a 
decent, safe, and sanitary condition, and in compliance with any 
standards under applicable State or local laws, rules, ordinances, or 
regulations relating to the accessibility and physical condition of the 
housing, and any such standards established by HUD;
    (ii) Responding to the needs of tenants and working cooperatively 
with tenant organizations;
    (iii) Providing adequate organizational, staff, and financial 
resources to the project; and
    (iv) Meeting such other requirements as HUD may determine to be 
necessary or appropriate. [[Page 11850]] 
    (2) HUD will conduct outreach efforts to minority-owned and female-
owned businesses to become managers of the HUD-owned projects covered 
by this section, in accordance with Executive Order 11625, as amended 
by Executive Order 12007 (Minority Business Enterprises), Executive 
Order 12432 (Minority Business Enterprise Development), and Executive 
Order 12138 (National Women's Business Enterprise Policy).


Sec. 290.14  What occupancy requirements apply under this regulation?

    (a) Multifamily housing project that is HUD-owned or for which HUD 
is mortgagee-in-possession. Occupancy in a multifamily housing project 
that is HUD-owned or for which HUD is mortgagee-in-possession shall be 
available on a basis that is comparable to the occupancy requirements 
that applied to the project immediately before HUD acquired the project 
or became mortgagee-in-possession, except that preference shall be 
given to tenants of other HUD-owned multifamily housing projects who 
are eligible for assistance in accordance with the displacement and 
relocation provisions at Sec. 290.42.
    (b) Evictions. Eviction from a HUD-owned multifamily housing 
project is governed by 24 CFR part 247, subpart B.
    (c) Threat to health and safety. Whenever HUD determines that there 
is an immediate threat to the health and safety of the tenants, HUD may 
require the tenants to vacate the premises and shall provide temporary 
relocation benefits as provided in Sec. 290.42 to tenants required to 
vacate the premises.

                 Project Rents While HUD is MIP or Owner                
                                                                        
                                                                        
Unit rents.......................  Unit rents set in accordance with the
                                    rent setting requirements of the    
                                    project's mortgage insurance or     
                                    direct loan program while HUD is    
                                    mortgagee-in-possession (MIP), or in
                                    accordance with the rent setting    
                                    requirements of the project's       
                                    mortgage insurance or direct loan   
                                    program in effect immediately before
                                    HUD became the owner of the project 
                                    (Sec. 290.16(a)).                   
Rents payable by tenants.........  1. Tenant rent. Rent the tenant pays 
                                    will be based on the income         
                                    certification and the rent payment  
                                    requirements of the project's       
                                    mortgage insurance or direct loan   
                                    program in effect while HUD is MIP  
                                    or immediately before HUD became the
                                    owner of the project (Sec.          
                                    290.16(b)(1)).                      
                                   2. Rent when tenant does not certify 
                                    income. If a tenant does not certify
                                    income, the tenant must pay the unit
                                    rent (Sec. 290.16(b)(1)).           
                                   3. Utility allowance. For a tenant   
                                    whose rent is based on a percentage 
                                    of adjusted income, HUD will use a  
                                    utility allowance to reduce the rent
                                    (Sec. 290.16(b)(2)).                
                                   4. Project viability. HUD may adjust 
                                    the rent to promote project         
                                    viability (Sec. 290.16(b)(3)).      
                                   5. Tenants with rental vouchers or   
                                    certificates. Tenant pays rent in   
                                    accordance with policies and        
                                    procedures governing such assistance
                                    (Sec. 290.16(b)(4)).                

Sec. 290.16  How will rental rates be set when HUD is mortgagee-in-
possession (MIP) or owner of a multifamily housing project?

    Because of the subsidies involved in making multifamily housing 
projects affordable, the setting of rents involves two steps: first, 
establishing the rent on a unit that will be paid to the owner, and 
second, determining the rent that the tenant pays (with the difference 
made up by a subsidy), using a number of procedures to obtain income 
verification and notify tenants of changes in rent. These procedures 
are explained below.
    (a) Setting unit rents. Except as modified by this section, for a 
property where HUD is mortgagee-in-possession (MIP), HUD will set unit 
rents in accordance with the rent setting requirements of the project's 
mortgage insurance or direct loan program; or for a property owned by 
HUD, rents will be set in accordance with the rent setting requirements 
of the project's mortgage insurance or direct loan program in effect 
immediately before HUD became the owner of the project.
    (b) Setting rents payable by tenants--(1) Tenant rent. The rent the 
tenant pays will be based on the income certification and the rent 
payment requirements of the project's mortgage insurance or direct loan 
program in effect while HUD is MIP or immediately before HUD became the 
owner of the project, as affected by any of the factors in paragraphs 
(b)(2) through (b)(4) of this section. However, if a tenant does not 
certify income as required by this section, the tenant must pay the 
unit rent as determined under the rent setting requirements in 
paragraph (a) of this section.
    (2) Utility allowance. For a tenant whose rent is based on a 
percentage of adjusted income (except for rental voucher or rental 
certificate holders), if the cost of utilities (except telephone) and 
other housing services for the unit is the responsibility of the tenant 
to pay directly to the provider of the utility or service, HUD will 
deduct from the rent to be paid by the tenant to HUD a utility 
allowance, which is an amount equal to HUD's estimate of the monthly 
costs of a reasonable consumption of the utilities and other services 
for the unit for an energy-conservative household of modest 
circumstances consistent with the requirement of a safe, sanitary, and 
healthful living environment. If the utility allowance exceeds the 
percentage of the tenant's adjusted income payable as rent, HUD will 
pay the difference between the amount payable as rent and the utility 
allowance to the tenant or, with the consent of the tenant and the 
utility company, either jointly to the tenant and the utility company 
or directly to the utility company.
    (3) Rent adjustments for project viability. For a HUD-owned 
project, HUD may adjust the rent provided for in paragraphs (b)(1) or 
(b)(2) of this section if necessary or desirable to maintain the 
existing economic mix in the project, prevent undesirable turnover, or 
increase occupancy.
    (4) Tenants who are rental voucher or rental certificate holders. 
Tenants assisted with rental vouchers or certificates certify their 
income to the public housing agency (PHA) administering the assistance, 
and pay rent pursuant to the policies and procedures governing such 
assistance.
    (c) Income verification and rent notification procedures.
    (1) Income certification by tenants--(i) In subsidized projects. 
(A) For families residing in subsidized projects, when HUD becomes MIP 
or owner, HUD will request an income certification from each family as 
soon as practicable after HUD initially assumes management, unless the 
family's income has been examined by the owner or by HUD not more than 
four months before HUD's assumption of management.
    (B) For each family applying for admission to subsidized projects, 
HUD will request an income certification to determine the family's 
eligibility for a subsidized rent, and (if the rent is based on a 
percentage of adjusted income) the [[Page 11851]] family's subsidized 
rent, in accordance with part 813 of this title.
    (ii) In unsubsidized projects. (A) For tenants in occupancy when 
HUD becomes mortgagee-in-possession or owner of an unsubsidized 
project, HUD may request an income certification from families who are 
not paying a subsidized rent.
    (B) For families applying for admission to such projects, HUD will 
request sufficient information for income verification to determine the 
family's ability to pay the unit rent.
    (2) Notice of increases in the amount of rent payable. Whenever HUD 
proposes an increase in rents in a HUD-owned multifamily project or a 
project where HUD is mortgagee-in-possession, HUD will provide tenants 
30 days notice of the proposed changes and an opportunity to review and 
comment on the new rent and supporting documentation. After HUD 
considers the tenants' comments and has made a decision with respect to 
its proposed rent change, HUD shall notify the tenants of its decision, 
with the reasons for the decision. A tenant in occupancy before the 
effective date of any revised rental rate must be given 30 days notice 
of the revised rate, and any change in the tenant's rent is subject to 
the terms of an existing lease. Notices to each tenant must be 
personally delivered or sent by first class mail. General notices to 
all tenants must be posted in the project office and in appropriate 
conspicuous and accessible locations around the project.
    (3) Disclosure and verification of Social Security numbers. Any 
certifications or reexaminations of the income of tenants or 
prospective tenants in connection with tenancy under this section are 
subject to the requirements for the disclosure and verification of 
Social Security Numbers, as provided by part 200, subpart T, of this 
title.
    (4) Signing of consent forms for income verification. Any 
certifications or reexaminations of the income of tenants or 
prospective tenants in connection with tenancy under this section are 
subject to the requirements for the signing and submitting of consent 
forms for the obtaining of wage and claim information from State Wage 
Information Collection Agencies, as provided by part 200, subpart V, of 
this title. (Approved by Office of Management and Budget under control 
number 2502-0204.)

