2658 Federal Register / Vol. 60, No. 6 / Tuesday, January 10, 1995 / Rules and Regulations

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

Office of the Assistant Secretary for

Housing—Federal Housing

Commissioner

24 CFR Parts 813 and 885

[Docket No. R–94–1364; FR–1761–F–02]

RIN: 2502–AC03

Management Rules for Existing

Projects for the Elderly

AGENCY: Office of the Assistant

Secretary for Housing-Federal Housing

Commissioner, HUD.

ACTION: Final rule.

SUMMARY: This final rule amends the

provisions of 24 CFR part 885 which

govern projects that received direct

loans under section 202 of the Housing

Act of 1959 and housing assistance

under section 8 of the United States

Housing Act of 1937. The rule adds

regulatory provisions to govern the

housing assistance payments contract,

project operations and project

management.

EFFECTIVE DATE: February 9, 1995.

FOR FURTHER INFORMATION CONTACT:

With respect to Section 202 issues

contact: Margaret Milner, Acting

Director, Office of Elderly and Assisted

Housing, Department of Housing and

Urban Development, 451 Seventh Street

SW., Room 6130, Washington, DC

20410; telephone (202) 708–4542. With

respect to Section 8 issues contact:

Barbara Hunter, Acting Director,

Planning and Procedures Division,

Office of Multifamily Housing

Management, Room 6182, Department

of Housing and Urban Development,

451 Seventh Street, S.W., Washington,

D.C. 20410; telephone (202) 426–3970.

Hearing or speech impaired individuals

may call HUD’s TDD number (202) 708–

4594. (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Burden

The information collection

requirements contained in this rule have

been approved by the Office of

Management and Budget (OMB) under

the Paperwork Reduction Act of 1980

(44 U.S.C. 3501–3520), and assigned

OMB control number 2502–0371.

II. Background

HUD’s regulations at 24 CFR part 885,

subpart B govern projects that received

direct loans under section 202 of the

Housing Act of 1959 and housing

assistance payments under section 8 of

the United States Housing Act of 1937

(section 202/8 program). This subpart

contains provisions governing the

development of section 202/8 projects

including the loan fund allocation

process, application procedures, and

loan financing procedures. There are no

regulatory provisions governing the

housing assistance payments contract

(HAP contract) (except § 885.425 on

HAP contract execution) or governing

the management and operation of

section 202/8 projects (except for

preference rules published on July 18,

1994 at 59 FR 36616). On December 9,

1987 (52 FR 46614), HUD published a

proposed rule adding such provisions.

In response to the proposed rule, HUD

received six comments. The comments

and HUD’s responses are discussed

below.

On June 20, 1989 (54 FR 25960), HUD

published a final rule adding a new

subpart C to part 885. That subpart,

which implemented amendments to the

section 202 program contained in

section 162 of the Housing and

Community Development Act of 1987,

governs section 202 housing for

nonelderly handicapped families and

individuals. Such housing does not

receive assistance under section 8, but

receives a new type of project

assistance. On June 12, 1991, HUD

published two interim rules (56 FR

27104, 56 FR 27070) providing for the

continued applicability of part 885 to

projects for which section 202 loan

reservations were made in FY 1990 and

prior years. These interim rules also

added new parts 889 and 890 to

establish the Supportive Housing for the

Elderly Program and Supportive

Housing for Persons with Disabilities

Program and to enable FY 1991 funding

of projects under those programs.

Requirements relating to capital

advances and project rental assistance

contracts (these new projects do not

receive section 8 rental assistance) were

published August 12, 1992 at 57 FR

36338 and 57 FR 36330, and

management rules for these new

programs will be published shortly.

Public Comments

Part 813. A commenter requested that

HUD provide further information

regarding the relationship between part

813 and part 885. The commenter also

requested clarification concerning

which part will govern if there are

inconsistencies between the parts.

Section 813.1, which was not

proposed for amendment in the

proposed rule, currently provides the

definitions, policies, and procedures

related to income limits, and the

determination of eligibility, income and

rent for applicants and tenants in

housing assisted under section 8

including section 8 projects for which

loans are made under section 202 of the

Housing Act of 1959. HUD is unaware

of any inconsistencies between part 813

and part 885, other than differences

between the definitions of elderly and

handicapped families. These differences

reflect statutory definitions applicable

to the section 8 and section 202

programs (see the definition of

‘‘families’’ and ‘‘elderly family’’ in

section 3(b)(3) of the United States

Housing Act of 1937, and the definition

of ‘‘elderly or handicapped families’’ in

section 202(d)(4)). To the extent of these

or any other inconsistencies, the part

that more specifically addresses the

program (i.e., part 885) will govern.

References have been added for part 889

(Supportive Housing for the Elderly)

and part 890 (Supportive Housing for

Persons with Disabilities).

Definitions (§ 885.5). A new definition

of handicapped person or individual

was added to part 885 in the final rule

published June 20, 1989 implementing

section 162 of the Housing and

Community Development Act of 1987.

In that rule, HUD proposed the same

definition of handicapped person or

individual that was contained in the

proposed rule for the section 202/8

program. (Both proposed rules included

a revised definition of handicapped

person or individual that contained

specific definitions of developmentally

disabled and chronically mentally ill.

Alcoholism and drug addiction were

specifically excluded from the

definition of chronically mentally ill

unless the individual has a disabling

condition required for eligibility.)

Commenters to both proposed rules

made substantially the same comments

on the proposed definition. Some

commenters argued that the exclusion of

alcoholism and drug addiction was

contrary to section 504 of the

Rehabilitation Act of 1973 which

specifically extends coverage to

alcoholics and drug addicts. Other

commenters supported the exclusion of

such persons.

In the June 20, 1989 final rule, HUD

responded to these objections and

substituted new language that provided

that a person whose sole impairment is

alcoholism or drug addiction (i.e., who

does not have a developmental

disability, chronic mental illness or

physical disability which is the

disabling condition required for

eligibility in a particular project) will

not be considered to be handicapped for

the purposes of the section 202 program.

The discussion of these changes can be

found at that rule at 54 FR 25962, and

is adopted without change for the
Federal Register / Vol. 60, No. 6 / Tuesday, January 10, 1995 / Rules and Regulations 2659

purposes of this rule. Because the

definitions section of part 885 governs

both the section 202 handicapped

housing program and the section 202/8

program, the text of the final rule

adopted today does not include a

definition.

Term of HAP contract (§ 885.505).

The proposed rule at § 885.505 provided

that the term of the HAP contract for

assisted units in section 202/8 projects

is 20 years. If the project is completed

in stages, the term of the HAP contract

for all assisted units in all stages of a

project may not exceed 22 years. One

commenter recommended that HUD

should provide short extensions of the

HAP contract if the facility or the

tenants would suffer an undue hardship

without the extension. Section 885.535

already provides that HUD and the

Borrower may agree to extend the term

of the HAP contract or to renew the

HAP contract upon the expiration of the

term of the contract. This section has

been clarified to state that any extension

or renewal is subject to the availability

of funding.

Fair Market rents. One commenter

recommended that the Department

develop additional language in part 885

specifying how fair market rents (FMRs)

will be calculated for section 202/8

facilities. This commenter claimed that

the Department’s method of calculating

FMRs was not economically feasible for

many section 202 facilities. Under the

section 202/8 program, the applicable

published FMRs were used in

development processing to determine

the amount reserved for the section 8

funding and served as a limit on the

amount of the section 202 loan that

could be made. They served as the

initial contract rents (although they

could be adjusted based on the amount

of the loan). Thereafter, the contract

rents are adjusted based on the project’s

approved budget or by the annual (and

special) adjustment factor as specified

in the contract. HUD believes that the

regulations are sufficiently specific. No

additional provisions have been

included in this rule, particularly since

no new reservations are subject to

section 8 FMRs.

Leasing to eligible families

(§ 885.515). Proposed § 885.515

implemented section 325(1) of the

Housing and Community Development

Act of 1981 which requires that HAP

contracts for new construction and

substantial rehabilitation must provide

that during the term of the HAP

contract, the owner shall make available

for occupancy by eligible families the

number of units for which assistance is

committed under the HAP contract.

Under the proposed rule making units

available for occupancy by eligible

families required the Borrower: (1) to

conduct marketing in accordance with

§ 885.600(a) (i.e., the Borrower must

commence and continue diligent

marketing activities not later than 90

days before the anticipated date of

availability for occupancy of the first

unit and marketing must be performed

in accordance with a HUD-approved

affirmative marketing plan and all fair

housing and equal opportunity

requirements); (2) lease or make good

faith efforts to lease the units to eligible

and otherwise acceptable families,

including taking all feasible actions to

fill vacancies by renting to such

families; and (3) not reject any such

applicant family except for reasons

acceptable to HUD. The proposed rule

stated that if the Borrower is

temporarily unable to lease all assisted

units to families that are eligible to

occupy them, one or more units may,

with the prior approval of HUD, be

leased to ‘‘ineligible families’’ (i.e.,

families that meet the section 202

handicapped or elderly eligibility

requirements, but cannot meet the

income eligibility requirements).

