§ 3431.22 7 CFR Ch. XXXIV (1–1–11 Edition)
(e) Debt Collection. Individuals in (c) All requests for waivers must be breach of a service agreement entered submitted to the Secretary in writing. into under this part are considered to (d) A program participant who is owe a debt to the United States for the granted a waiver in accordance with amount of repayment. Any such debt this section will be notified by the Sec- will be collected pursuant to the De- retary in writing. partment’s Debt Management regula- (e) Any obligation of a program par- tions at 7 CFR part 3. ticipant for service or payment will be canceled upon the death of the program § 3431.22 Waiver. participant. (a) A program participant may seek a § 3431.23 Service to Federal govern- waiver or suspension of the service or ment in emergency situations. payment obligations incurred under this part by written request to the Sec- (a) The Secretary may enter into retary setting forth the bases, cir- agreements of 1 year duration with vet- cumstances, and causes which support erinarians who have service agree- the requested action. ments for such veterinarians to provide services to the Federal Government in (b) The Secretary may waive any emergency situations, as determined service or payment obligation incurred by the Secretary, under terms and con- by a program participant whenever ditions specified in the agreement. compliance by the program participant (b) Pursuant to a service agreement is impossible or would involve extreme under this section, the Secretary shall hardship to the program participant pay an amount, in addition to the and if enforcement of the service or amount paid, as determined by the Sec- payment obligation would be against retary and specified in the agreement, equity and good conscience. of the principal and interest of quali- (1) Compliance by a program partici- fying educational loans of the veteri- pant with a service or repayment obli- narians. This amount will be provided gation will be considered impossible if in the RFA. the Secretary determines, on the basis (c) Agreements entered into under of information and documentation as this paragraph shall include the fol- may be required: lowing: (i) That the program participant suf- (1) A veterinarian shall not be re- fers from a physical or mental dis- quired to serve more than 60 working ability resulting in the permanent in- days per year of the agreement. ability of the program participant to (2) A veterinarian who provides serv- perform the service or other activities ice pursuant to the agreement shall re- which would be necessary to comply ceive a salary commensurate with the with the obligation; or duties and shall be reimbursed for trav- (ii) That the employment of the pro- el and per diem expenses as appropriate gram participant has been terminated for the duration of the service. involuntarily for reasons unrelated to job performance. § 3431.24 Reporting requirements, (2) In determining whether compli- monitoring, and close-out. ance by a program participant with the VMLRP participants will be required terms of a service or repayment obliga- to submit periodic reports per the tion imposes an extreme hardship, the terms and conditions of their service Secretary may, on the basis of infor- agreements. In addition, the Secretary mation and documentation as may be is responsible for ensuring that a required, take into consideration the VMLRP participant is complying with nature of the participant’s personal the terms and conditions of their serv- problems and the extent to which these ice agreement, including any addi- affect the participant’s ability to per- tional reporting or close-out require- form the obligation. ments.
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Part Page 3550 Direct single family housing loans and grants ...... 483 3560 Direct multi-family housing loans and grants ...... 527 3565 Guaranteed Rural Rental Housing Program ...... 650 3570 Community programs...... 679 3575 General ...... 688
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Subpart A—General Protection Act (15 U.S.C. 1601 et seq.). All activities under this part shall be § 3550.1 Applicability. accomplished in accordance with the This part sets forth policies for the Fair Housing Act (42 U.S.C. 3601–3620), direct single family housing loan pro- Executive Order 11246, and Executive grams operated by the Rural Housing Order 11063, as amended by Executive Service (RHS) of the U.S. Department Order 12259, as applicable. The civil of Agriculture (USDA). It addresses the rights compliance requirements for requirements of sections 502 and 504 of RHS are in 7 CFR part 1901, subpart E. the Housing Act of 1949, as amended, and includes policies regarding both § 3550.4 Reviews and appeals. loan and grant origination and serv- Whenever RHS makes a decision that icing. Procedures for implementing is adverse to a participant, RHS will these regulations can be found in pro- provide the participant with written gram handbooks, available in any notice of such adverse decision and the Rural Development office. Any provi- participant’s rights to a USDA Na- sion on the expenditure of funds under tional Appeals Division hearing in ac- this part is contingent upon the avail- cordance with 7 CFR part 11. Any ad- ability of funds. verse decision, whether appealable or § 3550.2 Purpose. non-appealable may be reviewed by the next-level RHS supervisor. The purpose of the direct RHS single family housing loan programs is to pro- § 3550.5 Environmental requirements. vide low- and very low-income people who will live in rural areas with an op- (a) Policy. RHS will consider environ- portunity to own adequate but modest, mental quality as equal with economic, decent, safe, and sanitary dwellings social, and other relevant factors in and related facilities. The section 502 program development and decision- program offers persons who do not cur- making processes. RHS will take into rently own adequate housing, and who account potential environmental im- cannot obtain other credit, the oppor- pacts of proposed projects by working tunity to acquire, build, rehabilitate, with RHS applicants, other federal improve, or relocate dwellings in rural agencies, Indian tribes, State and local areas. The section 504 program offers governments, and interested citizens loans to very low-income homeowners and organizations in order to formulate who cannot obtain other credit to re- actions that advance the program’s pair or rehabilitate their properties. goals in a manner that will protect, en- The section 504 program also offers hance, and restore environmental qual- grants to homeowners age 62 or older ity. who cannot obtain a loan to correct (b) Regulatory references. Processing health and safety hazards or to make and servicing actions under this part the unit accessible to household mem- will be done in accordance with the re- bers with disabilities. quirements provided in 7 CFR part 1940, § 3550.3 Civil rights. subpart G which addresses environ- mental requirements and 7 CFR part RHS will administer its programs 1924, subpart A, which addresses lead- fairly, and in accordance with both the based paint. letter and the spirit of all equal oppor- tunity and fair housing legislation and § 3550.6 State law or State supplement. applicable executive orders. Loans, grants, services, and benefits provided State and local laws and regulations, under this part shall not be denied to and the laws of federally recognized In- any person based on race, color, na- dian tribes, may affect RHS implemen- tional origin, sex, religion, marital sta- tation of certain provisions of this reg- tus, familial status, age, physical or ulation, for example, with respect to mental disability, receipt of income the treatment of liens, construction, or from public assistance, or because the environmental policies. Supplemental applicant has, in good faith, exercised guidance may be issued in the case of any right under the Consumer Credit any conflict or significant differences.
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§ 3550.7 Demonstration programs. (c) RHS employee responsibility. An RHS employee must disclose any From time to time, RHS may author- known relationship or association with ize limited demonstration programs. a recipient, regardless of whether the The purpose of these demonstration relationship or association is known to programs is to test new approaches to others. RHS employees or members of offering housing under the statutory their families may not purchase a Real authority granted to the Secretary. Estate Owned (REO) property, security Therefore, such demonstration pro- property from a borrower, or security grams may not be consistent with property at a foreclosure sale. Loan some of the provisions contained in closing agents who have been involved this part. However, any program re- with a particular property, as well as quirements that are statutory will re- members of their families, are also pre- main in effect. Demonstration pro- cluded from purchasing such prop- grams will be clearly identified as erties. such. [61 FR 59779, Nov. 22, 1996; 61 FR 65266, Dec. § 3550.8 Exception authority. 11, 1996; 75 FR 59060, Sept. 27, 2010] An RHS official may request, and the Administrator or designee may make, § 3550.10 Definitions. an exception to any requirement or Acceleration. Demand for immediate provision of this part or address any repayment of the entire balance of a omission of this part that is consistent debt if the security instruments are with the applicable statute if the Ad- breached. ministrator determines that applica- Adjusted income. Used to determine tion of the requirement or provision, or whether an applicant is income-eligi- failure to take action in the case of an ble. Adjusted income provides for de- omission, would adversely affect the ductions to account for varying house- Government’s interest. hold circumstances and expenses. See § 3550.54 for a complete description of § 3550.9 Conflict of interest. adjusted income. (a) Objective. It is the objective of Adjustment. An agreement to release RHS to maintain the highest standards a debtor from liability generally upon of honesty, integrity, and impartiality receipt of an initial lump sum rep- by employees. To reduce the potential resenting the maximum amount the for employee conflict of interest, all debtor can afford to pay and periodic processing, approval, servicing, or re- additional payments over a period of view activity will be conducted in ac- up to 5 years. cordance with 7 CFR part 1900, subpart Amortized payment. Equal monthly D by RHS employees who: payments under a fully amortized (1) Are not themselves the applicant mortgage loan that provides for the or borrower; scheduled payment of interest and (2) Are not members of the family or principal over the term of the loan. close known relatives of the applicant Applicant. An adult member of the or borrower; household who will be responsible for (3) Do not have an immediate work- repayment of the loan. ing relationship with the applicant or Assumption. The procedure whereby borrower, the employee related to the the transferee becomes liable for all or applicant or borrower, or the employee part of the debt of the transferor. who would normally conduct the activ- Borrower. A recipient who is indebted ity; or under the section 502 or 504 programs. (4) Do not have a business or close Cancellation. A decision to cease col- personal association with the applicant lection activities and release the debt- or borrower. or from personal liability for any re- (b) Applicant or borrower responsibility. maining amounts owed. The applicant or borrower must dis- Compromise. An agreement to release close any known relationship or asso- a debtor from liability upon receipt of ciation with an RHS employee when a specified lump sum that is less than such information is requested. the total amount due.
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Conditional commitment. A determina- or environmental threat to the occu- tion that a proposed dwelling will qual- pant or others. ify as a program-eligible property. The Elderly family. An elderly family con- conditional commitment does not re- sists of one of the following: serve funds, nor does it ensure that a (1) A person who is the head, spouse, program-eligible applicant will be or sole member of a family and who is available to buy the dwelling. 62 years of age or older, or who is dis- Cosigner. An individual or an entity abled, and is an applicant or borrower; that joins in the execution of a promis- (2) Two or more persons who are liv- sory note to compensate for any defi- ing together, at least 1 of whom is age ciency in the applicant’s repayment 62 or older, or disabled, and who is an ability. The cosigner becomes jointly applicant or borrower; or liable to comply with the terms of the (3) In the case of a family where the promissory note in the event of the deceased borrower or spouse was at borrower’s default, but is not entitled least 62 years old or disabled, the sur- to any interest in the security or bor- viving household member shall con- rower rights. tinue to be classified as an elderly fam- Cross-collateralized loan. A situation ily for the purpose of determining ad- in which a single property secures both justed income, even though the sur- RHS and Farm Service Agency loans. viving members may not meet the defi- Custodial property. Borrower-owned nition of elderly family on their own, real property that serves as security provided: for a loan that has been taken into pos- (i) They occupied the dwelling with session by the Agency to protect the the deceased family member at the Government’s interest. time of the death; Daily simple interest. A method of es- (ii) If one of the surviving family tablishing borrower payments based on members is the spouse of the deceased daily interest charged on the out- family member, the family shall be standing principal balance of the loan. classified as an elderly family only Principal is reduced by the amount of until the remarriage of the surviving payment in excess of the accrued inter- spouse; and est. (iii) At the time of the death of the Dealer-contractor. A person, firm, deceased family member, the dwelling partnership, or corporation in the busi- was financed under title V of the Hous- ness of selling and servicing manufac- ing Act of 1949, as amended. tured homes and developing sites for Escrow account. An account to which manufactured homes. A person, firm, the borrower contributes monthly pay- partnership, or corporation not capable ments to cover the anticipated costs of of providing the complete service is not real estate taxes, hazard and flood in- eligible to be a dealer-contractor. surance premiums, and other related Debt instrument. A collective term en- costs. compassing obligating documents for a Existing dwelling or unit. A dwelling loan, including any applicable promis- or unit that has either been previously sory note, assumption agreement, or owner-occupied or has been completed grant agreement. for more than 1 year as evidenced by an Deferred mortgage payments. A subsidy occupancy permit, certificate of occu- available to eligible, very low-income pancy or similar document issued by borrowers of up to 25 percent of their the local authority. principal and interest payments at 1 False information. Information that percent for up to 15 years. The deferred the recipient knew was incorrect or amounts are subject to recapture on should have known was incorrect that sale or nonoccupancy. was provided or omitted for the pur- Deficient housing. A dwelling that poses of obtaining assistance for which lacks complete plumbing; lacks ade- the recipient was not eligible. quate heating; is dilapidated or struc- Full-time student. A person who car- turally unsound; has an overcrowding ries at least the minimum number of situation that will be corrected with credit hours considered to be full-time loan funds; or that is otherwise un- by college or vocational school in inhabitable, unsafe, or poses a health which the person is enrolled.
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Hazard. A condition of the property Housing and Community Development that jeopardizes the health or safety of Act of 1980, 42 U.S.C. 1436a. the occupants or members of the com- Leveraged loan. An affordable housing munity, that does not make it unfit for product loan or grant to an Agency habitation. (See also the definition of borrower property, closed simulta- major hazard in this section.) neously with an RHS loan. Affordable Household. All persons expected to be leveraged loans are characterized by living in the dwelling, except for live- long term (not less than 30 years), am- in aids, foster children, and foster ortized payments with a note interest adults. rate equal to or less than 3 percent . Housing Act of 1949, as amended. The Live-in aide. A person who lives with Act which provides the authority for an elderly or disabled person and is es- the direct single family housing pro- sential to that person’s care and well- grams. It is codified at 42 U.S.C. 1471 et being, not obligated for the person’s seq. support, and would not be living in the HUD. The U.S. Department of Hous- unit except to provide the support serv- ing and Urban Development. ices. Low income. An adjusted income that Inaccurate information. Incorrect in- is greater than the HUD established formation inadvertently provided, very low-income limit, but that does used, or omitted without the intent to not exceed the HUD established low-in- obtain benefits for which the recipient come limit (generally 80 percent of me- was not eligible. dian income adjusted for household Indian reservation. All land located size) for the county or Metropolitan within the limits of any Indian reserva- Statistical Area where the property is tion under the jurisdiction of the or will be located. United States notwithstanding the Major hazard. A condition so severe issuance of any patent and including that it makes the property unfit for rights-of-way running through the res- habitation. (See also the definition of ervation; trust or restricted land lo- hazard in this section.) cated within the boundaries of a former Manufactured home. A structure that reservation of a federally recognized is built to Federally Manufactured Indian tribe in the State of Oklahoma; Home Construction and Safety Stand- or all Indian allotments, the titles to ard and RHS Thermal Performance which have not been extinguished, if Standards. It is transportable in 1 or such allotments are subject to the ju- more sections, which in the traveling risdiction of a federally recognized In- mode is 10-body feet (3.048 meters) or dian tribe. more in width, and when erected on Interest credit. A payment subsidy site is 400 or more square feet (37.16 available to certain eligible section 502 square meters), and which is built on a borrowers that reduces the effective in- permanent chassis and designed to be terest rate of a loan (see 3550.68(d)). used as a dwelling with or without a Borrowers receiving interest credit will permanent foundation when connected continue to receive it on all current to the required utilities. It is designed and future loans for as long as they re- and constructed for permanent occu- main eligible for and continue to re- pancy by a single family and contains ceive a subsidy. Borrowers who cease permanent eating, cooking, sleeping, to be eligible for interest credit can and sanitary facilities. The plumbing, never receive interest credit again, but heating, and electrical systems are may receive payment assistance if they contained in the structure. A perma- again qualify for a payment subsidy. nent foundation is required. Junior lien. A security instrument or Market value. The value of the prop- a judgment against the security prop- erty as determined by a current ap- erty to which the RHS debt instrument praisal, RHS may authorize the use of is superior. a Broker’s Price Opinion or similar in- Legal alien. For the purposes of this strument to determine market value in part, legal alien refers to any person limited servicing situations. lawfully admitted to the country who Mobile home. A manufactured unit meets the criteria in section 214 of the often referred to as a ‘‘trailer,’’ designed 487
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to be used as a dwelling, but built prior NP property. Property that does not to the enactment of the Housing and meet the program eligibility require- Community Development Act of 1980 ments outlined in §§ 3550.56 and 3550.57. (Pub. L. 96–399) enacted October 8, 1980. NP terms. Credit terms available from Moderate income. An adjusted income RHS when the applicant or property is that is greater than the low-income not program-eligible. limit, but that does not exceed the Offset. Deductions to pay a debt owed HUD established low-income limit by to RHS from a borrower’s retirement more than $5,500. benefits, salary, income tax refund, or Modest housing. A property that is payments from other federal agencies to the borrower. Deductions from re- considered modest for the area, with a tirement benefits and salary generally market value that does not exceed the apply only to current and former fed- applicable maximum loan limit as es- eral employees. tablished by RHS in accordance with Participant. For the purpose of re- § 3550.63. In addition, the property must views and appeals, a participant is any not be designed for income producing individual or entity who has applied activities nor have an in-ground swim- for, or whose right to participate in or ming pool. receive a payment, loan, or other ben- Modular or panelized home. Housing, efit is affected by an RHS decision. constructed of one or more factory- Payment assistance. A payment sub- built sections or panels, which, when sidy available to eligible section 502 completed, meets or exceeds the re- borrowers that reduces the effective in- quirements of the recognized develop- terest rate of a loan (see § 3550.68(c)). ment standards (model building codes) Borrowers eligible for a payment sub- for site built housing, and which is de- sidy receive payment assistance unless signed to be permanently connected to they are currently eligible for and re- a site-built foundation. ceive interest credit. There are two Moratorium. A period of up to 2 years methods of payment assistance. Pay- during which scheduled payments are ment assistance method 1 is found at not required, but are subject to repay- 3550.68(c)(2). Payment assistance meth- ment at a later date. od 2 is found at 3550.68(c)(1). Mortgage. A form of security instru- Payment subsidy. A general term for ment or consensual lien on real prop- subsidies which reduce the borrower’s erty including a real estate mortgage scheduled payment. It refers to either or a deed of trust. payment assistance or interest credit. Net family assets. The value of assets Person with disability. Any person who available to a household that could be has a physical or mental impairment used towards housing costs. Net family that substantially limits one or more assets are considered in the calculation major life activities, including func- of annual income and are used to deter- tions such as caring for one’s self, per- forming manual tasks, walking, seeing, mine whether the household must hearing, speaking, breathing, learning make additional cash contributions to and working, has a record of such an improve or purchase the property. impairment, or is regarded as having Net recovery value. The market value such an impairment. of the security property minus antici- PITI ratio. The amount paid by the pated expenses of liquidation, acquisi- borrower for principal, interest, taxes, tion, and sale as determined by RHS. and insurance (PITI), divided by repay- New dwelling or unit. A dwelling that ment income. is to be constructed, or a dwelling that Principal reduction attributed to sub- is less than 1 year old as evidenced by sidy (PRAS). Accelerated principal re- an occupancy permit, certificate of oc- duction that can occur when a bor- cupancy or similar document issued by rower receives a reduced interest rate the local authority and has never been through a payment subsidy. occupied. Prior lien. A security instrument or a Nonprogram (NP) interest rate. The in- judgment against the security property terest rate offered by RHS for loans that is superior to the RHS debt instru- made on NP terms. ment.