                Pre-Disposition Notification Requirements               
                                                                        
                                                                        
Pre-foreclosure (Sec. 290.22)....  1. Timing. Not later than 60 days    
                                    before foreclosure on any mortgage. 
                                   2. Recipients.                       
                                   (i) Tenants of the project, and      
                                   (ii) The unit of general local       
                                    government in which the project is  
                                    located.                            
                                   3. Contents.                         
                                   (i) General terms and conditions     
                                    concerning the sale, future use, and
                                    operation of the project that HUD   
                                    proposes to impose; and,            
                                   (ii) Whether temporary or permanent  
                                    relocation is anticipated, and, if  
                                    so, available displacement and      
                                    relocation assistance.              
Right of first refusal (Sec.       1. Timing. Not later than 30 days    
 290.24).                           after HUD acquires title to a       
                                    multifamily housing project.        
                                   2. Recipients.                       
                                   (i) The appropriate unit of general  
                                    local government;                   
                                   (ii) Public housing agencies in the  
                                    project's market area;              
                                   (iii) The State agency or agencies   
                                    designated to receive such notice by
                                    the chief executive officer of the  
                                    State in which the project is       
                                    located.                            
                                   3. Contents.                         
                                   (i) Description of the project;      
                                   (ii) Invitation to recipients to make
                                    bona fide offers to purchase the    
                                    project;                            
                                   (iii) Offer of right of first refusal
                                    for period of up to 90 days;        
                                   (iv) Method by which the recipient   
                                    may respond to HUD.                 
Notice to tenants and the          1. Timing. Not later than 60 days    
 community (Sec. 290.26).           after HUD acquires title to a       
                                    multifamily housing project.        
                                   2. Recipients.                       
                                   (i) To the tenants of the project;   
                                   (ii) To the unit of general local    
                                    government in which the project is  
                                    located; and                        
                                   (iii) To the community in which the  
                                    project is located.                 
                                   3. Contents.                         
                                   (i) Description of the project;      
                                   (ii) Proposed general terms and      
                                    conditions concerning the sale,     
                                    future use, and operation of the    
                                    project;                            
                                   (iii) Invitation for tenants and     
                                    their organizations, units of       
                                    general local government, and other 
                                    public or nonprofit entities to     
                                    submit comments on the disposition  
                                    plan, and/or proposals for          
                                    disposition which will be considered
                                    by HUD in making its property       
                                    disposition determination.          

Subpart C--Notification Requirements


Sec. 290.20  How will HUD provide the notifications that are required 
under this regulation?

    (a) In general. HUD may combine two or more of the notifications 
required by this subpart, as appropriate, to simplify the disposition 
process.
    (b) Methods of notification-- (1) To tenants. The notices required 
to be made to tenants under this subpart will be delivered to each unit 
in the project, or sent to each unit by first class mail. Where HUD is 
mortgagee-in-possession or owner of a project, the notice will also be 
posted in the project office and in appropriate conspicuous and 
accessible locations around the project.
    (2) To the unit of general local government. The notice required to 
be made to a unit of general local government under this section will 
be sent to the chief executive officer of the unit of general local 
government by first class mail. For purposes of receiving or sending 
any notices or information under this subpart, the unit of general 
local government is its chief executive officer, or the person 
designated by the chief executive officer to receive or send the notice 
or information.
    (3) To the community or any other party. HUD will consult with 
tenants and their organizations, officials of units of general local 
government, and other entities as HUD determines to be appropriate, to 
identify community recipients of any notification required by this 
subpart. Any notice required to be made to any party other than a 
tenant [[Page 11852]] or a unit of general local government will be 
sent by first class mail.


Sec. 290.22  What notification must be given before foreclosure?

    (a) Timing and recipients of notice. Not later than 60 days before 
foreclosing on any mortgage held by the Department on any multifamily 
housing project, HUD will provide notice of the proposed foreclosure 
sale to the tenants of the project and to the unit of general local 
government in which the project is located.
    (b) Contents of notice. The notice will describe the general terms 
and conditions concerning the sale, future use, and operation of the 
project that HUD proposes to impose on a purchaser other than HUD 
through the foreclosure. The notice will also state whether temporary 
or permanent relocation is anticipated as a result of repairs or the 
proposed disposition, including any anticipated conversion of use, and, 
if so, the levels of displacement and relocation assistance available 
under Sec. 290.42.


Sec. 290.24  Who has a right of first refusal for properties that HUD 
is selling, and what kind of notice must HUD provide?

    (a) Timing and recipients of notice. Not later than 30 days after 
HUD acquires title to a multifamily housing project, HUD will provide 
notice of the right of first refusal to the appropriate unit of general 
local government, as well as public housing agencies in the project's 
market area, and the State agency or agencies designated to receive 
such notice by the chief executive officer of the State in which the 
project is located.
    (b) Content of notice. The notice will describe the project 
acquired by HUD, and contain an invitation to recipients to make bona 
fide offers to purchase the project. The notice will state:
    (1) That for a period specified in the notice, not to exceed 90 
days from the time the notification is made, HUD will not sell or offer 
to sell the project other than to a recipient of the notice, unless the 
recipients notify HUD sooner that they will not make an offer to 
purchase the project;
    (2) That if a recipient expresses interest within the specified 
period in acquiring the project, HUD will consult with the interested 
parties in the preparation of the disposition plan and the terms and 
conditions of the sale of the project. HUD will accept a bona fide 
offer to purchase the project if the offer complies with the terms and 
conditions of the disposition plan for the project, or is otherwise 
acceptable to HUD;
    (3) The method by which the recipient may respond to HUD with an 
expression of interest or a bona fide offer, or by which the recipient 
may notify HUD that an offer will not be made.


Sec. 290.26  What kind of notice must HUD provide to tenants and the 
community when HUD is selling a project?