A commenter argued that the

proposed rules do not adequately ensure

that effective outreach techniques will

be used. The commenter argued that

once the Borrower complies with HUD’s

general fair housing and equal

opportunity requirements and continues

this outreach strategy for 90 days, its

marketing obligations would be fulfilled

and the Borrower would be free to rent

to ineligible tenants. The commenter

argued that the final rule should require

Borrowers to specifically target the

elderly and handicapped populations in

their outreach strategies. Further, the

commenter suggested that HUD provide

for the use of a centralized computer

system for matching Borrowers and

tenant applicants.

HUD believes that the regulations are

adequate to ensure that the Borrower

will market to eligible handicapped and

elderly families. HUD notes that, in

addition to the marketing requirements

cited by the commenter, making units

available to eligible families requires the

Borrower to demonstrate that it has

leased or is making good faith efforts to

lease units to eligible and otherwise

acceptable families. Without such a

showing, HUD will not approve a

Borrower’s request for permission to

lease to ineligible families. Moreover,

the Affirmative Fair Housing Marketing

Plan is in effect for the duration of the

Federal financial assistance. While

affirmative marketing efforts must

commence at least 90 days prior to the

initial rent-up, they also must continue

throughout the life of the Federal

financial assistance. In light of the

expense involved in the establishment

of a centralized computer system and

questions concerning the necessity of a

system, HUD has rejected the

commenter suggestion regarding the

provision of a computerized system for

matching Borrowers and tenantapplicants.

One commenter argued that the

provision permitting the Borrower to

lease to ineligible families is

unnecessary since sufficient numbers of

income-eligible families can be located

if Borrowers make an effort. The

commenter feared that this exception

would lead to other practices or

exceptions that would undermine

efforts to serve the poor and the

homeless.

The proposed provision has been

retained in the final rule. The failure to

achieve necessary occupancy could

impair project operations to the

detriment of tenants and would

ultimately create a danger of a default

on the section 202 loan. Such a default

and foreclosure could result in the

project being entirely disassociated from

its original purpose, if purchased by an

outside bidder. Accordingly, HUD has

concluded that the proposed provision

may be essential in order to preserve

certain projects for the benefit of present

and future eligible tenants. HUD

believes that the requirement for prior

approval will ensure adequate

supervision of the project and will

prevent the abuses predicted by the

commenter.

A commenter suggested that the final

rule should be revised to permit

Borrowers, without prior HUD

authorization, to rent up to five percent

of the units to low-income families

where very low-income families are not

available to fill a vacancy. Section 16 of

the United States Housing Act of 1937

establishes limitations on the admission

to the Section 8 and public housing

programs of low-income families, but

not very low income. HUD has

implemented this national limitation by

prohibiting the admission of families in

this category, unless the owner has

received prior HUD approval (see

§§ 813.105 and 913.105). Section 103 of

the Housing and Community

Development Act of 1987 and section

1001 of the Stewart B. McKinney

Homeless Assistance Amendments Act

of 1988 amended the United States

Housing Act of 1937 to state that HUD

may not totally prohibit admission of

lower income families other than very

low-income families, shall establish an

appropriate specific percentage of lower

income families other than very low-
2660 Federal Register / Vol. 60, No. 6 / Tuesday, January 10, 1995 / Rules and Regulations

income families that may be assisted in

each assisted housing program, and

shall prohibit project owners from

selecting families for residence in an

order different from the order on the

waiting list for the purpose of selecting

relatively higher income families for

residence. A final rule implementing the

1987 amendment was published on

September 6, 1988 (53 FR 34412).

Section 16(b) of the United States

Housing Act of 1937 was amended by

the Cranston-Gonzalez National

Affordable Housing Act (CGNAHA) by

striking 5% and inserting 15% and

adding the following new paragraph:

‘‘Not more than 25 percent of the

dwelling units in any project of any

agency shall be available for occupancy

by low-income families other than very

low-income families. The limitation

shall not apply in the case of any project

in which, before the enactment of the

CGNAHA, such low-income families

occupy more than 25 percent of the

dwelling units.’’ The Department is

pursuing rulemaking to implement

these changes.

Notice upon HAP contract expiration

(§ 885.530). Proposed § 885.530

implements section 8(c)(8) of the United

States Housing Act of 1937 which

governs the Borrower’s notification of

tenants upon the expiration of the HAP

contract. A commenter recommended

that the final rule also include a

requirement that HUD notify the

Borrower one year before the expiration

of the contract term. Section 262 of the

Housing and Community Development

Act of 1987 added a new section 8(c)(9)

to the United States Housing Act of

1937. This new provision imposed a

requirement on the owner to give one

year’s notice prior to the termination.

This new provision was selfimplementing and HUD issued

instructions on this provision to all

Section 8 owners (including section

202/8 owners) in a memorandum dated

July 6, 1988.

Responsibilities of Borrower

(§ 885.600). Paragraph (d)(1) of

§ 885.600 (responsibilities of Borrower)

provided that financial statements must

be provided to HUD 60 days after the

end of each fiscal year of operations. A

commenter suggested that Borrowers be

given an option in the HAP contract

(with provisions for adjustment) to

determine the dates to be used for the

fiscal year. The HAP contract permits

fiscal years ending on March 31, June

30, September 30, or December 31.

While Borrowers may request a fiscal

year ending on any of these dates, such

requests are subject to approval by HUD.

Under § 885.600(d)(2), the Borrower

must provide such other statements

regarding project operation, financial

condition, and occupancy as HUD may

require to administer the HAP contract

and to monitor project operations. A

commenter requested HUD to explain or

provide examples of such ‘‘other

statements’’. Other statements will

include: monthly accounting

statements; tenant assistance payments

requests and special claims requests

(claims for unpaid rent, tenant damages

and other charges and claims for

vacancy loss); and quarterly and annual

occupancy reports.

Proposed paragraph (e) required the

maintenance of a project fund account.

All funds remaining in the project fund

account following the expiration of the

project’s fiscal year (i.e., the excess of

project income over project operating

expenses, required principal and

interest payment and deposits to the

replacement reserve) were required to

be deposited in the replacement reserve

account following the expiration of the

fiscal year. The final rule has been

revised to conform to the practices

currently applied in the section 8

program. These practices provide that

the remaining funds are deposited in a

residual receipts account. Amounts in

this account may be used to reduce

housing assistance payments and for

other project purposes with the

approval of HUD. Upon termination of

the contract any excess funds must be

remitted to HUD.

Replacement reserve (§ 885.605). One

commenter thought that proposed

§ 885.605, which governs the amount of

the replacement reserve, required a

contribution of .6 percent for the first

year and .4 percent for the second year

of operations. After the first two years,

the commenter recommended the use of

a sliding scale (based on the age of the

building) to maintain an adequate

reserve.

This commenter has misread the

proposed rule. The proposed rule

provided that the annual amount of the

deposit is .6 percent of the cost of the

total structure (for new construction

projects) or .4 percent of the cost of the

initial mortgage (for all other projects).

This amount would have been required

for deposit and adjusted yearly by the

amount of the annual adjustment factor

and may be reduced if HUD determines

that the reserve has reached a level

sufficient to meet project requirements

(see § 885.605(b) and (c)). To provide

flexibility, HUD has decided not to

specify a percentage of cost amount in

the final rule, instead HUD will

determine the amount whenever

appropriate.

Another commenter suggested that

HUD permit Borrowers to use the

replacement reserve for preventive and

maintenance efforts, and for physical

adjustments necessary to accommodate

the needs of residents aging in place.

The proposed change has not been

made. The purpose of the replacement

reserve is to ensure that sufficient funds

will be available to provide for

extraordinary maintenance, and repair

and replacement of capital items (e.g.,

replacement of structural elements and

mechanical equipment in the project.)

Operating expenses such as day-to-day

maintenance requirements and

preventive maintenance expenses are to

be paid from operating revenues.

Currently, Borrowers may request HUD

to approve the use of the replacement

reserve for payments for some items to

accommodate aging residents. If such

requests are approved, however, HUD

requires the Borrower to replenish the

reserve.

Selection and admission of tenants

(§ 885.610). Proposed § 885.610 stated

that the Borrower is responsible for

deciding whether an applicant is

eligible for admission to the project.

Applicants for admission must meet the

eligibility requirements applicable to

them under the section 202/8 program

concerning age or handicap, and

income. The preamble noted that in

addition to these admission

requirements, Borrowers would be

permitted to develop and implement

additional tenant selection criteria.