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Program-eligible applicant. Any appli- (1) Open country which is not part of cant meeting the eligibility require- or associated with an urban area. ments described in § 3550.53. (2) Any town, village, city, or place, Program-eligible property. A property including the immediate adjacent eligible to be financed under this part, densely settled area, which is not part as determined by the criteria listed in of or associated with an urban area and §§ 3550.56 through 3550.59. which: Program terms. Credit terms that are (i) Has a population not in excess of available only to program-eligible ap- 10,000 if it is rural in character; or plicants for program-eligible prop- (ii) Has a population in excess of erties. 10,000 but not in excess of 20,000, is not Property. The land, dwelling, and re- contained within a Metropolitan Sta- lated facilities for which the applicant tistical Area, and has a serious lack of will use RHS assistance. mortgage credit for low- and moderate- Protective advances. Costs incurred by income households as determined by the Agency to protect the security in- the Secretary of Agriculture and the terest of the Government that are Secretary of HUD. charged to the borrower’s account. (3) An area classified as a rural area Real estate taxes. Taxes and the an- prior to October 1, 1990, (even if within nual portion of assessments estimated a Metropolitan Statistical Area), with to be due and payable on the property, a population exceeding 10,000, but not reduced by any available tax exemp- in excess of 25,000, which is rural in tion. character, and has a serious lack of mortgage credit for low- and moderate- Recapture amount. An amount of sub- income families. This is effective sidy to be repaid by the borrower upon through receipt of census data for the disposition or nonoccupancy of the year 2010. property. Rural Development. A mission area Recipient. Any applicant, borrower, or within USDA which includes RHS, grant recipient who applies for or re- Rural Utilities Service (RUS), and ceives assistance under the section 502 Rural Business-Cooperative Service or 504 programs. (RBS). REO. The acronym for ‘‘Real Estate Scheduled payment. The monthly or Owned.’’ It refers to property for which annual installment on a promissory RHS holds title. note plus escrow (if required), as modi- Repayment income. Used to determine fied by any payment subsidy agree- whether an applicant has the ability to ment, delinquency workout agreement, make monthly loan payments. Repay- other documented agreements between ment income includes amounts ex- RHS and the borrower, or protective cluded for the purpose of determining advances. adjusted income. See § 3550.54 for a Secured loan. A loan that is complete description. collateralized by property so that in RHS. The Rural Housing Service of the event of a default on the loan, the the U.S. Department of Agriculture, or property may be sold to satisfy the its successor agency, formerly the debt. Rural Housing and Community Devel- Security property. All the property opment Service (RHCDS), a successor that serves as collateral for an RHS agency to the Farmers Home Adminis- loan. tration (FmHA). Subsidy. Interest credit, payment as- RHS employee. Any employee of RHS, sistance, or deferred mortgage assist- or any employee of the Rural Develop- ance received by a borrower under the ment mission area who carries out section 502 or 504 programs. grant or loan origination or servicing Total debt ratio. The amount paid by functions for the section 502 or 504 pro- the borrower for PITI and any recur- grams. ring monthly debt, divided by repay- RHS interest rate. The unsubsidized ment income. interest rate offered by RHS for loans Unauthorized assistance. Any loan, made on program terms. payment subsidy, deferred mortgage Rural area. A rural area is: payment, or grant for which there was
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no regulatory authorization or for scribed by Presidential Proclamation which the recipient was not eligible. or law. U.S. citizen. An individual who resides [61 FR 59779, Nov. 22, 1996; 61 FR 65266, Dec. as a citizen in any of the 50 States, the 11, 1996, as amended at 67 FR 78329, Dec. 24, District of Columbia, the Common- 2002; 70 FR 6552, Feb. 8, 2005; 72 FR 73255, Dec. wealth of Puerto Rico, the U.S. Virgin 27, 2007; 73 FR 49592, Aug. 22, 2008] Islands, Guam, American Samoa, the Commonwealth of the Northern Mari- § 3550.11 State Director assessment of anas, the Federated States of Micro- homeowner education. nesia, the Republic of Palau, or the Re- (a) State Director’s will make an as- public of the Marshall Islands. sessment of the availability of certified USDA. The United States Depart- homeowner education in their respec- ment of Agriculture. tive states and maintain an annually Unsecured loan. A loan evidenced only updated listing of providers and their by the borrower’s promissory note. reasonable costs. Value appreciation. The current mar- (b) The order of preference for home- ket value of the property minus: the owner education formats is as follows: balance due prior lienholders, the un- (1) Classroom; one-on-one counseling; paid balance of the RHS debt, unreim- or interactive video conference. bursed closing costs (if any), principal (2) If none of the formats in para- reduction, the original equity (if any) graph (b)(1) of this section is reason- of the borrower, and the value added by ably available; as determined under capital improvements. § 3550.53(i), then the applicant may use Very low-income. An adjusted income interactive home-study or interactive that does not exceed the HUD- estab- telephone counseling of at least four hours duration. lished very low-income limit (generally 50 percent of median income adjusted (3) If none of the formats in para- graphs (b)(1) and (b)(2) of this section is for household size) for the county or reasonably available as determined the Metropolitan Statistical Area under § 3550.53(i), then the applicant where the property is or will be lo- may use on-line counseling to meet the cated. homeownership education requirement. A preference ex- Veterans preference. (c) Homeownership education must tended to any person applying for a include a letter or certificate of com- loan or grant under this part who pletion and be provided by homeowner- served on active duty and has been dis- ship education counselors that are cer- charged or released from the active tified by any of the following: forces on conditions other than dishon- (1) The Department of Housing and orable from the United States Army, Urban Development (HUD); Navy, Air Force, Marine Corps, or (2) NeighborWorks America (NWA); Coast Guard. The preference applies to (3) The National Federation of Hous- the serviceperson, or the family of a ing Counselors (NFHC); deceased serviceperson who died in (4) National American Indian Hous- service before the termination of such ing Council (NAIHC); or war or such period or era. The applica- (5) The State Housing Finance Agen- ble timeframes are: cy or other qualified organization ap- (1) During the period of April 6, 1917, proved by the State Director. through March 31, 1921; (d) The provider will issue a letter or (2) During the period of December 7, certificate of completion to document 1941, through December 31, 1946; that the borrower has satisfactory (3) During the period of June 27, 1950, knowledge of these minimum topics: through January 31, 1955; (1) Preparing for homeownership (4) For a period of more than 180 (evaluate readiness to go from rental days, any part of which occurred after to homeownership), January 31, 1955, but on or before May (2) Budgeting (pre and post-pur- 7, 1975; or chase), (5) During the period beginning Au- (3) Credit counseling, gust 2, 1990, and ending the date pre- (4) Shopping for a home,
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(5) Lender differences (predatory ments for originating loans on program lending), terms. Section 3550.74 describes the dif- (6) Obtaining a mortgage (mortgage ferences for originating loans on non- process, different types of mortgages), program (NP) terms. (7) Loan closing (closing process, doc- umentation, closing costs), § 3550.52 Loan purposes. (8) Post-occupancy counseling (delin- Section 502 funds may be used to buy, quency and foreclosure prevention), build, rehabilitate, improve, or relo- (9) Life as a homeowner (homeowner cate an eligible dwelling and provide warranties, maintenance and repairs), related facilities for use by the bor- (e) The provider may tailor the rower as a permanent residence. In lim- homeownership education training to ited circumstances section 502 funds the needs of the borrower to ensure may be used to refinance existing debt. satisfactory knowledge of the topics (a) Purchases from existing RHS bor- listed in paragraph (d) of this section. rowers. To purchase a property cur- [72 FR 5156, Feb. 5, 2007] rently financed by an RHS loan, the new borrower must assume the existing §§ 3550.12–3550.49 [Reserved] RHS indebtedness. Section 502 funds may be used to provide additional fi- § 3550.50 OMB control number. nancing or make repairs. Loan funds The information collection require- also may be used to permit a remaining ments contained in this regulation borrower to purchase the equity of a have been approved by the Office of departing co-borrower. Management and Budget (OMB) and (b) Refinancing non-RHS loans. Debt have been assigned OMB control num- from an existing non-RHS loan may be ber 0575–0172. Public reporting burden refinanced if the existing debt is se- for this collection of information is es- cured by a lien against the property, timated to vary from 5 minutes to 3 RHS will have a first lien position on hours per response, with an average of the security property after refinancing, 11⁄2 hours per response, including time and: for reviewing instructions, searching (1) In the case of loans for existing existing data sources, gathering and dwellings, if: maintaining the data needed, and com- (i) Due to circumstances beyond the pleting and reviewing the collection of applicant’s control, the applicant is in information. You are not required to danger of losing the property, the debt respond to this collection of informa- is over $5,000, and the debt was incurred tion unless it displays a currently valid for eligible program purposes prior to OMB control number. loan application or was a protective ad- [61 FR 59779, Nov. 22, 1996, as amended at 67 vance made by the mortgagee for items FR 78329, Dec. 24, 2002] covered by the loan to be refinanced, including accrued interest, insurance Subpart B—Section 502 premiums, real estate tax advances, or Origination preliminary foreclosure costs; or (ii) If a loan of $5,000 or more is nec- § 3550.51 Program objectives. essary for repairs to correct major defi- Section 502 of the Housing Act of ciencies and make the dwelling decent, 1949, as amended authorizes the Rural safe and sanitary and refinancing is Housing Service (RHS) to provide fi- necessary for the borrower to show re- nancing to help low- and very low-in- payment ability, regardless of the de- come persons who cannot obtain credit linquency. from other sources obtain adequate (2) In the case of loans for a building housing in rural areas. Resources for site without a dwelling, if: the section 502 program are limited, (i) The debt to be refinanced was in- and therefore, applicants are required curred for the sole purpose of pur- to use section 502 funds in conjunction chasing the site; with funding or financing from other (ii) The applicant is unable to ac- sources, if feasible. Sections 3550.52 quire adequate housing without refi- through 3550.73 set forth the require- nancing; and
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(iii) The RHS loan will include funds (7) Purchasing and installing essen- to construct an appropriate dwelling tial equipment in the dwelling, includ- on the site for the applicant’s use. ing ranges, refrigerators, washers or (3) Debts incurred after the date of dryers, if these items are normally sold RHS loan application but before clos- with dwellings in the area and if the ing may be refinanced if the costs are purchase of these items is not the pri- incurred for eligible loan purposes and mary purpose of the loans. any construction work conforms to the (8) Purchasing and installing ap- standards specified in this part. proved energy savings measures and (c) Refinancing RHS debt. Under lim- approved furnaces and space heaters ited circumstances, an existing RHS that use fuel that is commonly used, loan may be refinanced in accordance economical, and dependably available. with § 3550.204 to allow the borrower to (9) Providing site preparation, includ- receive payment assistance. ing grading, foundation plantings, (d) Eligible costs. Improvements fi- seeding or sodding, trees, walks, yard nanced with loan funds must be on land fences, and driveways to a building which, after closing, is part of the secu- site. rity property. In addition to acquisi- (10) Reasonable fees for homeowner- tion, construction, repairs, or the cost ship education as determined by the of relocating a dwelling, loan funds State Director under § 3550.11 of this may be used to pay for: subpart. Such fees may be added to the (1) Reasonable expenses related to ob- loan amount in excess of the area loan taining the loan, including legal, archi- limit and appraised value of the house. tectural and engineering, technical, (e) Loan restrictions. Loan funds may title clearance, and loan closing fees; not be used to: and appraisal, surveying, environ- (1) Purchase an existing manufac- mental, tax monitoring, and other tured home, or for any other purposes technical services; and personal liabil- prohibited in § 3550.73(b). ity insurance fees for Mutual Self-Help (2) Purchase or improve income-pro- borrowers. ducing land or buildings to be used (2) The cost of providing special de- principally for income-producing pur- sign features or equipment when nec- poses. essary because of a physical disability (3) Pay fees, commissions, or charges of the applicant or a member of the to for-profit entities related to loan household. packaging or referral of prospective ap- (3) Reasonable connection fees, as- plicants to RHS. sessments, or the pro rata installment costs for utilities such as water, sewer, [61 FR 59779, Nov. 22, 1996, as amended at 67 electricity, and gas for which the bor- FR 78329, Dec. 24, 2002; 72 FR 5157, Feb. 5, rower is liable and which are not paid 2007] from other funds. § 3550.53 Eligibility requirements. (4) Reasonable and customary lender charges and fees if the RHS loan is (a) Income eligibility. At the time of being made in combination with a le- loan approval, the household’s adjusted veraged loan. income must not exceed the applicable (5) Real estate taxes that are due and low-income limit for the area, and at payable on the property at the time of closing, must not exceed the applicable closing and for the establishment of es- moderate-income limit for the area crow accounts for real estate taxes, (see § 3550.544). hazard and flood insurance premiums, (b) Citizenship status. The applicant and related costs. must be a United States citizen or a (6) Fees to public and private non- noncitizen who qualifies as a legal profit organizations that are tax ex- alien as defined in § 3550.10. empt under the Internal Revenue Code (c) Primary residence. Applicants must for the development and packaging of agree to and have the ability to occupy loan applications, except for loans re- the dwelling on a permanent basis. lated to the purchase of an RHS Real (1) Because of the probability of Estate Owned (REO) property. transfer, loans will not be approved for
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military personnel on active duty un- monthly debts does not exceed 41 per- less the applicant will be discharged cent of the applicant’s repayment in- within a reasonable period of time. come. (2) Because of the probability of (2) A low-income applicant is consid- moves after graduation, loans will not ered to have repayment ability when be approved for a full-time student un- the monthly amount required for pay- less the applicant intends to make the ment of PITI does not exceed 33 per- home a permanent residence and there cent of the applicant’s repayment in- are reasonable prospects that employ- come, and the monthly amount re- ment will be available in the area after quired to pay PITI plus recurring graduation. monthly debts does not exceed 41 per- (3) If the home is being constructed cent of repayment income. or renovated an adult member of the (3) Repayment ratios may exceed the household must be available to make percentages specified in paragraphs inspections and authorize progress pay- (g)(1) and (g)(2) of this section if the ap- ments as the dwelling is being con- structed. plicant has demonstrated an ability to (d) Eligibility of current homeowners. meet higher debt obligations, or if RHS Current homeowners are not eligible determines, based on other compen- for initial loans except as follows: sating factors, that the household has (1) Current homeowners may receive a higher repayment ability. RHS loan funds to: (4) If an applicant does not meet the (i) Refinance an existing loan under repayment ability requirements, the the conditions outlined in § 3550.52(b); applicant can have another party join (ii) Purchase a new dwelling if the the application as a cosigner. current dwelling is deficient housing as (5) If an applicant does not meet the defined in § 3550.10; or repayment ability requirements, the (iii) Make necessary repairs to the applicant can have other household property which is financed with an af- members join the application. fordable non- RHS loan. (h) Credit qualifications. Applicants (2) Current homeowners with an RHS must be unable to secure the necessary loan may receive a subsequent loan. credit from other sources on terms and (e) Legal capacity. Applicants must conditions that the applicant could have the legal capacity to incur the reasonably be expected to fulfill. Appli- loan obligation, or have a court ap- cants must have a credit history that pointed guardian or conservator who is indicates reasonable ability and will- empowered to obligate the applicant in ingness to meet debt obligations. An real estate matters. applicant with an outstanding judg- (f) Suspension or debarment. Applica- ment obtained by the United States in tions from applicants who have been a federal court, other than the United suspended or debarred from participa- States Tax Court, is not eligible for a tion in federal programs will be han- loan or grant from RHS. dled in accordance with 7 CFR part (1) Indicators of unacceptable credit 3017. include: (g) Repayment ability. Repayment (i) Payments on any account where ability means applicants must dem- the amount of the delinquency exceed- onstrate adequate and dependably ed one installment for more than 30 available income. The determination of income dependability will include con- days within the last 12 months. sideration of the applicant’s past his- (ii) Payments on any account which tory of annual income. was delinquent for more than 30 days (1) A very low-income applicant is on two or more occasions within a 12- considered to have repayment ability month period. when the monthly amount required for (iii) A foreclosure which has been payment of principal, interest, taxes, completed within the last 36 months. and insurance (PITI) does not exceed 29 (iv) An outstanding Internal Revenue percent of the applicant’s repayment Service tax lien or any other out- income, and the monthly amount re- standing tax liens with no satisfactory quired to pay PITI plus recurring arrangement for payment.
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(v) A court-created or court-affirmed case-by-case basis. The State Director obligation or judgment caused by non- may grant an exception the homeown- payment that is currently outstanding ership education requirement for indi- or has been outstanding within the last viduals in geographic areas within the 12 months, except for those excluded in State where the State Director verifies paragraph (i)(2) of this section. that certified homeownership edu- (vi) Two or more rent payments paid cation is not reasonably available in 30 or more days late within the last 2 the local area in any of the formats years. If the applicant has experienced listed in § 3550.11(b). Whether such no other credit problems in the past 2 homeownership education is reason- years, only 1 year of rent history will ably available will be determined based be evaluated. Rent payment history re- on factors including, but not limited quirements may be waived if the RHS to: Distance, travel time, geographic loan will reduce shelter costs signifi- obstacles, and cost. On a case-by-case cantly and contribute to an improved basis, the State Director also may repayment ability. grant an exception, provided the appli- (vii) Outstanding collection accounts cant borrower documents a special with a record of irregular payment need, such as a disability, that would with no satisfactory arrangements for unduly impede completing a homeown- repayment, or collection accounts that ership course in a reasonably available were paid in full within the last 6 format. months. [61 FR 59779, Nov. 22, 1996, as amended at 67 (viii) Non-agency debts written off FR 78330, Dec. 24, 2002; 72 FR 5157, Feb. 5, within the last 36 months unless paid 2007] in full at least 12 months ago. (ix) Agency debts that were debt set- § 3550.54 Calculation of income and as- tled within the last 36 months or are sets. being considered for debt settlement. (a) Repayment income. Repayment in- (x) Delinquency on a federal debt. come is the annual amount of income (2) The following will not be consid- from all sources that are expected to be ered indicators of unacceptable credit: received by those household members (i) A bankruptcy in which debts were who are parties to the promissory note, discharged more than 36 months prior except for any student financial aid re- to the date of application or where an ceived by these household members for applicant successfully completed a tuition, fees, books, equipment, mate- bankruptcy debt restructuring plan rials, and transportation. Repayment and has demonstrated a willingness to income is used to determine the house- meeting obligations when due for the hold’s ability to repay a loan. 12 months prior to the date of applica- (b) Annual income. Annual income is tion. the income of all household members (ii) A judgment satisfied more than from all sources except those listed in 12 months before the date of applica- (b)(1) through (b)(12) of this section: tion. (1) Earned income of persons under (3) When an application is rejected the age of 18 unless they are a borrower because of unacceptable credit, the ap- or a spouse of a member of the house- plicant will be informed of the reason hold; and source of information. (2) Payments received for the care of (i) Homeownership education. Appli- foster children or foster adults; cants who are first-time homebuyers (3) Amounts granted for or in reim- must agree to provide documentation, bursement of the cost of medical ex- in the form of a completion certificate penses; or letter from the provider, that a (4) Earnings of each full-time student homeownership education course from 18 years of age or older, except the a certified provider under § 3550.11 has head of household or spouse, that are been successfully completed as defined in excess of any amount determined by the provider prior to loan closing. pursuant to section 501(b)(5) of the Requests for exceptions to the home- Housing Act of 1949, as amended; owner education requirement will be (5) Temporary, nonrecurring, or spo- reviewed and granted on an individual radic income (including gifts);
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(6) Lump sum additions to family as- (3) Expenses related to the care of sets such as inheritances; capital gains; household members with disabilities insurance payments under health, acci- that: dent, or worker’s compensation poli- (i) Enable a family member to work; cies; settlements for personal or prop- (ii) Are not reimbursed from insur- erty losses; and deferred periodic pay- ance or another source; and ments of supplemental security income (iii) Are in excess of three percent of and Social Security benefits received the household’s annual income. in a lump sum; (4) For any elderly family, a deduc- (7) Any earned income tax credit; tion in the amount determined pursu- (8) Adoption assistance in excess of ant to section 501(b)(5) of the Housing any amount determined pursuant to Act of 1949, as amended. section 501(b)(5) of the Housing Act of (5) For elderly households only, a de- 1949, as amended; duction for household medical expenses (9) Amounts received by the family in that are not reimbursed from insurance the form of refunds or rebates under or another source and which in com- State or local law for property taxes bination with any expenses related to paid on the dwelling; the care of household members with (10) Amounts paid by a State agency disabilities described in paragraph to a family with a developmentally dis- (c)(3) of this section, are in excess of abled family member living at home to three percent of the household’s annual offset the cost of services and equip- income. ment needed to keep the develop- (d) Net family assets. Income from net mentally disabled family member at family assets must be included in the home; calculation of annual and repayment (11) The full amount of any student income. Net family assets also are con- financial aid; and sidered in determining whether a down (12) Any other revenue exempted by a payment is required. Federal statute; a list of which is avail- (1) Net family assets include the cash able from any Rural Development of- value of: fice. (i) Equity in real property, other (c) Adjusted income. Adjusted income than the dwelling or site; is used to determine program eligi- bility for sections 502 and 504 and the (ii) Cash on hand and funds in savings amount of payment subsidy for which or checking accounts; the household qualifies under section (iii) Amounts in trust accounts that 502. Adjusted income is annual income are available to the household; as defined in paragraph (b) of this sec- (iv) Stocks, bonds, and other forms of tion less any of the following deduc- capital investments including life in- tions for which the household is eligi- surance policies and retirement plans ble. that are accessible to the applicant (1) For each household member, ex- without retiring or terminating em- cept the head of household or spouse, ployment; who is under 18 years of age, 18 years of (v) Lump sum receipts such as lot- age or older with a disability, or a full- tery winnings, capital gains, inherit- time student, the amount determined ances; pursuant to section 501(b)(5) of the (vi) Personal property held as an in- Housing Act of 1949, as amended. vestment; and (2) A deduction of reasonable ex- (vii) Any value, in excess of the con- penses for the care of minor 12 years of sideration received, for any business or age or under that: household assets disposed for less than (i) Enable a family member to work fair market value during the 2 years or to further a member’s education; preceding the income determination. (ii) Are not reimbursed or paid by an- The value of assets disposed of for less other source; and than fair market value shall not be (iii) In the case of expenses to enable considered if they were disposed of as a a family member to work do not exceed result of foreclosure or bankruptcy or a the amount of income earned by the divorce or separation settlement. family member enabled to work. (2) Net family assets do not include:
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(i) Interest in American Indian trust are received on the same day, pref- land; erence will be extended to applicants (ii) Cash on hand which will be used qualifying for a veterans preference. to reduce the amount of the loan; After selection for processing, loans (iii) The value of necessary items of are funded on a first-come, first-served personal property; basis. (iv) Assets that are part of the busi- (1) First priority will be given to ex- ness, trade, or farming operation of isting customers who request subse- any member of the household who is quent loans to correct health and safe- actively engaged in such operation; ty hazards. (v) The value of an irrevocable trust (2) Second priority will be given to fund or any other trust over which no loans related to the sale of an REO member of the household has control. property or the transfer of an exisiting [61 FR 59779, Nov. 22, 1996, as amended at 67 RHS financed property. FR 78329, Dec. 24, 2002] (3) Third priority will be given to ap- plicants facing housing related hard- § 3550.55 Applications. ships including applicants who have (a) Application submissions. All per- been living in deficient housing for sons applying for RHS loans must file a more than 6 months, current home- complete written application in a for- owners in danger of losing a property mat specified by RHS. Applications through foreclosure, and other cir- will be accepted even when funds are cumstances determined by RHS on a not available. case-by-case basis to constitute a hard- (b) Application processing. (1) Incom- ship. plete applications will be returned to (4) Fourth priority will be given to the applicant specifying in writing the applicants seeking, loans for the con- additional information that is needed struction of dwellings in an RHS-ap- to make the application complete. proved Mutual Self-Help project or (2) An applicant may voluntarily loans that will leverage funding or fi- withdraw an application at any time. nancing from other sources. (3) RHS may periodically request in (5) Applications from applicants who writing that applicants reconfirm their do not qualify for priority consider- interest in obtaining a loan. RHS may ation in paragraphs (c)(1), (c)(2), (c)(3), withdraw the application of any appli- or (c)(4) of this section will be selected cant who does not respond within the for processing after all applications specified timeframe. with priority status have been proc- (4) Applicants who are eligible will be essed. notified in writing. If additional infor- (d) Applicant timeframe. RHS will mation becomes available that indi- specify a reasonable timeframe within cates that the original eligibility de- which eligible applicants selected for termination may have been incorrect, processing must provide the informa- or that circumstances have changed, tion needed to underwrite the loan. RHS may reconsider the application and the applicant may be required to § 3550.56 Site requirements. submit additional information. (a) Rural areas. Loans may be made (5) Applicants who are ineligible will only in rural areas designated by RHS. be notified in writing and provided If an area designation is changed to with the specific reasons for the rejec- non-rural: tion. (1) New conditional commitments (c) Selection for processing. When fund- will be made and existing conditional ing is not sufficient to serve all pro- commitments will be honored only in gram-eligible applicants, applications conjunction with an applicant for a will be selected for processing using section 502 loan who applied for assist- the funding priorities specified in this ance before the area designation paragraph. Within priority categories, changed. applications will be processed in the (2) REO property sales and transfers order that the completed applications with assumption may be processed. are received. In the case of applications (3) Subsequent loans may be made ei- with equivalent priority status that ther in conjunction with a transfer
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with assumption of an RHS loan or to (b) New dwellings. Construction must repair properties that have RHS loans. meet the requirements in 7 CFR part (b) Site standards. Sites must be de- 1924, subpart A. veloped in accordance with 7 CFR part (c) Existing dwellings. Existing dwell- 1924, subpart C and any applicable ings must be structurally sound; func- standards imposed by a State or local tionally adequate; in good repair, or to government. be placed in good repair with loan (1) The site must not be large enough funds; have adequate electrical, heat- to subdivide into more than one site ing, plumbing, water, and wastewater under existing local zoning ordinances; disposal systems; and be free of ter- (2) The site must not include farm mites and other wood damaging pests service buildings, though small out- and organisms. buildings such as a storage shed may [61 FR 59779, Nov. 22, 1996, as amended at 67 be included; and FR 78329, Dec. 24, 2002; 72 FR 70222, Dec. 11, (3) The value of the site must not ex- 2007] ceed 30 percent of the as improved mar- ket value of the property. The State § 3550.58 Ownership requirements. Director may waive the 30 percent re- After the loan is closed, the borrower quirement in high cost areas where must have an acceptable interest in the other lenders permit a higher percent- property as evidenced by one of the fol- age. lowing. (a) Fee-simple ownership. Acceptable § 3550.57 Dwelling requirements. fee-simple ownership is evidenced by a (a) Modest dwelling. The property fully marketable title with a deed vest- must be one that is considered modest ing a fee-simple interest in the prop- for the area, must not be designed for erty to the borrower. income producing purposes, must not (b) Secure leasehold interest. A written have an in-ground swimming pool or lease is required. To be acceptable, a have a market value in excess of the leasehold interest must have an unex- applicable maximum loan limit, in ac- pired term that is at least 150 percent cordance with § 3550.63, unless RHS au- of the term of the mortgage, unless the thorizes an exception under this para- loan is guaranteed, in which case the graph. An exception may be granted on unexpired term of the lease must be at a case-by-case basis to accommodate least 2 years longer than the loan term. In no case may the unexpired term be the specific needs of an applicant, such less than 25 years. as to serve exceptionally large house- holds or to provide reasonable accom- (c) Life estate interest. To be accept- modation for a household member with able a life estate interest must provide the borrower with rights of present a disability. Any additional loan possession, control, and beneficial use amount approved must not exceed the of the property. Generally, persons amount required to address the specific with any remainder interests must be need. signatories to the mortgage. All of the (1) Area-wide exception. Area-wide ex- remainder interests need not be in- ceptions may be granted when RHS de- cluded in the mortgage to the extent termines that the section 203(b) limit is that one or more of the persons holding too low to enable applicants to pur- remainder interests are not legally chase adequate housing. competent (and there is no representa- (2) Individual exceptions. Individual tive who can legally consent to the exceptions may be granted to accom- mortgage), cannot be located, or if the modate the specific needs of an appli- remainder interests are divided among cant, such as to serve exceptionally such a large number of people that it is large households or to provide reason- not practical to obtain the signatures able accommodation for a household of all of the remainder interests. In member with a disability. Any addi- such cases, the loan may not exceed tional loan amount approved must not the value of the property interests exceed the amount required to address owned by the persons executing the the specific need. mortgage.