    (a) Timing and recipients of notice. Not later than 30 days after 
HUD acquires title to a multifamily housing project, HUD will provide 
notice of HUD's acquisition and proposed disposition of the project to 
the tenants of the project, to the unit of general local government, 
and to the community in which the project is located.
    (b) Content of notice. The notice will describe the project 
acquired by HUD, and the general terms and conditions concerning the 
sale, future use, and operation of the project as proposed by HUD. The 
notice will, as appropriate, state:
    (1) HUD has acquired the project.
    (2) During HUD's ownership, HUD will, to the extent feasible, 
assure that the project is maintained in a decent, safe, and sanitary 
condition.
    (3) HUD is developing a final disposition plan for the project.
    (4) HUD normally seeks to sell HUD-owned projects as rapidly as 
possible.
    (5) HUD's interest in learning of tenant, community, and local 
government plans and capacity for the acquisition of the project for 
use as rental or cooperative housing.
    (6) HUD's final determination of the terms and conditions to be 
imposed on the disposition of the project will not be made until after 
HUD considers the comments received from tenants, the community, and 
the unit of general local government within the specified comment 
period.
    (7) A brief description of a proposed manner of disposition of the 
project.
    (8) A description of the pending notice of the right of first 
refusal to purchase the project made under Sec. 290.24.
    (9) That alternative uses of units in the project may be part of 
the project's disposition, and that:
    (i) Some of the units in the project may be made available for uses 
other than rental or cooperative uses, including low-income 
homeownership opportunities, or community space, office space for 
tenant or housing-related service providers or security programs, or 
small business uses, if such uses benefit the tenants of the project;
    (ii) Some of the units in the project may be used in any manner, if 
the Department and the unit of general local government or area-wide 
governing body determine that such use will further fair housing, 
community development, or neighborhood revitalization goals;
    (iii) Such alternative uses of units may only take place if:
    (A) Tenant-based Section 8 rental assistance is made available to 
each eligible family residing in the project that is displaced as a 
result of such actions; and
    (B) The Department determines that sufficient habitable, affordable 
rental housing is available in the market area in which the project is 
located to ensure use of such assistance.
    (10) That any very low-income family who is a preexisting tenant of 
the project who upon disposition of the project would be required to 
pay rent in an amount in excess of 30 percent of the adjusted income of 
the family:
    (i) For a period of 2 years beginning upon the date of the 
acquisition of the project under the disposition, the rent for the unit 
occupied by the family may not be increased above the rent charged 
immediately before the acquisition; and
    (ii) The family shall be considered displaced for purposes of the 
preferences for assistance under sections 6(c)(4)(A)(i), 8(d)(1)(A)(i), 
and 8(o)(3)(B) of the United States Housing Act of 1937.
    (11) Whether temporary or permanent relocation is anticipated as a 
result of repairs or the proposed disposition, including any 
anticipated conversion of use, and, if so, the levels of relocation 
assistance available under Sec. 290.42.
    (12) That tenants and their organizations, units of general local 
government, and other public or nonprofit entities are invited to 
submit comments on the disposition plan, and/or proposals (e.g., 
expressions of interest to convert the project to a cooperative or 
other form of resident-controlled ownership, or other resident 
initiative), which will be considered by HUD in making its property 
disposition determination.
    (13) That comments must be submitted to HUD within 30 days of 
receipt of the notice.
    (14) That the full disposition recommendation and analysis and 
other supporting information will be available for inspection and 
copying at the HUD field office.

                                                                        
[[Page 11853]]                                                          
                         Methods of Disposition                         
                                                                        
                                                                        
Foreclosure sales. (Sec.           HUD may dispose of a project at a    
 290.30(a)).                        foreclosure sale:                   
                                   1. In accordance with the Multifamily
                                    Mortgage Foreclosure Act, or        
                                   2. In accordance with other Federal  
                                    or State foreclosure law.           
Sale of HUD-owned projects. (Sec.  HUD may sell a HUD-owned project     
 290.30(b)).                        using any of the following          
                                    procedures:                         
                                   1. Competitive bid;                  
                                   2. Auction;                          
                                   3. Request for proposals;            
                                   4. Negotiated sale, as permitted     
                                    under Sec. 290.30(b)(1) and (2); or 
                                   5. Any other method, on such terms as
                                    HUD considers appropriate.          
Transfer for use under other HUD   HUD, under an agreement, may transfer
 programs. (Sec. 290.30(c)).        a multifamily housing project:      
                                   1. To a public housing agency (PHA)  
                                    for use of the project as public    
                                    housing; or                         
                                   2. To an entity eligible to own or   
                                    operate 202 or 811 supportive       
                                    housing.                            

Subpart D--Disposition Procedures


Sec. 290.30  What are the different methods that may be used for the 
disposition of a multifamily housing project?

    HUD may use any of the following methods, as appropriate, for the 
disposition of a multifamily housing project:
    (a) Foreclosure sales. Foreclosure sales will be conducted, at 
HUD's discretion, in accordance with the Multifamily Mortgage 
Foreclosure Act, or other Federal or State foreclosure law, on such 
terms as HUD considers appropriate to further the purpose stated in 
Sec. 290.3.
    (b) Sale of HUD-owned projects. HUD may dispose of a HUD-owned 
multifamily project by competitive bid, auction, request for proposals, 
or other method, on such terms as HUD considers appropriate to further 
the purpose stated in Sec. 290.3. When HUD conducts a negotiated sale 
involving the disposition of a project to a person or entity without a 
public offering, the following provisions apply:
    (1) HUD may negotiate the sale of any project to an agency of the 
Federal, State, or local government.
    (2) When HUD determines that a purchaser can demonstrate the 
capacity to own and operate a project in accordance with standards set 
by HUD, and/or a competitive offering will not generate offers of equal 
merit from qualified purchasers, HUD may approve a negotiated sale of a 
subsidized project to:
    (i) A resident organization wishing to convert the project to a 
nonprofit or limited equity cooperative;
    (ii) A cooperative (e.g., nonprofit limited equity, consumer 
cooperative, mutual housing organization) with demonstrated experience 
in the operation of nonprofit (and preferably low- to moderate-income) 
housing;
    (iii) A nonprofit entity that will continue to operate the project 
as low- to moderate-income rental housing and whose governing board is 
composed of project residents;
    (iv) A State or local governmental entity with the demonstrated 
capacity to acquire, manage, and maintain the project as rental or 
cooperative housing available to and affordable by low- and moderate-
income residents;
    (v) A State or local governmental or nonprofit entity with the 
demonstrated capacity to acquire, manage, and maintain the project as a 
shelter for the homeless or other public purpose, generally when the 
project is vacant or has minimal occupancy and is not needed in the 
area for continued use as rental housing for the elderly or families; 
or
    (vi) Other nonprofit organizations.
    (c) Transfer for use under other HUD programs.--(1) In general. 
Subject only to the requirements of an agreement under paragraph (c)(2) 
of this section, HUD may transfer a multifamily housing project:
    (i) To a public housing agency (PHA) for use of the project as 
public housing; or
    (ii) To an entity eligible to own or operate housing assisted under 
section 202 of the Housing Act of 1959 or under section 811 of the 
Cranston-Gonzalez National Affordable Housing Act for use as supportive 
housing under either of those sections.
    (2) Transfer agreement. An agreement providing for the transfer of 
a project as described in paragraph (c)(1) of this section must:
    (i) Contain such terms, conditions, and limitations as HUD 
determines to be appropriate, including requirements to ensure use of 
the project as public housing, supportive housing under section 202 of 
the Housing Act of 1959, or supportive housing under section 811 of the 
Cranston-Gonzalez National Affordable Housing Act, as applicable; and
    (ii) Ensure that no tenant of the project will be displaced as a 
result of the transfer.


Sec. 290.32  What qualities does HUD look for in a purchaser?

    (a) Foreclosure sales. HUD will dispose of a multifamily housing 
project through a foreclosure sale only to a purchaser that the 
Department determines is capable of implementing a sound financial and 
physical management program that is designed to enable the project to 
meet anticipated operating and repair expenses to ensure that the 
project will remain in decent, safe, and sanitary condition and in 
compliance with any standards under applicable State or local laws, 
rules, ordinances, or regulations relating to the physical condition of 
the housing and any such standards established by the Department.
    (b) HUD-owned multifamily housing projects. Sales of HUD-owned 
multifamily housing projects may be made only to a purchaser determined 
by the Department to be capable of:
    (1) Satisfying the conditions of the disposition plan developed 
under Sec. 290.34 for the project;
    (2) Implementing a sound financial and physical management program 
that is designed to enable the project to meet anticipated operating 
and repair expenses to ensure that the project will remain in decent, 
safe, and sanitary condition and in compliance with any standards under 
applicable State or local laws, rules, ordinances, or regulations 
relating to the physical condition of the housing and any such 
standards established by the Department;
    (3) Responding to the needs of the tenants and working 
cooperatively with tenant organizations;
    (4) Providing adequate organizational, staff, and financial 
resources to the project; and
    (5) Meeting such other requirements as HUD may determine to be 
appropriate for the particular project.