A commenter representing a disability

group argued that the rule would give

Borrowers too much discretion in the

selection of tenants and would require

Borrowers to make determinations

beyond their areas of expertise. The

commenter objected to the example

cited in the preamble that stated that a

Borrower could refuse to admit an

otherwise eligible applicant, if the

applicant is unable to live

independently in the project without

support services that he or she needs,

but which are not available. The

commenter predicted that such

Borrower determinations could be

arbitrary and constitute discrimination

against the handicapped. The

commenter suggested that these

determinations should be left to the

tenant-applicant.

Section 8 allows owners the

discretion to establish which of the

eligible applicants they want to admit as

tenants. This allows an owner to

establish ‘‘suitability’’ requirements,

such as that tenants be able to live

independently, and, concomitantly, to

make decisions on whether a particular

applicant meets those criteria. HUD,

through this regulation, is creating a

procedure to appeal an owner’s initial
Federal Register / Vol. 60, No. 6 / Tuesday, January 10, 1995 / Rules and Regulations 2661

admission determination, if an

applicant thinks it is wrong. Therefore,

an applicant will have an opportunity to

correct an owner’s suitability decision

to the extent it leads to an unlawful

admission determination (such as one in

violation of the civil rights laws,

including section 504).

While the owner of section 202

‘‘elderly’’ project may only consider

applicants ‘‘suitable’’ if they can live

independently—an applicant for a

section 202 ‘‘handicapped’’ project

must ‘‘have an impairment which * * *

substantially impedes his ability to live

independently’’ and that ‘‘could be

improved by more suitable housing

conditions.’’ See section 202(d)(4).

The example in the preamble to the

section 202 rule regarding ability to live

independently reflected the proposed

rule implementing section 504 of the

Rehabilitation Act of 1973 (29 U.S.C.

794). The proposed section 504 rule

defined qualified handicapped person,

in part, with regard to the person’s

capacity for independent living. In the

final section 504 rule published June 2,

1988 (53 FR 20216), HUD dropped

references to the ability to live

independently from the definition of

qualified individual with handicaps.

Instead, the definition was revised to

focus on the handicapped individual’s

capacity to comply with all obligations

of occupancy whether without

supportive services or with supportive

services provided by persons other than

the recipient. Thus, Borrowers must

make a determination whether an

applicant can fulfill all obligations of

occupancy. In a project that does not

provide supportive services, it is

irrelevant whether the obligations of

tenancy are met by the individual alone

or with assistance that the individual

with handicaps arranges. Further, in

making eligibility determinations, a

presumption in favor of the individual’s

own assessment of his or her

capabilities is warranted in absence of

evidence to the contrary.

Under the proposed rule, a tenantapplicant may request a review of the

Borrower’s determination of

ineligibility. The review would be made

by a member of the Borrower’s staff who

did not make the initial decision to

reject. A commenter noted that many

projects would be unable to comply

with this requirement because their

staffs are too small. As an alternative,

the commenter suggested that HUD

permit such Borrowers to convene a

panel to review determinations.

The final rule has been revised to

permit the Borrower (with prior HUD

approval) to appoint a panel of

individuals to review eligibility

determinations, if the size of the

Borrower’s staff will not permit a review

by a member of the staff that did not

make the original decision. Under these

circumstances, HUD will approve the

panel if the Borrower demonstrates that

the members of the panel are qualified

to make eligibility determinations (e.g.,

members of the staff of a comparable

section 8 project in the area).

Based on the broad discretion

provided to Borrowers in the

development and implementation of

tenant selection procedures, one

commenter suggested that HUD should

provide a review of Borrower’s

selections through the provision of

administrative hearings to applicants

that are rejected for tenancy. HUD is

mindful of its duty to assure that the

policies implemented by Borrowers are

enforced in a non-arbitrary and nondiscriminatory manner. However, rather

than establishing a burdensome

administrative review process, HUD

believes that its role should be limited

to the provision of tenant selection

guidance by regulations and through

other issuances, and to the review of the

Borrower’s tenant selection plan and

procedures during the management

review of the project. HUD has limited

authority in this area, i.e., to reject an

owner’s criteria for selecting among

statutorily eligible applicants only when

the criteria the owner uses to determine

whether applicants would be suitable

tenants would violate the civil rights

laws, such as section 504 of the

Rehabilitation Act.

(In addition to the regulatory guidance

found in the final rule, HUD notes that

Occupancy Requirements of Subsidized

Multifamily Housing Programs (HUD

handbook–4350.3 Chg–1, ¶ 2–15, ¶ 2–16

and ¶ 2–17) require Borrowers to

develop a written tenant selection plan

covering such matters as procedures for

accepting applications and screening

tenants, fair housing and equal

opportunity requirements, preferences

and priorities required by HUD or

established by the Borrower, etc., and

provide additional administrative

guidance on permitted and prohibited

screening criteria.)

Federal selection preferences. A final

rule revising tenant selection

preferences including preferences

requirements for this program was

published on July 18, 1994 at 59 FR

36616. Section 885.427 was revised to

incorporate the preference provisions of

§§ 880.613–880.617.

Overcrowded and underoccupied

units (§ 885.620). Proposed § 885.620

governs unit transfers where the

Borrower has determined that an

assisted unit is overcrowded or

underoccupied. A commenter was

concerned that the proposed regulations

would permit a Borrower to force a

tenant to change apartments in order to

comply with the unit size requirements.

The commenter argued that this

requirement may conflict with State and

local laws that prohibit a landlord from

moving an unwilling tenant. The

commenter recommended that the final

rule permit flexibility in complying

with HUD requirements.

The Department is charged with the

responsibility for assuring that housing

assistance payments are used efficiently,

including the appropriate assignment

and reassignment of families to units of

a proper size. Accordingly, the final rule

provides that the Borrower will, as

promptly as possible, offer the family an

appropriate alternate unit. Contrary to

the commenter’s fears, the rule would

not permit the Borrower to force an

unwilling tenant to move. The existing

HUD procedures permit the tenant to

remain in the unit and pay the market

rent, or move within 30 days of the

notification that a unit of the required

size is available within the project.

Lease requirements (§ 885.625). Under

§ 885.625, the lease must contain all

required provisions and none of the

prohibited provisions specified by HUD.

One commenter argued that HUD

should prepare a new model lease for

section 202/8 projects. This commenter

attached a copy of a proposed lease and

encouraged HUD to adopt it in the

Section 202 handbook. HUD has

prepared a new model lease and it is

available from HUD Field Offices and is

contained in the 4350.3 Handbook Chg.

22, Appendix 19C, dated June 1992.

Security Deposits (§ 885.635). Under

proposed § 885.635, the Borrower must

require each family occupying an

assisted unit to pay a security deposit in

an amount equal to one month’s total

tenant payment or $50, whichever is

greater. A commenter argued that the

minimum security deposit should be

increased to $100. The commenter

argued that this amount represents a

reasonable minimum tenant

contribution, would safeguard the

Borrower, and would reduce the cost of

unpaid charge claims and tenant

damage reimbursement requests.

The $50 limit is the minimum deposit

that is currently required under the

section 202/8 and related section 8

programs. It balances the ability of the

targeted tenant population (i.e., low and

very low income persons) to pay a

security deposit with the Borrower’s

need for an adequate resource to offset

damages caused to the unit. (HUD notes

that the family’s security deposit
2662 Federal Register / Vol. 60, No. 6 / Tuesday, January 10, 1995 / Rules and Regulations

balance is not the only resource

available to a Borrower to recover sums

owed. Under the final rule

(§ 885.635(c)), if the family’s security

deposit is insufficient to reimburse the

Borrower for any unpaid rent, or other

amount which the family owes under

the lease for an assisted unit, the

Borrower may claim reimbursement

from HUD in an amount not to exceed

the lesser of the amount owed to the

Borrower or one month’s contract rent,

minus the amount of the family’s

security deposit.) The $50 minimum has

been retained in the final rule.

Adjustment of Rents (§ 885.640).

Section 885.640 governs the adjustment

of contract rents. Adjustments are made

by one of two methods. Generally, HAP

contracts that were entered into prior to

1981 provide for adjustments using an

automatic annual adjustment factor and

special additional adjustments.

Contracts executed or amended after

1981 provided for adjustment based on

a HUD-approved budget.

One commenter encouraged HUD to

allow, within the rent adjustment, an

annual adjustment for utility costs based

on the projected costs established by

utility companies, rather than the past

years’ actual expenditures. Contrary to

the commenter’s assumption, rent

adjustments based on the HUDapproved budget may not necessarily be

performed as frequently as annually.