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(d) Undivided interest. All legally (3) The provisions of 7 CFR part 1927, competent co-owners will be required subpart B regarding title clearance and to sign the mortgage. When one or the use of legal services have been fol- more of the co-owners are not legally lowed. competent (and there is no representa- (4) Existing and proposed property tive who can legally consent to the improvements are totally on the site mortgage), cannot be located, or the and do not encroach on adjoining prop- ownership interests are divided among erty. so large a number of co- owners that it (b) Guaranteed payment. Mortgage in- is not practical for all of their interests surance guaranteeing payment from a to be mortgaged, their interests not ex- Government agency or Indian tribe is ceeding 50 percent may be excluded adequate security. from the security requirements. In [61 FR 59779, Nov. 22, 1996, as amended at 67 such cases, the loan may not exceed FR 78330, Dec. 24, 2002] the value of the property interests owned by the persons executing the § 3550.60 Escrow account. mortgage. RHS may require that customers de- (e) Possessory rights. Acceptable forms posit into an escrow account amounts of ownership include possessory rights necessary to ensure that the account on an American Indian reservation or will contain sufficient funds to pay real State-owned land and the interest of an estate taxes, hazard and flood insur- American Indian in land held in sev- ance premiums, and other related costs eralty under trust patents or deeds when they are due in accordance with containing restrictions against alien- the Real Estate Settlement and Proce- ation, provided that land in trust or re- dures Act of 1974 (RESPA) (12 U.S.C. stricted status will remain in trust or 2601, et seq.) and section 501(e) of the restricted status. Housing Act of 1949, as amended.
§ 3550.59 Security requirements. § 3550.61 Insurance. Before approving any loan, RHS will (a) Borrower responsibility. Any bor- impose requirements to secure its in- rower with a secured indebtedness in terests. excess of $15,000 at the time of loan ap- (a) Adequate security. A loan will be proval must furnish and continually considered adequately secured only maintain hazard insurance on the secu- when all of the following requirements rity property, with companies, in are met: amounts, and on terms and conditions (1) RHS obtains at closing a mort- acceptable to RHS including a ‘‘loss gage on all ownership interests in the payable clause’’ payable to RHS to pro- security property or the requirements tect the Government’s interest. of § 3550.58 are satisfied. (b) Amount. The borrower is required (2) No liens prior to the RHS mort- to insure the dwelling and any other gage exist at the time of closing and no essential buildings in an amount equal junior liens are likely to be taken im- to the insurable value of the dwelling mediately subsequent to or at the time and other essential buildings. However, of closing, unless the other liens are in cases where the borrower’s out- taken as part of a leveraging strategy standing secured indebtedness is less or the RHS loan is essential for repairs than the insurable value of the dwell- and the senior lien secures an afford- ing and other essential buildings, the able non-RHS loan. Liens junior to the borrower may elect a lower coverage RHS lien may be allowed at loan clos- provided it is not less than the out- ing if the junior lien will not interfere standing secured indebtedness. If the with the purpose or repayment of the borrower fails, or is unable, to insure RHS loan. When the junior lien in- the secured property, RHS will force volves a grant or a forgivable afford- place insurance and charge the cost to able housing product, the total debt the borrower’s account. Force place in- may exceed the market value by the surance only provides insurance cov- amount of the forgivable loan or grant erage to the Agency and does not pro- up to 5 percent. vide any direct coverage or benefit to
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the borrower. The amount of the lend- (ii) Subordinate the RHS lien to per- er-placed coverage will generally be mit the borrower to obtain funds for the property’s last known insured needed repairs from another source. value. (iii) Permit the borrower to obtain (c) Flood insurance. Flood insurance funds secured by a junior lien from an- must be obtained and maintained for other source. the life of the loan for all property lo- (iv) Make a protective advance to cated in a Special Flood Hazard Area protect the Government’s interest. (SFHA) as determined by the Federal (v) Accelerate the account. Emergency Management Agency [61 FR 59779, Nov. 22, 1996, as amended at 70 (FEMA). RHS actions will be con- FR 6552, Feb. 8, 2005; 73 FR 49592, Aug. 22, sistent with 7 CFR part 1806, subpart B 2008] which addressed flood insurance re- § 3550.62 Appraisals. quirements. If flood insurance through FEMA’s National Flood Insurance Pro- (a) Requirement. An appraisal is re- gram is not available in an SFHA, the quired when the debt to be secured ex- property is not eligible for federal fi- ceeds $15,000 or whenever RHS deter- nancial assistance. mines that it is necessary to establish the adequacy of the security. Apprais- (d) Losses. (1) Loss deductible clauses als must be made in accordance with for required insurance coverage may the Uniform Standards of Professional not exceed the generally accepted Appraisal Practices. When other real minimums based on current industry estate is taken as additional security, standards and local market conditions. it will be appraised if it represents a (2) Customers must immediately no- substantial portion of the security for tify RHS of any loss or damage to in- the loan. sured property and collect the amount (b) Fees. RHS will charge a fee for of the loss from the insurance com- each loan application that requires an pany. appraisal, except the appraisal fee is (3) Depending on the amount of the not required on appraisals done for sub- loss, RHS may require that loss pay- sequent loans needed to make minimal, ments be supervised. All repairs and re- essential repairs or in cases where an- placements done by or under the direc- other party provides an appraisal tion of the borrower, or by contract, which is acceptable to RHS. Fees col- will be planned, performed, inspected, lected in connection with a dwelling and paid for in accordance with 7 CFR constructed under an approved condi- part 1924, subpart A. tional commitment will be paid to the (4) When insurance funds remain contractor at closing to offset the cost after all repairs, replacements, and of the real estate appraisal that is in- other authorized disbursements have cluded in the conditional commitment been made, the funds will be applied in fee. the following order: § 3550.63 Maximum loan amount. (i) Prior liens, including delinquent property taxes. Total secured indebtedness must not (ii) Past-due amounts. exceed the area loan limit or market value limitations specified in para- (iii) Protective advances due. graphs (a) or (b) of this section, which- (iv) Released to the customer if the ever is lower. Any loan amount for the RHS debt is adequately secured. RHS appraisal, tax monitoring fee, and (5) If a loss occurs when insurance is the charge to establish an escrow ac- not in force, the borrower is respon- count for taxes and insurance will not sible for making the needed repairs or be subject to the limitations specified replacements and ensuring that the in- below. This section does not apply to surance is reinstated on the property. loans on NP terms. (6) If the borrower is not financially (a) Area loan limit. (1) The area loan able to make the repairs, RHS may limit is the maximum value of the take one of the following actions: property RHS will finance in a given (i) Make a subsequent loan for re- locality. Subject to the following, this pairs. limit is based on cost data plus the
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market value of an improved lot, or the (2) The market value limitation is 90 State Housing Authority limits, which- percent of market value for new dwell- ever the State Director determines ings for which adequate documentation most appropriately reflects the value of construction quality is not avail- of modest housing for the area: able. (i) The cost of the structure is based (3) The market value limitation can upon the cost to construct a modest be increased by: home and is obtained by RHS from a (i) Up to one percent, if RHS makes a nationally recognized residential cost subsequent loan for closing costs only, provider. in conjunction with the sale of an REO (ii) The market value of an improved property or an assumption. site (without the dwelling) is based (ii) The amount necessary to make a upon current sales data for typical subsequent loan for repairs necessary housing sites and reasonable and typ- to protect the Government’s interest, ical costs of site improvements. and reasonable closing costs. (iii) The applicable State Housing (iii) The amount necessary to refi- Authority limit will only be considered nance an existing borrower’s RHS if it is within 10 percent of the cost loans, plus closing costs associated data plus the market value of an im- with the new loan. proved lot. [61 FR 59779, Nov. 22, 1996; 61 FR 65266, Dec. (iv) The area loan limit may not ex- 11, 1996, as amended at 67 FR 78330, Dec. 24, ceed the applicable local HUD section 2002] 203(b) limit. (v) All area loan limit data will be § 3550.64 Down payment. updated at least annually and is avail- Elderly families must use any net able in any Rural Development office. family assets in excess of $20,000 to- (2) The maximum loan limit cal- wards a down payment on the property. culated under paragraph (a)(1) will be Non-elderly families must use net fam- reduced in the following situations: ily assets in excess of $15,000 towards a (i) When the applicant owns the site down payment on the property. Appli- or is purchasing the site at a sales cants may contribute assets in addi- price below market value, the market tion to the required down payment to value of the lot will be deducted from further reduce the amount to be fi- the maximum loan limit, and nanced. (ii) When an applicant is receiving a [73 FR 49593, Aug. 22, 2008] housing grant or other form of afford- able housing assistance for purposes § 3550.65 [Reserved] other than closing costs, the amount(s) of such grants and affordable housing § 3550.66 Interest rate. assistance will be deducted from the Loans will be written using the appli- maximum loan limit. cable RHS interest rate in effect at (3) The maximum loan limit for self- loan approval or loan closing, which- help housing will be calculated by add- ever is lower. Information about cur- ing the total of the market value of the rent interest rates is available in any lot (including reasonable and typical Rural Development office. costs of site development), the cost of construction, and the value of sweat [67 FR 78330, Dec. 24, 2002] equity. The total of these three factors cannot exceed the limit established in § 3550.67 Repayment period. paragraph (a)(1) of this section. Loans will be scheduled for repay- (b) Market value limitation. (1) The ment over a period that does not ex- market value limitation is 100 percent ceed the expected useful life of the of market value for existing housing property as a dwelling. The loan repay- and for new dwellings for which RHS ment period will not exceed: will receive adequate documentation of (a) Thirty-three years in all cases ex- construction quality and the source of cept as noted in paragraphs (b), (c), and such documentation is acceptable to (d) of this section. RHS. (b) Thirty-eight years:
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(1) For initial loans, or subsequent rower is eligible for and remains on loans made in conjunction with an as- payment assistance method 1. sumption, if the applicant’s adjusted (3) A borrower who has never re- income does not exceed 60 percent of ceived payment subsidy, or who has the area adjusted median income and stopped receiving interest credit or the longer term is necessary to show payment assistance method 1, and at a repayment ability. later date again qualifies for a pay- (2) For subsequent loans not made in ment subsidy, will receive payment as- conjunction with an assumption if the sistance method 2. applicant’s initial loan was for a period (4) A borrower may not opt to change of 38 years, the applicant’s adjusted in- payment assistance methods. come at the time the subsequent loan (c) Calculation of payment assistance. is approved does not exceed 60 percent Regardless of the method used, pay- of area adjusted median income, and ment assistance may not exceed the the longer terms is necessary to show amount necessary if the loan were am- repayment ability. ortized at an interest rate of one per- (c) Ten years for loans not exceeding cent. $2,500. (1) Payment Assistance Method 2. The (d) Thirty years for manufactured amount of payment assistance granted homes. is the lesser of the difference between: (i) The annualized promissory note § 3550.68 Payment subsidies. installments for the combined RHS loan and eligible leveraged loans plus RHS administers three types of pay- the cost of taxes and insurance less ment subsidies: interest credit, pay- twenty-four percent of the borrower’s ment assistance method 1, and pay- adjusted income, or ment assistance method 2. Payment (ii) The annualized promissory note subsidies are subject to recapture when installment for the RHS loan less the borrower transfers title or ceases amount the borrower would pay if the to occupy the property. loan were amortized at an interest rate (a) Eligibility for payment subsidy. (1) of one percent. Applicants or borrowers who receive (2) Payment Assistance Method 1. The loans on program terms are eligible to amount of payment assistance granted receive payment subsidy if they per- is the difference between the sonally occupy the property and have annualized note rate installment as adjusted income at or below the appli- prescribed on the promissory note and cable moderate-income limit. the lesser of: (2) Payment subsidy may be granted (i) The floor payment, which is de- for initial loans or subsequent loans fined as a minimum percentage of ad- made in conjunction with an assump- justed income that the borrower must tion only if the term of the loan is 25 pay for PITI: 22 percent for very low- years or more. income borrowers, 24 percent for low- (3) Payment subsidy may be granted income borrowers with adjusted in- for subsequent loans not made in con- come below 65 percent of area adjusted junction with an assumption if the ini- median, and 26 percent for low-income tial loan was for a term of 25 years or borrowers with adjusted incomes be- more. tween 65 and 80 percent of area ad- (b) Determining type of payment sub- justed median; or sidy. (1) A borrower currently receiving (ii) The annualized note rate install- interest credit will continue to receive ment and the payment at the equiva- it for the initial loan and for any sub- lent interest rate, which is determined sequent loan for as long as the bor- by a comparison of the borrower’s ad- rower is eligible for and remains on in- justed income to the adjusted median terest credit. income for the area in which the secu- (2) A borrower currently receiving rity property is located. The following payment assistance using payment as- chart is used to determine the equiva- sistance method 1 will continue to re- lent interest rate. ceive it for the initial loan and for any When the applicant’s adjusted in- subsequent loan for as long as the bor- come is:
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PERCENTAGE OF MEDIAN INCOME AND THE transfers title or ceases to occupy the EQUIVALENT INTEREST RATE property. (a) Eligibility. In order to qualify for THEN the Equal to or deferred mortgage payments, all of the more than: BUT less than: equivalent in- terest rate is* following must be true: 00% ...... 50.01 of adjusted median 1% (1) The applicants adjusted income at income. the time of initial loan approval does 50.01% ...... 55 of adjusted median in- 2% come. not exceed the applicable very low-in- 55% ...... 60 of adjusted median in- 3% come limits. come. (2) The loan term is 38 years, or 30 60% ...... 65 of adjusted median in- 4% come. years for a manufactured home. 65% ...... 70 of adjusted median in- 5% (3) The applicant’s payments for prin- come. 70% ...... 75 of adjusted median in- 6% cipal and interest, calculated at a one come. percent interest rate for the maximum 75% ...... 80.01 of adjusted median 6.5% allowable term, plus estimated costs income. 80.01% ...... 90 of adjusted median in- 7.5% for taxes and insurance exceeds: come. (i) For applicants receiving payment 90% ...... 100 of adjusted median in- 8.5% assistance, 29 percent of the applicants come. 100% ...... 110% of adjusted median 9% repayment income by more than $10 income. per month; or 110% ...... Or more than adjusted me- 9.5% dian income. (ii) For applicants receiving interest credit, 20 percent of adjusted income by * Or note rate, whichever is less; in no case will the equiva- lent interest rate be less than one percent. more than $10 per month. (d) Calculation of interest credit. The (b) Amount and terms. (1) The amount amount of interest credit granted is of the mortgage payment to be deferred the difference between the note rate in- will be the difference between the ap- stallment as prescribed on the promis- plicants payment for principal and in- sory note and the greater of: terest, calculated at one percent inter- (1) Twenty percent of the borrower’s est for the maximum allowable term, adjusted income less the cost of real es- plus estimated costs for taxes and in- tate taxes and insurance, or surance and: (2) The amount the borrower would (i) For applicants receiving payment pay if the loan were amortized at an in- assistance, 29 percent of the applicants terest rate of 1 percent. repayment income. (e) Annual review. The borrower’s in- (ii) For applicants receiving interest come will be reviewed annually to de- credit, 20 percent of adjusted income. termine whether the borrower is eligi- (2) Deferred mortgage payment ble for continued payment subsidy. The agreements will be effective for a 12- borrower must notify RHS whenever an adult member of the household changes month period. or obtains employment, there is a (3) Deferred mortgage assistance may change in household composition, or if be continued for up to 15 years after income increases by at least 10 percent loan closing. Once a borrower becomes so that RHS can determine whether a ineligible for deferred mortgage assist- review of the borrower’s circumstances ance, the borrower can never again re- is required. ceive deferred mortgage assistance. [72 FR 73255, Dec. 27, 2007] (c) Annual review. The borrower’s in- come, taxes, and insurance will be re- § 3550.69 Deferred mortgage payments. viewed annually to determine eligi- For qualified borrowers, RHS may bility for continued deferred mortgage defer up to 25 percent of the monthly assistance. The borrower must notify principal and interest payment at 1 RHS whenever an adult member of the percent for up to 15 years. This assist- household changes or obtains employ- ance may be granted only at initial ment or if income increases by at least loan closing and is reviewed annually. 10 percent so that RHS can determine Deferred mortgage payments are sub- whether a review of the borrower’s cir- ject to recapture when the borrower cumstances is required.
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§ 3550.70 Conditional commitments. within 60 days after the commitment is issued. A conditional commitment is a de- (d) Conditional commitments involving termination by RHS that a dwelling of- packaging of applications. A conditional fered for sale will be acceptable for commitment may be made to a seller, purchase by a qualified RHS loan appli- builder, or dealer-contractor who pack- cant if it is built or rehabilitated in ac- ages an RHS loan application for a pro- cordance with RHS-approved plans, spective purchaser. In cases where the specifications, and regulations and dwelling is to be constructed for sale to priced within the lesser of the prop- a specific eligible applicant, all of the erty’s appraised value or the applicable following conditions must be met: maximum load limit. The conditional (1) The conditional commitment will commitment does not reserve funds, not be approved until the applicant’s does not guarantee funding, and does loan has been approved; not ensure that an eligible loan appli- (2) Construction will not begin until cant will be available to buy the dwell- loan funds are obligated for the loan. ing. Exceptions may be made when it ap- (a) Eligibility. To be eligible to re- pears likely that funding will be forth- quest a conditional commitment, the coming and as long as the RHS lien pri- builder, dealer-contractor, or seller ority is not jeopardized. The sales must: agreement must indicate that the loan (1) Have an adequate ownership inter- has been approved but not funded and est in the property, as defined in must provide that if the loan is not § 3550.58, prior to the beginning of any closed within 90 days of the date of ap- planned construction; proval, the contractor may terminate (2) Have the experience and ability to the sales agreement and sell the prop- complete any proposed work in a com- erty to another party. If the sales petent and professional manner; agreement is terminated, the condi- (3) Have the legal capacity to enter tional commitment will be honored for into the required agreements; another eligible loan applicant for the (4) Be financially responsible and remaining period of the commitment; have the ability to finance or obtain fi- and nancing for any proposed construction (3) The RHS loan will be closed only or rehabilitation; and after the dwelling is constructed or the (5) Comply with the requirements of 7 required rehabilitation completed and CFR part 1901, subpart E and all appli- final inspection has been made. cable laws, regulations, and Executive (e) Fees. An application for a condi- Orders relating to equal opportunity. tional commitment must include pay- Anyone who receives 5 or more condi- ment of the conditional commitment tional commitments during a 12-month fee. The fee will be refunded if for any period must obtain RHS approval of an reason preliminary inspection of the affirmative marketing plan. property or investigation of the condi- (b) Limitations. Conditional commit- tional commitment applicant indicates ments for new or substantially reha- that a conditional commitment will bilitated dwellings will not be issued not be issued. Application fees will not after construction has started. RHS be refunded for any property on which may limit the total number of condi- the required appraisal has been made. tional commitments issued in any lo- (f) Failure of conditional commitment cality based on market demand. applicant or dwelling to qualify. The con- (c) Commitment period. A conditional ditional commitment applicant will be commitment will be valid for 12 informed if the conditional commit- months from the date of issuance. The ment is denied. Conditional commit- commitment may be extended for up to ments will be canceled if the property an additional 6 months if there are un- does not meet program requirements. expected delays in construction caused (g) Changes in plans, specifications, or by such factors as bad weather, mate- commitment price. The holder of the con- rials shortages, or marketing difficul- ditional commitment must request ap- ties. Conditional commitments may be proval for changes in plans, specifica- canceled if construction does not begin tions, and commitment price. RHS
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may approve the changes if the fol- mortgagees or unit owners of the indi- lowing requirements are met: vidual condominium units have given (1) The property price does not ex- their consent, the homeowners associa- ceed the maximum loan limit and in- tion may not: creases in costs are due to factors be- (1) By act or omission seek to aban- yond the control of the commitment don or terminate the condominium holder; and project; (2) The requested changes are justifi- (2) Change the pro rata interest or able and appropriate. obligations of any condominium unit (h) Builder’s warranty. The builder or in order to levy assessments or seller, as appropriate, must execute ei- charges, allocate distribution of hazard ther an RHS-approved ‘‘Builder’s War- insurance proceeds or condemnation ranty,’’ or provide a 10-year insured warranty when construction is com- awards, or determine the pro rata pleted or the loan is closed. share of ownership of each condo- minium unit in the common elements; [61 FR 59779, Nov. 22, 1996, as amended at 67 (3) Partition or subdivide any condo- FR 78330, Dec. 24, 2002] minium unit; § 3550.71 Special requirements for con- (4) Seek to abandon, partition, sub- dominiums. divide, encumber, sell, or transfer the RHS loans may be made for condo- common elements by act or omission minium units under the following con- (the granting of easements for public ditions: utilities or other public purposes con- (a) The unit is in a project approved sistent with the intended use of the or accepted by U.S. Department of common elements by the condominium Housing and Urban Development project is not a transfer within the (HUD), the Federal National Mortgage meaning of this clause); or Association (Fannie Mae), or the Fed- (5) Use hazard insurance proceeds for eral Home Loan Mortgage Corporation losses to any condominium property (Freddie Mac). (whether units or common elements) (b) The condominium project com- for other than the repair, replacement, plies with the requirements of the con- or reconstruction of the condominium dominium enabling statute and all property. other applicable laws. Any right of (e) All taxes, assessments, and first refusal in the condominium docu- charges that may become liens prior to ments will not impair the rights of the first mortgage under local law re- RHS to: late only to the individual condo- (1) Foreclose or take title to a condo- minium units and not to the condo- minium unit pursuant to the remedies minium project as a whole. in the mortgage; (f) No provision of the condominium (2) Accept a deed in lieu of fore- documents gives a condominium unit closure in the event of default by a owner or any other party priority over mortgagor; and any rights of RHS as first or second (3) Sell or lease a unit acquired by mortgagee of the condominium unit RHS. pursuant to its mortgage in the case of (c) If RHS obtains title to a condo- minium unit pursuant to the remedies a payment to the unit owner of insur- in its mortgage or through foreclosure, ance proceeds or condemnation awards RHS will not be liable for more than 6 for losses to or taking of condominium months of the unit’s unpaid regularly units or common elements. budgeted dues or charges accrued be- (g) If the condominium project is on fore acquisition of the title to the unit a leasehold the underlying lease pro- by RHS. The homeowners association’s vides adequate security of tenure as de- lien priority may include costs of col- scribed in § 3550.58(b). lecting unpaid dues. (h) At least 70 percent of the units (d) In case of condemnation or sub- have been sold. Multiple purchases of stantial loss to the units or common condominium units by one owner are elements of the condominium project, counted as one sale when determining unless at least two-thirds of the first if the sales requirement has been met.