Sec. 290.34  What kind of disposition plan will HUD prepare before 
selling a project?

    (a) In general. Before disposing of a HUD-owned multifamily housing 
[[Page 11854]] project, HUD will develop an initial and a final 
disposition plan for the project that specifies the minimum terms and 
conditions for the disposition of the project, the sales price that is 
acceptable to HUD, and the assistance that HUD plans to make available 
to a prospective purchaser.
    (b) Market-wide plans. In developing the disposition plan under 
this section for a HUD-owned multifamily housing project located in a 
market area in which at least 1 other HUD-owned multifamily housing 
project is located, HUD may coordinate the disposition of HUD-owned 
multifamily housing projects located within the same market area to the 
extent and in such a manner as the Department determines appropriate to 
carry out the goals under Sec. 290.3.
    (c) Sales price. The sales price in the disposition plan will be 
reasonably related to the intended use of the project after the sale, 
any rehabilitation requirements for the project, the rents for units in 
the project that can be supported by the market, the amount of rental 
assistance available for the project under Section 8 of the United 
States Housing Act of 1937, the occupancy profile of the project 
(including family size and income levels for tenant families), and any 
other factors that HUD considers appropriate.
    (d) Community and tenant input. In developing the initial and final 
disposition plans, HUD will consider any timely input from officials of 
the unit of general local government affected, the community in which 
the project is situated, and the tenants of the project, including the 
comments received in response to the notice required by Sec. 290.26. To 
obtain this input, HUD may provide technical assistance, directly or 
indirectly, and may use amounts available for technical assistance 
under the Emergency Low Income Housing Preservation Act of 1987, 
subtitle C of the Low-Income Housing Preservation and Resident 
Homeownership Act of 1990, subtitle B of title IV of the Cranston-
Gonzalez National Affordable Housing Act, or this part, for the 
provision of such technical assistance. Recipients of technical 
assistance funding under the provisions referred to in this 
subparagraph may provide technical assistance to the extent of such 
funding, notwithstanding the source of the funding.
    (e) Environmental requirements. HUD will perform, and include in 
the final disposition plan, the environmental reviews required by 24 
CFR part 50.

               Table of Actions to Facilitate Disposition               
All Multifamily Housing Projects   Required Actions                     
 [Subpart E].                      1. Displacement requirements (Sec.   
                                    290.42).                            
                                   2. Very-low income preexisting       
                                    tenant--2 year rent freeze if rent  
                                    after disposition more than 30      
                                    percent of adjusted income (Sec.    
                                    290.44).                            
                                   3. Nondiscrimination against Section 
                                    8 certificate holders and voucher   
                                    holders (Sec. 290.46).              
Subsidized Projects [Subpart F]..  Basic Actions                        
                                   1. Provide project-based Section 8   
                                    assistance to at least all units    
                                    that, before acquisition or         
                                    foreclosure, received: Rent Supp,   
                                    RAP, Sec. 23, project-based Section 
                                    8 (Sec. 290.54(a)).                 
                                   2. Vacancy in any assisted unit must 
                                    be filled by a family that is       
                                    eligible for the assistance (Sec.   
                                    290.54(b)).                         
                                   3. Rent and use restrictions on BMIR,
                                    236, or 202 subsidized project units
                                    that were not covered before        
                                    acquisition or foreclosure by Rent  
                                    Supp, RAP, Sec. 23, or project-based
                                    Section 8 (Sec. 290.54(c)).         
                                   Alternatives to Basic Actions        
                                   1. Assistance to, or restrictions on,
                                    units in unsubsidized projects      
                                    instead of assistance to units in   
                                    subsidized projects (Sec.           
                                    290.56(a)).                         
                                   2. Substitution of tenant-based      
                                    Section 8 assistance to low-income  
                                    families instead of Project-based   
                                    assistance to units (Sec.           
                                    290.56(b)).                         
                                   3. Use of the additional assistance  
                                    and restrictions permitted in       
                                    subpart H (Sec. 290.56(c)).         
                                   Unsubsidized Projects [Subpart G]    
                                   Basic Actions                        
                                   1. Provide project-based Section 8   
                                    assistance for all units that,      
                                    before acquisition or foreclosure,  
                                    received assistance under:          
                                   (i) The new construction and         
                                    substantial rehabilitation program  
                                    under section 8(b)(2) of the United 
                                    States Housing Act of 1937 (as in   
                                    effect before October 1, 1983);     
                                   (ii) The property disposition program
                                    under section 8(b) of such Act;     
                                   (iii) The project-based certificate  
                                    program under section 8 of such Act;
                                   (iv) The moderate rehabilitation     
                                    program under section 8(e)(2) of    
                                    such Act;                           
                                   (v) Section 23 of such Act (as in    
                                    effect before January 1, 1975);     
                                   (vi) The rent supplement program     
                                    under section 101 of the Housing and
                                    Urban Development Act of 1965; or   
                                   (vii) Section 8 of the United States 
                                    Housing Act of 1937, following      
                                    conversion from assistance under    
                                    section 101 of the Housing and Urban
                                    Development Act of 1965 (Sec.       
                                    290.64(a)).                         
                                   2. Provide tenant-based Section 8    
                                    assistance to preexisting tenants of
                                    LMSA-assisted units (Sec.           
                                    290.64(b)).                         
                                   Alternatives to Basic Actions        
                                   1. Substitution of tenant-based      
                                    Section 8 assistance to low-income  
                                    families instead of project-based   
                                    assistance to units (Sec.           
                                    290.66(a)).                         
                                   2. Use of the additional assistance  
                                    and restrictions permitted in       
                                    subpart H (Sec. 290.66(b)).         
All Multifamily Housing Projects   Additional Actions                   
 [Subpart H].                      1. Discounted sales price (Sec.      
                                    290.72).                            
                                   2. Additional use and rent           
                                    restrictions (Sec. 290.74).         
                                   3. Short-term loans (Sec. 290.76).   
                                   4. Up-front grants (Sec. 290.78).    
                                   5. Additional tenant-based assistance
                                    (Sec. 290.80).                      
                                   6. Alternative uses (Sec. 290.82)    
                                   6. Rebuilding (Sec. 290.84).         
                                   7. Emergency assistance funds (Sec.  
                                    290.86).                            
                                   8. Determination not to preserve     
                                    (Sec. 290.88).                      


[[Page 11855]]

Subpart E--All Multifamily Housing Projects--Required Actions


Sec. 290.40  Are there any required actions that must be taken in the 
disposition of all multifamily housing projects?

    Yes, the requirements regarding tenants who are displaced 
(explained in Sec. 290.42), unassisted very low-income tenants 
(explained in Sec. 290.44), and nondiscrimination against Section 8 
certificate holders and voucher holders (explained in Sec. 290.46), 
apply in the disposition of all multifamily housing projects.


Sec. 290.42  What actions must be taken concerning tenants who are 
displaced by the disposition of a multifamily housing project?