However, when such adjustments are

performed HUD does consider the

actual utility rates that are in effect and

approved utility rate increases that will

be implemented during the year. HUD

does not believe it is necessary to revise

the rule to accommodate the

commenter’s suggestion.

Where the HAP contract provides that

rent adjustments will be based on the

application of an annual adjustment

factor the procedures are different. The

Department considers the average

annual cost of utilities for the prior year

in determining the section 8 annual

adjustment factor. If the annual

adjustment factor is insufficient to cover

the cost of an approved increase, the

Borrower may request HUD to approve

a special adjustment under

§ 885.640(a)(2)(ii).

Other Matters

A Finding of No Significant Impact

with respect to the environment has

been made in accordance with HUD

regulations in 24 CFR Part 50, which

implement section 102(2)(C) of the

National Environmental Policy Act of

1969, 42 U.S.C. 4332. The Finding of No

Significant Impact is available for public

inspection during regular business

hours in the Office of the General

Counsel, Rules Docket Clerk, Room

10276, 451 Seventh Street, S.W.,

Washington, D.C. 20410–0500.

Under 5 U.S.C. 605(b) (the Regulatory

Flexibility Act), the Undersigned

certifies that this rule does not have a

significant economic impact on a

substantial number of small entities.

The contract and management

provisions incorporated in this

rulemaking generally reflect existing

HUD policies already guiding operators

of section 202/8 projects. This

proceeding does not change the goals

toward which program activities are

directed. The rule’s effect both on small

and large entities should be minor.

The General Counsel, as the

Designated Official under section 6(a) of

Executive Order No. 12611—

Federalism, has determined that the

final rule does not involve the

preemption of State law by Federal

statute or regulation and does not have

Federalism implications. The rule

reflects existing HUD policies guiding

non-profit organizations operating

section 202/8 projects. The rule, to the

maximum extent possible, defers to

State and local policies (see e.g.,

§§ 885.635(b)(1), (3) and (5)).

This rule was listed as sequence

number 1805 in the Department’s

Semiannual Agenda of Regulations

published November 14, 1994 (59 FR

57632, 57657) under Executive Order

12866 and the Regulatory Flexibility

Act.

List of Subjects

24 CFR Part 813

Grant programs—housing and

community development, Rent

subsidies, Reporting and recordkeeping

requirements, Utilities.

24 CFR Part 885

Aged, Individuals with disabilities,

Loan programs—housing and

community development, Low and

moderate income housing, Reporting

and recordkeeping requirements.

Accordingly, in title 24 of the Code of

Federal Regulations, parts 813 and 885,

are amended as follows:

PART 813—DEFINITION OF INCOME,

INCOME LIMITS, RENT AND

REEXAMINATION OF FAMILY INCOME

FOR THE SECTION 8 HOUSING

ASSISTANCE PAYMENTS PROGRAMS

AND RELATED PROGRAMS

1. The authority citation for 24 CFR

part 813 continues to read as follows:

Authority: 42 U.S.C. 1437a, 1437c, 1437f,

1437n and 3535(d).

2. In § 813.109, the section heading

and paragraph (a), is revised to read as

follows:

§ 813.109 Initial determination, verification,

and reexamination of Family income and

composition.

(a) Responsibility for initial

determination and reexamination. The

Owner or PHA shall be responsible for

determination of eligibility for

admission, for determination of Annual

Income, Adjusted Income and Total

Tenant Payment, and for reexamination

of Family income and composition at

least annually, as provided in pertinent

program regulations and handbooks

(see, e.g., 24 CFR part 880, subpart F; 24

CFR part 881, subpart F; 24 CFR part

882, subparts B and E; 24 CFR part 883,

subpart G; 24 CFR part 884, subpart B;

24 CFR part 885, subparts B and C; 24

CFR part 886, subparts A and C; 24 CFR

part 887, subpart H; and 24 CFR parts

889 and 890.). As used in this part, the

‘‘effective date’’ of an examination or

reexamination refers to:

(1) In the case of an examination for

admission, the effective date of initial

occupancy; and

(2) In the case of a reexamination of

an existing tenant, the effective date of

the redetermined housing assistance

payment with respect to the Housing

Voucher program (part 887 of this

chapter) and the effective date of the

redetermined Total Tenant Payment in

all other cases.

* * * * *

PART 885—LOANS FOR HOUSING

FOR THE ELDERLY OR

HANDICAPPED

3. The authority citation for 24 CFR

part 885 continues to read as follows:

Authority: 12 U.S.C. 1701q; 42 U.S.C.

1437f and 3535(d).

4. In § 885.5, the definition of

‘‘Section 8 Program’’, is revised to read

as follows:

§ 885.5 Definitions.

* * * * *

Section 8 Program means the housing

assistance payments program which

implements section 8 of the United

States Housing Act of 1937 (42 U.S.C.

1437f note).

* * * * *

5. In subpart B, § 885.200 is

redesignated as § 885.203, and a new

§ 885.200 is added, to read as follows:

§ 885.200 Definitions applicable to Subpart

B.

As used in this subpart B:

Agreement to enter into housing

assistance payments contract means the

agreement between the Borrower and
Federal Register / Vol. 60, No. 6 / Tuesday, January 10, 1995 / Rules and Regulations 2663

HUD which provides that, upon

satisfactory completion of the project in

accordance with the HUD-approved

final proposal, HUD will enter into the

HAP contract with the Borrower.

Annual income is defined in part 813

of this chapter.

Assisted unit means a dwelling unit

eligible for assistance under a HAP

contract.

Contract rent means the total amount

of rent specified in the HAP contract as

payable by HUD and the tenant to the

Borrower for an assisted unit.

Family (eligible family) means an

elderly or handicapped family (as

defined in this section) that meets the

project occupancy requirements

approved by HUD and, if the family

occupies an assisted unit, meets the

requirements described in part 813 of

this chapter.

Gross rent is defined in part 813 of

this chapter.

HAP contract (housing assistance

payments contract) means the contract

entered into by the Borrower and HUD

setting forth the rights and duties of the

parties with respect to the project and

the payments under the HAP contract.

Housing assistance payment means

the payment made by HUD to the

Borrower for assisted units as provided

in the HAP contract. The payment is the

difference between the contract rent and

the tenant rent. An additional payment

is made to a family occupying an

assisted unit when the utility allowance

is greater than the total tenant payment.

A housing assistance payment, known

as a ‘‘vacancy payment’’, may be made

to the Borrower when an assisted unit

is vacant, in accordance with the terms

of the HAP contract.

Project account means a specifically

identified and segregated account for

each project which is established in

accordance with § 885.510(b) out of the

amounts by which the maximum annual

commitment exceeds the amount

actually paid out under the HAP

contract each year.

Project occupancy requirements

means eligible populations to be served

under the Section 202 program are

qualified individuals or families whose

head of household or spouse is elderly,

physically handicapped,

developmentally disabled or chronically

mentally ill. Projects are designed to

meet the special needs of the particular

tenant population which the Borrower

was selected to serve. Individuals from

one eligible group may not be accepted

for occupancy in a project designed for

a different tenant group. However, a

Sponsor can propose to house eligible

tenant groups other than the one it was

selected to serve, but must apply to the

HUD Field Office for permission to do

so, based on a plan which demonstrates

that it can adequately serve the

proposed tenant group. Upon review

and recommendation by the Field

Office, HUD Headquarters will approve

or disapprove the request.

Rent, in the case of a unit in a

cooperative project, means the carrying

charges payable to the cooperative with

respect to occupancy of the unit.

Tenant rent means the monthly

amount defined in, and determined in

accordance with part 813 of this

chapter.

Total tenant payment means the

monthly amount defined in, and

determined in accordance with part 813

of this chapter.

Utility allowance is defined in part

813 of this chapter and is determined or

approved by HUD.

Utility reimbursement is defined in

part 813 of this chapter.

Vacancy payment means the housing

assistance payment made to the

Borrower by HUD for a vacant assisted

unit if certain conditions are fulfilled, as

provided in the HAP contract. The

amount of the vacancy payment varies

with the length of the vacancy period

and is less after the first 60 days of any

vacancy.

6. In § 885.210, paragraph (b)(5) is

revised, to read as follows:

§ 885.210 Contents of applications.

* * * * *

(b) * * *

(5) A narrative description of the

anticipated occupancy of the project.

The Borrower must propose project

occupancy requirements that limit

occupancy to the elderly and/or

handicapped.

* * * * *

7. In § 885.425, the section heading is

revised; paragraph (b) is removed;

paragraphs (c), (d), (e) and (f) are

redesignated as paragraphs (b), (c), (d)

and (e), respectively; to read as follows:

§ 885.425 Completion of project, cost

certification and HUD approvals.

* * * * *

8. Sections 885.500 through 885.655

are added to subpart B, to read as

follows:

§ 885.500 HAP contract.

(a) HAP contract. The housing

assistance payments contract sets forth

rights and duties of the Borrower and

HUD with respect to the project and the

housing assistance payments.

(b) HAP contract execution. (1) Upon

satisfactory completion of the project,

the Borrower and HUD shall execute the

HAP contract on the form prescribed by

HUD.

(2) The effective date of the HAP

contract may be earlier than the date of

execution, but no earlier than the date

of HUD’s issuance of the permission to

occupy.

(3) If the project is completed in

stages, the procedures of paragraph (b)

of this section shall apply to each stage.

(c) Housing assistance payments to

owners under the HAP contract. The

housing assistance payments made

under the HAP contract are:

(1) Payments to the Borrower to assist

eligible families leasing assisted units.

The amount of the housing assistance

payment made to the Borrower for an

assisted unit leased to an eligible family

is equal to the difference between the

contract rent for the unit and the tenant

rent payable by the family.

(2) Payments to the Borrower for

vacant assisted units (‘‘vacancy

payments’’). The amount of and

conditions for vacancy payments are

described in § 885.650. The housing

assistance payments are made monthly

by HUD upon proper requisition by the

Borrower, except payments for

vacancies of more than 60 days, which

are made semiannually by HUD upon

requisition by the Borrower.

(d) Payment of utility reimbursement.

Where applicable, a utility

reimbursement will be paid to a family

occupying an assisted unit as an

additional housing assistance payment.

The HAP contract will provide that the

Borrower will make this payment on

behalf of HUD. Funds will be paid to the

Borrower in trust solely for the purpose

of making the additional payment. The

Borrower may pay the utility

reimbursement jointly to the family and

the utility company, or, if the family

and utility company consent, directly to

the utility company.

§ 885.505 Term of HAP contract.

The term of the HAP contract for

assisted units shall be 20 years. If the

project is completed in stages, the term

of the HAP contract for assisted units in

each stage shall be 20 years. The term

of the HAP contract for all assisted units

in all stages of a project shall not exceed

22 years.

§ 885.510 Maximum annual commitment

and project account.

(a) Maximum annual commitment.

The maximum annual amount that may

be committed under the HAP contract is

the total of the contract rents and utility

allowances for all assisted units in the

project.

(b) Project account. (1) HUD will

establish and maintain a specifically

identified and segregated project

account for each project. The project
2664 Federal Register / Vol. 60, No. 6 / Tuesday, January 10, 1995 / Rules and Regulations

account will be established out of the

amounts by which the maximum annual

commitment exceeds the amount

actually paid out under the HAP

contract each year. HUD will make

payments from this account for housing

assistance payments as needed to cover

increases in contract rents or decreases

in tenant income and other payments

for costs specifically approved by the

Secretary.

(2) If the HUD-approved estimate of

required annual payments under the

HAP contract for a fiscal year exceeds

the maximum annual commitment for

that fiscal year plus the current balance

in the project account, HUD will, within

a reasonable time, take such steps

authorized by section 8(c)(6) of the

United States Housing Act of 1937 (42

U.S.C. 1437f note), as may be necessary,

to assure that payments under the HAP

contract will be adequate to cover

increases in contract rents and decreases

in tenant income.

§ 885.515 Leasing to eligible families.

(a) Availability of assisted units for

occupancy by eligible families. (1)

During the term of the HAP contract, a

Borrower shall make available for

occupancy by eligible families the total

number of units for which assistance is

committed under the HAP contract. For

purposes of this section, making units

available for occupancy by eligible

families means that the Borrower:

(i) Is conducting marketing in

accordance with § 885.600(a);

(ii) Has leased or is making good faith

efforts to lease the units to eligible and

otherwise acceptable families, including

taking all feasible actions to fill

vacancies by renting to such families;

(iii) Has not rejected any such

applicant family except for reasons

acceptable to HUD.

(2) If the Borrower is temporarily

unable to lease all units for which

assistance is committed under the HAP

contract to eligible families, one or more

units may, with the prior approval of

HUD, be leased to otherwise eligible

families that do not meet the income

eligibility requirements of part 813.

Failure on the part of the Borrower to

comply with these requirements is a

violation of the HAP contract and

grounds for all available legal remedies,

including an action for specific

performance of the HAP contract,

suspension or debarment from HUD

programs, and reduction of the number

of units under the HAP contract as set

forth in paragraph (b) of this section.

(b) Reduction of number of units

covered by the HAP contract. HUD may

reduce the number of units covered by

the HAP contract to the number of units

available for occupancy by eligible

families if:

(1) The Borrower fails to comply with

the requirements of paragraph (a) of this

section; or

(2) Notwithstanding any prior

approval by HUD, HUD determines that

the inability to lease units to eligible

families is not a temporary problem.

(c) Restoration. HUD will agree to an

amendment of the HAP contract to

provide for subsequent restoration of

any reduction made under paragraph (b)

of this section if:

(1) HUD determines that the

restoration is justified by demand;

(2) The Borrower otherwise has a

record of compliance with the

Borrower’s obligations under the HAP

contract; and

(3) Contract and budget authority is

available.

(d) Applicability. In accordance with

section 555 of the Cranston-Gonzalez

National Affordable Housing Act of

1990, paragraphs (a) and (b) of this

section apply to all contracts. An owner

who had leased an assisted unit to an

ineligible family consistent with the

regulations in effect at the time will

continue to lease the unit to that family.

However, the owner must make the unit

available for occupancy by an eligible

family when the ineligible family

vacates the unit.

(e) Occupancy by families that are not

elderly or handicapped. HUD may

permit units in the project to be leased

to other than elderly or handicapped

families if:

(1) The Borrower has made reasonable

efforts to lease assisted and unassisted

units to eligible families;

(2) The Borrower has been granted

HUD approval under paragraph (a) of

this section; and

(3) The Borrower is temporarily

unable to achieve or maintain a level of

occupancy sufficient to prevent

financial default and foreclosure under

the section 202 loan documents. HUD

approval under paragraph (e)(3) of this

section will be of limited duration. HUD

may impose terms and conditions to

this approval that are consistent with

program objectives and necessary to

protect its interest in the section 202

loan.

§ 885.520 HAP contract administration.

HUD is responsible for the

administration of the HAP Contract.

§ 885.525 Default by Borrower.

(a) HAP contract provisions. The HAP

contract will provide:

(1) That if HUD determines that the

Borrower is in default under the HAP

contract, HUD will notify the Borrower

of the actions required to be taken to

cure the default and of the remedies to

be applied by HUD including an action

for specific performance under the HAP

contract, reduction or suspension of

housing assistance payments and

recovery of overpayments, where

appropriate; and

(2) That if the Borrower fails to cure

the default, HUD has the right to

terminate the HAP contract or to take

other corrective action.

(b) Loan provisions. Additional

provisions governing default under the

section 202 loan are included in the

regulatory agreement and other loan

documents described in § 885.415.

§ 885.530 Notice upon HAP contract

expiration.

(a) Notice required. The HAP contract

will provide that the Borrower will, at

least one year before the end of the HAP

contract term, notify each family leasing

an assisted unit of any increase in the

amount the family will be required to

pay as rent as a result of the expiration.

(b) Service requirements. The notice

under paragraph (a) of this section shall

be accomplished by sending a letter by

first class mail, properly stamped and

addressed, to the family at its address at

the project, with a proper return

address; and serving a copy of the notice

on any adult person answering the door

at the leased dwelling unit, or if no

adult responds, by placing the notice

under or through the door, if possible,

or else by affixing the notice to the door.

Service shall not be considered to be

effective until both required notices

have been accomplished. The date on

which the notice shall be considered to

be received by the family shall be the

date on which the Borrower mails the

first class letter provided for in

paragraph (b) of this section, or the date

on which the notice provided for in

paragraph (b) of this section is properly

given, whichever is later.

(c) Contents of notice. The notice shall

advise each affected family that, after

the expiration date of the HAP contract,

the family will be required to bear the

entire cost of the rent and that the

Borrower may, subject to requirements

and restrictions contained in the

regulatory agreement, the lease, and

State or local law, change the rent. The

notice also shall state:

(1) The actual (if known) or the

estimated rent that will be charged

following the expiration of the HAP

contract;

(2) The difference between the new

rent and the total tenant payment

toward rent under the HAP contract;

and
Federal Register / Vol. 60, No. 6 / Tuesday, January 10, 1995 / Rules and Regulations 2665

(3) The date the HAP contract will

expire.

(d) Certification to HUD. The

Borrower shall give HUD a certification

that families have been notified in

accordance with this section and shall

attach to the certification an example of

the text of the notice.

(e) Applicability. This section applies

to all HAP contracts entered into under

an agreement to enter into a housing

assistance payments contract executed

on or after October 1, 1981, or entered

into under such an agreement executed

before October 1, 1981 but renewed or

amended after February 9, 1995.

(Approved by the Office of Management and

Budget under control number 2502–0371).

§ 885.535 HAP contract extension or

renewal.

Upon expiration of the term of the

HAP contract, HUD and the Borrower

may agree (subject to available funds) to

extend the term of the HAP contract or

to renew the HAP contract. The number

of assisted units under the extended or

renewed HAP contract shall equal the

number of assisted units under the

original HAP contract, except that—

(a) HUD and the Borrower may agree

to reduce the number of assisted units

by the number of assisted units that are

not occupied by eligible families at the

time of the extension or renewal; and

(b) HUD and the Borrower may agree

to permit reductions in the number of

assisted units during the term of the

extended or renewed HAP contract as

assisted units are vacated by eligible

families. Nothing in this section shall

prohibit HUD from reducing the number

of units covered under the extended or

renewed HAP contract in accordance

with § 885.515(b).

§ 885.600 Responsibilities of Borrower.

(a) Marketing. (1) The Borrower must

commence and continue diligent

marketing activities not later than 90

days before the anticipated date of

availability for occupancy of the first

unit of the project. Market activities

shall include the provision of notices of

availability of housing under the

program to operators of temporary

housing for the homeless in the same

housing market.

(2) Marketing must be done in

accordance with the HUD-approved

affirmative fair housing marketing plan

and all Federal, State or local fair

housing and equal opportunity

requirements. The purpose of the plan

and requirements is to achieve a

condition in which eligible families of

similar income levels in the same

housing market have a like range of

housing choices available to them

regardless of discriminatory

considerations, such as their race, color,

creed, religion, familial status,

disability, sex or national origin.

Marketing must also be done in

accordance with the communication

and notice requirements of Section 504

at 24 CFR 8.6 and 24 CFR 8.54, i.e., TDD

requirements for all housing providers

and methods to reach those with

speech, visual and hearing impairments.

(3) At the time of HAP contract

execution, the Borrower must submit to

HUD a list of leased and unleased

assisted units, with a justification for

the unleased units, in order to qualify

for vacancy payments for the unleased

units.

(b) Management and maintenance.

The Borrower is responsible for all

management functions. These functions

include selection and admission of

tenants, required reexaminations of

incomes for families occupying assisted

units, collection of rents, termination of

tenancy and eviction, and all repair and

maintenance functions (including

ordinary and extraordinary maintenance

and replacement of capital items). All

functions must be performed in

compliance with equal opportunity

requirements.

(c) Contracting for services. (1) With

HUD approval, the Borrower may

contract with a private or public entity

for performance of the services or duties

required in paragraphs (a) and (b) of this

section. However, such an arrangement

does not relieve the Borrower of

responsibility for these services and

duties. All such contracts are subject to

the restrictions governing prohibited

contractual relationships described in

§ 885.5. (These prohibitions do not

extend to management contracts entered

into by the Borrower with the sponsor

or its non-profit affiliate).

(2) Consistent with the objectives of

Executive Order 11625 (3 CFR, 1971–

1975 Comp., p. 616, unless otherwise

noted), Executive Order 12432 (3 CFR,

1983 Comp., p. 198, unless otherwise

noted), and Executive Order 12138 (3

CFR, 1979 Comp., p. 393, unless

otherwise noted), the Borrower will

promote awareness and participation of

minority and women’s business

enterprises in contracting and

procurement activities.

(d) Submission of financial and

operating statements. The Borrower

must submit to HUD:

(1) Within 60 days after the end of

each fiscal year of project operations,

financial statements for the project

audited by an independent public

accountant and in the form required by

HUD; and

(2) Other statements regarding project

operation, financial conditions and

occupancy as HUD may require to

administer the HAP contract and to

monitor project operations.

(e) Use of project funds. The Borrower

shall maintain a separate project fund

account in a depository or depositories

which are members of the Federal

Deposit Insurance Corporation or

National Credit Union Share Insurance

Fund and shall deposit all rents,

charges, income and revenues arising

from project operation or ownership to

this account. All project funds are to be

deposited in Federally-insured

accounts. All balances shall be fully

insured at all times, to the maximum

extent possible. Project funds must be

used for the operation of the project

(including required insurance coverage),

to make required principal and interest

payments on the section 202 loan, and

to make required deposits to the

replacement reserve under § 885.605, in

accordance with a HUD-approved

budget. Any project funds in the project

funds account (including earned

interest) following the expiration of the

fiscal year shall be deposited in a

Federally-insured residual receipts

account within 60 days following the

end of the fiscal year. Withdrawals from

this account may be made only for

project purposes and with the approval

of HUD. If there are funds remaining in

the residual receipts account when the

mortgage is satisfied, such funds shall

be returned to HUD.

(f) Reports. The Borrower shall submit

such reports as HUD may prescribe to

demonstrate compliance with

applicable civil rights and equal

opportunity requirements.

(Approved by the Office of Management and

Budget under control number 2502–0371).

§ 885.605 Replacement reserve.

(a) Establishment of reserve. The

Borrower shall establish and maintain a

replacement reserve to aid in funding

extraordinary maintenance, and repair

and replacement of capital items.

(b) Deposits to reserve. The Borrower

shall make monthly deposits to the

replacement reserve in an amount

determined by HUD.

(c) Level of reserve. The reserve must

be built up to and maintained at a level

determined by HUD to be sufficient to

meet projected requirements. Should

the reserve reach that level, the amount

of the deposit to the reserve may be

reduced with the approval of HUD.

(d) Administration of reserve.

Replacement reserve funds must be

deposited with HUD or in a Federallyinsured depository in an interestbearing account (s) whose balances are
2666 Federal Register / Vol. 60, No. 6 / Tuesday, January 10, 1995 / Rules and Regulations

fully insured at all times. All earnings

including interest on the reserve must

be added to the reserve. Funds may be

drawn from the reserve and used only

in accordance with HUD guidelines and

with the approval of, or as directed by,

HUD.

§ 885.610 Selection and admission of

tenants.

(a) Written tenant selection

procedures. The Owner shall adopt

written tenant selection procedures

which ensure nondiscrimination in the

selection of tenants and that are

consistent with the purpose of

improving housing opportunities for

very low-income elderly or

handicapped persons; and reasonably

related to program eligibility and an

applicant’s ability to perform the

obligations of the lease. The Owner

must comply with the following

nondiscrimination authorities: section

504 of the Rehabilitation Act of 1973 (29

U.S.C. 794) and the implementing

regulations at 24 CFR part 8; the Fair

Housing Act (42 U.S.C. 3600–3619) and

the implementing regulations at 24 CFR

parts 100, 108, 109, and 110; Title VI of

the Civil Rights Act of 1964 (42 U.S.C.

2000d) and the implementing

regulations at 24 CFR part 1; section 3

of the Housing and Urban Development

Act of 1968 (12 U.S.C. 1701u) and the

implementing regulations at 24 CFR part

135; the Age Discrimination Act of 1975

(42 U.S.C. 6101–6107) and the

implementing regulations at 24 CFR part

146; Executive Order 11246 (as

amended), 3 CFR, 1964–1965 Comp., p.

339, and the implementing regulations

at 41 CFR Chapter 60; Executive Order

11063 (Equal Opportunity in Housing),

3 CFR, 1959–1963 Comp., p. 652 and

the implementing regulations at 24 CFR

part 107; the Americans with

Disabilities Act (42 U.S.C. 12101 et seq.)

to the extent applicable; and other

applicable Federal, State and local laws

prohibiting discrimination and

promoting equal opportunity. While

local residency requirements are

prohibited, local residency preferences

may be applied in selecting tenants only

to the extent that they are not

inconsistent with affirmative fair

housing marketing objectives and the

Owner’s HUD-approved affirmative fair

housing marketing plan. Preferences

may not be based on the length of time

the applicant has resided in the

jurisdiction. With respect to any

residency preference, persons expected

to reside in the community as a result

of current or planned employment will

be treated as residents. Owners shall

promptly notify in writing any rejected

applicant of the grounds for any

rejection. Additionally, owners shall

maintain a written, chronological

waiting list showing the name, race,

gender, ethnicity and date of each

person applying for the program.

(b) Application for admission. The

Borrower must accept applications for

admission to the project in the form

prescribed by HUD and is obligated to

confirm all information provided by the

applicant families on the application.

Applicant families must be requested to

complete a release of information

consent for verification of information.

Applicants applying for assisted units

must complete a certification of

eligibility as part of the application for

admission. Applicant families must

meet the disclosure and verification

requirements for Social Security

Numbers, as provided by 24 CFR part

750. Applicant families must sign and

submit consent forms for the obtaining

of wage and claim information from

State Wage Information Collection

Agencies, as provided by 24 CFR part

760. Both the Borrower and the

applicant must complete and sign the

application for admission. On request,

the Borrower must furnish copies of all

applications for admission to HUD.

(c) Determination of eligibility and

selection of tenants. The Borrower is

responsible for determining whether

applicants are eligible for admission and

for the selection of families. To be

eligible for admission, an applicant

must be an elderly or handicapped

family as defined in § 885.5, must meet

any project occupancy requirements

approved by HUD under § 885.225(a)(1),

must meet the disclosure and

verification requirements for Social

Security Numbers, as provided by 24

CFR part 750), must sign and submit

consent forms for obtaining of wage and

claim information from State Wage

Information Collection Agencies, as

provided by 24 CFR part 760, and must,

if applying for an assisted unit, be

eligible for admission under part 813 of

this chapter.

(d) Unit assignment. If the Borrower

determines that the family is eligible

and is otherwise acceptable and units

are available, the Borrower will assign

the family a unit. The Borrower will

assign the family a unit of the

appropriate size in accordance with

HUD’s general occupancy guidelines. If

no suitable unit is available, the

Borrower will place the family on a

waiting list for the project and notify the

family of when a suitable unit may

become available. If the waiting list is so

long that the applicant would not be

likely to be admitted for the next 12

months, the Borrower may advise the

applicant that no additional

applications for admission are being

considered for that reason, except that

the Borrower may not refuse to place an

applicant on the waiting list if the

applicant is otherwise eligible for

assistance and claims that he or she

qualifies for a Federal preference as

provided in § 885.427.

(e) Ineligibility determination. If the

Borrower determines that an applicant

is ineligible for admission or the

Borrower is not selecting the applicant

for other reasons, the Borrower will

promptly notify the applicant in writing

of the determination, the reasons for the

determination, and that the applicant

has a right to request a meeting with the

Borrower or managing agent to review

the rejection, in accordance with HUD

requirements. The review, if requested,

may not be conducted by a member of

the Borrower’s staff who made the

initial decision to reject the applicant.

The applicant may also exercise other

rights (e.g., rights granted under Federal,

State or local civil rights laws) if the

applicant believes he or she is being

discriminated against on a prohibited

basis. The informal review provisions

for the denial of a Federal preference are

provided at § 880.613(h) of this chapter.

(f) Records. Records on applicants and

approved eligible families, which

provide racial, ethnic, gender, handicap

status, and place of previous residency

data required by HUD, must be retained

for three years.

(g) Reexamination of family income

and composition—(1) Regular

reexaminations. The Borrower must

reexamine the income and composition

of the family at least every 12 months.

Upon verification of the information,

the Borrower shall make appropriate

adjustments in the total tenant payment

in accordance with part 813 of this

chapter and determine whether the

family’s unit size is still appropriate.

The Borrower must adjust tenant rent

and the housing assistance payment and

must carry out any unit transfer in

accordance with the administrative

instructions issued by HUD. At the time

of reexamination under paragraph (g)(1)

of this section, the Borrower must

require the family to meet the disclosure

and verification requirements for Social

Security Numbers, as provided by 24

CFR part 750. For requirements

regarding the signing and submitting of

consent forms by families for obtaining

of wage and claim information from

State Wage Information Collection

Agencies, see 24 CFR part 760.

(2) Interim reexaminations. The

family must comply with the provisions

in its lease regarding interim reporting

of changes in income. If the Borrower

receives information concerning a
Federal Register / Vol. 60, No. 6 / Tuesday, January 10, 1995 / Rules and Regulations 2667

change in the family’s income or other

circumstances between regularly

scheduled reexaminations, the Borrower

must consult with the family and make

any adjustments determined to be

appropriate. See 24 CFR 750.10(d)(2)(i)

for the requirements for the disclosure

and verification of Social Security

Numbers at interim reexaminations

involving new family members. For

requirements regarding the signing and

submitting of consent forms by families

for the obtaining of wage and claim

information from State wage

information collection agencies, see 24

CFR part 760. Any change in the

family’s income or other circumstances

that results in an adjustment in the total

tenant payment, tenant rent and housing

assistance payment must be verified.

(3) Continuation of housing assistance

payments. (i) A family shall remain

eligible for housing assistance payments

until the total tenant payment equals or

exceeds the gross rent. The termination

of subsidy eligibility will not affect the

family’s other rights under its lease.

Housing assistance payments may be

resumed if, as a result of changes in

income, rent or other relevant

circumstances during the term of the

HAP contract, the family meets the

income eligibility requirements of part

813 of this chapter and housing

assistance is available for the unit under

the terms of the HAP contract. The

family will not be required to establish

its eligibility for admission to the

project under the remaining

requirements of paragraph (c) of this

section.

(ii) A family’s eligibility for housing

assistance payments may be terminated

in accordance with HUD requirements

for such reasons as failure to submit

requested verification information,

including information related to

disclosure and verification of Social

Security Numbers (as provided by 24

CFR part 750) or failure to sign and

submit consent forms for the obtaining

of wage and claim information from

State wage information collection

agencies (as provided by 24 CFR part

760).

(Approved by the Office of Management and

Budget under control number 2502–0371).

§ 885.615 Obligations of the family.

(a) Requirements. The family shall:

(1) Pay amounts due under the lease

directly to the Borrower.

(2) Supply such certification, release

of information, consent, complete forms

or documentation as the Borrower or

HUD determines necessary, including

information and documentation relating

to the disclosure and verification of

Social Security Numbers, as provided

by 24 CFR part 750, and the signing and

submission of consent forms for the

obtaining of wage and claim information

from State Wage Information Collection

Agencies, as provided by 24 CFR part

760;

(3) Allow the Borrower to inspect the

dwelling unit at reasonable times and

after reasonable notice;

(4) Notify the Borrower before

vacating the dwelling unit; and

(5) Use the dwelling unit solely for

residence by the family, and as the

family’s principal place of residence.

(b) Prohibitions. The family shall not:

(1) Assign the lease or transfer the

unit; or

(2) Occupy, or receive assistance for

the occupancy of, a unit governed under

this part while occupying, or receiving

assistance for occupancy of, another

unit assisted under any Federal housing

assistance program, including any

section 8 program.

(Approved by the Office of Management and

Budget under control number 2502–0371).

§ 885.620 Overcrowded and

underoccupied units.

If the Borrower determines that

because of change in family size, a unit

is smaller than appropriate for the

eligible family to which it is leased, or

that the unit is larger than appropriate,

housing assistance payments with

respect to the unit will not be reduced

or terminated until the eligible family

has been relocated to an appropriate

alternate unit. If possible, the Borrower

will, as promptly as possible, offer the

family an appropriate alternate unit.

The Borrower may receive vacancy

payments for the vacated unit if the

Borrower complies with the

requirements of § 885.650.

§ 885.625 Lease requirements.

(a) Term of lease. The term of the

lease may not be less than one year.

Unless the lease has been terminated by

appropriate action, upon expiration of

the lease term, the family and Borrower

may execute a new lease for a term not

less than one year, or may take no

action. If no action is taken, the lease

will automatically be renewed for

successive terms of one month.

(b) Termination by the family. All

leases may contain a provision that

permits the family to terminate the lease

upon 30 days advance notice. A lease

for a term that exceeds one year must

contain such provision.

(c) Form. The Borrower shall use the

lease form prescribed by HUD. In

addition to required provisions in the

lease form, the Borrower may include a

provision in the lease permitting the

Borrower to enter the leased premises,

at any time, without advance notice

where there is reasonable cause to

believe that an emergency exists or that

health or safety of a family member is

endangered.

§ 885.630 Termination of tenancy and

modification of lease.

The provisions of part 247 of this title

apply to all decisions by a Borrower to

terminate the tenancy or modify the

lease of a family residing in a unit.

§ 885.635 Security deposits.

(a) Collection of security deposit. At

the time of the initial execution of the

lease, the Borrower:

(1) Will require each family

occupying a unit to pay a security

deposit in an amount equal to one

month’s total tenant payment or $50,

whichever is greater; and

(2) May require each family

occupying an unassisted unit to pay a

security deposit equal to one month’s

rent payable by the family. The family

is expected to pay the security deposit

from its own resources and other

available public or private resources.

The Borrower may collect the security

deposit on an installment basis.

(b) Security deposit provisions

applicable to assisted and unassisted

units.—(1) Administration of security

deposit. The Borrower must place the

security deposits in a segregated

interest-bearing account. The Borrower

shall maintain a record of the amount in

this account that is attributable to each

family in residence in the project.