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(i) No more than 15 percent of the drapes, beds, bedding, chairs, sofas, di- unit owners are more than 1 month de- vans, lamps, tables, televisions, radios, linquent in payment of homeowners as- stereo sets, and other similar items of sociation dues or assessments at the personal property. Furniture does not time the RHS loan is closed. include wall-to-wall carpeting, refrig- erators, ovens, ranges, washing ma- § 3550.72 Community land trusts. chines, clothes dryers, heating or cool- Eligible dwellings located on land ing equipment, or other similar items. owned by a community land trust may (c) Dealer-contractors. No loans will be be financed if: made on a manufactured home sold by (a) The loan meets all the require- any entity that is not an approved ments of this subpart; and dealer-contractor that will provide (b) Any restrictions, imposed by the complete sales, service, and site devel- community land trust on the property opment services. or applicant are: (d) Loan term. The maximum term of (1) Reviewed and accepted by RHS be- a loan on a manufactured home is 30 fore loan closing; and years. (2) Automatically and permanently (e) Construction and development. Unit terminated upon foreclosure or accept- construction, site development and set- ance by RHS of a deed in lieu of fore- up must conform to the Federal Manu- closure. factured Home Construction and Safe- ty Standards (FMHCSS) and 7 CFR § 3550.73 Manufactured homes. part 1924, subpart A. Development With the exception of the restrictions under the Mutual Self-Help and bor- and additional requirements contained rower construction methods is not per- in this section, section 502 loans on mitted for manufactured homes. manufactured homes are subject to the (f) Contract requirements. The dealer- same conditions as all other section 502 contractor must sign a construction loans. contract, as specified in 7 CFR 1924.6 (a) Eligible costs. In addition to the el- which will cover both the unit and site igible costs described in § 3550.52(d), development work. The use of multi- RHS may finance the following activi- contracts is prohibited. A dealer-con- ties related to manufactured homes tractor may use subcontractors if the when a real estate mortgage covers dealer-contractor is solely responsible both the unit and the site: for all work under the contract. Pay- (1) Purchase of an eligible unit, ment for all work will be in accordance transportation, and set-up costs, and with 7 CFR part 1924, subpart A, except purchase of an eligible site if not al- no payment will be made for materials ready owned by the applicant; or property stored on site (e.g., pay- (2) Site development work in accord- ment for a unit will be made only after ance with 7 CFR part 1924, subpart A: it is permanently attached to the foun- (3) Subsequent loans in conjunction dation). with an assumption or sale of an REO (g) Lien release requirements. All per- property; or sons furnishing materials or labor in (4) Subsequent loans for repairs of connection with the contract except units financed under section 502. the manufacturer of the unit must sign (b) Loan restrictions. In addition to a Release by Claimants document, as the loan restrictions described in specified in 7 CFR part 1924, subpart A. § 3550.52(e), RHS may not use loan funds The manufacturer of the unit must fur- to finance: nish an executed manufacturer’s cer- (1) An existing unit and site unless it tificate of origin to verify that the unit is already financed with a section 502 is free and clear of all legal encum- loan or is an RHS REO property. brances. (2) The purchase of a site without (h) Warranty requirements. The dealer- also financing the unit. contractor must provide a warranty in (3) Alteration or remodeling of the accordance with the provisions of 7 unit when the initial loan is made. CFR 1924.12. The warranty must iden- (4) Furniture, including movable arti- tify the unit by serial number. The cles of personal property such as dealer-contractor must certify that the
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unit substantially complies with the (3) NP borrowers are not eligible for plans and specifications and the manu- payment assistance or a moratorium. factured home has sustained no hidden (c) Additional requirements. (1) NP ap- damage during transportation and, if plicants other than public bodies and manufactured in separate sections, nonprofit organizations must pay a that the sections were properly joined nonrefundable application fee. and sealed according to the manufac- (2) NP applicants must make a down turer’s specifications. The dealer-con- payment based upon the purchase price tractor will also furnish the applicant and whether the applicant intends to with a copy of all manufacturer’s war- personally occupy the property or use ranties. it for other purposes. § 3550.74 Nonprogram loans. (3) NP applicants cannot finance loan NP terms may be extended to appli- closing costs or escrow, tax service, or cants who do not qualify for program appraisal fees. credit, or for properties that do not (d) Reduced restrictions. (1) NP appli- qualify as program properties, when it cants need not be unable to obtain is in the best interest of the Govern- other credit in order to receive an NP ment. NP loans are originated and loan and are not required to refinance serviced according to the requirements with private credit when they are able for program loans except as indicated to do so. in this section. (2) NP applicants are not required to (a) Purpose. NP terms may be offered occupy the property. to expedite: (3) NP applicants are not subject to (1) Sale of an REO property. leasing restrictions. (2) Assumption of an existing pro- (e) Waiver of costs. When the purpose gram loan on new rates and terms. If of the loan is the conversion of a pro- additional funds are required to pur- gram loan that has received unauthor- chase the property, the applicant must ized assistance or continuation of a obtain them from another source. loan on a portion of a security property (3) Conversion of a program loan that when the remainder is being trans- has received unauthorized assistance. (4) Continuation of a loan on a por- ferred, the application fee, appraisal tion of a security property when the re- fee, and down payment may be waived. mainder is being transferred and the RHS debt is not paid in full. §§ 3550.75–3550.99 [Reserved] (b) Terms. (1) Rate and term: § 3550.100 OMB control number. (i) For an applicant who intends to occupy the property, the term will not The information collection require- exceed 30 years. ments contained in this regulation (ii) For other applicants, the term have been approved by the Office of will not exceed 10 years. If more favor- Management and Budget (OMB) and able terms are necessary to facilitate have been assigned OMB control num- the sale, the loan may be amortized ber 0575–0172. Public reporting burden over a period of up to 20 years with for this collection of information is es- payment in full due not later than 10 timated to vary from 5 minutes to 3 years from the date of closing. hours per response, with an average of (iii) An applicant with an NP loan 11⁄2 hours per response, including time under paragraph (b)(1)(i) of this section for reviewing instructions, searching who wishes to retain the property and existing data sources, gathering and purchase a new property with RHS maintaining the data needed, and com- credit must purchase the second prop- pleting and reviewing the collection of erty according to the terms of para- information. You are not required to graph (b)(1)(ii) of this section, even if respond to this collection of informa- the new property will serve as the ap- tion unless it displays a currently valid plicant’s principal residence. OMB control number. (2) NP loans are written at the NP in- terest rate in effect at the time of loan [61 FR 59779, Nov. 22, 1996, as amended at 67 approval. FR 78330, Dec. 24, 2002]
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Subpart C—Section 504 Origina- mental, tax monitoring, and other tion and Section 306C Water technical services. and Waste Disposal Grants (2) The cost of providing special de- sign features or equipment when nec- § 3550.101 Program objectives. essary because of a physical disability of the applicant or a member of the This subpart sets forth policies for household. administering loans and grants under (3) Reasonable connection fees, as- section 504(a) of title V of the Housing sessments, or the pro rata installation Act of 1949, as amended. Section 504 costs for utilities such as water, sewer, loans and grants are intended to help electricity, and gas for which the bor- very low-income owner-occupants in rower is liable and which are not paid rural areas repair their properties. This from other funds. subpart also covers Water and Waste (4) Real estate taxes that are due and Disposal (WWD) Grants to individuals payable on the property at the time of authorized by Section 306C(b) of the closing and for the establishment of es- Consolidated Farm and Rural Develop- crow accounts for real estate taxes, ment Act, (7 U.S.C. 1926c). hazard and flood insurance premiums, [61 FR 59779, Nov. 22, 1996, as amended at 67 and related costs. FR 78331, Dec. 24, 2002] (5) Fees to public and private non- profit organizations that are tax ex- § 3550.102 Grant and loan purposes. empt under the Internal Revenue Code (a) Grant funds. Grant funds may be for the development and packaging of used only to pay costs for repairs and applications. improvements that will remove identi- (e) Restrictions on uses of loan or grant fied health and safety hazards or to re- funds. Section 504 funds may not be pair or remodel dwellings to make used to: them accessible and useable for house- (1) Assist in the construction of a hold members with disabilities. Unused new dwelling. grant funds must be returned to the (2) Make repairs to a dwelling in such Rural Housing Service (RHS). poor condition that when the repairs (b) Loan funds. Loan funds may be are completed, the dwelling will con- used to make general repairs and im- tinue to have major hazards. provements to properties or to remove (3) Move a mobile home or manufac- health and safety hazards, as long as tured home from one site to another. the dwelling remains modest in size (4) Pay for off-site improvements ex- and design. cept for the necessary installation and (c) Eligibility of mobile and manufac- assessment costs for utilities. tured homes. Repairs necessary to re- (5) Refinance any debt or obligation move health and safety hazards may be of the applicant incurred before the made to mobile or manufactured date of application, except for the in- homes provided: stallation and assessment costs of util- (1) The applicant owns the home and ities. site and has occupied the home prior to (6) Pay fees, commission, or charges filing an application with RHS; and to for-profit entities related to loan (2) The mobile or manufactured home packaging or referral of prospective ap- is on a permanent foundation or will be plicants to RHS. put on a permanent foundation with section 504 funds. § 3550.103 Eligibility requirements. (d) Eligible costs. In addition to con- To be eligible, applicants must meet struction costs to make necessary re- the following requirements: pairs and improvements, loan and (a) Owner-occupant. Applicants must grant funds may be used for: own, as described in § 3550.107, and oc- (1) Reasonable expenses related to ob- cupy the dwelling. taining the loan or grant, including (b) Age (grant only). To be eligible for legal, architectural and engineering, grant assistance, an applicant must be title clearance, and loan closing fees; 62 years of age or older at the time of and appraisal, surveying, environ- application.
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(c) Income eligibility. At the time of applicant can have other household loan or grant approval, the household’s members join the application. adjusted income must not exceed the (i) Credit qualifications. Applicants applicable very low-income limit. Sec- must be unable to secure the necessary tion 3550.54 provides a detailed discus- credit from other sources under terms sion of the calculation of adjusted in- and conditions that the applicant could come. reasonably be expected to fulfill. Loan (d) Citizenship status. The applicant applicants must have a credit history must be a U.S. citizen or a non-citizen that indicates reasonable ability and who qualifies as a legal alien, as de- willingness to meet debt obligations. fined in § 3550.10. An applicant with an outstanding judg- (e) Need and use of personal resources. ment obtained by the United States in Applicants must be unable to obtain fi- a federal court, other than the United nancial assistance at reasonable terms States Tax Court, is not eligible for a and conditions from non-RHS credit or loan or grant from RHS. grant sources and lack the personal re- (1) Indicators of unacceptable credit sources to meet their needs. In cases include: where the household is experiencing (i) Payments on any account where medical expenses in excess of three per- the amount of the delinquency exceed- cent of the household’s income, this re- ed one installment for more than 30 quirement may be waived or modified. days within the last 12 months. Elderly families must use any net fam- (ii) Payments on any account which ily assets in excess of $20,000 to reduce was delinquent for more than 30 days their section 504 request. Non-elderly on two or more occasions within a 12- families must use any net family assets month period. in excess of $15,000 to reduce their sec- (iii) Loss of security due to a fore- tion 504 request. Applicants may con- closure if the foreclosure has been com- pleted within the last 36 months. tribute assets in excess of the afore- (iv) An outstanding Internal Revenue mentioned amounts to further reduce Service tax lien or any other out- their request for assistance. The defini- standing tax liens with no satisfactory tion of assets for this purpose is net arrangement for payment. family assets as described in § 3550.54 of (v) A court-created or court-affirmed subpart B of this part, less the value of obligation or judgment caused by non- the dwelling and a minimum adequate payment that is currently outstanding site. or has been outstanding within the last (f) Legal capacity. The applicant must 12 months, except for those excluded by have the legal capacity to incur the paragraphs (i)(2)(i) and (i)(2)(ii) of this loan obligation or have a court ap- section. pointed guardian or conservator who is (vi) Outstanding collection accounts empowered to obligate the applicant in with a record of irregular payment real estate matters. with no satisfactory arrangements for (g) Suspension or debarment. Applica- repayment, or collection accounts that tions from applicants who have been were paid in full within the last 6 suspended or debarred from participa- months. tion in federal programs will be han- (vii) Non-agency debts written off dled in accordance with FmHA Instruc- within the last 36 months or paid in tion 1940–M (available in any Rural De- full at least 12 months ago. velopment office). (viii) Agency debts that were debt (h) Repayment ability (loans only). Ap- settled within the last 36 months or are plicants must demonstrate adequate being considered for debt settlement. repayment ability as supported by a (ix) Delinquency on a federal debt. budget. (2) The following will not be consid- (1) If an applicant does not meet the ered indicators of unacceptable credit: repayment ability requirements, the (i) A bankruptcy in which debts were applicant can have another party join discharged more than 36 months prior the application as a cosigner. to the date of application or where an (2) If an applicant does not meet the applicant successfully completed a repayment ability requirements, the bankruptcy debt restructuring plan
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and has demonstrated a willingness to requests for assistance are funded on a meet obligations when due for the 12 first-come, first-served basis. months prior to the date of applica- tion. § 3550.105 Site requirements. (ii) A non-foreclosure judgment satis- (a) Rural areas. Loans may be made fied more than 12 months before the only in rural areas designated by RHS. date of application. If an area designation is changed to (3) When an application is rejected nonrural an existing RHS borrower because of unacceptable credit, the ap- may receive 504 assistance. plicant will be informed of the reason (b) Not subdividable. The site must and source of information. not be large enough to subdivide into more than one site under existing local [61 FR 59779, Nov. 22, 1996, as amended at 67 zoning ordinances. FR 78331, Dec. 24, 2002; 73 FR 49593, Aug. 22, 2008] § 3550.106 Dwelling requirements. § 3550.104 Applications. (a) Modest dwelling. The property must be one that is considered modest (a) Application submissions. All per- for the area, must not be designed for sons applying for section 504 loans or income producing purposes, have an in- grants must file a complete written ap- ground pool, or have a market value in plication in a format specified by RHS. excess of the applicable maximum loan Applications will be accepted even limit, in accordance with § 3550.63. when funds are not available. (b) Post-repair condition. Dwellings re- (b) Application processing. (1) Incom- paired with section 504 funds need not plete applications will be returned to be brought to the agency development the applicant specifying in writing the standards of 7 CFR part 1924, subpart additional information that is needed A, nor must all existing hazards be re- to make the application complete. moved. However, the dwelling may not (2) An applicant may voluntarily continue to have major health or safe- withdraw an application at any time. ty hazards. (3) RHS may periodically request in (c) Construction standards. All work writing that applicants reconfirm their must be completed in accordance with interest in obtaining a loan or grant. local construction codes and standards. RHS may withdraw the application of When potentially hazardous equipment any applicant who does not respond or materials are being installed, all within the specified timeframe. materials and installations must be in (4) Applicants who are eligible will be accordance with the applicable stand- notified in writing. If additional infor- ards in 7 CFR part 1924, subpart A. mation becomes available that indi- [61 FR 59779, Nov. 22, 1996, as amended at 67 cates that the original eligibility de- FR 78331, Dec. 24, 2002; 72 FR 70222, Dec. 11, termination may have been in error or 2007] that circumstances have changed, RHS may reconsider the application and the § 3550.107 Ownership requirements. applicant may be required to submit The applicant must have an accept- additional information. able ownership interest in the property (5) Applicants who are ineligible will as evidenced by one of the following: be notified in writing and provided (a) Full fee ownership. Acceptable full with the specific reasons for the rejec- fee ownership is evidenced by a fully tion. marketable title with a deed vesting a (c) Processing priorities. When funding fee interest in the property to the ap- is not sufficient to serve all eligible ap- plicant. plicants, applications for assistance to (b) Secure leasehold interest. A written remove health and safety hazards will lease is required. For loans, the unex- receive priority for funding. In the case pired portion of the lease must not be of applications with equivalent priority less than 2 years beyond the term of status that are received on the same the promissory note. For grants, the day, preference will be extended to ap- remaining lease period must be at least plicants qualifying for a veterans pref- 5 years. A leasehold for mutual help erence. After selection for processing, housing financed by U.S. Department
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of Housing and Urban Development status will remain in trust or re- (HUD) on Indian lands requires no min- stricted status. imum lease period and constitutes ac- (f) Land purchase contract. A land pur- ceptable ownership. chase contract is acceptable if the ap- (c) Life estate interest. To be accept- plicant is current on all payments, and able, a life estate interest must provide there is a reasonable likelihood that the applicant with rights of present the applicant will be able to continue possession, control, and beneficial use meeting the financial obligations of of the property. For secured loans, gen- the contract. erally persons with any remainder in- (g) Alternative evidence of ownership. If terests must be signatories to the evidence, as described in paragraphs (a) mortgage. All of the remainder inter- through (e) of this section, is not avail- ests need not be included in the mort- able, RHS may accept any of the fol- gage to the extent that one or more of lowing as evidence of ownership: the persons holding remainder inter- (1) Records of the local taxing au- ests are not legally competent (and thority that show the applicant as there is no representative who can le- owner and that demonstrate that real gally consent to the mortgage), cannot estate taxes for the property are paid be located, or if the remainder inter- by the applicant. ests are divided among such a large (2) Affidavits by others in the com- number of people that it is not prac- munity stating that the applicant has tical to obtain the signatures of all of occupied the property as the apparent the remainder interests. In such cases, owner for a period of not less than 10 the loan may not exceed the value of years, and is generally believed to be the property interests owned by the the owner. persons executing the mortgage. (3) Any instrument, whether or not (d) Undivided interest. An undivided recorded, which is commonly accepted interest is acceptable if there is no rea- as evidence of ownership. son to believe that the applicant’s posi- tion as an owner-occupant will be jeop- § 3550.108 Security requirements (loans only). ardized as a result of the improvements to be made, and: When the total section 504 indebted- (1) In the case of unsecured loans or ness is $7,500 or more, the property will grants, if any co-owners living or plan- be secured by a mortgage on the prop- ning to live in the dwelling sign the re- erty, leasehold interest, or land pur- payment agreement. chase contract. (2) In the case of a secured loan, when (a) RHS does not require a first lien one or more of the co-owners are not position, but the total of all debts on legally competent (and there is no rep- the secured property may not exceed resentative who can legally consent to the value of the security, except by the the mortgage), cannot be located, or amount of any required contributions the ownership interests are divided to an escrow account for taxes and in- among so large a number of co-owners surance and any required appraisal fee. that it is not practical for all of their (b) Title clearance and the use of interests to be mortgaged, their inter- legal services generally must be con- ests not exceeding 50 percent may be ducted in accordance with 7 CFR part excluded from the security require- 1927, subpart B. These requirements ments. In such cases, the loan may not need not be followed for: exceed the value of the property inter- (1) Loans where the total RHS in- ests owned by the persons executing debtedness is less than $7,500; or the mortgage. (2) Subsequent loans made for mini- (e) Possessory rights. Acceptable forms mal essential repairs necessary to pro- of ownership include possessory right tect the Government’s interest. on an American Indian reservation or [61 FR 59779, Nov. 22, 1996, as amended at 67 State-owned land and the interest of an FR 78331, Dec. 24, 2002] American Indian in land held severalty under trust patents or deeds containing § 3550.109 Escrow account (loans only). restrictions against alienation, pro- RHS may require that borrowers de- vided that land in trust or restricted posit into an escrow account amounts