    (a) Scope of section. This section applies to all HUD-owned 
multifamily housing projects and all multifamily housing projects 
subject to HUD-held mortgages. When HUD is not the mortgagee-in-
possession or owner, the owner of the project shall comply with this 
section, if HUD has authorized the demolition of, repairs to, or 
conversion of the use of the multifamily housing project.
    (b) Minimizing displacement. Consistent with the other goals and 
objectives of this part, all reasonable steps shall be taken to 
minimize the displacement of persons (families, individuals, 
businesses, and nonprofit organizations) from a project covered by this 
part. If displacement or temporary relocation will occur in connection 
with the disposition of a project, HUD may require the purchaser of the 
project to provide assistance in accordance with this section.
    (c) Relocation assistance at non-URA levels. Whenever the 
displacement of a residential tenant (family or individual) occurs in 
connection with the management or disposition of a multifamily project, 
but is not subject to paragraph (d) of this section (e.g., occurs as a 
direct result of HUD repair or demolition of all or a part of a HUD-
owned multifamily project or as a direct result of the foreclosure of a 
HUD-held mortgage on a multifamily housing project or sale of a HUD-
owned project without federal financial assistance), the displaced 
tenant shall be eligible for the following relocation assistance:
    (1) Advance written notice of the expected displacement. The notice 
shall be provided at least 60 days before displacement, describe the 
assistance and the procedures for obtaining the assistance, and contain 
the name, address and phone number of an official responsible for 
providing the assistance;
    (2) Other advisory services, as appropriate, including counseling, 
referrals to suitable (and where appropriate, accessible), decent, 
safe, and sanitary replacement housing, and fair housing-related 
advisory services;
    (3) Payment for actual reasonable moving expenses, as determined by 
HUD;
    (4) For displaced eligible families and individuals--
    (i) The opportunity to relocate to a suitable (and where 
appropriate, accessible), decent, safe, and sanitary dwelling unit in a 
HUD-owned multifamily project, in a public housing project, or in 
another HUD subsidized multifamily housing project; or
    (ii) Assistance under the Section 8 Certificate program (see 
Sec. 882.209(a)(4)(ii)(B) of this title) or the Housing Voucher program 
(see Sec. 887.155(c) of this title), if the assistance is available; 
and
    (5) Such other federal, State or local assistance as may be 
available.
    (d) Relocation assistance at URA levels--(1) General. Whenever 
assistance under 24 CFR part 886, subpart C (or other federal financial 
assistance, as defined in 49 CFR 24.2(j)) is provided in connection 
with the purchase, demolition, or rehabilitation of a multifamily 
property by a third party, any resulting displacement is subject to 
paragraph (d) of this section. A displaced person (defined in paragraph 
(d)(3) of this section) must be provided relocation assistance at the 
levels described in, and in accordance with the requirements of, the 
URA, implementing regulations at 49 CFR part 24, and this section.
    (2) Definition of ``initiation of negotiations''. Under the URA, 
for purposes of determining the method for computing the replacement 
housing assistance to be provided to a residential tenant displaced as 
a direct result of privately undertaken rehabilitation, demolition, or 
acquisition of the real property, the term ``initiation of 
negotiations'' means the transfer of title to the purchaser.
    (3) Definition of displaced person. (i) The term ``displaced 
person'' means any person (family, individual, business, or nonprofit 
organization) that moves from the real property, or moves personal 
property from the real property, permanently, as a direct result of 
acquisition, rehabilitation or demolition for a federally assisted 
project. This includes, but is not limited to:
    (A) A person that moves permanently from the real property after 
receiving notice requiring such move, if the move occurs on or after 
the date of the transfer of title to the purchaser.
    (B) Any person that HUD determines was displaced as a direct result 
of acquisition, rehabilitation or demolition for an assisted project.
    (C) A tenant-occupant of a dwelling unit who moves from the 
building/complex, permanently, after the transfer of title to the 
purchaser, if the move occurs before the tenant is provided notice 
offering him or her the opportunity to lease and occupy a suitable, 
decent, safe, sanitary, and where appropriate, accessible dwelling in 
the same building/complex, under reasonable terms and conditions, upon 
completion of the project. Such reasonable terms and conditions shall 
include a monthly rent, including estimated average monthly utility 
costs, that does not exceed the greater of the tenant's monthly rent 
before transfer of title to the purchaser and estimated average monthly 
utility costs, or that is affordable, as defined in this part.
    (D) A tenant-occupant of a dwelling unit who is required to 
relocate temporarily for the project, but does not return to the 
building/complex, if either the tenant is not offered payment for all 
reasonable out-of-pocket expenses incurred in connection with the 
temporary relocation, or other conditions of the temporary relocation 
are not reasonable.
    (E) A tenant-occupant who moves from the building/complex 
permanently after he or she has been required to move to another unit 
in the same building/complex for the project, if either the tenant is 
not offered reimbursement for all reasonable out-of-pocket expenses 
incurred in connection with the move, or other conditions of the move 
are not reasonable.
    (ii) Notwithstanding the provisions of paragraph (d)(3)(i) of this 
section, a person does not qualify as a ``displaced person'' if:
    (A) The person is excluded under 49 CFR 24.2(g)(2).
    (B) The person has been evicted for a serious or repeated violation 
of the terms and conditions of the lease or occupancy agreement, 
violation of applicable Federal, State, or local law, or other good 
cause, and HUD determines that the eviction was not undertaken for the 
purpose of evading the obligation to provide relocation assistance.
    (C) The person moves into the property after transfer of title to 
the purchaser.
    (D) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for an assisted 
project.
    (e) Temporary relocation (URA and non-URA relocation assistance). 
Residential tenants, who will not be required to move permanently, but 
who [[Page 11856]] must relocate temporarily (e.g., to permit property 
repairs), shall be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses 
incurred in connection with the temporary relocation, including the 
cost of moving to and from the temporary housing and any increase in 
monthly rent or utility costs. The party responsible for this 
requirement may, at its option, perform the services involved in 
temporarily relocating the tenants or pay for such services directly; 
and
    (2) Appropriate advisory services, including reasonable advance 
written notice of the date and approximate duration of the temporary 
relocation; the suitable (and where appropriate, accessible), decent, 
safe, and sanitary housing to be made available for the temporary 
period; the terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex following completion of the repairs; and the right to financial 
assistance provided under paragraph (e)(1) of this section.
    (f) Appeals. If a person disagrees with the purchaser's 
determination concerning the person's eligibility for relocation 
assistance or the amount of the assistance for which the person is 
eligible, the person may file a written appeal of that determination 
with the owner or purchaser. A person who is dissatisfied with the 
purchaser's determination on his or her appeal may submit a written 
request for review of that decision to the HUD Field Office responsible 
for administering the URA in the area.


Sec. 290.44  What actions must be taken concerning very low-income 
tenants in the disposition of a multifamily housing project? 

    HUD will require that for a period of 2 years, beginning upon the 
date of disposition of a multifamily housing project, the rent for any 
unit occupied by a very low-income family, that is a preexisting tenant 
and that would be required to pay a rent that is more than 30 percent 
of the adjusted income (as defined in part 813) of the family, may not 
be increased above the rent charged immediately before the acquisition. 
Such a family will also be considered displaced for purposes of the 
preferences for assistance under sections 6(c)(4)(A)(i), 8(d)(1)(A)(i), 
and 8(o)(3)(B) of the United States Housing Act of 1937.


Sec. 290.46  What restrictions concerning nondiscrimination against 
Section 8 certificate holders and voucher holders apply in the 
disposition of a multifamily housing project? 

    The purchaser of any multifamily housing project shall not refuse 
unreasonably to lease a dwelling unit offered for rent, offer to sell 
cooperative stock, or otherwise discriminate in the terms of tenancy or 
cooperative purchase and sale because any tenant or purchaser is the 
holder of a Certificate of Family Participation or a Voucher under 
Section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437f), 
or any successor legislation. This provision is limited in its 
application, for tenants or applicants with Section 8 Certificates or 
their equivalent (other than Vouchers), to those units which rent for 
an amount not greater than the Section 8 Fair Market Rent, as 
determined by HUD. The purchaser's agreement to this condition must be 
contained in any contract of sale and also may be contained in any 
regulatory agreement, use agreement, or deed entered into in connection 
with the disposition.

Subpart F--Subsidized Projects--Basic and Alternative Actions to 
Facilitate Disposition


Sec. 290.54  What are the basic actions that may be taken in the 
disposition of a subsidized project?

    The basic assistance that HUD will provide and the basic 
restrictions HUD will require in the disposition of a subsidized 
project depend upon the profile of the project's units and tenants, as 
follows:
    (a) Assisted units--provision of project-based Section 8 
assistance. Except as noted in Sec. 290.56, and to the extent budget 
authority is available, HUD will provide project-based Section 8 
assistance to assist at least all of a subsidized project's units that 
were covered, before acquisition or foreclosure, by the rent subsidies 
(Rent Supp, RAP, Sec. 23, project-based Section 8) included in the 
definition of a subsidized project.
    (b) Assisted units--tenant eligibility restrictions. The contract 
for project-based Section 8 assistance in accordance with paragraph (a) 
of this section, will provide that when a vacancy occurs in any unit 
that requires such assistance, but which was occupied by a family 
ineligible for such assistance, the owner will lease the available unit 
to a family that is eligible for the assistance.
    (c) Unassisted units--use and rent restrictions. HUD will require 
use or rent restrictions on BMIR, 236, or 202 subsidized projects to 
ensure that units that were not covered before acquisition or 
foreclosure by Rent Supp, RAP, Sec. 23, or project-based Section 8 rent 
subsidies remain available and affordable for the remaining useful life 
of the project.


Sec. 290.56  What alternatives to the basic actions are available in 
the disposition of subsidized projects?

    In the disposition of a subsidized project, HUD may take the 
following alternative actions instead of the basic actions listed in 
Sec. 290.54:
    (a) Unit substitution: Assistance to, or restrictions on, units in 
unsubsidized projects instead of assistance to units in subsidized 
projects. Instead of providing project-based Section 8 assistance as 
required by Sec. 290.54(a), HUD may, in unsubsidized projects located 
in the same market area, provide project-based Section 8 assistance to 
units to be occupied by very low-income persons, or impose use and rent 
restrictions to assure that units remain available to and affordable by 
very low-income families for the remaining useful life of the project. 
When this unit substitution procedure is used, the total number of 
unsubsidized project units provided with assistance and/or placed under 
use and rent restrictions must be at least equal to the number of 
subsidized projects units that would have received project-based 
Section 8 in the absence of unit substitution. In addition, HUD will 
make tenant-based Section 8 assistance available to low-income families 
residing in the subsidized project's units that would have received 
project-based Section 8 assistance if this unit substitution 
alternative had not been used.
    (b) Substitution of tenant-based Section 8 assistance to low-income 
families instead of project-based assistance to units. Instead of 
providing project-based Section 8 assistance as required under 
Sec. 290.54(a), HUD may enter into annual contribution contracts with 
public housing agencies to provide tenant-based Section 8 assistance to 
all low-income families who reside, on the date that the project is 
acquired by a purchaser other than HUD, in units that would have been 
eligible for the project-based Section 8 assistance under Sec. 290.54. 
Tenant-based Section 8 assistance may be used in this way as a 
substitute for project-based Section 8 assistance in not more than 10 
percent of the aggregate number of subsidized project units disposed of 
by HUD in any fiscal year, and only if HUD determines that there is 
available in the market area in which the project is located an 
adequate supply of habitable, affordable [[Page 11857]] housing for 
very low-income families and other low-income families using tenant-
based assistance. The number of units eligible for this form of 
substitution within the 10 percent limit will be estimated at the 
beginning of each fiscal year, taking into consideration the aggregate 
number of subsidized project units disposed of by HUD in the 
immediately preceding fiscal year and the disposition activity planned 
for the current fiscal year.
    (c) Additional actions under subpart H. Instead of, or in addition 
to, providing project-based Section 8 assistance in the disposition of 
a subsidized project as required under Sec. 290.54(a), HUD may make use 
of the additional actions to facilitate the disposition of multifamily 
housing projects permitted in subpart H of this part.

Subpart G--Unsubsidized Projects--Basic and Alternative Actions to 
Facilitate Disposition


Sec. 290.64  What are the basic actions that may be taken in the 
disposition of an unsubsidized project?

    The basic assistance that HUD will provide and the basic 
restrictions HUD will require in the disposition of an unsubsidized 
project depend upon the profile of the project's units and tenants, as 
follows:
    (a) Assisted units--provision of project-based Section 8 
assistance. Except as noted in Sec. 290.66, and to the extent budget 
authority is available, HUD will provide project-based Section 8 
assistance for all of an unsubsidized project's units that were 
covered, before acquisition or foreclosure, by an assistance contract 
under:
    (1) The new construction and substantial rehabilitation program 
under section 8(b)(2) of the United States Housing Act of 1937 (the 
1937 Act) (as in effect before October 1, 1983);
    (2) The property disposition program under section 8(b) of the 1937 
Act;
    (3) The project-based certificate program under section 8 of the 
1937 Act;
    (4) The moderate rehabilitation program under section 8(e)(2) of 
the 1937 Act;
    (5) Section 23 of the 1937 Act (as in effect before January 1, 
1975);
    (6) The rent supplement program under section 101 of the Housing 
and Urban Development Act of 1965; or
    (7) Section 8 of the 1937 Act, following conversion from assistance 
under section 101 of the Housing and Urban Development Act of 1965.
    (b) LMSA-assisted units--provision of tenant-based section 8 
assistance. HUD will provide tenant-based Section 8 assistance for 
families that are preexisting tenants of unsubsidized projects in units 
that, immediately before foreclosure or acquisition of the project by 
HUD, were covered by an assistance contract under the loan management 
set-aside program under section 8(b) of the United States Housing Act 
of 1937.


Sec. 290.66  What alternatives to the basic actions are available in 
the disposition of unsubsidized projects?

    In disposing of an unsubsidized project, HUD may take the following 
alternative actions instead of the basic actions listed in Sec. 290.64:
    (a) Substitution of tenant-based Section 8 assistance to low-income 
families instead of project-based assistance to units. Instead of 
providing project-based Section 8 assistance as required under 
Sec. 290.64, HUD may enter into annual contribution contracts with 
public housing agencies to provide tenant-based Section 8 assistance to 
all low-income families who reside, on the date that the project is 
acquired by a purchaser other than HUD, in units eligible for the 
project-based Section 8 assistance under Sec. 290.64. Tenant-based 
Section 8 assistance may be used in this way as a substitute for 
project-based Section 8 assistance only if HUD determines that there is 
available in the market area in which the project is located an 
adequate supply of habitable, affordable housing for very low-income 
families and other low-income families using tenant-based assistance.
    (b) Additional actions under subpart H. Instead of, or in addition 
to, providing project-based Section 8 assistance in the disposition of 
an unsubsidized project as required under Sec. 290.64, HUD may make use 
of the additional assistance and restrictions for the disposition of 
multifamily housing projects permitted in subpart H of this part.

Subpart H--All Multifamily Housing Projects--Additional Actions to 
Facilitate Disposition


Sec. 290.70  What guidelines will HUD apply in determining which 
additional actions to take in the disposition of a multifamily housing 
project?

    The additional actions to facilitate disposition available under 
this subpart are intended to replace, supplement or make more cost 
effective the Section 8 assistance that would otherwise be required, 
and are to be provided in a manner consistent with the goals of 
Sec. 290.3 and unless otherwise noted:
    (a) On terms that will ensure that at least the units in the 
project otherwise required to receive project-based Section 8 
assistance in accordance with Sec. 290.54(a) (for a subsidized project) 
and Sec. 290.64(a) (for an unsubsidized project) are available to and 
affordable by low-income persons for the remaining useful life of the 
project, with use or rent restrictions as HUD may prescribe; and
    (b) With tenant-based Section 8 assistance to any very low-income 
families who would have received project-based assistance under Section 
8 in accordance with Sec. 290.54(a) (for a subsidized project) and 
Sec. 290.64(a) (for an unsubsidized project), but because of action 
taken under subpart H of this part, did not receive such assistance, 
and are left residing in units of the project with rents that exceed 
the amount payable as rent under section 3(a) of the United States 
Housing Act of 1937 for very low-income families.


Sec. 290.72  May HUD reduce the sales price for a project?

    HUD may reduce the selling price of a project. The sales price for 
a project will be reasonably related to the intended use of the 
property as affordable housing for very low-income tenants after sale, 
any rehabilitation requirements for the project, the rents for units in 
the project that can be supported by the market, the amount of project-
based Section 8 assistance being made available by HUD in the 
disposition of the project, the occupancy profile of the project 
(including family size and income levels for tenant families), and any 
other factors that the Department considers appropriate.


Sec. 290.74  May HUD require additional use and rent restrictions?

    Consistent with the guidelines in Sec. 290.70, HUD may require 
units in a project to be subject to use or rent restrictions to provide 
that the units will be available to and affordable by low- and very 
low-income persons for the remaining useful life of the project.


Sec. 290.76  May HUD provide short-term loans to facilitate the sale of 
a project?

    HUD may provide short-term loans to facilitate the sale of a HUD-
owned multifamily housing project if:
    (a) Authority for such loans is provided in advance in an 
appropriation Act;
    (b) The loan has a term of not more than 5 years;
    (c) HUD determines, based upon documentation provided by the 
purchaser, that the purchaser has obtained a commitment of permanent 
financing to replace the short-term loan from a lender who meets 
standards established by the Department; and [[Page 11858]] 
    (d) The terms of the loan are consistent with prevailing practices 
in the marketplace or the provision of the loan results in no cost to 
the Government, as defined in section 502 of the Congressional Budget 
Act of 1974.


Sec. 290.78   Under what conditions may HUD provide up-front grants?

    For a HUD-owned multifamily housing project, HUD may utilize the 
budget authority provided for contracts issued under this part for 
project-based Section 8 assistance to (in addition to providing 
project-based Section 8 rental assistance) provide up-front grants for 
the necessary cost of rehabilitation and other HUD-approved related 
development costs to reduce the level of Section 8 contract rents if 
HUD determines that action under this section is more cost-effective 
than providing project-based Section 8 assistance in accordance with 
Sec. 290.54(a) (for a subsidized project) and Sec. 290.64(a) (for an 
unsubsidized project).


Sec. 290.80   What additional tenant-based assistance may HUD offer?

    To facilitate the sale of a multifamily housing project, HUD may 
make tenant-based Section 8 assistance available to families eligible 
to receive such assistance residing in a multifamily housing project 
that do not otherwise qualify for project-based assistance.


Sec. 290.82   How may HUD provide for alternative uses of units in the 
disposition of a multifamily housing project?

    (a) In general. Notwithstanding any other provision of law, after 
providing notice to and an opportunity for comment by preexisting 
tenants, HUD may allow up to:
    (1) 10 percent of the total number of rental housing units in 
multifamily housing projects that are disposed of by the Department 
during any fiscal year to be made available for uses other than rental 
or cooperative uses, such as, low-income homeownership opportunities, 
or in any particular project, community space, office space for tenant 
or housing-related service providers or security programs, or small 
business uses, if such uses benefit the tenants of the project; and
    (2) 5 percent of the total number of rental housing units in 
multifamily housing projects that are disposed of by the Department 
during any fiscal year to be used in any manner, if HUD and the unit of 
general local government or area-wide governing body determine that 
such use will further fair housing, community development, or 
neighborhood revitalization goals.
    (b) Computation of number of eligible units. The number of units 
eligible for alternate uses in any fiscal year will be determined at 
the beginning of the fiscal year as the applicable percentages in 
paragraph (a) (1) or (2) of this section (i.e., either 10 percent or 5 
percent) of the estimated total number of units to be disposed of in 
the fiscal year, taking into consideration the total number of units in 
multifamily housing projects disposed of by the Department in the 
immediately preceding fiscal year, and the extent of the disposition 
activity planned in the current fiscal year.
    (c) Displacement protection. HUD may take actions under paragraph 
(a) of this section only if:
    (1) Tenant-based Section 8 assistance is made available to each 
family eligible for such assistance residing in the project that is 
displaced as a result of such actions; and
    (2) HUD determines that sufficient habitable, affordable rental 
housing is available in the market area in which the project is located 
to ensure use of such assistance.


Sec. 290.84   What disposition assistance may be available to rebuild a 
multifamily housing project?

    (a) Notwithstanding any provision of section 8 of the United States 
Housing Act of 1937, HUD may provide project-based assistance up to the 
levels required in Sec. 290.54(a) (for a subsidized project) and 
Sec. 290.64(a) (for an unsubsidized project) to support the rebuilding 
of a HUD-owned multifamily housing project rebuilt or to be rebuilt (in 
whole or in part and on-site, off-site, or in a combination of both) in 
connection with a disposition under this part, if HUD determines all of 
the following:
    (1) The project is not being maintained in a decent, safe, and 
sanitary condition;
    (2) The costs to HUD for rebuilding are such that the monthly debt 
service needed to amortize the cost of relocating tenants, demolition, 
site preparation, rebuilding, operating expenses, and a reasonable 
return to the purchaser cannot be provided with rents that are within 
120 percent of the most recently published Section 8 Fair Market Rents 
for Existing Housing (24 CFR part 888, subpart A), and would be less 
expensive than rehabilitation;
    (3) The unit of general local government in which the project is 
located approves the rebuilding and makes a financial contribution or 
other commitment to the project determined by HUD to be satisfactory;
    (4) The rebuilding is a part of a local neighborhood revitalization 
plan approved by the unit of general local government.
    (b) The provisions of Sec. 290.42 apply to any tenants of the 
project who are displaced through an action taken under paragraph (a) 
of this section.


Sec. 290.86   What emergency assistance funds may be provided to 
tenants?

    HUD may make arrangements with State agencies and units of general 
local government of States receiving emergency assistance under part A 
of title IV of the Social Security Act for the provision of assistance 
under that Act on behalf of eligible families who would reside in any 
multifamily housing projects.


Sec. 290.88   Under what circumstances may HUD make a determination not 
to preserve a project or a part of a project?

    HUD may determine to demolish, or otherwise dispose of, a HUD-owned 
multifamily housing project, or any portion of such a project, or to 
foreclose a HUD-held mortgage on a multifamily housing project, without 
ensuring its continued availability as affordable rental or cooperative 
housing for low- and very low-income families under appropriate 
circumstances which may include one or more those listed in paragraphs 
(a) through (g) of this section. If HUD decides not to preserve an 
occupied multifamily housing project at a foreclosure sale or sale of a 
HUD-owned project, tenants must be provided relocation assistance as 
described in Sec. 290.42.
    (a) The costs to HUD of rehabilitation are such that the monthly 
debt service needed to amortize the cost of rehabilitation, operating 
expenses, and a reasonable return to the purchaser cannot be provided 
with rents that are, for subsidized and formerly subsidized projects, 
within 120 percent of the most recently published Section 8 Fair Market 
Rents for Existing Housing (24 CFR part 888, subpart A) or, for 
unsubsidized and formerly unsubsidized projects, within rents 
obtainable in the market.
    (b) Construction is substantially incomplete.
    (c) Preservation is not feasible because of environmental factors 
that cannot be mitigated by HUD or the purchaser. For example, when the 
project is located on a site that cannot be made to comply with the 
Section 8 Site and Neighborhood standards in 24 CFR 886.307(k) because 
of factors that adversely affect the health, safety and general welfare 
of residents such as air pollution; smoke; mud slides; fire or 
explosion hazards. Preservation may also be infeasible because of 
[[Page 11859]] significantly deteriorated surrounding neighborhood 
conditions with inadequate police or fire protection; high crime rates; 
drug infestation; or lack of public community services needed to 
support a safe and healthy living environment for residents.
    (d) HUD determines the project is unfit for rehabilitation.
    (e) Rehabilitation would cost more than constructing comparable new 
housing.
    (f) A reduction in the number of units in the project will enhance 
long-term project viability, for example, demolition of a building to 
provide space for a playground, open space, or combining one-bedroom 
units to create larger units for families.
    (g) Continued preservation of the project as rental or cooperative 
housing is not compatible with State or local land use plans for the 
area in which the project is located.

Subpart I--Sale of HUD-Held Multifamily Mortgages


Sec. 290.100   What is the purpose of this subpart?

    The purpose of this subpart is to set out HUD's policy regarding 
the sale of subsidized and unsubsidized HUD-held mortgages. Except as 
otherwise provided in Sec. 290.106(a)(2), the Department will sell 
these mortgages on a competitive basis. HUD retains full discretion to 
offer any qualifying mortgage for sale and to withhold or withdraw any 
offered mortgage from sale. However, when a qualifying mortgage is 
offered for sale, the procedures set out in this part will govern the 
sale.


Sec. 290.102   What effect does this subpart have on the applicability 
of Civil Rights requirements?

    Nothing in this subpart relieves HUD or housing that receives 
federal financial assistance from federal civil rights requirements, 
including section 504 of the Rehabilitation Act, Title VI of the Civil 
Rights Act of 1964, Title VIII of the Civil Rights Act of 1968, the Age 
Discrimination Act of 1975, Executive Order 11063, and related 
regulations and requirements. This includes housing in which less than 
50% of the units are receiving housing assistance payments under either 
Section 23 or Section 8 of the United States Housing Act of 1937 and 
housing in which the rent of any unit is paid by a Section 8 
certificate or voucher.


Sec. 290.104   What tenant protections will apply in the sale of HUD-
held subsidized mortgages?

    HUD will only sell subsidized mortgages if the sale is part of a 
transaction that will ensure that the project subject to the mortgage 
will continue to operate, at least until the maturity date of the 
mortgage, in a manner that will provide rental housing on terms at 
least as advantageous to existing and future tenants as the terms 
required by the program under which the mortgage was insured prior to 
its assignment.


Sec. 290.106   How will HUD sell current subsidized mortgages?

    HUD will sell current mortgages, as follows:
    (a) Current mortgages with FHA mortgage insurance will be sold 
either:
    (1) On a competitive basis to FHA-approved mortgagees; or
    (2) On a negotiated basis, to State or local governments, or to a 
group of investors that includes an agency of a State or local 
government, if:
    (i) The terms of the sale include an agreement by the State or 
local government, or an agency of the State or local government, to:
    (A) Act as mortgagee or owner of a beneficial interest in the 
mortgage; and
    (B) Ensure that the project will maintain occupancy by the tenant 
group originally intended to be served by the subsidized housing 
program; and
    (ii) The sales price is the best price that HUD can obtain from an 
agency of a State or local government while maintaining occupancy for 
the tenant group originally intended to be served by the subsidized 
housing program.
    (b) Current mortgages without FHA mortgage insurance will be sold 
if HUD can offer protections equivalent to those listed for an insured 
sale in paragraph (a) of this section.


Sec. 290.108   How will HUD sell delinquent subsidized mortgages?

    Delinquent mortgages will be sold only if, as part of the sales 
transaction:
    (a) The mortgages are restructured; and
    (b) Either FHA mortgage insurance or equivalent protections are 
provided.


Sec. 290.110   What is HUD's policy for selling HUD-held unsubsidized 
mortgages?

    HUD's policy for selling HUD-held unsubsidized mortgages is as 
follows:
    (a) Current mortgages may be sold with or without FHA mortgage 
insurance.
    (b) Delinquent mortgages may be sold without FHA mortgage 
insurance. However, delinquent mortgages will not be sold if:
    (1) HUD believes that foreclosure is unavoidable; and
    (2) The project securing the mortgage is occupied by very low-
income tenants who are not receiving housing assistance and would be 
likely to pay rent in excess of 30 percent of their adjusted monthly 
income if HUD sold the mortgage.

PART 886--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--SPECIAL 
ALLOCATIONS

    2. The authority citation for 24 CFR part 886 continues to read as 
follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), and 13611-
13619.

    3. Section 886.302 is amended by revising the definitions of the 
terms ``Eligible project or project'', and ``Owner'', to read as 
follows:


Sec. 886.302   Definitions.

* * * * *
    Eligible project or project. A multifamily housing project (see 24 
CFR part 290):
    (1) For which the disposition in accordance with the provisions of 
24 CFR part 290 involves sale with Section 8 housing assistance to 
enable the project to be used, in whole or in part, to provide housing 
for lower income families; and
    (2) The units of which are decent, safe, and sanitary.
* * * * *
    Owner. The purchaser, including a cooperative entity or an agency 
of the Federal Government, under this subpart, of a HUD-owned project; 
or the purchaser, including a cooperative entity or an agency of the 
Federal Government, through a foreclosure sale of a project that was 
subject to a HUD-held mortgage.
* * * * *
    4. Section 886.310 is revised to read as follows:


Sec. 886.310   Initial contract rents.

    HUD will establish contract rents at levels that, together with 
other resources available to the purchasers, provide sufficient amounts 
for the necessary costs of rehabilitating and operating the multifamily 
housing project and do not exceed 120 percent of the most recently 
published Section 8 Fair Market Rents for Existing Housing (24 CFR part 
888, subpart A).

    5. Section 886.311 is revised to read as follows:


Sec. 886.311   Term of contract.

    The contract term for any unit shall not exceed 15 years, except 
that the term may be less than 15 years as [[Page 11860]] provided 
under either paragraph (a) or (b) of this section.
    (a) The contract term may be less than 15 years if HUD finds that, 
based on the rental charges and financing for the multifamily housing 
project to which the contract relates, the financial viability of the 
project can be maintained under a contract having a term less than 15 
years. Where a contract of less than 15 years is provided under this 
paragraph, the amount of rent payable by tenants of the project for 
units assisted under such a contract shall not exceed the amount 
payable for rent under section 3(a) of the United States Housing Act of 
1937 for a period of at least 15 years.
    (b) The contract term may be less than 15 years if the assistance 
is provided under a contract authorized under section 6 of the HUD 
Demonstration Act of 1993, and pursuant to a disposition plan under 
this part for a project that is determined by the HUD to be otherwise 
in compliance with this part.

    6. Section 886.319 is revised to read as follows:


Sec. 886.319   Responsibility for contract administration.

    HUD is responsible for administration of the Contract. HUD may 
contract with another entity for the performance of some or all of its 
Contract administration functions.

    Dated: October 13, 1995.
Jeanne K. Engel,
General Deputy Assistant Secretary for Housing--Federal Housing 
Commissioner.
[FR Doc. 95-5093 Filed 3-1-95; 8:45 am]
BILLING CODE 4210-27-P