CHAPTER 7 

FINANCIAL INFEASIBILITY WAIVERS 

AHP properties were sold at a price discounted to 

reflect the restricted revenue to be generated by 

the Set-Aside unit requirements. Under most 

circumstances, owners should be able to 

maintain viability and full compliance, assuming 

proper management. However, circumstances 

beyond the control of the owner may arise under 

which continued full compliance with the SetAside requirements is not feasible or would 

jeopardize the financial viability of the property. 

Under the provisions of a property's LURA, 

monitoring agencies have the authority to reduce 

temporarily the occupancy requirements for Low 

and Very Low Income tenants in cases where it is 

no longer financially feasible for an owner to 

meet these requirements. 

To obtain such a reduction, owners must submit an 

application to the monitoring agency requesting 

temporary waiver of the occupancy requirements. 

This Chapter addresses the process and 

conditions for financial feasibility waivers. 

7.1 FINANCIAL INFEASIBILITY WAIVERS 

When conditions arise that threaten the financial 

feasibility of the property, owners may request a 

waiver of the AHP occupancy requirements, 

enabling them to rent some or all of the units setaside for VLI and LI households temporarily to 

tenants with higher incomes at rents above the 

AHP rent limits. 

Owners should consider applying for such a 

waiver only as a measure of last resort to 

preserve the property. FDIC expects that 

owners will have taken all reasonable steps to 

address the source of the property's distress and 

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strengthen its financial position before applying 

for a waiver. 

For some properties, the waiver alone will not 

provide sufficient relief to enable owners to 

generate the income needed to meet their 

financial obligations. In such a case, FDIC 

anticipates that a AHP waiver will serve as one 

component of a larger package of assistance to 

the property. 

The remainder of this section describes: 

0	 necessary conditions for receiving a waiver; 

0	 types of waivers; and 

0	 the extent of a waiver. 

A. Necessary Conditions for Granting Waivers 

FDIC has established the following items as 

necessary conditions for receiving a financial 

infeasibility waiver. 

¤	 Serious Financial Distress. A property 

should be experiencing serious financial 

problems to receive a waiver. Properties 

where profits are lower than anticipated or 

which encounter occasional monthly losses 

are not considered to be experiencing serious 

problems. 

¤	 Conditions Are Beyond Control of Owner. 

The conditions leading to the property's 

financial distress problems should be beyond 

the owner's control, such as market changes 

or catastrophic event. 

¤	 The Owner Has Made Substantial Efforts to 

Strengthen Property's Condition. The 

owner must have taken, and be able to 

demonstrate, all reasonable steps to address 

the source of the distress and improve the 

property's financial condition. 

¤	 A Waiver Enables Owner to Address 

Problem. The waiver must clearly provide 

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the increased income necessary to help 

preserve the property. If the waiver, together 

with the owner's existing efforts to strengthen 

the property's financial position, does not 

provide sufficient relief to overcome a 

property's distress, the waiver application 

must show that the owner is attempting to 

obtain the additional assistance necessary to 

preserve the property. 

¤	 A Waiver Must Be Compatible with Other 

Assistance to the Property. It may not be 

possible to unilaterally waive the occupancy 

requirements for the property if it also has 

Low Income housing tax credits, tax exempt 

bond financing, or other public financing with 

occupancy requirements. 

B. Types of Waivers 

Owners may apply for two types of waivers: 

¤	 VLI Set-Aside Waiver: Temporarily reduce 

the number of required VLI-QUs; or 

¤	 LI-QU Set-Aside Waiver: Temporarily 

reduce the number of required QUs (LI and 

VLI) 

These waivers are temporary, not permanent, 

and must be reviewed annually by the monitoring 

agency. Agencies also may waive fees 

temporarily. 

Agencies will not issue a waiver to change rent 

limits for QUs above the limits issued by FDIC. 

VLI Set-Aside Waiver: Reduce 

Required VLI-QUs 

A VLI Set-Aside waiver gives the owner a 

temporary reduction in the VLI Set-Aside, but not 

the Total Set-Aside of QUs. 

For example, in a property with a Total Set-Aside 

of 35 units and a VLI Set-Aside of 20 units, an 

agency granting a VLI Set-Aside waiver may 

choose to reduce the required number of VLI 

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QUs from 20 units to ten units. However, the 

owner is still required to maintain a total of 35 

QUs, with an increase in LI units offsetting the 

reduced number of VLI units. 

Owners may not remove QU designation from 

any units as a result of the waiver. It will pertain 

only to the decisions regarding vacant units or 

the application of Next Available Unit (or NAQU) 

rules to change in tenant status. 

Total Set-Aside Waiver: Reduce 

Required QUs 

The second type of waiver gives owners a 

temporary reduction in the total number of 

required QUs. Under this type of waiver, owners 

will generally request to reduce both the Total 

Set-Aside and the VLI Set-Aside. 

Using the same example presented above, a 

Total Set-Aside waiver might allow an owner to 

reduce the Total Set-Aside number of QUs from 

35 units to 20 units and the required number of 

VLI Set-Aside units from 20 units to 10 units. 

When a waiver is granted and the actual number 

of occupied QUs in the property exceeds the 

waiver-approved reduced number of QUs, 

owners who receive a Total Set-Aside waiver 

may not remove the QU designation from any 

occupied QUs. The owner may not raise the 

rent for a QU above the applicable rent limit until 

the qualifying tenant vacates the QU. 

C. Size of a Waiver 

Monitoring agencies will determine the type of 

waiver to be granted and the size and term of 

any reduction in the number of QUs. Agencies 

will avoid a complete waiver of the occupancy 

requirements wherever possible. Waivers will be 

reviewed annually to determine if there is a 

continuing need for the waiver. 

7.2 BASIC CONTENTS OF WAIVER APPLICATIONS 

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Applications for waivers should be sent to the 

monitoring agency along with a processing fee as 

stipulated by the agency. Agencies will render 

their decision within 60 days from the date of 

application. 

Applications for waivers should provide sufficient 

information to enable the monitoring agency to 

evaluate the property's financial condition, as well 

as a description of the relief the owner is 

requesting and how the relief will help strengthen 

the property's financial condition. The 

application should also include supporting 

materials that show what the owner has done to 

address the conditions contributing to the 

property's financial problems and the fee for 

processing the request. 

Every application must include the items noted 

below. 

Financial Infeasibility Application Contents 

0	 Owner's description of the conditions that led 

to the financial deterioration of the property. 

0	 Property's financial statements for the past 

three years. 

0	 Income and expenses for the property broken 

down by month for the past year. 

0	 Listing of other types of assistance received 

by property (e.g., tax credits, or bond 

financing) and any other financing. 

0	 Amount of additional monthly income needed 

to address problems and for what period of 

time. 

0	 The type of relief the owner is requesting 

(e.g., the type and number of units for which 

the waiver is requested) and a description of 

how it will be used to correct the problem. 

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0 Documentation showing market rate rents for 

the area. 

0 Description of actions owner is taking to 

strengthen the property's financial position. 

0 Processing fee, as stipulated by the agency. 

In addition, if vacancies are a significant problem 

contributing to the property's financial 

deterioration or distress, the application should 

also provide the following information: 

0	 Documentation showing the property's 

vacancies for the past 12 months; 

0	 Description of marketing efforts to attract LI 

and VLI tenants and documentation of these 

efforts; and 

0	 The total number of rental applications 

received during the past six months, and the 

number of applications from potentially 

eligible tenants. An explanation of why 

potentially eligible applicants were turned 

down or decided not to accept units should 

be included. 

Also, if increased operating expenses are a 

significant problem contributing to the financial 

deterioration of the property, a waiver application 

should also include the following information: 

0	 Evidence that owner has taken steps to 

control operating expenses and has invested 

funds to correct the problem; 

0	 Sufficient documentation to show that the 

property's expenses do not include excessive 

management fees or payments to the owner 

or related parties for non-essential services; 

and 

0	 Documentation showing that increased 

expenses are consistent with properties in the 

area or beyond the control of the owner. 

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Waivers will not be granted for higher debt 

service costs that may result from additional 

improvements, equity-takeouts or other 

refinancing, or scheduled interest rate 

adjustments. 

Owners are solely responsible for submitting all 

materials necessary to support their request for a 

waiver. Agencies may make determinations 

regarding waiver requests solely on the basis of 

the materials presented in the application. 

Applications with inadequate documentation may 

be denied on grounds of insufficient evidence. 

7.3 WAIVER DETERMINATIONS 

Monitoring agencies will act on waiver 

applications within 60 days of receipt. 

If an agency determines that a waiver should be 

granted, monitoring staff will inform the owner of 

the decision within 60 days of the date of 

application and will send a written notice 

describing the conditions of the waiver. 

Monitoring agencies may establish conditions for 

a waiver to ensure that the owner will make a 

good-faith effort to restore the financial health of 

the property. For example, agencies also may 

require an owner to submit monthly compliance 

reports, and additional management performance 

reports as needed, to document progress in 

implementing the waiver conditions. 

If the monitoring agency decides to deny an 

owner's request for a waiver, the owners will 

receive a written notice indicating that the 

application was denied and stating the reasons 

the waiver was not granted. This notice will be 

sent to the owner within 60 days of the date of 

application. If a request failed to provide 

sufficient documentation to grant the waiver, the 

agency will indicate the deficiencies. 

If rejected, owners may submit a revised 

application which addresses the deficiencies 

found in the original submission. Owners will be 

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expected to pay another processing fee when 

submitting revised applications. 

7.4 ANNUAL WAIVER REVIEWS 

Monitoring agencies will review waivers at least 

annually to determine if the need continues to 

exist for the waiver. Owners may be required to 

submit updated and additional documentation for 

this review. 

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