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necessary to ensure that the account (d) Losses. (1) Loss deductible clauses will contain sufficient funds to pay real for required insurance coverage may estate taxes, hazard and flood insur- not exceed the generally accepted ance premiums, and other related costs minimums based on current and local when they are due in accordance with market conditions. the Real Estate Settlement and Proce- (2) Borrowers must immediately no- dures Act of 1974 (RESPA) and section tify RHS of any loss or damage to in- 501(e) of the Housing Act of 1949, as sured property and collect the amount amended. of the loss from the insurance com- pany. § 3550.110 Insurance (loans only). (3) RHS may require that loss pay- (a) Borrower responsibility. Any bor- ments be supervised. All repairs and re- rower with a secured indebtedness in placements done by or under the direc- excess of $15,000 at the time of loan ap- tion of the borrower, or by contract, will be planned, performed, inspected, proval must furnish and continually and paid for in accordance with 7 CFR maintain hazard insurance on the secu- part 1924, subpart A. rity property, with companies, in (4) When insurance funds remain amounts, and on terms and conditions after all repairs, replacements, and acceptable to RHS including a loss ‘‘ other authorized disbursements have payable clause payable to RHS to pro- ’’ been made, the funds will be applied in tect the Government’s interest. the following order: (b) Amount. The borrower is required (i) Prior liens, including delinquent to insure the dwelling and any other property taxes. essential buildings in an amount equal (ii) Delinquency on the account. to the insurable value of the dwelling (iii) Advances due for recoverable and other essential buildings. However, cost items. in cases where the borrower’s out- (iv) Released to the borrower if the standing secured indebtedness is less RHS debt is adequately secured. than the insurable value of the dwell- (5) If a loss occurs when insurance is ing and other essential buildings, the not in force, the borrower is respon- borrower may elect a lower coverage sible for making the needed repairs or provided it is not less than the out- replacements and ensuring that the in- standing secured indebtedness. If the surance is reinstated on the property. borrower fails, or is unable to insure (6) If the borrower is not financially the secured property, RHS will force able to make the repairs, RHS may place insurance and charge the cost to take one of the following actions: the borrower’s account. Force place in- (i) Make a subsequent loan for re- surance only provides insurance cov- pairs. erage to the Agency and does not pro- (ii) Subordinate the RHS lien to per- vide any direct coverage or benefit to mit the borrower to obtain funds for the borrower. The amount of the lend- needed repairs from another source. er-placed coverage generally will be (iii) Permit the borrower to obtain the property’s last known insured funds secured by a junior lien from an- value. other source. (c) Flood insurance. Flood insurance (iv) Make a protective advance to must be obtained and maintained for protect the Government’s interest. the life of the loan for all property lo- (v) Accelerate the account and de- cated in Special Flood Hazard Areas mand payment in full. (SFHA) as determined by the Federal [61 FR 59779, Nov. 22, 1996, as amended at 70 Emergency Management Agency FR 6552, Feb. 8, 2005; 73 FR 49593, Aug. 22, (FEMA). RHS actions will be con- 2008] sistent with 7 CFR part 1806, subpart B which addresses flood insurance re- § 3550.111 Appraisals (loans only). quirements. If flood insurance through An appraisal is required when the FEMA’s National Flood Insurance Pro- section 504 debt to be secured exceeds gram is not available in a SFHA, the $15,000 or whenever RHS determines property is not eligible for federal fi- that it is necessary to establish the nancial assistance. adequacy of the security. RHS may
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charge an appraisal fee. Appraisals than 3 years from the date the grant must be made in accordance with the agreement was signed. Uniform Standards of Professional Ap- praisal Practices. When other real es- [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002] tate is taken as additional security it will be appraised if it represents a sub- § 3550.115 WWD grant program objec- stantial portion of the security for the tives. loan. The objective of the WWD individual § 3550.112 Maximum loan and grant. grant program is to facilitate the use (a) Maximum loan permitted. The sum of community water and waste disposal of all outstanding section 504 loans to 1 systems by the residents of colonias borrower or on 1 dwelling may not ex- along the border between the U.S. and ceed $20,000. Mexico. WWD grants are processed the (1) Transferees who have assumed a same as Section 504 grants, except as section 504 loan and wish to obtain a specified in this subpart. subsequent section 504 loan are limited [67 FR 78331, Dec. 24, 2002] to the difference between the unpaid principal balance of the debt assumed § 3550.116 Definitions applicable to and $20,000. WWD grants only. (2) For a secured loan, the total of all (a) Colonia. Any identifiable commu- debts on the secured property may not nity designated in writing by the State exceed the value of the security, except or county in which it is located; deter- by the amount of any required ap- mined to be a colonia on the basis of praisal and tax monitoring fees, and objective criteria including lack of a the contributions to an escrow account potable water supply, lack of adequate for taxes and insurance. sewage systems, and lack of decent, (b) Maximum loan based upon ability to safe, and sanitary housing, inadequate pay. The maximum loan is limited to roads, and drainage; and existed and the principal balance that can be sup- was generally recognized as a colonia ported given the amount the applicant before October 1, 1989. has available, as determined by RHS, (b) Individual. Resident of a colonia to repay a loan at 1 percent interest located in a rural area. with a 20-year term. (c) Maximum grant. The lifetime total (c) Rural areas. Includes unincor- of the grant assistance to any recipient porated areas and any city or town is $7,500. No grant can be awarded un- with a population not in excess of less the maximum level of loans, as 10,000 inhabitants according to the supported by a budget, have been ob- most recent decennial census of the tained. United States. (d) System. A community or central § 3550.113 Rates and terms (loans water supply or waste disposal system. only). (e) WWD. Water and Waste Disposal (a) Interest rate. The interest rate for grants to individuals. all section 504 loans will be 1 percent. [67 FR 78331, Dec. 24, 2002] (b) Loan term. The repayment period for the loan should generally be as § 3550.117 WWD grant purposes. short as possible based on the appli- cant’s repayment ability, and may Grant funds may be used to pay the never exceed 20 years; however loans reasonable costs for individuals to: made in combination with grants must (a) Extend service lines from the sys- have a term of 20 years. tem to their residence. (b) Connect service lines to resi- § 3550.114 Repayment agreement dence’s plumbing. (grants only). (c) Pay reasonable charges or fees for Grant recipients are required to sign connecting to a system. a repayment agreement which specifies (d) Pay for necessary installation of that the full amount of the grant must plumbing and related fixtures within be repaid if the property is sold in less dwellings lacking such facilities. This
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is limited to one bathtub, sink, com- turns are used as further verification of mode, kitchen sink, water heater, and household income. outside spigot. [61 FR 59779, Nov. 22, 1996, as amended at 67 (e) Construction and/or partitioning FR 78331, Dec. 24, 2002] off a portion of the dwelling for a bath- room, not to exceed 4.6 square meters § 3550.120–3550.149 [Reserved] (48 square feet) in size. (f) Pay reasonable costs for closing § 3550.150 OMB control number. abandoned septic tanks and water wells The information collection require- when necessary to protect the health ments contained in this regulation and safety of recipients of a grant for a have been approved by the Office of purpose provided in paragraph (a) or (b) Management and Budget (OMB) and of this section and is required by local have been assigned OMB control num- or State law. ber 0575–0172. Public reporting burden (g) Make improvements to individ- for this collection of information is es- ual’s residence when needed to allow timated to vary from 5 minutes to 3 the use of the water and/or waste dis- hours per response, with an average of posal system. 11⁄2 hours per response, including time [67 FR 78331, Dec. 24, 2002] for reviewing instructions, searching existing data sources, gathering and § 3550.118 Grant restrictions. maintaining the data needed, and com- (a) Maximum grant. Lifetime assist- pleting and reviewing the collection of ance to any individual for initial or information. Send comment regarding subsequent Section 306C WWD grants this burden estimate or any other as- may not exceed a cumulative total of pect of this collection of information, $5,000. including suggestions for reducing this (b) Limitation on use of grant funds. burden to the Department of Agri- WWD grant funds may not be used to: culture, Clearance Officer, STOP 7602, (1) Pay any debt or obligation of the 1400 Independence Avenue, SW., Wash- grantees other than obligations in- ington, DC 20250–0762. You are not re- curred for purposes listed in § 3550.117. quired to respond to this collection of (2) Pay individuals for their own information unless it displays a cur- labor. rently valid OMB control number. [67 FR 78331, Dec. 24, 2002] [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002] § 3550.119 WWD eligibility require- ments. Subpart D—Regular Servicing In addition to the eligibility require- ments of § 3550.103, WWD applicants § 3550.151 Servicing goals. must meet the following requirements: This subpart sets forth the Rural (a) An applicant need not be 62 years Housing Service (RHS) policies for of age or older. managing the repayment of loans made (b) Own and occupy a dwelling lo- under sections 502 and 504 of the Hous- cated in a colonia. Evidence of owner- ing Act of 1949, as amended. ship will be presented as outlined in § 3550.107. § 3550.152 Loan payments. (c) Have a total taxable income from (a) Payment terms. Unless the loan all individuals residing in the house- documents specify other loan repay- hold that is below the most recent pov- ment terms, borrowers are required to erty income guidelines established by make monthly payments. Borrowers the Department of Health and Human with existing loans specifying annual Services. payments may request conversion to (d) Must not be delinquent on any monthly payments, and must convert Federal debt. to a monthly payment schedule before (e) The household income must be any subsequent loan or new payment verified at the time they apply for as- assistance is approved. Suitable forms sistance through verification of em- of payment are: check, money order, or ployment and benefits. Federal tax re- bank draft. Borrowers who make cash
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payments will be assessed a fee to (b) Borrowers may elect to escrow at cover the cost of conversion to a any time during the terms of the loan money order. if the outstanding RHS loan balance is (b) Application of payments. If a bor- over $2,500. rower makes less than the scheduled (c) RHS may require borrowers to es- payment, the payment is held in sus- crow in conjunction with any special pense and is not applied to the bor- servicing action. rower’s account. When subsequent pay- ments are received in an amount suffi- § 3550.156 Borrower obligations. cient to equal a scheduled payment, (a) After receiving a loan from RHS, the amount will be applied in the fol- borrowers are expected to meet a vari- lowing order: ety of obligations outlined in the loan (1) Protective advances charged to documents. In addition to making the account. timely payments, these obligations in- (2) Accrued interest due. clude: (3) Principal due. (1) Maintaining the security prop- (4) Escrow for taxes and insurance. erty; and (c) Multiple loans. When a borrower (2) Maintaining an adequately funded with multiple loans for the same prop- escrow account, or paying real estate erty makes less than the scheduled taxes, hazard and flood insurance, and payment on all loans, the payment will other related costs when due. be applied to the oldest loan and then (b) If a borrower fails to fulfill these in declining order of age. Future remit- obligations, RHS may obtain the need- tances will be applied beginning with ed service and charge the cost to the the oldest unpaid installment. borrowers account. (d) Application of excess payments. § 3550.157 Payment subsidy. Borrowers can elect to make payments in excess of the scheduled amount to be (a) Borrowers currently receiving pay- applied to principal, provided there are ment subsidy. (1) RHS will review annu- no outstanding fees. ally each borrower’s eligibility for con- tinued payment subsidy and determine § 3550.153 Fees. the appropriate level of assistance. To be eligible for payment subsidy re- RHS may assess reasonable fees in- newal, the borrower must also occupy cluding a tax service fee, fees for late the property. payments, and fees for checks returned (2) If the renewal is not completed be- for insufficient funds. fore the expiration date of the existing § 3550.154 Inspections. agreement, the effective date of the re- newal will be either the expiration date RHS or its agent may make reason- of the previous agreement if RHS error able entries upon and inspections of caused the delay, or the next due date any property used as security for an after the renewal is approved in all RHS loan as necessary to protect the other cases. interest of the Government. RHS will (3) The borrower must notify RHS give the borrower notice at the time of whenever an adult member of the or prior to an inspection. household becomes employed or changes employment, there is a change § 3550.155 Escrow account. in household composition, or if income Escrow accounts will be administered increases by at least 10 percent. The in accordance with RESPA and section household may also report decreases in 501(e) of the Housing Act of 1949, as income. If the change in the house- amended. hold’s income will cause the payment (a) Upon creation of the escrow ac- for principal and interest to change by count, RHS may require borrowers to at least 10 percent, the household’s deposit funds sufficient to pay taxes payment subsidy may be adjusted for a and insurance premiums applicable to new 12-month period. The new agree- the mortgage for the period since the ment will be effective the due date fol- last payments were made and to fund a lowing the date the borrower’s infor- cushion as permitted by RESPA. mation is verified by RHS.
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(b) Borrowers not currently receiving § 3550.159 Borrower actions requiring payment subsidy. Payment assistance RHS approval. may be granted to borrowers not cur- (a) Mineral leases. Borrowers who rently receiving payment subsidy wish to lease mineral rights to a secu- whose loans were approved on or after rity property must request authoriza- August 1, 1968, whose income does not tion from RHS. RHS may consent to exceed the applicable low-income limit the lease of mineral rights and subordi- for the area, are personally occupying nate its liens to the lessee’s rights and the RHS financed property, and who interests in the mineral activity if the meet the requirements of § 3550.53(b), security property will remain suitable (e), and (f). In general, to receive pay- as a residence and the Government’s ment assistance the term of the loan at security interest will not be adversely closing must have been at least 25 affected. Subordination of RHS loans years. If an account has been reamor- to a mineral lease does not entitle the tized and the initial term of the loan leaseholder to any proceeds from the was at least 25 years, payment assist- sale of the security property. ance may be granted even though the (1) If the proposed activity is likely term of the reamortized loan is less to decrease the value of the security than 25 years. Payment assistance may property, RHS may consent to the be granted on a subsequent loan for re- lease only if the borrower assigns 100 pairs with a term of less than 25 years. percent of the income from the lease to (c) Cancellation of payment subsidy. RHS to be applied to reduce principal RHS will cancel a payment subsidy if and the rent to be paid is at least equal the borrower does not occupy the prop- to the estimated decrease in the mar- erty, has sold or transferred title to ket value of the security. the property, or is no longer eligible (2) If the proposed activity is not for payment subsidy. likely to decrease the value of the se- curity property, RHS may consent to § 3550.158 Active military duty. the lease if the borrower agrees to use The Soldiers and Sailors Relief Act any damage compensation received requires that the interest rate charged from the lessee to repair damage to the a borrower who enters full-time active site or dwelling, or to assign it to RHS military duty after a loan is closed not to be applied to reduce principal. exceed six percent. Active military (b) Subordination. RHS may subordi- duty does not include participation in nate its interests to permit a borrower a military reserve or the National to defer recapture amounts and refi- Guard unless the borrower is called to nance the loan, or to obtain a subse- active duty. quent loan with private credit. (a) Amount of assistance. If a borrower (1) When it is in the best interest of qualifies for payment subsidy after re- the Government, subordination will be duction of the interest rate to six per- permitted if: cent, the amount of payment subsidy (i) The other lender will verify that received during the period of active the funds will be used for purposes for military duty will be the difference be- which an RHS loan could be made; tween the amount due at the subsidized (ii) The prior lien debt will be on rate for principal and interest and the terms and conditions that the borrower amount due at a six percent interest can reasonably be expected to meet rate. The six percent interest rate will without jeopardizing repayment of the be effective with the first payment due RHS indebtedness; after RHS confirms the active military (iii) Any proposed development will status of the borrower. be planned and performed in accord- (b) Change of active military status. ance with 7 CFR part 1924, subpart A or The borrower must notify RHS when he directed by the other lender in a man- or she is no longer on active military ner which is consistent with that sub- duty. RHS will cancel the six percent part; and interest rate and resume use of the (iv) An agreement is obtained in promissory note interest rate. A new writing from the prior lienholder pro- payment subsidy agreement may be viding that at least 30 days prior writ- processed if the borrower is eligible. ten notice will be given to RHS before
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action to foreclose on the prior lien is (7) Proceeds from the sale of a por- initiated. tion of the security property, granting (2) The total amount of debt per- an easement or right-of-way, damage mitted when RHS subordinates its in- compensation, and all similar trans- terests depends on whether the bor- actions requiring RHS consent, will be rower pays off the RHS loan. used in the following order: (i) For situations in which the bor- (i) To pay customary and reasonable rower is obtaining a subsequent loan costs related to the transaction that from another source and will not pay must be paid by the borrower. off the RHS debt, the prior lien debt (ii) To be applied on a prior lien debt, plus the unpaid balance of all RHS if any. loans, exclusive of recapture, will not (iii) To be applied to RHS indebted- exceed the market value of the secu- ness or used for improvements to the rity. security property in keeping with pur- (ii) For situations in which RHS is poses and limitations applicable for use subordinating only a deferred recap- of RHS loan funds. Proposed develop- ture amount, the prior lien debt plus ment will be planned and performed in the deferred recapture amount will not accordance with 7 CFR part 1924, sub- exceed the market value of the secu- part A and supervised to ensure that rity. the proceeds are used as planned. (c) Partial release of security. RHS (d) Lease of security property. A bor- may consent to transactions affecting rower must notify RHS if they lease the security, such as sale or exchange of security property or granting of a the property. If the lease is for a term right-of-way across the security prop- of more than 3 years or contains an op- erty, and grant a partial release pro- tion to purchase, RHS may liquidate vided: the loan. During the period of any (1) The compensation is: lease, the borrower is not eligible for a (i) For sale of the security property, payment subsidy or special servicing cash in an amount equal to the value of benefits. the security being disposed of or rights § 3550.160 Refinancing with private granted. credit. (ii) For exchange of security prop- erty, another parcel of property ac- (a) Objective. RHS direct loan pro- quired in exchange with value equal to grams are not intended to supplant or or greater than that being disposed of. compete with private credit sources. (iii) For granting an easement or Therefore, borrowers are required to right-of-way, benefits derived that are refinance RHS loans with private cred- equal to or greater than the value of it sources when RHS determines that the security property being disposed of. the borrower meets RHS criteria. (2) An appraisal must be conducted if (b) Criteria for refinancing with private the latest appraisal is more than 1 year credit. Borrowers must refinance with old or if it does not reflect market private credit when RHS determines value and the amount of consideration that the borrower has the ability to ob- exceeds $5,000. The appraisal fee will be tain other credit at reasonable rates charged to the borrower. and terms based on their income, as- (3) The security property, after the sets, and credit history. Reasonable transaction is completed, will be an rates and terms are those commercial adequate but modest, decent, safe, and rates and terms that borrowers are ex- sanitary dwelling and related facilities. pected to meet when borrowing for (4) Repayment of the RHS debt will similar purposes. Differences in inter- not be jeopardized. est rates and terms between RHS and (5) If applicable, the environmental other lenders will not be an acceptable requirements of 7 CFR part 1940, sub- reason for a borrower to fail to refi- part G are met. nance with private credit if the avail- (6) When exchange of all or part of able rates and terms are within the the security is involved, title clearance borrower’s ability to pay. is obtained before release of the exist- (c) Notice of requirement to refinance ing security. with private credit. The financial status
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of all borrowers may be reviewed peri- (3) Up to one percent of the loan odically to determine their ability to amount for loan servicing costs, if re- refinance with private credit. A bor- quired by the lender; and rower’s financial status may be re- (4) The cost of any necessary repairs viewed at any time if information be- or improvements to the security prop- comes available to RHS that indicates erty. that the borrower’s circumstances have (f) Application for additional credit. A changed. borrower who has been asked to refi- (1) A borrower undergoing review is nance with private credit will not be required to supply, within 30 days of a considered for additional credit until request from RHS, sufficient financial the refinancing issue is resolved unless information to enable RHS to deter- such additional credit is necessary to mine the borrowers ability to refinance protect the Government’s interest. with private credit. Foreclosure action may be initiated against any borrower § 3550.161 Final payment. who fails to respond. (2) When RHS determines that a bor- (a) Payment in full. Full payment of a rower has the ability to refinance with borrower’s account includes repayment private credit, the borrower will be re- of principal and outstanding interest, quired to refinance within 90 days. unauthorized assistance, recapture (3) Within 30 days after being notified amounts, and charges made to the bor- of the requirement to refinance with rower’s account. Any supervised funds private credit, a borrower may contest or funds remaining in a borrower’s es- the RHS decision and provide addi- crow account will be applied to the bor- tional financial information to docu- rower’s account or returned to the bor- ment an inability to refinance with pri- rower. vate credit. (b) Release of security instruments. (d) Failure to refinance with private RHS may release security instruments credit. (1) If the borrower is unable to when full payment of all amounts owed secure private credit, the borrower has been received and verified. If RHS must submit written statements and and the borrower agree to settle the ac- documentation to RHS showing: count for less than the full amount (i) The lenders contacted. owed, the security instruments may be (ii) The amount of the loan requested released when all agreed-upon amounts by the borrower and the amount, if are received and verified. Security in- any, offered by the lenders. struments will not be released until (iii) The rates and terms offered by any deferred recapture amount has the lenders or the specific reasons why been paid in full. other credit is not available. (c) Payoff statements. At the bor- (iv) The information provided by the rower’s request, RHS will provide a borrower to the lenders regarding the written statement indicating the purpose of the loan. amount required to pay the account in (2) If RHS determines that the bor- full. RHS may charge a fee for state- rower’s submission does not dem- ments for the same account if more onstrate the borrower’s inability to re- finance with private credit, or if the than 2 statements are requested in any borrower fails to submit the required 30 day period. information, foreclosure may be initi- (d) Suitable forms of payment. Suitable ated. forms of payment are: check, money (e) Subordination of recapture amount. order, or bank draft. Borrowers who RHS may subordinate its interest in make cash payments will be assessed a any deferred recapture amount to per- fee to cover conversion to a money mit a borrower to refinance with pri- order. vate credit. The amount to which the (e) Recording costs. Recording costs RHS debt will be subordinated may in- for the release of the mortgage will be clude: the responsibility of the borrower, ex- (1) The amount required to repay the cept where State law requires the RHS debt, exclusive of recapture; mortgagee to record or file the satis- (2) Reasonable closing costs; faction.
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§ 3550.162 Recapture. (e) Assumed loans. (1) When a loan subject to recapture is assumed under (a) Recapture policy. Borrowers with new rates and terms, the recapture loans approved or assumed on or after amount may be paid in full by the sell- October 1, 1979, will be required to er or included in the principal amount repay subsidy amounts received assumed by the buyer. through payment subsidy or deferred (2) When a loan is assumed under the mortgage assistance. Amounts to be re- terms of the promissory note, recap- captured are due and payable when the ture amounts will not be due. When the borrower transfers title or ceases to oc- new borrower transfers title or ceases cupy the property. to occupy the property, all subsidy sub- (b) Amount to be recaptured. (1) The ject to recapture before and after the maximum amount to be recaptured is assumption is due. the amount of principal reduction at- (3) When a borrower has deferred pay- tributed to subsidy and the lesser of: ment of recapture amounts, the de- (i) The amount of subsidy received; ferred recapture amount may be in- or cluded in the principal amount of the (ii) 50 percent of the value apprecia- new loan. tion. [61 FR 59779, Nov. 22, 1996, as amended at 67 (2) The value appreciation of prop- FR 78331, Dec. 24, 2002] erty with a cross-collateralized loan is based on the market value of the dwell- § 3550.163 Transfer of security and as- ing and lot. If located on a farm, the sumption of indebtedness. lot size would be a typical lot for a sin- (a) General policy. RHS mortgages gle family housing property. contain due-on-sale clauses that gen- (3) Interest reduced from the promis- erally require RHS consent before title sory note rate to six percent under the to a security property can be trans- Soldiers and Sailors Relief Act is not ferred with an assumption of the in- subject to recapture. debtedness. If it is in the best interest (c) Option to defer payment of recap- of the Government, RHS will approve ture amounts. (1) Borrowers may defer the transfer of title and assumption of payment of recapture amounts if the indebtedness on program or nonpro- loan is repaid, the title does not trans- gram (NP) terms, depending on the fer, and the borrower continues to oc- transferee’s eligibility and the prop- cupy the property. erty’s characteristics. (2) The RHS mortgage securing the (b) RHS approval of assumptions. (1) A deferred recapture amount may be sub- borrower with a loan on program terms ordinated to permit refinancing if the who wishes to transfer a security prop- RHS mortgage will be adequately se- erty restricted by a due-on-sale clause cured. to a purchaser who wishes to assume (3) Borrowers eligible to defer recap- the debt must receive prior authoriza- ture may receive a discount on the re- tion from RHS. If RHS authorizes the capture amount due if the recapture transfer and assumption, the account amount is paid along with the final will be serviced in the purchaser’s payment, or in the case of a final in- name and the purchaser will be liable stallment, within 60 days of the date for the loan under the terms of the se- RHS notifies the borrower that recap- curity instrument. ture may be due. (2) If a borrower transfers title to the (d) Borrower ceases to occupy the prop- security property with a due-on-sale erty. When a borrower ceases to occupy clause without obtaining RHS author- a property: ization, RHS will not approve assump- (1) The borrower may pay the recap- tion of the indebtedness, and the loan ture amount in full or reamortize the will be liquidated unless RHS deter- existing loan to include the recapture mines that it is in the Government’s amount. best interest to continue the loan. If (2) If the borrower does not pay the RHS decides to continue the loan, the recapture amount or consent to re- account will be serviced in the original amortization within 30 days, RHS may borrower’s name and the original bor- proceed with foreclosure. rower will remain liable for the loan
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under the terms of the security instru- properties to be assumed by program- ment. eligible purchasers may be assumed on (c) Exceptions to due-on-sale clauses. program terms. Loans secured by non- (1) Due-on-sale clauses are not trig- program properties and loans to be as- gered by the following types of trans- sumed by purchasers who are not eligi- fers: ble for program terms may be assumed (i) A transfer from the borrower to a on NP terms. spouse or children not resulting from (2) The amount the transferee will as- the death of the borrower. sume will be either the current market (ii) A transfer to a relative, joint ten- value less any prior liens and any re- ant, or tenant by the entirety resulting quired down payment, or the indebted- from the death of the borrower. ness, whichever is less. (iii) A transfer to a spouse or ex- (3) For loans assumed on program spouse resulting from a divorce decree, terms, the interest rate charged by legal separation agreement, or prop- RHS will be the rate in effect at loan erty settlement agreement. approval or loan closing, whichever is (iv) A transfer to a person other than lower. For loans assumed on nonpro- a deceased borrower’s spouse who wish- gram terms, the interest rate will be es to assume the loan for the benefit of the rate in effect at the time of loan persons who were dependent on the de- approval. ceased borrower at the time of death, if (4) If additional financing is required the dwelling will be occupied by one or to purchase the property or to make more persons who were dependent on repairs, RHS may approve a subsequent the borrower at the time of death, and loan under subparts B or C of this part. there is a reasonable prospect of repay- (5) If an appraisal is required for an ment. assumption on new terms, the pur- (v) A transfer into an inter vivos chaser is responsible for the appraisal trust in which the borrower does not fee. transfer rights of occupancy in the (6) If all or a portion of the bor- property. rower’s account balance is assumed, (2) A transferee who obtains property the borrower and cosigner, if any, will through one of the types of transfer be released from liability on the listed in paragraph (c)(1) of this sec- amount of the indebtedness assumed. If tion: an account balance remains after the (i) Is not required to assume the loan, assumption, RHS may pursue debt set- and RHS is not permitted to liquidate tlement in accordance with subpart F the loan, if the transferee continues to of this part. make scheduled payments and meet all (7) Unless it is in the Government’s other obligations of the loan. A trans- best interest, RHS will not approve an feree who does not assume the loan is assumption of a secured loan if the not eligible for payment assistance or a seller fails to repay any unsecured RHS moratorium. loan. (ii) May assume the loan on the rates (8) If a loan is secured by a property and terms contained in the promissory with a dwelling situated on more than note, with no down payment. If the ac- a minimum adequate site and the ex- count is past due at the time an as- cess property cannot be sold separately sumption is executed, the account may as a minimum adequate site for an- be brought current by using any of the other dwelling, RHS may approve a servicing methods discussed in subpart transfer of the entire property. If the E of this part. excess property can be sold separately (iii) May assume the loan under new as a minimum adequate site, RHS will rates and terms if the transferee ap- approve assumption of only the dwell- plies and is program-eligible. ing and the minimum adequate site. If (3) Any subsequent transfer of title, the value of the dwelling on the min- except upon death of the inheritor or imum adequate site is less than the between inheritors to consolidate title, amount of the outstanding RHS debt, will be treated as a sale. the remaining debt will be secured by (d) Requirements for an assumption. (1) the excess property. The outstanding Loans secured by program-eligible debt will be converted to an NP loan
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and reamortized over a period not to rate in effect on the date the loan was exceed 10 years or the final due date of approved. the original promissory note, which- (iii) If a section 504 recipient’s in- ever is sooner. come was above the very low-income [61 FR 59779, Nov. 22, 1996, as amended at 67 level, RHS will apply the applicable 502 FR 78332, Dec. 24, 2002] or nonprogram interest rate in effect on the date the loan was approved. § 3550.164 Unauthorized assistance. (iv) If an incorrect interest rate was (a) Definition. Unauthorized assist- used, RHS will adjust the account ance includes any loan, payment sub- using the correct interest rate. sidy, deferred mortgage payment, or (3) If the recipient receives unauthor- grant for which the recipient was not ized subsidy due to inaccurate informa- eligible. tion, RHS will require the recipient to (b) Unauthorized assistance due to false repay it within 30 days. If the recipient information. (1) False information in- cannot repay it within 30 days, the ac- cludes information that the recipient count may be reamortized. If the re- knew was incorrect or should have cipient repays the unauthorized sub- known was incorrect that was provided sidy or reamortizes the loan, the loan or omitted for the purposes of obtain- may be continued. ing assistance for which the recipient (d) Unauthorized grants. Recipients was not eligible. may either repay the unauthorized as- (2) If the recipient receives an unau- sistance in a lump sum or execute a thorized loan due to false information, promissory note, regardless of whether RHS will adjust the account using the the unauthorized assistance was due to NP interest rate that was in effect false or inaccurate information. RHS when the loan was approved. The re- may seek a judgment if the recipient cipient must pay the account in full refuses to repay the unauthorized as- within 30 days. sistance. (3) If the recipient receives unauthor- ized subsidy due to false information, (e) Account servicing. RHS will adjust RHS will require the recipient to repay all accounts retroactively to establish it within 30 days. The account cannot the amount of unauthorized assistance. be reamortized to include the unau- If the recipient does not repay the un- thorized subsidy. If the recipient re- authorized assistance within 30 days, pays the unauthorized subsidy, the RHS may accelerate the loan. If the loan may be continued. unauthorized assistance is due to inac- (c) Unauthorized assistance due to in- curate information and the recipient is accurate information. (1) Inaccurate in- unable to repay within 30 days, RHS formation includes incorrect informa- may reamortize the loan. tion inadvertently provided, used, or (f) Accounts with no security. If an un- omitted without the intent to obtain authorized loan or grant is unsecured, benefits for which the recipient was RHS may seek the best mortgage ob- not eligible. tainable. (2) RHS will permit a recipient who receives an unauthorized loan due to §§ 3550.165–3550.199 [Reserved] inaccurate information to retain the loan under the following conditions. § 3550.200 OMB control number. (i) If the inaccurate information was The information collection require- related to the purpose of the loan or ments contained in this regulation the recipient’s eligibility, with the ex- have been approved by the Office of ception of income, or the income used Management and Budget (OMB) and was incorrect, but the recipient still have been assigned OMB control num- qualified as income-eligible, RHS will ber 0575–0172. Public reporting burden allow the recipient to continue the for this collection of information is es- loan on existing terms. timated to vary from 5 minutes to 3 (ii) If a section 502 recipient’s income hours per response, with an average of was above the moderate-income level, 11⁄2 hours per response, including time RHS will convert the loan to an NP for reviewing instructions, searching loan, using the nonprogram interest existing data sources, gathering and
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maintaining the data needed, and com- reamortization of the account RHS pleting and reviewing the collection of may: information. You are not required to (a) Require a borrower who currently respond to this collection of informa- makes annual payments, but receives a tion unless it displays a currently valid monthly income, to convert to month- OMB control number. ly payments. (b) Require the creation and funding [61 FR 59779, Nov. 22, 1996, as amended at 67 of an escrow account for real estate FR 78332, Dec. 24, 2002] taxes and insurance, if one does not al- ready exist for any borrower with Subpart E—Special Servicing monthly payments. (c) Convert the method of calculating § 3550.201 Purpose of special servicing interest for any account being charged actions. daily simple interest to an amortized The Rural Housing Service (RHS) payment schedule. may approve special servicing actions to reduce the number of borrower fail- § 3550.204 Payment assistance. ures that result in liquidation. Bor- Borrowers who are eligible may be of- rowers who have difficulty keeping fered payment assistance in accordance their accounts current may be eligible with subpart B of this part. Borrowers for one or more available servicing op- who are not eligible for payment as- tions including: payment assistance; sistance because the loan was approved delinquency workout agreements that before August 1, 1968, or the loan was temporarily modify payment terms; made on above-moderate or nonpro- protective advances of funds for taxes, gram (NP) terms, may refinance the insurance, and other approved costs; loan in order to obtain payment assist- payment moratoriums; and reamortiza- ance if: tion of the loan. (a) The borrower is eligible to receive a loan with payment assistance; § 3550.202 Past due accounts. (b) Due to circumstances beyond the An account is past due if the sched- borrower’s control, the borrower is in uled payment is not received by the danger of losing the property; and due date, or as authorized by State (c) The property is program-eligible. law. § 3550.205 Delinquency workout agree- (a) Late fee. A late fee will be assessed ments. if the full scheduled payment is not re- Borrowers with past due accounts ceived by the 15th day after the due may be offered the opportunity to date. avoid liquidation by entering into a de- (b) Liquidation—(1) For borrowers with linquency workout agreement that monthly payments. The account may be specifies a plan for bringing the ac- accelerated without further servicing count current. To receive a delin- when at least 3 scheduled payments are quency workout agreement, the fol- past due or an amount equal to at least lowing requirements apply: 2 scheduled payments is past due for at (a) A borrower who is able to do so least 3 consecutive months. In such will be required to pay the past-due cases RHS may pursue voluntary liq- amount in a single payment. uidation and foreclosure. (b) A borrower who is unable to pay (2) For borrowers with annual pay- the past-due amount in a single pay- ments. The account may be accelerated ment must pay monthly all scheduled without further servicing when at least payments plus an agreed upon addi- 3⁄12 of 1 scheduled payment has not been tional amount that brings the account received by its due date. In such cases, current within 2 years or the remain- RHS may pursue voluntary liquidation ing term of the loan, whichever is and foreclosure. shorter. (c) If a borrower becomes more than § 3550.203 General servicing actions. 30 days past due under the terms of a Whenever any of the servicing ac- delinquency workout agreement, RHS tions described in this subpart result in may cancel the agreement.
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§ 3550.206 Protective advances. (3) The borrower’s account is not cur- RHS may pay for fees or services and rently accelerated. charge the cost against the borrower’s (b) Reviews of borrower eligibility. (1) account to protect the Governments Periodically RHS may require the bor- interest. rower to submit financial information (a) Advances for taxes and insurance. to demonstrate that the moratorium RHS may advance funds to pay real es- should be continued. The moratorium tate taxes, hazard and flood insurance may be canceled if: premiums, and other related costs, as (i) The borrower does not respond to well as amounts needed to fund the a request for financial information; current escrow cycle. (ii) RHS receives information indi- (b) Advances for costs other than taxes cating that the moratorium is no and insurance. Protective advances for longer required; or costs other than taxes and insurance, (iii) In the case of a moratorium such as emergency repairs, will be granted to pay unexpected or unreim- made only if the borrower cannot ob- bursed expenses, the borrower cannot tain a subsequent loan. show that an amount at least equal to (c) Repayment arrangements. (1) Ad- the deferred payments has been applied vances for borrowers with multiple toward the expenses. loans will be charged against the larg- (2) At least 30 days before the mora- est loan. torium is scheduled to expire, RHS will (2) Amounts advanced will be due require the borrower to provide finan- with the next scheduled payment. RHS cial information needed to determine may schedule repayment consistent whether the borrower is able to resume with the borrowers ability to repay or making scheduled payments. reamortize the loan. (c) Resumption of scheduled payments. (3) Advances will bear interest at the When the borrower is able to resume promissory note rate of the loan to scheduled payments, the loan will be which the advance was charged. reamortized to include the amount de- ferred during the moratorium and the § 3550.207 Payment moratorium. borrower will be required to escrow. If RHS may defer a borrowers scheduled the new monthly payment, after con- payments for up to 2 years. NP bor- sideration of the maximum amount of rowers are not eligible for a payment payment subsidy available to the bor- moratorium. rower, exceeds the borrower’s repay- (a) Borrower eligibility. For a borrower ment ability, all or part of the interest to be eligible for a moratorium, all of that has accrued during the morato- the following conditions must be met: rium may be forgiven. (1) Due to circumstances beyond the (d) Borrowers unable to resume sched- borrower’s control, the borrower is uled payments. If even after all appro- temporarily unable to continue making priate servicing actions have been scheduled payments because: taken the borrower is unable to resume (i) The borrower’s repayment income making scheduled payments after 2 fell by at least 20 percent within the consecutive years of being on a mora- past 12 months; torium, the account will be liquidated. (ii) The borrower must pay unex- pected and unreimbursed expenses re- § 3550.208 Reamortization using prom- sulting from the illness, injury, or issory note interest rate. death of the borrower or a family mem- Reamortization using the promissory ber; or note interest rate may be authorized (iii) The borrower must pay unex- when RHS determines that reamortiza- pected and unreimbursed expenses re- tion is required to enable the borrower sulting from damage to the security to meet scheduled obligations, and property in cases where adequate haz- only if the Government’s lien priority ard insurance was not available or was is not adversely affected. prohibitively expensive. (a) Permitted uses. Reamortization at (2) The borrower occupies the dwell- the promissory note interest rate may ing, unless RHS determines that it is be used to accomplish a variety of serv- uninhabitable. icing actions, including to:
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(1) Repay unauthorized assistance (b) Salary offset. Offset of claims due due to inaccurate information. to RHS may be collected pursuant to (2) Repay principal and interest ac- the salary offset provisions in 7 CFR crued and advances made during a mor- part 3, subpart C for a federal employee atorium. or other persons covered in that sub- (3) Bring current an account under a part. delinquency workout agreement after (c) Administrative offset. RHS may the borrower has demonstrated the take action to effect administrative willingness and ability to meet the offset to recover delinquent claims due terms of the loan and delinquency to it in accordance with the procedures workout agreement and reamortization in 7 CFR part 3, subpart B. is in the borrower’s and Government’s (d) Offset by other federal agencies. Es- best interests. crow funds and loan and grant funds (4) Bring a delinquent account cur- held or payable by RHS are not subject rent in the case of an assumption to offset by other federal agencies. where the due on sale clause is not [61 FR 59779, Nov. 22, 1996, as amended at 67 triggered as described in § 3550.163(c). FR 69672, Nov. 19, 2002] (5) Cover the remaining debt when a portion of the security property is § 3550.211 Liquidation. being transferred but the acquisition (a) Policy. When RHS determines that price does not cover the outstanding a borrower is unable or unwilling to debt. The remaining balance will be re- meet loan obligations, RHS may accel- amortized for a period not to exceed 10 erate the loan and, if necessary, ac- years or the final due date of the note quire the security property. The bor- being reamortized, whichever is sooner. rower is responsible for all expenses as- (6) Bring an account current where sociated with liquidation and acquisi- the National Appeals Division (NAD) tion. If the account is satisfied in full, reverses an adverse action, the bor- the borrower will be released from li- rower has adequate repayment ability, ability. If the account is not satisfied and RHS determines the reamortiza- in full, RHS may pursue any deficiency tion is in the best interests of the Gov- unless the borrower received a morato- ernment and the borrower. rium at any time during the life of the (b) Payment term of reamortized loan. loan and faithfully tried to repay the Except as noted in paragraph (a)(5) of loan. this section, the term of the reamor- (b) Tribal allotted or trust land. Liq- tized loan may be extended to the max- uidations involving a security interest imum term for which the borrower was in tribal allotted or trust land shall eligible at the time the loan was origi- only be pursued after offering to trans- nally made, less the number of years fer the account to an eligible tribal the loan has been outstanding. In all member, the tribe, or the Indian Hous- cases, the term must not exceed the re- ing Authority. Forced liquidation of maining security life of the property. RHS security interests in Indian trust lands or on tribal allotted land will be [61 FR 59779, Nov. 22, 1996, as amended at 67 recommended only after the State Di- FR 78332, Dec. 24, 2002] rector has determined it is in the best interest of the Government. § 3550.209 [Reserved] (c) Acceleration and foreclosure. If RHS determines that foreclosure is in the § 3550.210 Offsets. best interest of the Government, RHS Any money that is or may become will send an acceleration notice to payable from the United States to an each borrower and any cosigner. RHS borrower may be subject to ad- (d) Voluntary liquidation. Borrowers ministrative, salary, or Internal Rev- may voluntarily liquidate through: enue Service (IRS) offsets for the col- (1) Refinancing or sale. The borrower lection of a debt owed to RHS. may refinance or sell the security prop- (a) IRS offset. RHS may take action erty for at least net recovery value and to effect offset of claims due RHS apply the proceeds to the account. against tax refunds due to RHS debtors (2) Deed in lieu of foreclosure. RHS under 31 U.S.C. 3720a and 31 CFR 285.2. may accept a deed in lieu of foreclosure
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to convey title to the security property Management and Budget (OMB) and only after the debt has been acceler- have been assigned OMB control num- ated and when it is in the Govern- ber 0575–0172. Public reporting burden ment’s best interest. for this collection of information is es- (3) Offer by third party. If a junior timated to vary from 5 minutes to 3 lienholder or cosigner makes an offer hours per response, with an average of in the amount of at least the net recov- 11⁄2 hours per response, including time ery value, RHS may assign the note for reviewing insurrections, searching and mortgage. existing data sources, gathering and (e) Bankruptcy. (1) When a petition in maintaining the data needed, and com- bankruptcy is filed by a borrower after pleting and reviewing the collection of acceleration, collection actions and information. You are not required to foreclosure actions are suspended in ac- respond to this collection of informa- cordance with the provisions of the tion unless it displays a currently valid Bankruptcy Code. OMB control number. (2) RHS may accept conveyance of se- [61 FR 59779, Nov. 22, 1996, as amended at 67 curity property by the trustee in bank- FR 78332, Dec. 24, 2002] ruptcy if the Bankruptcy Court has ap- proved the transaction, RHS deter- Subpart F—Post-Servicing Actions mines the conveyance is in the best in- terest of the Government, and RHS § 3550.251 Property management and will acquire title free of all liens and disposition. encumbrances except RHS liens. (a) Policy. Rural Housing Service (3) Whenever possible in a Chapter 7 (RHS) will manage custodial property Bankruptcy, a reaffirmation agree- and Real Estate Owned (REO) property ment will be signed by the borrower to protect the Government’s interest, and approved by the court prior to dis- and may dispose of REO property charge, if RHS decides to continue with through direct sales, sealed bid, or auc- the borrower. tion. RHS will follow affirmative fair (f) Junior lienholder foreclosure. When housing marketing policies. a junior lienholder foreclosure does not (b) Custodial property. RHS may take result in payment in full of the RHS custodial possession of security prop- debt but the property is sold subject to erty that has been abandoned, or for the RHS lien, RHS may liquidate the other reasons necessary to protect the account unless the new owner is eligi- Government’s security. After taking ble to assume the RHS debt and actu- custodial possession of a security prop- ally assumes the RHS debt. erty, RHS may maintain and repair the (g) Payment subsidy. If the borrower is security property as needed to protect receiving payment subsidy, the pay- the Government’s interest, pay re- ment subsidy agreement will not be quired real estate taxes and assess- canceled when the debt is accelerated, ments, and secure personal property but will not be renewed unless the ac- left on the premises. Expenses will be count is reinstated. charged to the borrower’s account. (h) Eligibility for special servicing ac- Custodial property may be leased when tions. A borrower is not eligible for spe- it is in the Government’s best interest cial servicing actions once the account and in such cases the borrower’s ac- has been accelerated. count will be credited for income from (i) Reporting. RHS may report to IRS the security property. and credit reporting agencies any debt (c) REO property—(1) Classification. settled through liquidation. When RHS takes title to a security [61 FR 59779, Nov. 22, 1996, as amended at 67 property, it is classified as either pro- FR 78332, Dec. 24, 2002] gram or nonprogram (NP) property. An REO property that is eligible for fi- §§ 3550.212–3550.249 [Reserved] nancing under the section 502 program, or which could reasonably be repaired § 3550.250 OMB control number. to be eligible, is classified as program The information collection require- property. An REO property that cannot ments contained in this regulation reasonably be repaired to be eligible as have been approved by the Office of section 502 property, and property that
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has been improved to a point that it business day are selected in the fol- will no longer qualify as modest under lowing order: section 502, is classified as NP prop- (A) Offers from eligible direct or erty. guaranteed single family housing loan (2) Disclosing decent, safe, and sanitary applicants , with a request for credit on defects. When RHS determines that an program terms. All offers are evaluated REO property to be sold is not decent, as if they were submitted at the listed safe, and sanitary, or does not meet price, regardless of the offering price. cost-effective energy conservation (B) Offers from nonprofits or public standards, it will disclose the reasons bodies for conversion to use as transi- why. The deed by which such an REO tional housing or for other special pur- property is conveyed will contain a poses as specified in paragraph (d)(4) of covenant restricting it from residential this section. use until it is decent, safe, and sani- (C) Cash offers, from highest to low- tary and meets the RHS cost-effective est. energy conservation standards. RHS (D) NP credit offers, from highest to will also notify any potential pur- lowest. chaser of any known lead-based paint hazards. (ii) Acceptable offers of equal pri- (3) Property on Indian tribal allotted or ority received on the same business trust land. REO property which is lo- day are selected by lot. cated on Indian tribal allotted or trust (iii) REO properties are not held off land, will be sold or otherwise disposed the market pending the outcome of an of only to a member of the particular appeal of RHS rejection of a request for tribe having jurisdiction over the allot- financing. ted or tribal land, to the tribe, or to an (6) Sale by sealed bid or auction. RHS Indian housing authority serving the may authorize the sale of an REO prop- tribe on a first-come, first-served basis. erty by sealed bid or public auction (4) Reservation of program REO prop- when it is in the best interest of the erties. (i) Program REO properties are Government. RHS will publicly solicit reserved for eligible direct or guaran- requests for sealed bids and publicize teed single family housing loans under auctions. If a successful bidder is un- this part or part 1980, subpart D of this able to settle the transaction under the title and nonprofit organizations or terms of the offer, except for the fi- public bodies providing transitional nancing contingency, any required bid housing during the first 60 days after deposit may be retained by RHS. If the the date of the first notice of sale, and highest bid is lower than the minimum during the first 30 days following any acceptable bid established by RHS, or reduction in price or any other change if no acceptable bids are received, RHS in credit terms or other sale terms. may negotiate a sale without further After the expiration of a reservation public notice. period, program REO properties can be (d) Special purposes. (1) REO property bought by any buyer. may be purchased for conversion to (ii) An offer on a program REO prop- multiple family housing. erty from a buyer who does not qualify (2) When a nonprofit organization or for a direct or guaranteed single family public body notifies RHS in writing of housing loan may be submitted during its intent to buy an REO property to a reservation period, but is considered provide transitional housing for the to have been received on the day after homeless, RHS may withdraw the prop- the reservation period ends. erty from the market for up to 30 days (iii) No offer is considered until 3 to give the entity an opportunity to business days after the date the prop- execute a purchase contract. The listed erty is offered for sale. An offer re- price may be discounted for offers on a ceived during the 3-day holding period nonprogram REO property at any time, is not considered until the 4th day, and and on a program REO property after is evaluated with any other offers actu- the 60-day reservation period. No down ally received on the 4th day. payment is required, and the loan term (5) Priority of offers received the same will be for a maximum of 30 years. day. (i) Offers received on the same Until RHS executes a sales agreement,
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an offer from a program-eligible appli- until final action by the investigating cant will receive priority, regardless of or prosecuting entity has been taken. a nonprofit’s interest in purchasing the (g) Offsets. RHS may request offsets REO property for use as transitional as described in § 3550.210 to collect housing. amounts owed. (3) NP properties may be leased to a (h) Escrow funds. At liquidation all nonprofit organization or public body funds held in escrow or unapplied funds to provide transitional housing for the will be applied against the debt. homeless at an annual cost of one dol- lar. When an REO property is to be § 3550.253 Settlement of a debt by com- leased as transitional housing, RHS promise or adjustment. will make repairs needed to put the Compromise or adjustment offers property in decent, safe, and sanitary may be initiated by the debtor or by condition. The lessee is responsible for RHS. RHS will approve only those all future repairs and maintenance. compromises and adjustments that are (4) REO property may be sold under in the best interest of the Government. special provisions to nonprofit organi- (a) Compromise. A compromise is an zations or public bodies for the purpose agreement by RHS to release a debtor of providing affordable housing to very from liability upon receipt of a speci- low- and low-income families. fied lump sum that is less than the total amount due. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002] (b) Adjustments. An adjustment is an agreement by RHS to release a debtor § 3550.252 Debt settlement policies. from liability generally upon receipt of an initial lump sum representing the (a) Applicability. Debt settlement pro- maximum amount the debtor can af- cedures may be initiated to collect any ford to pay and periodic additional pay- amounts due to RHS including: ments over a period of up to 5 years. (1) Balances remaining on loan ac- (c) Timing of offers. (1) For a settle- counts after all liquidation proceeds or ment offer to be considered, secured credits have been applied; debts must be fully matured under the (2) Subsidy recapture or grant terms of the debt instrument or must amounts due; and have been accelerated by RHS. (3) Unauthorized assistance due. (2) Unsecured debts owed after the (b) Judgment. RHS may seek a judg- sale of the security property may be ment whenever a judgment might en- proposed for compromise or adjustment able RHS to collect all or a significant at any time. Debts that were never se- portion of an amount owed. cured may be proposed for compromise (c) Multiple loans. RHS does not settle or adjustment when they are due and debts for one loan while other RHS payable. loans on the same security property re- (d) Retention of security property. The main active. debtor may retain the security prop- (d) Cosigners and claims against estates. erty if the compromise payment is at RHS may use any and all remedies least equal to the net recovery value, available under law to collect from any and it is in the best interest of the cosigner and from a deceased bor- Government to allow the debtor to re- rower’s estate. tain the security property. (e) Reporting. RHS will report to the Internal Revenue Service and credit re- §§ 3550.254–3550.299 [Reserved] porting agencies any debt settled through cancellation, compromise, or § 3550.300 OMB control number. adjustment. The information collection require- (f) Settlement during legal or investiga- ments contained in this regulation tive action. Cases that are under inves- have been approved by the Office of tigation for fiscal irregularity or have Management and Budget (OMB) and been referred to the Office of the In- have been assigned OMB control num- spector General, the Office of the Gen- ber 0575–0172. Public reporting burden eral Counsel, or the U.S. Attorney will for this collection of information is es- not be considered for debt settlement timated to vary from 5 minutes to 3
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hours per response, with an average of 3560.71 Construction financing. 11⁄2 hours per response, including time 3560.72 Loan closing. for review instructions, searching ex- 3560.73 Subsequent loans. isting data sources, gathering and 3560.74 Loan for final payments. 3560.75–3560.99 [Reserved] maintaining the data needed, and com- 3560.100 OMB control number. pleting and reviewing the collection of information. Subpart C—Borrower Management and [61 FR 59779, Nov. 22, 1996, as amended at 67 Operations Responsibilities FR 78332, Dec. 24, 2002] 3560.101 General. 3560.102 Housing project management. PART 3560—DIRECT MULTI-FAMILY 3560.103 Maintaining housing projects. HOUSING LOANS AND GRANTS 3560.104 Fair housing. 3560.105 Insurance and taxes. Subpart A—General Provisions and 3560.106–3560.149 [Reserved] 3560.150 OMB control number. Definitions Sec. Subpart D—Multi-Family Housing 3560.1 Applicability and purpose. Occupancy 3560.2 Civil rights. 3560.3 Environmental requirements. 3560.151 General. 3560.4 Compliance with other Federal re- 3560.152 Tenant eligibility. quirements. 3560.153 Calculation of household income 3560.5 State, local or tribal laws. and assets. 3560.6 Borrower responsibility and require- 3560.154 Tenant selection. ments. 3560.155 Assignment of rental units and oc- 3560.7 Delegation of responsibility. cupancy policies. 3560.8 Administrator’s exception authority. 3560.156 Lease requirements. 3560.9 Reviews and appeals. 3560.157 Occupancy rules. 3560.10 Conflict of interest. 3560.158 Changes in tenant eligibility. 3560.11 Definitions. 3560.159 Termination of occupancy. 3560.12–3560.49 [Reserved] 3560.160 Tenant grievances. 3560.50 OMB control number. 3560.161–3560.199 [Reserved] 3560.200 OMB control number. Subpart B—Direct Loan and Grant Origination Subpart E—Rents 3560.51 General. 3560.201 General. 3560.52 Program objectives. 3560.202 Establishing rents and utility al- 3560.53 Eligible use of funds. lowances. 3560.54 Restrictions on the use of funds. 3560.203 Tenant contributions. 3560.55 Applicant eligibility requirements. 3560.204 Security deposits and membership 3560.56 Processing section 515 housing pro- fees. posals. 3560.205 Rent and utility allowance changes. 3560.57 Designated places for section 515 3560.206 Conversion to Plan II (Interest housing. Credit). 3560.58 Site requirements. 3560.207 Annual adjustment factors for Sec- 3560.59 Environmental requirements. tion 8 units. 3560.60 Design requirements. 3560.208 Rents during eviction or failure to 3560.61 Loan security. recertify. 3560.62 Technical, legal, insurance, and 3560.209 Rent collection. other services. 3560.210 Special note rents (SNRs). 3560.63 Loan limits. 3560.211–3560.249 [Reserved] 3560.64 Initial operating capital contribu- 3560.250 OMB control number. tion. 3560.65 Reserve account. Subpart F—Rental Subsidies 3560.66 Participation with other funding or financing sources. 3560.251 General. 3560.67 Rates and terms for section 515 3560.252 Authorized rental subsidies. loans. 3560.253 [Reserved] 3560.68 Permitted return on investment 3560.254 Eligibility for rental assistance. (ROI). 3560.255 Requesting rental assistance. 3560.69 Supplemental requirements for con- 3560.256 Rental assistance payments. gregate housing and group homes. 3560.257 Assigning rental assistance. 3560.70 Supplemental requirements for man- 3560.258 Terms of agreement. ufactured housing. 3560.259 Transferring rental assistance.
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3560.260 Rental subsidies from non-Agency 3560.458 Special property circumstances. sources. 3560.459 Special borrower circumstances. 3560.261 Improperly advanced rental assist- 3560.460 Double damages. ance. 3560.461 Enforcement provisions. 3560.262–3560.299 [Reserved] 3560.462 Money laundering. 3560.300 OMB control number. 3560.463 Obstruction of Federal audits. 3560.464–3560.499 [Reserved] Subpart G—Financial Management 3560.500 OMB control number. 3560.301 General. 3560.302 Accounting, bookkeeping, budg- Subpart K—Management and Disposition eting, and financial management sys- of Real Estate Owned (REO) Properties tems. 3560.501 General. 3560.303 Housing project budgets. 3560.304 Initial operating capital. 3560.502 Tenant notifications and assist- 3560.305 Return on investment. ance. 3560.306 Reserve account. 3560.503 Disposition of REO property. 3560.307 Reports. 3560.504 Sales price and bidding process. 3650.308 Annual financial reports. 3560.505 Agency loans to finance purchases 3560.309 Advancement (loan) of funds to a of REO properties. RRH project by the owner, member of 3560.506 Conversion of single family type the organization, or agent of the owner. REO property to MFH use. 3560.310–3560.349 [Reserved] 3560.507–3560.549 [Reserved] 3560.350 OMB control number. 3560.550 OMB control number.
Subpart H—Agency Monitoring Subpart L—Off-Farm Labor Housing 3560.351 General. 3560.551 General. 3560.352 Agency monitoring scope, purpose, 3560.552 Program objectives. and borrower responsibilities. 3560.553 Loan and grant purposes. 3560.353 Scheduling of on-site monitoring 3560.554 Use of funds restrictions. reviews. 3560.555 Eligibility requirements for off- 3560.354 Borrower response to monitoring farm labor housing loans and grants. review notifications. 3560.556 Application requirements and proc- 3560.355–3560.399 [Reserved] essing. 3560.400 OMB control number. 3560.557 [Reserved] 3560.558 Site requirements. Subpart I—Servicing 3560.559 Design and construction require- ments. 3560.401 General. 3560.560 Security. 3560.402 Loan payment processing. 3560.561 Technical, legal, insurance and 3560.403 Account servicing. other services. 3560.404 Final loan payments. 3560.562 Loan and grant limits. 3560.405 Borrower organizational structure 3560.563 Initial operating capital. or ownership interest changes. 3560.564 Reserve accounts. 3560.406 MFH ownership transfers or sales. 3560.565 Participation with other funding or 3560.407 Sales or other disposition of secu- financing sources. rity property. 3560.566 Loan and grant rates and terms. 3560.408 Lease of security property. 3560.567 Establishing the profit base on ini- 3560.409 Subordinations or junior liens tial investment. against security property. 3560.410 Consolidations. 3560.568 Supplemental requirements for sea- 3560.411–3560.449 [Reserved] sonal off-farm labor housing. 3560.450 OMB control number. 3560.569 Supplemental requirements for manufactured housing. Subpart J—Special Servicing, Enforcement, 3560.570 Construction financing. Liquidation, and Other Actions 3560.571 Loan and grant closing. 3560.572 Subsequent loans. 3560.451 General. 3560.573 Rental assistance. 3560.452 Monetary and non-monetary de- 3560.574 Operating assistance. faults. 3560.575 Rental structure and changes. 3560.453 Workout agreements. 3560.576 Occupancy restrictions. 3560.454 Special servicing actions related to 3560.577 Tenant priorities for labor housing. housing operations. 3560.578 Financial management of labor 3560.455 Special servicing actions related to housing. loan accounts. 3560.579 Servicing off-farm labor housing. 3560.456 Liquidation. 3560.580–3560.599 [Reserved] 3560.457 Negotiated debt settlement. 3560.600 OMB control number.
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Subpart M—On-Farm Labor Housing 3560.664–3560.699 [Reserved] 3560.700 OMB control number. 3560.601 General. 3560.602 Program objectives. Subpart O—Unauthorized Assistance 3560.603 Loan purposes. 3560.604 Restrictions on use of funds. 3560.701 General. 3560.605 Eligibility requirements. 3560.702 Unauthorized assistance sources 3560.606 Application requirements and proc- and situations. essing. 3560.703 Identification of unauthorized as- 3560.607 [Reserved] sistance. 3560.608 Site and construction require- 3560.704 Unauthorized assistance determina- ments. tion notice. 3560.609 [Reserved] 3560.705 Recapture of unauthorized assist- 3560.610 Security. ance. 3560.611 Technical, legal, insurance and 3560.706 Offsets. other services. 3560.707 Program participation and correc- 3560.612 Loan limits. tive actions. 3560.613 [Reserved] 3560.708 Unauthorized assistance received 3560.614 Reserve accounts. by tenants. 3560.615 Participation with other funding 3560.709 Demand letter. sources. 3560.710–3560.749 [Reserved] 3560.616 Rates and terms. 3560.750 OMB control number. 3560.617 [Reserved] 3560.618 Supplemental requirements for on- Subpart P—Appraisals farm labor housing. 3560.619 Supplemental requirements for 3560.751 General. manufactured housing. 3560.752 Appraisal use, request, review, and 3560.620 Construction financing. release. 3560.621 Loan closing. 3560.753 Agency appraisal standards and re- 3560.622 Subsequent loans. quirements. 3560.623 Housing management and oper- 3560.754–3560.799 [Reserved] ations. 3560.800 OMB control number. 3560.624 Occupancy restrictions. AUTHORITY: 42 U.S.C. 1480. 3560.625 Maintaining the physical asset. 3560.626 Affirmative Fair Housing Mar- SOURCE: 69 FR 69106, Nov. 26, 2004, unless keting Plan. otherwise noted. 3560.627 Response to resident complaints. 3560.628 Establishing and modifying rental Subpart A—General Provisions charges. 3560.629 Security deposits. and Definitions 3560.630 Financial management. 3560.631 Agency monitoring. § 3560.1 Applicability and purpose. 3560.632–3560.649 [Reserved] (a) This part sets forth requirements, 3560.650 OMB control number. policies, and procedures for multi-fam- ily housing (MFH) direct loan and Subpart N—Housing Preservation grant programs to serve eligible very- 3560.651 General. low, low- and moderate income house- 3560.652 Prepayment and restrictive-use cat- holds. The programs covered by this egories. part are authorized by title V of the 3560.653 Prepayment requests. Housing Act of 1949 and are: 3560.654 Tenant notification requirements. (1) Section 515 Rural Rental Housing, 3560.655 Agency requested extension. which includes congregate housing, group 3560.656 Incentives offers. 3560.657 Processing and closing incentive of- homes, and Rural Cooperative Housing. fers. Section 515 loans may be made to fi- 3560.658 Borrower rejection of the incentive nance multi-family units in rural areas offer. as defined in § 3560.11. 3560.659 Sale or transfer to nonprofit orga- (2) Sections 514 and 516 Farm Labor nizations and public bodies. Housing loans and grants. Housing 3560.660 Acceptance of prepayments. under these programs may be built in 3560.661 Sale or transfers. any area with a need and demand for 3560.662 Restrictive-use provisions and agreements. housing for farm workers. 3560.663 Post-payment responsibilities for (3) Section 521 Rental Assistance. A loans subject to continued restrictive-use project-based tenant rent subsidy provisions. which may be provided to Rural Rental
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Housing and Farm Labor Housing fa- in or benefit from federally-assisted cilities. programs and activities may violate (b) The programs covered by this part the prohibition under Title VI of the provide economically designed and con- Civil Rights Act of 1964, 42 U.S.C. 2000d structed rural rental, cooperative, and and Title VI regulations against na- farm labor housing and related facili- tional origin discrimination. USDA has ties operated and managed in an afford- issued guidance to clarify the respon- able, decent, safe, and sanitary man- sibilities of recipients and subrecipi- ner. ents who receive financial assistance (c) Internal Agency procedures con- from USDA and to assist them in ful- taining details for Agency processing filling their responsibilities to LEP under these regulations can be found in persons under Title VI of the Civil the program handbooks, available in Rights Act, as amended, and imple- any Rural Development office, or from menting regulations. the Rural Development Web site. (c) Any tenant/member or prospec- tive tenant seeking occupancy in or § 3560.2 Civil rights. use of facilities financed by the Agency (a) As per the Fair Housing Act, as who believes he or she is being dis- amended and section 504 of the Reha- criminated against because of race, bilitation Act of 1973, all actions taken color, religion, sex, familial status, na- by recipients of loans and grants will tional origin, or disability may file a be conducted without regard to race, complaint in person with, or by mail to color, religion, sex, familial status, na- the U. S. Department of Agriculture’s tional origin, age, or disability. These Office of Civil Rights, Room 326–W, actions include any actions in the sale, Whitten Building, 14th and Independ- rental, or advertising of the dwellings, ence Avenue, Washington, DC 20410. in the provision of brokerage services, Complaints received by Agency em- or in residential real estate trans- ployees must be directed to the Na- actions involving Rural Housing Serv- tional Office Civil Rights staff through ice (RHS) assistance. It is unlawful for the State Civil Rights Manager/Coordi- a borrower or grantee or an agent of a nator. borrower or grantee: (d) Borrowers or grantees that fail to (1) To refuse to make reasonable ac- comply with the requirements of fed- commodations in rules, policies, prac- eral civil rights requirements are sub- tices, or services that would provide a ject to sanctions authorized by law. person with a disability an opportunity The following are the major civil to use or continue to use a dwelling rights laws affecting multifamily hous- unit and all public and common use ing loan and grant programs: areas; or (1) Equal Credit Opportunity Act (2) To refuse to provide a reasonable (ECOA). accommodation at the borrower’s ex- (2) Title VI of the Civil Rights Act of pense that would not cause an undue fi- 1964. nancial or administrative burden, or to (3) Title VIII of the Civil Rights Act refuse to allow an individual with a of 1968. disability to make reasonable modi- (4) Section 504 of the Rehabilitation fications to the unit at their own ex- Act of 1973. pense with the understanding that the (5) Age Discrimination Act of 1975. owner may require the tenant to return (6) Title IX of the Education Amend- the unit to its original condition when ments of 1972. the unit is vacated by the tenant mak- ing the modifications (see § 3560.104(c)). § 3560.3 Environmental requirements. (b) Borrowers and grantees must take RHS will consider environmental im- reasonable steps to ensure that Lim- pacts of proposed housing as equal with ited English Proficiency (LEP) persons economic, social, and other factors. By receive the language assistance nec- working with applicants, Federal agen- essary to afford them meaningful ac- cies, Indian tribes, state and local gov- cess to USDA programs and activities, ernments, interested citizens, and or- free of charge. Failure to ensure that ganizations, RHS will formulate ac- LEP persons can effectively participate tions that advance program goals in a
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manner that protects, enhances, and dent manager or management agent. restores environmental quality. Loan Ultimate accountability to the Agency, and grant processing and servicing ac- however, is with the borrower whether tions taken by RHS under this part are or not the borrower designated another subject to an environmental review person or entity to act on the bor- conducted in accordance with 7 CFR rower’s behalf. part 1940, subpart G or any successor (b) Borrowers who have not executed regulation. a loan agreement, and who were not re- quired to execute a loan agreement by § 3560.4 Compliance with other Fed- eral requirements. the regulations in effect at the time of their loan closing are exempt from the RHS is responsible for ensuring that requirements of subparts D through G the application is in compliance with of this part, as long as the borrower is all applicable Federal requirements, in- not in default of any applicable re- cluding the following specific require- quirement, security instrument, pay- ments: ment, or any other agreement with the (a) Intergovernmental review. 7 CFR Agency. Such borrowers must provide part 3015, subpart V, or any successor evidence of tenant income eligibility in regulation, including the Agency sup- accordance with § 3560.152(a), except in plemental administrative instruction, Farm Labor Housing where the tenant RD Instruction 1940-J, available in any is not paying shelter cost. Rural Development office. (b) National flood insurance. The Na- § 3560.7 Delegation of responsibility. tional Flood Insurance Act of 1968, as amended by the Flood Disaster Protec- The RHS Administrator may dele- tion Act of 1973; the National Flood In- gate, on an individual or other basis, surance Reform Act of 1994; and 7 CFR any decision-making responsibility for part 1806, subpart B, or any successor Agency programs, unless otherwise regulation. noted. (c) Clean Air Act and Water Pollution Control Act Requirements. For any con- § 3560.8 Administrator’s exception au- tract, all applicable standards, orders thority. or requirements issued under section The RHS Administrator may make 306 of the Clean Air Act; section 508 of an exception to any provision of this the Clean Water Act, Executive Order part or address any omissions provided 11738, and 40 CFR part 32. that the exception is consistent with (d) Historic preservation requirements. the applicable statute, does not ad- The provisions of 7 CFR part 1901, sub- versely affect the interest of the Fed- part F or any successor regulation. eral Government, and does not ad- (e) Lead-based paint requirements. The versely affect the accomplishment of applicable provisions of 24 CFR part 35, the purposes of the MFH programs or subparts A through D, J, and R, as pub- application of the requirement would lished by the U.S. Department of Hous- result in undue hardship on the ten- ing and Urban Development. ants. Exception requests presented to § 3560.5 State, local or tribal laws. the RHS Administrator must have the concurrence of a Rural Development Borrowers must comply with all ap- State Director or a Deputy Adminis- plicable state and local laws, and laws trator for MFH. of Federally-recognized Indian tribes to the extent they are not inconsistent § 3560.9 Reviews and appeals. with this part. Rural Housing Service decisions may § 3560.6 Borrower responsibility and be appealed pursuant to 7 CFR part 11. requirements. (a) Borrower responsibilities and re- § 3560.10 Conflict of interest. quirements specified in this part may To reduce the potential for employee be carried out by an individual or enti- conflict of interest, all RHS activities ty designated by the borrower to act on will be conducted in accordance with 7 behalf of the borrower such as a resi- CFR part 1900, subpart D.
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§ 3560.11 Definitions. maintenance and upkeep of a MFHMFH project. Unless otherwise noted, terms listed Congregate housing. A housing pro- in this part shall be defined as follows: gram authorized by section 515 of the Administrator. The head of the Rural Housing Act of 1949 which provides Housing Service who reports directly housing for elderly persons, individuals to the Under Secretary for Rural De- with disabilities, and families who re- velopment in the U.S. Department of quire some supervision and central Agriculture. services but are otherwise able to care Agency. The Rural Housing Service for themselves. Such housing does not within the Rural Development mission include any licensed healthcare facil- area of the U.S. Department of Agri- ity. culture. Consumer cooperative. A corporation Amortization. Payment of debt in reg- organized under the cooperative laws of ular, periodic installments of principal a state or Federally recognized Indian and interest, as opposed to interest tribe that will own and operate the only payments. housing on a cooperative basis solely Applicant. An individual, partnership for the benefit of its members. or limited partnership, consumer coop- Conventional rents for comparable units erative, trust, state or local public (CRCU). Market rents for comparable agency, corporation, limited liability rental units in conventional housing company, nonprofit organization, In- located in the same geographic area as dian tribe, association, or other entity a particular Section 514, 515, or 516 that will be the owner of the project project. for which an application for funding Current appraisal. An appraisal with a from the Agency is submitted. report date that is no more than 1 year Appraisal. As used by the Agency, a old. written report developed by a qualified Daily Interest Accrual System (DIAS). appraiser as established in subpart P A system where interest is charged that concludes an opinion of value(s) daily on outstanding principal. Level for a specific real property. loan payments are made by the bor- Assistance. Financial assistance in rower. The amount of interest due on the form of a loan, grant, interest cred- any date is equal to the unpaid daily it, or rental assistance. interest that has accrued. Association of farmers. Two or more Default. Failure by a borrower to farmers acting as a single legal entity. meet significant monetary or non-mon- Association members may include the etary obligations or terms of a loan, individual members of farming part- grant, or other agreement with the nerships or corporations. Agency which remain unpaid or Borrower. An individual, partnership unperformed for more than 30 days or limited partnership, consumer coop- after the date such obligation is due or erative, trust, state or local public required to be paid or performed, or agency, corporation, limited liability within time periods specified in notices company, nonprofit organization, In- of compliance violations. dian tribe, association, or other entity Disability. The term disability is con- that has received a loan from the Agen- sidered equivalent to the term handi- cy. cap. Eligibility requirements for fully Capital Needs Assessment. A Capital accessible units are contained in Needs Assessment is designed to cap- §§ 3560.154(g)(1)(i) and 3560.155(b). A per- ture and report on the immediate and son is considered to have a disability if the long-range capital needs of an indi- either of the following two situations vidual property. It includes attention occur: to site features, mechanical and elec- (1) As defined in section 501(b) of the trical systems, building exterior and Housing Act of 1949. The person is the common area systems, and dwelling head of household (or his or her spouse) unit interiors. and is determined to have an impair- Caretaker. An individual employed by ment which: a borrower or a management agent to (i) Is expected to be of long-continued handle routine interior and exterior and indefinite duration;
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(ii) Substantially impedes his or her (v) Is regarded as having an impair- ability to live independently; and ment means: (iii) Is of such a nature that such (A) Has a physical or mental impair- ability could be improved by more suit- ment that does not substantially limit able housing conditions, or if such per- one or more major life activities but son has a developmental disability as that is treated by the borrower or man- defined in section 102(7) of the Develop- agement agent as constituting such a mental Disability and Bill of Rights limitation; Act (42 U.S.C. 6001(7)). (B) Has a physical or mental impair- (2) As defined in the Fair Housing Act; ment that substantially limits one or the Americans with Disabilities Act; and more major life activities only as a re- section 504 of the Rehabilitation Act of sult of the attitudes of others toward 1973. The person has a physical or men- such impairment; or tal impairment which substantially (C) Has none of the impairments de- limits one or more of such person’s scribed in this definition but is treated major life activities; a record of such by another person as having such an impairment; or being regarded as hav- impairment. ing such an impairment. The term does Disabled domestic farm laborer. An in- not include current, illegal use of or dividual with a disability as separately addiction to a controlled substance. As defined in this paragraph and who was used in this definition, physical or a domestic farm laborer at the time of mental impairment includes: becoming disabled. (i) Any physiological disorder or con- Domestic farm laborer. A person who, dition, cosmetic disfigurement, or ana- consistent with the requirements in tomical loss affecting one or more of § 3560.576(b)(2), receives a substantial the following body systems: neuro- portion of his or her income from farm logical; musculoskeletal; special sense labor employment (not self-employed) organs; respiratory, including speech in the United States, Puerto Rico, or organs; cardiovascular; reproductive; the Virgin Islands and either is a cit- digestive; genito-urinary; hemic and izen of the United States or resides in lymphatic; skin; and endocrine; the United States, Puerto Rico or the (ii) Any mental or psychological dis- Virgin Islands after being legally ad- order, such as mental retardation, or- mitted for permanent residence. This ganic brain syndrome, emotional or definition may include the immediate mental illness, and specific learning family members residing with such a disabilities. The term ‘‘physical or person. mental impairment’’ includes, but is Due diligence on hazardous substances. not limited to, such diseases and condi- Due diligence is the process of inquir- tions as orthopedic, visual, speech and ing into the environmental conditions hearing impairments, cerebral palsy, of real estate, in the context of a real autism, epilepsy, muscular dystrophy, estate transaction to determine the multiple sclerosis, cancer, heart dis- presence of contamination from haz- ease, diabetes, Human Immuno- ardous substances, and to determine deficiency Virus infection, mental re- the impact such contamination may tardation, emotional illness, drug ad- have on the market value of the prop- diction (other than addiction caused by erty. current, illegal use of a controlled sub- Elderly household or individual with a stance), and alcoholism; handicapped household. A household in (iii) Major life activities means func- which the tenant or co-tenant of the tions such as caring for one’s self, per- household is 62 years old or older or is forming manual tasks, walking, seeing, an individual with a disability. An el- hearing, speaking, breathing, learning, derly household may include persons and working; younger than 62 years old and the (iv) Has a record of such an impair- household of an individual with a hand- ment means has a history of, or has icap may include persons without dis- been misclassified as having, a mental abilities. or physical impairment that substan- Elderly person. A person who is at tially limits one or more major life ac- least 62 years old. The term also means tivities; a person with a disability as separately
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defined in this paragraph, regardless of physically separate from the farm age. acreage, is ordinarily treated as part of Engagement. An Agency defined fi- the farm in the local community. nancial review of a housing project’s fi- Farmer. A person who is actually in- nancial status that a borrower will volved in day to day on-site operations contract with a certified public ac- of a farm and who devotes a substan- countant or other qualified individual tial amount of time to personal partici- to perform. An engagement will result pation in the conduct of the operation in annual financial reports for use by of a ‘‘farm.’’ the Agency as described in § 3560.308. Farm labor. Services in connection Familial status. One or more individ- with cultivating the soil, raising or uals (who have not attained the age of harvesting any agriculture or aqua- 18 years) being domiciled with a parent culture commodity; or in catching, or another person having legal custody netting, handling, planting, drying, of such individual or individuals; or the packing, grading, storing, or preserving designee of such parent or other person in the unprocessed stage, without re- having such custody, with the written spect to the source of employment (but permission of such parent or other per- not self-employed), any agriculture or son. The protections afforded against aquaculture commodity; or delivering discrimination on the basis of familial to storage, market, or a carrier for status shall apply to any person who is transportation to market or to proc- pregnant or is in the process of secur- essing any agricultural or aquacultural ing legal custody of any individual who commodity in its unprocessed stage. has not attained the age of 18 years. Farm labor contractor. A person— Family farm corporation or partnership. other than an agricultural employer, a A private corporation or partnership member of an agricultural association, involved in agricultural production in or an employee of an agricultural em- which at least 90 percent of the stock ployer or agricultural association—who or interest is owned and controlled by recruits, solicits, hires, employs, fur- persons related by blood, which shall nishes, or transports any year-round or include parents, siblings, and children, seasonal migrant farm laborer for or law. If more than three separate money or other valuable consideration. households are supported by the farm- Farm labor housing. On-farm or off- ing operation, the family farm corpora- farm housing for farm laborers author- tion or partnership must be: ized by section 514 and section 516 of (1) Legally organized and authorized the Housing Act of 1949. to own and operate a farm business Farm owner. A natural person, per- within the state; sons, or legal entity who are the own- (2) Legally able to carry out the pur- ers of a ‘‘farm’’ as this term is further poses of the loan; and defined in this section. (3) Prohibited from the sale or trans- Foreclosure. A proceeding in or out of fer of 90 percent of the stock or inter- court to extinguish all rights, title, est to other than family members by and interest of the owners of property either the articles of incorporation, by- in order to sell the property to satisfy laws or by agreement between the a lien against it. stockholders or partners and the cor- General overhead. Includes general op- poration or partnership. eration items necessary for the con- Farm. A tract or tracts of land, im- tractor to be in business. They may in- provements, and other appurtenances clude, but are not limited to the fol- that are used or will be used in the pro- lowing: tools and minor equipment; duction of crops, livestock, or aqua- worker’s compensation and employer’s culture products for sale in sufficient liability; unemployment tax; Social quantities so that the property is rec- Security and Medicare; manager’s, ognized as a farm rather than a rural clerical, and estimator’s salaries; pen- residence. The term ‘‘farm’’ also in- sion and bonus plans; main office insur- cludes the term ‘‘ranch.’’ It may also in- ance, rental, utilities, miscellaneous clude land and improvements and fa- expenses; general liability insurance; cilities used in a non-eligible enter- legal, accounting, and data processing; prise or the residence that, although automotive and light truck expense;
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vehicle expenses; depreciation of over- or management agent has a 10 percent head capital expenditures; and office or more financial interest in the sup- equipment maintenance. plying entity; General requirements. Includes items (4) The supplying entity has or will that are required in the construction advance funds to an applicant, bor- contract for the contractor to provide rower, or management agent; for the specific project. They do not in- (5) The supplying entity provides or clude items that pertain to a specific pays on behalf of the applicant, bor- trade nor overhead expenses of the con- rower, or management agent the cost tractor’s general operation. Items may of any materials or services in connec- include, but are not limited to, the fol- tion with obligations under the man- lowing: Field supervision; field engi- agement plan or management agree- neering such as field office, sheds, toi- ment; lets, phone; performance and payment (6) The supplying entity takes stock or latent defects bonds; cost certifi- or a financial interest in the applicant, cation; building permits; site security; borrower, or management agent as part temporary utilities; property insur- of the consideration to be paid them; or ance; and cleaning or rubbish removal. (7) There exists or come into being Grantee. An entity that has received any side deals, agreements, contracts a grant from the Agency. or understandings entered into thereby Group home. Housing that is occupied altering, amending, or canceling any of by elderly persons or individuals with the management plan, management disabilities who share living space agreement documents, organization within a rental unit and in which a documents, or other legal documents resident assistant may be required. pertaining to the property, except as Household. The tenant or co-tenant approved by the Agency. and the persons or dependents living Indian tribe. The term ‘‘Indian tribe’’ with a tenant or co-tenant, but not in- means any Indian tribe, band, group, cluding a resident assistant. and nation, including Alaskan Indians, Household furnishings. Basic durable Aleuts, and Eskimos, and any Alaskan- items such as stoves, refrigerators, Native Village, which is considered an drapes, drapery rods, tables, chairs, eligible recipient under the Indian Self- dressers and beds. Determination and Education Assist- Housing project. A property with two ance Act (Public Law 93–638) or under or more affordable, decent, safe and the State and Local Fiscal Assistance sanitary rental units and related facili- Act of 1972 (Public Law 92–512). ties operated under one management Interest credit. A form of assistance plan and financed with funds appro- available to eligible borrowers that re- priated under the authority of sections duces the effective interest rate of the 515, 514, or 516 of the Housing Act of loan. 1949. Lease. A contract setting forth the Identity-of-Interest (IOI). A relation- rights and obligations of a tenant or ship between applicants, borrowers, cooperative member and a property grantees, management agents, or sup- owner, including charges and terms pliers of materials or services described under which a tenant or cooperative under, but not limited to, any of the member will occupy or use the housing following conditions: or related facilities. (1) There is a financial interest be- Legal or qualified alien. Legal or tween the applicant, borrower, grantee qualified alien refers to any person and a management agent or the sup- lawfully admitted to the country who plying entity; meets the criteria in section 214 of the (2) One or more of the officers, direc- Housing and Community Development tors, stockholders or partners of the Act of 1980, 42 U.S.C. 1436a. applicant, borrower, or management Letter of Priority Entitlement (LOPE). agent is also an officer, director, stock- A letter issued by the Agency pro- holder, or partner of the supplying en- viding a tenant with priority entitle- tity; ment to rental units in other Agency- (3) An officer, director, stockholder, financed housing projects for 120 days or partner of the applicant, borrower, from the date of the LOPE.
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Life cycle cost. The life cycle cost has percent of median income adjusted for 2 purposes: (1) To determine the ex- household size for the county where pected usable life (utility) of a building the property is or will be located). component or furnishing and (2) to de- Low-Income Housing Tax Credit termine which building components or (LIHTC). A federal tax credit allowed furnishings are the most cost efficient for investment in qualified low-income over the life of the building. Cost effi- housing administered by the Internal cient is not to be construed to mean Revenue Service (IRS) under section 42 the least initial cost. of the Internal Revenue Code. Life cycle cost analysis. Life cycle cost Management agent. A firm or indi- analysis is the comparison of different vidual employed or designated by a materials to examine anticipated use- borrower to act on the borrower’s be- ful life and the cost of using a specific half in accordance with a written man- material or building component. The agement agreement. analysis has multiple uses, such as: (1) Management agreement. A written To conduct a cost efficiency compari- agreement between a borrower and a son between products, (2) for devel- management agent setting forth the oping component replacement time ta- management agent’s responsibilities bles, and (3) for estimating future com- and fees for management services. ponent replacement costs. Life cycle Management fee. The compensation cost analysis can be accomplished provided to a management agent for through various methods, such as; in- services provided in accordance with a surance actuary tables or Agency docu- management agreement. mentation of a component’s life ex- Management plan. A detailed descrip- pectancy. Life cycle cost analysis is tion of the policies and procedures to conducted by a design professional. For be followed by the borrower in man- Agency financed projects, a life cycle aging a MFH project. cost analysis is to be conducted for spe- Manufactured housing. Housing, con- cific components: (1) drives and park- structed of one or more factory-built ing, (2) roofing system and roofing ma- sections, which includes the plumbing, terial, (3) exterior finishes, and (4) en- heating, and electrical systems con- ergy source items. tained therein, which is built to com- Limited Liability Company (LLC). An ply with the Federal Manufactured unincorporated organization of one or Home Construction and Safety Stand- more persons or entities established in ards (FMHCSS), and which is designed accordance with applicable state laws to be used with a permanent founda- and whose members may actively par- tion. ticipate in the organization without Market area. The geographic or loca- being personally liable for the debts, tional delineation of the market for a obligations or liabilities of the organi- specific project, including outlaying zation. areas that will be impacted by the Limited partnership. An ownership ar- project, i.e., the area in which alter- rangement consisting of general and native, similar properties effectively limited partners; general partners compete with the subject property. manage the business, while limited Market rent. The most probable rent partners are passive and liable only for that a property should bring in a com- their own capital contributions. petitive and open market reflecting all Loan agreement. A written agreement conditions and restrictions of the spec- between the Agency and the borrower ified lease agreement, including term, that sets forth the borrower’s respon- rental adjustment and revaluation, sibilities with respect to Agency fi- permitted uses, use restrictions, and nancing. expense obligations; the lessee and les- Low-income household. A household sor each acting prudently and knowl- that has an adjusted income that is edgeably, and assuming consummation greater than the Department of Hous- of a lease contract as a specified date ing and Urban Development’s (HUD) es- and the passing of the leasehold from tablished very-low income limit, but lessor to lessee. that does not exceed the HUD estab- Maximum debt limit. The maximum lished low-income limit (generally 80 amount that the Agency will lend or
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grant for a MFHMFH project based on (2) Has no part of its net earnings in- the appraised value or total develop- uring to the benefit of any member, ment cost excluding costs ineligible for founder, contributor, or individual; and payment from loan or grant funds, (3) Is approved by the Secretary of whichever is less, reduced by all fund- Agriculture and considered to be finan- ing available to the borrower from cially responsible. sources other than the Agency, multi- Nonprofit organization for section 515 plied by 95, 97, or 102 percent depending program (Prepayment or Purchase). To be upon the applicant entity and their use eligible to purchase properties under of the low-income housing tax credit, the conditions of subpart N of this in accordance with § 3560.63(b). part, nonprofit organizations may not Member or co-member. A stockholder have among their officers or direc- or other person who has executed docu- torate any persons or parties with an ments or stock pertaining to a coopera- identity-of-interest (or any persons or tive housing type of living arrange- parties related to any person with iden- ment and has made a commitment to tity-of-interest) in loans financed upholding the cooperative concept. under section 515 that have been pre- Migrants or migrant agricultural la- paid or have requested prepayment. borer. A person (and the family of such Nonprofit organization of farm workers. person) who receives a substantial por- A nonprofit organization, as defined in tion of his or her income from farm this section, whose membership is com- labor employment and who establishes posed of at least 51 percent farm work- a residence in a location on a seasonal ers. or temporary basis, in an attempt to Notice of Funding Availability (NOFA). receive farm labor employment at one A ‘‘Notice of Funding Availability’’ or more locations away from their issued by the Agency to inform inter- home base state, excluding day-haul ested parties of the availability of as- agricultural workers whose travels are sistance and other matters pertinent to limited to work areas within one day of the program. their residence. Occupancy agreement. A contract es- tablishing the rights and obligations of Minor. An individual under 18 years the cooperative member and the coop- of age who is a dependent of a tenant erative, including the amount of the or an individual age 18 or older who is monthly occupancy charge and the a full-time student and a dependent of other terms under which the member a tenant. will occupy the housing. Moderate-income household. A house- Occupancy charge. The amount of hold that has an adjusted income that money charged a cooperative member is greater than the HUD-established to cover their proportional share of the low-income limit but does not exceed cooperative’s operating costs and cash the low-income limit by more than requirements. $5,500. Off-farm labor housing. Housing for Mortgage or Deed of Trust. A form or farm laborers in any location approved security instrument or consensual lien by the Agency but not on the farm on real property. where the laborer works. Net recovery value. The value realized Office of the General Counsel (OGC). from the Government’s acquisition of The USDA Office of the General Coun- security property in a default situation sel, including the Regional Attorney, after subtracting all costs, actual or Associate Regional Attorney, or As- anticipated, from acquiring, holding, sistant Regional Attorney. and disposing of the security property. Office of the Inspector General (OIG). New construction. A MFHMFH project The USDA Office of the Inspector Gen- being constructed to be occupied for eral. the first time. On-farm labor housing. Housing for Nonprofit organization. A private or- farm laborers located on the farm ganization that: where they work that is away from (1) Is organized under state or local service buildings or in the nearby com- laws; munity.
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Overage. That portion of a tenant’s of Agency-financed MFH. Rents must net tenant contribution that exceeds be established at the same rate for all basic rent up to note rent. Full overage similar units in the housing project. is an amount equal to the difference The following terms are used to de- between the note rent for a unit and scribe rents for various program pur- the basic rent. poses. Plan I. A type of interest subsidy (1) Note rent is the rental charge es- available to borrowers prior to October tablished to cover expenses in the 27, 1980. Budgets and rental rates devel- housing project’s approved budget and oped for Plan I loans are based on a 3 the required loan payment set at the percent loan amortization. interest rate shown in the promissory Plan II. A type of interest subsidy note. available to borrowers operating on a (2) Basic rent is the rental charge es- limited profit basis. Budgets and rental tablished to cover expenses in the rates developed for Plan II loans are housing project’s approved budget and based on both the loan being amortized the required loan payment contained in at the interest rate shown on the prom- the promissory note reduced by the in- issory note and at a 1 percent sub- terest credit agreement. sidized rate. (3) HUD contract rent is the rental Predetermined Amortization Schedule charge established for housing receiv- System (PASS). A system where loan ing project-based Section 8 rental sub- payments are applied based on an am- sidies in accordance with 24 CFR part ortization schedule. 880 or part 884, as applicable. Prepayment. Payment in full of the (4) Low-income housing tax credit outstanding balance on an Agency loan (LIHTC) rent is the rental charge estab- prior to the note’s originally scheduled lished in accordance with LIHTC re- maturity date. quirements. Program requirements. All provisions Rental assistance (RA). The portion of related to MFHMFH contained in the the approved shelter cost paid by the loan document, grant agreement, stat- Agency to compensate a borrower for ute, regulation, handbook, or adminis- the difference between the approved trative notice. shelter cost and the tenant contribu- Promissory note. A legal document tion when such contribution is less containing conditions (interest rate than the basic rent. and timing) for repayment of indebted- Rental assistance units. Dwelling units ness. in a MFH project qualified for rental Real estate owned (REO) property. The assistance. There are three types of real estate owned by the Agency ac- rental assistance units. quired through voluntary conveyance, (1) New construction units are units foreclosure or other action. provided in conjunction with initial Rehabilitation. Rehabilitation is when loans for construction or substantial the remodeling of a property is of a rehabilitation of the MFHMFH complex nature involving structural projects. repairs or when two or more of the life (2) Replacement units are Agency- cycle cost components are included in funded rental assistance units which the remodeling of a property. replace units with expiring rental as- Related facilities. Facilities in a sistance agreements or which replace MFHMFH project that are related to Section 8 units which have expired the housing and are in addition to rent- under the Section 8 contract. al units, (e.g., community rooms or (3) Servicing units are units provided buildings, cafeterias, dining halls, in- to an operational MFHMFH project as firmaries, child care facilities, assem- a part of the Agency’s general loan bly halls, and essential service facili- servicing or preservation activities. ties such as central heating, sewerage, Repair and replacement. Repair and re- lighting systems, clothes washing fa- placement is the restoration of minor cilities, trash disposal and safe domes- building materials, elements, compo- tic water supply). nents, equipment and fixtures. Exam- Rent. The amount established as a ples include: Painting, carpeting, appli- charge for occupancy in a rental unit ances, cabinets, and other fixtures.
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Resident assistant. A person residing sus shall continue to be so classified in a rental unit who is essential to the until the receipt of data from the de- well-being and care of an elderly per- cennial census in the year 2010, if such son or an individual with a disability, area has a population in excess of 10,000 but who: but not in excess of 25,000, is rural in (1) Is not obligated for the tenant’s character, and has a serious lack of financial support; mortgage credit for lower and mod- (2) Would not be living in the unit ex- erate-income families. Notwith- cept to provide the needed services; standing any other provision of this (3) May be a family member, but is section, the city of Plainview, Texas, not a dependent of the tenant for tax shall be considered a rural area for pur- purposes; poses of this title, and the city of (4) Is not subject to the eligibility re- Altus, Oklahoma, shall be considered a quirements of a tenant; and rural area for purposes of this title (5) Is not considered a household until the receipt of data from the de- member in the determination of house- cennial census in the year 2000. hold income. Rural Cooperative Housing (RCH). A Resident or site manager. The indi- housing program authorized under sec- vidual employed by the borrower and tion 515 of the Housing Act of 1949, in who is responsible for the day-to-day which a consumer cooperative, orga- operations of the housing. nized and operating on a nonprofit Retired domestic farm laborer. An indi- basis, may own and operate a vidual who is at least 55 years of age MFHMFH development. and who has spent the last 5 years prior Rural Housing Service (RHS). The to retirement as a domestic farm la- Agency within the Rural Development borer or spent the majority of the last mission area of the U.S. Department of 10 years prior to retirement as a do- Agriculture or its successor agency mestic farm laborer. which administers programs authorized Return on Investment (ROI). The an- by sections 514, 515, 516, and 521 of the nual amount of profit an owner oper- Housing Act of 1949, as amended. ating on a limited or full profit basis Rural Rental Housing (RRH). A hous- may withdraw from a project, as estab- ing program authorized by section 515 lished in the loan agreement. The of the Housing Act of 1949 to provide amount is calculated as a percentage of rental housing in rural areas for per- the owner’s investment in the project. sons of very-low, low- and moderate in- Rural area. Any open country, or any come. place, town, village, or city which is Seasonal housing. Housing operated not (except in the cases of Pajaro, in on a seasonal basis, typically for mi- the State of California, and Guadalupe, grants or migrant agricultural laborers in the State of Arizona) part of or asso- as opposed to year round. ciated with an urban area and which (1) Security deposit. A one-time fee has a population not in excess of 2,500 charged a tenant prior to occupancy of inhabitants, or (2) has a population in a unit to cover possible loss or damage excess of 2,500 but not in excess of to the housing unit caused by the ten- 10,000 if it is rural in character, or (3) ant. has a population in excess of 10,000 but Self-employed. A person who meets not in excess of 20,000 and (A) is not the IRS definition of self-employed at contained within a standard metropoli- 26 CFR 1.401–10. tan statistical area, and (B) has a seri- Service agreement. A written agree- ous lack of mortgage credit for lower ment between a borrower and a service and moderate-income families, as de- provider establishing the specific serv- termined by the Secretary and the Sec- ice to be provided to a MFH project, retary of Housing and Urban Develop- the cost of the service, and the length ment. For purposes of this title, any of time the service will be provided. area classified as ‘‘rural’’ or a ‘‘rural Service plan. A written plan describ- area’’ prior to October 1, 1990, and de- ing how services will be provided to a termined not to be ‘‘rural’’ or a ‘‘rural MFH project and which, at a minimum, area’’ as a result of data received from must specify the services to be pro- or after the 1990 or 2000 decennial cen- vided, the frequency of the services,
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who will provide the services, how ten- facilities, buying household furnishings ants will be advised of the availability (for sections 514/516 only), and pur- of services, and the staff needed to pro- chasing or improving the necessary vide the services. land, including architectural, engineer- Service provider. A person who signs a ing, or legal fees, and charges and written agreement with a borrower to other technical and professional fees provide services to a MFH project. and charges, but excluding fees, Shelter costs. Basic or note rent plus charges, or commissions such as pay- the utility allowance, when used, or ments to brokers, negotiators, or other the occupancy charge plus the utility persons for the referral of prospective allowance. If the utility costs are in- applicants or solicitations of loans. Al- cluded in the rent, the rent will equal though a developer’s fee is part of the shelter costs. project’s development cost, such fees Sources and Uses Comprehensive Eval- are not eligible for payment from uation (SAUCE). A computer software Agency loan or grant funds and are not program used by the Agency to analyze included in determining the Agency au- the total funds provided to a MFH thorized development cost. project to ensure that the Agency is not providing excess assistance. Utility allowance. An amount deter- Special note rent (SNR). A rental rate mined by a borrower as the amount to charged at a Plan II project experi- be considered a tenant’s portion of util- encing vacancies that is less than note ity cost in the calculation of a tenant’s rent but higher than basic rent. total shelter cost when utility costs State consolidated plan. A planning are not included in the rent. document for an individual state that Very low-income household. A house- includes a housing and homeless needs hold that has an adjusted income that assessment; a housing market analysis; does not exceed the HUD established a strategic plan for addressing the very low-income limit (generally 50 state’s housing challenges; an Action percent of median income adjusted for Plan that is an annual description of household size in the county where the the state’s Federal and other resources property is or will be located). that are expected to be available to ad- Workout agreement. An agreement be- dress its priority housing needs and tween a borrower and the Agency list- how the Federal funds will leverage ing actions to be taken over a period of other resources; certifications relating time to prevent or correct a compli- to fair housing, its antidisplacement ance violation or to cure a monetary or and relocation plan, a drug-free work- non-monetary default. place, and other statutory and program requirements; and a monitoring plan to §§ 3560.12–3560.49 [Reserved] ensure that the state is using its Fed- eral funds appropriately and effec- § 3560.50 OMB control number. tively. The information collection require- Tenant or co-tenant. An individual ments contained in this regulation who signs a lease and occupies or will occupy a rental unit in a MFH project. have been approved by the Office of The term tenant or co-tenant also re- Management and Budget (OMB) and fers to a member of cooperative hous- have been assigned OMB control num- ing occupying or planning to occupy a ber 0575–0189. Public reporting burden dwelling unit in cooperative housing. for this collection of information is es- