2023 California Code › Health and Safety Code - HSC › DIVISION 31 - HOUSING AND HOME FINANCE › PART 2 - DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT › CHAPTER 6.5 - Deferred-Payment Rehabilitation Loans › Section 50671.6.

50671.6. For the purpose of preserving or expanding the supply of rental housing affordable to low- and very low-income tenants in cities or counties affected by a natural disaster as defined by Section 8680.3 of the Government Code, resulting in a state of emergency proclaimed by the Governor pursuant to Section 8625 of the Government Code, financial assistance may be provided as prescribed in this chapter under the following special conditions, which shall prevail over conflicting provisions of this chapter and administrative regulations:
(a)  Funds may be used for the purpose of repair or refinancing in conjunction with rehabilitation of rental housing developments. For purposes of this section, rehabilitation may include reconstruction. The loans shall only be made in a city, county, or city and county proclaimed by the Governor to be in a state of disaster and only when the Director of the Department of Housing and Community Development has determined that the disaster has decreased the supply of low-income rental housing. The loan funds may be used to repair disaster related damage, bring the housing into compliance with applicable health and safety and seismic safety standards, and to make property improvements that are related to that compliance. If reconstruction is precluded on the original project site due to documented soil, geological, or other conditions that cannot be mitigated at a reasonable cost, or the cost of the rehabilitation or reconstruction would exceed 110 percent of the value after reconstruction, the department may approve reconstruction on a comparable site in the immediate neighborhood.
(b)  (1)  Rental housing developments, for this purpose, shall include, but not be limited to, multifamily rental dwellings, apartments, residential hotels, mobilehome parks, group homes for senior citizens or the disabled, buildings of mixed residential rental and commercial use, and buildings of mixed owner-occupant and rental use that are made available for permanent residency of tenants. Rental housing developments must contain five or more units. For buildings of mixed residential rental and commercial use, funds may be used for costs directly attributable to the residential space or the conversion of commercial space to residential space or a pro-rata share, based on gross floor area mix at the time of the disaster, if costs cannot be directly attributable to either commercial or residential space.
(2)  Eligible cost shall include those costs relating to all of the following:
(A)  Refinancing of existing debt to the extent necessary to reduce debt service to a level consistent with the provision of affordable rents and the fiscal integrity of the project.
(B)  Rehabilitation or reconstruction.
(C)  General property improvements that are necessary to correct unsafe, unhealthy, or unsanitary conditions, including renovations and remodeling, including, but not limited to, remodeling of kitchens and bathrooms, installation of new appliances, landscaping, and purchase or installation of central air conditioning.
(D)  Necessary and related onsite improvements.
(E)  Reasonable administrative expenses in connection with the planning and execution of the project, as determined by the department.
(F)  Reasonable consulting costs.
(G)  Rent-up costs.
(H)  Seismic rehabilitation improvements.
(I)  Any other costs of rehabilitation authorized by the department.
(3)  (A)  “Rent-up costs,” as used in this section, means costs incurred while a unit is on the housing market but not rented to its first tenant.
(B)  “Seismic rehabilitation improvements,” as used in this section, means improvements that are designed to increase seismic structural safety in accordance with a plan developed by a civil engineer, a structural engineer, or an architect for a particular building that has been identified as hazardous by the city or county in which the building is located in accordance with the criteria established by the Seismic Safety Commission pursuant to Section 8875.1 of the Government Code or in accordance with a previously adopted city or county seismic safety ordinance adopted pursuant to Section 19163.
(4)  Eligible activities, not fundable under the program, shall include those costs relating to both of the following:
(A)  Acquisition of property.
(B)  Conversion of nonresidential structures to residential use.
(c)  The loans need not be made in support of the programs specified in Section 50663.
(d)  As a condition of assistance under this section, sponsors of rental housing developments shall agree to the restrictions set forth in this subdivision with respect to assisted units. The proportion of assisted units shall at least be equal to the proportion of project costs financed pursuant to this section to the total after-rehabilitation value of the rental housing development.
(1)  For any loan under this section for the rehabilitation of units, the borrower must maintain affordable rent levels for low-income households, as defined by Section 50079.5, for assisted units for the term of the loan.
(2)  “Maintain affordable rent levels,” as used in this section, means rents may be automatically increased by the sponsor on an annual basis pursuant to increases in the median income of the county in which the rental housing development is located. Any sponsor may appeal to the department for a greater adjustment in rents necessary to ensure the fiscal integrity of the rental housing development. If the department does not respond within 60 days, the request shall be deemed approved. A 30-day written notice shall be given to each eligible household prior to an adjustment in the amount of rent.
(3)  (A)  Upon prior written approval by the department, a sponsor may set income limits for incoming tenants at a level below the limit specified in Section 50079.5. If a tenant’s income exceeds this income limit established by the sponsor, but does not exceed the limit specified in Section 50079.5, that fact alone shall neither constitute cause for the tenant’s eviction, nor be a violation of the sponsor’s loan agreement. If a tenant’s income exceeds the income limit for a household specified in Section 50079.5, the tenant shall be required to vacate the assisted unit within six months from the date of income recertification or notice to the sponsor of an increase in income over the permissible income level. That period may be extended by the sponsor for an additional six-month period in high cost rental areas with low vacancy rates as determined by the department. Any vacant units shall be rented to eligible households until the required residency by eligible households is attained.
(B)  In the case of limited equity housing cooperatives, the provisions of this paragraph shall apply, except that tenants whose incomes, upon recertification, exceed the limit specified in Section 50079.5 shall not be required to vacate their units. Instead, and upon six months’ notice, these tenants shall be required to pay rent in an amount equal to the market rate rent for comparable units, as determined by the department. When a tenant’s income exceeds the limit specified in Section 50079.5, the next available membership share for occupancy in a comparable unit shall be sold to a household with an income at or below this limit.
(4)  Any rental housing development assisted pursuant to this section shall be governed by a regulatory agreement between the sponsor and the department. The agreement shall, at a minimum, contain all of the restrictions set forth in this subdivision. The regulatory agreement shall be recorded, or referenced in a document recorded, in the office of the county recorder for the county in which the rental housing development is located. The regulatory agreement shall be deemed a covenant running with the land and shall be binding upon the sponsor and any and all successors-in-interest in case of sale or transfer of the rental housing development for the original term of the loan, and any extensions thereof, regardless of any prepayment of the loan.
(5)  If any unit undergoing rehabilitation or reconstruction pursuant to funding under this section is subject to a currently applicable regulatory agreement between the department and a housing sponsor, that agreement shall prevail over this subdivision.
(6)  In addition to the other requirements of this chapter, the department may require terms and conditions as it determines necessary to meet the needs of the disaster area and its victims, to ensure the fiscal integrity of the rental housing development, and to protect the interests of the state. The department shall require that priority in occupancy in any unit assisted pursuant to this section shall be given first to those occupants who were displaced by the natural disaster or the resulting rehabilitation of the assisted rental units. Second priority shall be given to other persons who were displaced from housing as a result of the natural disaster.
(e)  (1)  When the requirements of subdivision (a) have been met, the department shall announce the availability of funds and accept applications for fund commitments until any deadline established pursuant to subdivision (e) of 50661.5 has expired. Fund commitments shall be based on a ranking of applications, which shall occur at least once for each new disaster. In making this ranking for rental housing developments, priority shall be given to those projects that: (A) serve the greater number of eligible households, as defined in Section 50105, with the lowest incomes; (B) suffered substantial damage as a result of the natural disaster; (C) are located in areas where the housing need is great as determined by the department, taking into consideration, among other factors, low vacancy rates, high market rents, long waiting lists for subsidized housing, the stock of substandard housing, and the potential loss of subsidized rental housing to market-rate housing through demolition, foreclosure, or subsidy termination; (D) complement the implementation of an existing housing program; (E) maximize private local and other funding sources; and (F) maximize long-term benefits for eligible households, as defined in Sections 50079.5 and 50105.
(2)  The department shall also evaluate the capability of the sponsor to rehabilitate, own, and manage the rental housing development.
(f)  (1)  The department may waive the maximum loan amounts and per-unit loan amounts established by regulation as it determines necessary to serve the disaster victims. Loans made pursuant to this section for rehabilitation, shall have a term of up to 20 years. Loans made pursuant to this section for rehabilitation, or refinancing and rehabilitation shall have a term of up to 30 years.
(2)  Upon request of the sponsor, the department may permit repayment of a sponsor’s loan on the basis of net cash-flow. The department shall develop a prepayment plan in conjunction with the sponsor that shall ensure the maintenance of affordable rents and the fiscal integrity of the rental housing development. As an incentive to encourage the prepayment of loans, the department may permit the sponsor to retain one-half of the net cash-flow. The department shall determine the method for calculating net cash-flow, which may include a factor for excess debt service coverage or a return on cash investment to the sponsor.
(3)  Principal and accumulated interest is due and payable upon completion of the term of the loan. The loan shall bear interest at the rate of three percent per annum on the unpaid principal balance. However, the department shall reduce or eliminate interest payments on a loan for any year or, alternatively, defer interest until the deferred payment loan is repaid, if necessary to provide affordable rents to households of very low-income and low-income. The ability to pay all or part of the three percent simple annual interest shall not be considered in determining the fiscal integrity of the rental housing development at the time of the rating and ranking of an application.
(g)  When a loan will be used in conjunction with federal or other state housing assistance or tax credits, and a conflict exists between the other state or federal program requirements and this chapter with regard to determining maximum allowable rents, the requirements of this chapter may be waived only to the extent necessary to permit the federal or other state financial participation or eligibility for tax credits.
(h)  Tenants of rental housing developments rehabilitated with assistance provided under this section who are displaced as a result of either the rehabilitation work, or both the natural disaster and the subsequent rehabilitation work, shall be entitled to relocation benefits pursuant to, and subject to, the requirements of Section 7265.3 of the Government Code. The costs of the benefits and the assistance provided to tenants shall be eligible for funding by a loan provided pursuant to this section. Benefits and assistance provided hereunder shall not duplicate benefits or assistance for temporary housing received by tenants from any other public source or from insurance proceeds.
(i)  The department may make loans directly to owners of rental housing, or contract for the administration of loans under this section with entities that it determines to have the necessary experience to successfully administer the loan program, including, but not limited to, local public agencies and private organizations. The department may authorize, under that contract, the payment of expenses incurred by the entities in administering the loan program and may prescribe the conditions pursuant to which the entities shall administer the loans.
(j)  To the extent that any housing unit or other structure that was damaged or destroyed is reconstructed pursuant to this section with substantially the same number of units, it shall be deemed to be ”existing housing” for purposes of subdivision (d) of Section 37001.5.
(k)  Any rule, policy, or standard of general application employed by the Department of Housing and Community Development in implementing this section shall not be subject to the requirements of Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
( l)  The department shall adopt regulations establishing terms and conditions upon which repair loans may be made. These regulations shall be made available to the public by the department.
(m)  Fund allocations made pursuant to this section shall not be subject to review or approval by the Local Assistance Loan and Grant Committee of the Department of Housing and Community Development operating pursuant to Subchapter 1 (commencing with Section 6900) of Chapter 6.5 of Title 25 of the California Code of Regulations.
(n)  (1)  In order to be eligible for one or more loans pursuant to this section, the borrower shall agree to all of the following:
(A)  All buildings shall be connected to the foundation systems, except those of unreinforced masonry wall construction, as necessary to meet the seismic requirements of the 1973 Edition of the Uniform Building Code of the International Conference of Building Officials in a manner approved by the department, that may include seismic strengthening of foundation cripple walls, and affixing or bolting sill plates to the foundation.
(B)  For all buildings of unreinforced masonry wall construction, all repairs and seismic retrofits shall comply with earthquake hazard mitigation programs established pursuant to Chapter 12.2 (commencing with Section 8875) of Division 1 of Title 2 of the Government Code.
(C)  All water heaters shall be braced, anchored, or strapped to resist falling or horizontal displacement due to an earthquake motion.
(2)  The loans shall include an amount sufficient to meet the requirements of paragraph (1).
(Added by Stats. 1993, Ch. 1105, Sec. 5. Effective January 1, 1994.)