Annually for all families, and when

computing the amount available for

disbursement under paragraph (b)(3) of

this section, the Borrower shall allocate

to the family’s balance, the interest

accrued on the balance during the year.

Unless prohibited by State or local law,

the Borrower may deduct for the family,

from the accrued interest for the year,

the administrative cost of computing the

allocation to the family’s balance. The

amount of the administrative cost

adjustment shall not exceed the accrued

interest allocated to the family’s balance

for the year. The amount of the

segregated, interest-bearing account

maintained by the Borrower must at all

times equal the total amount collected

from the families then in occupancy

plus any accrued interest and less

allowable administrative cost

adjustments. The Borrower must

comply with any applicable State and

local laws concerning interest payments

on security deposits.

(2) Family notification requirement. In

order to be considered for the refund of

the security deposit, a family must
2668 Federal Register / Vol. 60, No. 6 / Tuesday, January 10, 1995 / Rules and Regulations

provide the Borrower with a forwarding

address or arrange to pick up the refund.

(3) Use of security deposit. The

Borrower, subject to State and local law

and the requirements of paragraph (b)(3)

of this section, may use the family’s

security deposit balance as

reimbursement for any unpaid family

contribution or other amount which the

family owes under the lease. Within 30

days (or shorter time if required by State

or local law) after receiving notification

under paragraph (b)(2) of this section

the Borrower must:

(i) Refund to a family which does not

owe any amount under the lease the full

amount of the family’s security deposit

balance;

(ii) Provide to a family owing under

the lease a list itemizing each amount,

along with a statement of the family’s

rights under State and local law. If the

amount which the Borrower claims is

owed by the family is less than the

amount of the family’s security deposit

balance, the Borrower must refund the

excess balance to the family. If the

Borrower fails to provide the list, the

family will be entitled to the refund of

the full amount of the family’s security

deposit balance.

(4) Disagreements. If a disagreement

arises concerning reimbursement of the

security deposit, the family will have

the right to present objections to the

Borrower in an informal meeting. The

Borrower must keep a record of any

disagreements and meetings in a tenant

file for inspection by HUD. The

procedures of paragraph (b)(4) of this

section do not preclude the family from

exercising its rights under State or local

law.

(5) Decedent’s interest in security

deposit. Upon the death of a member of

a family, the decedent’s interest, if any,

in the security deposit will be governed

by State or local law.

(c) Reimbursement by HUD for

assisted units. If the family’s security

deposit balance is insufficient to

reimburse the Borrower for any unpaid

amount which the family owes under

the lease for an assisted unit and the

Borrower has provided the family with

the list required by paragraph (b)(3)(ii)

of this section, the Borrower may claim

reimbursement from HUD for an amount

not to exceed the lesser of:

(1) The amount owed the Borrower; or

(2) One month’s contract rent, minus

the amount of the family’s security

deposit balance. Any reimbursement

under this section will be applied first

toward any unpaid tenant rent due

under the lease. No reimbursement may

be claimed for unpaid rent for the

period after termination of the tenancy.

The Borrower may be eligible for

vacancy payments following a vacancy

in accordance with the requirements of

§ 885.650.

(Approved by the Office of Management and

Budget under control number 2502–0371).

§ 885.640 Adjustment of rents.

(a) Contract rents.—(1) Adjustment

based on approved budget. If the HAP

contract provides, or has been amended

to provide, that contract rents will be

adjusted based upon a HUD-approved

budget, HUD will calculate contract rent

adjustments based on the sum of the

project’s operating costs and debt

service (as calculated by HUD), with

adjustments for vacancies, the project’s

non-rental income, and other factors

that HUD deems appropriate. The

calculation will be made on the basis of

information provided by the Borrower

on a form acceptable to the Secretary.

The automatic adjustment factor

described in part 888 of this chapter is

not used to adjust contract rents under

paragraph (a)(1) of this section, except

to the extent that the amount of the

replacement reserve deposit is adjusted

under § 880.602 of this chapter.

(2) Annual and special adjustments. If

the HAP contract provides that contract

rents will be adjusted based on the

application of an automatic adjustment

factor and by special additional

adjustments:

(i) Consistent with the HAP contact,

contract rents may be adjusted in

accordance with part 888 of this

chapter;

(ii) Special additional adjustments

will be granted, to the extent

determined necessary by HUD, to reflect

increases in the actual and necessary

expenses of owning and maintaining the

assisted units which have resulted from

substantial general increases in real

property taxes, assessments, utility rates

or similar costs (i.e., assessments and

utilities not covered by regulated rates),

and which are not adequately

compensated for by an annual

adjustment. The Borrower must submit

to HUD required supporting data,

financial statements and certifications

for the special additional adjustment.

(b) Rent for unassisted units. The rent

payable by families occupying units that

are not assisted under the HAP contract

shall be equal to the contract rent

computed under paragraph (a) of this

section.

(Approved by the Office of Management and

Budget under control number 2502–0371).

§ 885.645 Adjustment of utility allowances.

In connection with adjustments of

contract rents as provided in

§ 885.640(a), the Borrower must submit

an analysis of any project’s utility

allowances. Such data as changes in

utility rates and other facts affecting

utility consumption should be provided

as part of this analysis to permit

appropriate adjustments in the utility

allowances for assisted units. In

addition, when approval of a utility rate

change would result in a cumulative

increase of 10 percent or more in the

most recently approved utility

allowances, the Borrower must advise

HUD and request approval of new

utility allowances. Whenever a utility

allowance for an assisted unit is

adjusted, the Borrower will promptly

notify affected families and make a

corresponding adjustment of the tenant

rent and the amount of the housing

assistance payment.

(Approved by the Office of Management and

Budget under control number 2502–0371).

§ 885.650 Conditions for receipt of

vacancy payments for assisted units.

(a) General. Vacancy payments under

the HAP contract will not be made

unless the conditions for receipt of these

housing assistance payments set forth in

this section are fulfilled.

(b) Vacancies during rent-up. For each

unit that is not leased as of the effective

date of the HAP contract, the Borrower

is entitled to vacancy payments in the

amount of 80 percent of the contract

rent for the first 60 days of vacancy, if

the Borrower:

(1) Conducted marketing in

accordance with § 885.600(a) and

otherwise complied with § 885.600;

(2) Has taken and continues to take all

feasible actions to fill the vacancy; and

(3) Has not rejected any eligible

applicant except for good cause

acceptable to HUD.

(c) Vacancies after rent-up. If an

eligible family vacates a unit, the

Borrower is entitled to vacancy

payments in the amount of 80 percent

of the contract rent for the first 60 days

of vacancy if the Borrower:

(1) Certifies that it did not cause the

vacancy by violating the lease, the HAP

contract, or any applicable law;

(2) Notified HUD of the vacancy or

prospective vacancy and the reasons for

the vacancy immediately upon learning

of the vacancy or prospective vacancy;

(3) Has fulfilled and continues to

fulfill the requirements specified in

§ 885.600(a) (2) and (3) and § 885.650(b)

(2) and (3); and

(4) For any vacancy resulting from the

Borrower’s eviction of an eligible

family, certifies that it has complied

with § 885.630.

(d) Vacancies for longer than 60 days.

If a unit continues to be vacant after the

60-day period specified in paragraph (b)

or (c) of this section, the Borrower may
Federal Register / Vol. 60, No. 6 / Tuesday, January 10, 1995 / Rules and Regulations 2669

apply to receive additional vacancy

payments in an amount equal to the

principal and interest payments

required to amortize that portion of the

debt service attributable to the vacant

unit for up to 12 additional months for

the unit if:

(1) The unit was in decent, safe and

sanitary condition during the vacancy

period for which payment is claimed;

(2) The Borrower has fulfilled and

continues to fulfill the requirements

specified in paragraph (b) or (c) of this

section, as appropriate; and

(3) The Borrower has demonstrated to

the satisfaction of HUD that:

(i) For the period of vacancy, the

project is not providing the Borrower

with revenues at least equal to project

expenses (exclusive of depreciation) and

the amount of payments requested is not

more than the portion of the deficiency

attributable to the vacant unit; and

(ii) The project can achieve financial

soundness within a reasonable time.

(e) Prohibition of double

compensation for vacancies. If the

Borrower collects payments for

vacancies from other sources (tenant

rent, security deposits, payments under

§ 885.635(c), or governmental payments

under other programs), the Borrower

shall not be entitled to collect vacancy

payments to the extent these collections

from other sources plus the vacancy

payment exceed contract rent.

(Approved by the Office of Management and

Budget under control number 2502–0371).

Dated: December 22, 1994.

Nicolas P. Retsinas,

Assistant Secretary for Housing-Federal

Housing Commissioner.

[FR Doc. 95–552 Filed 1–9–95; 8:45 am]

BILLING CODE 4210–27–P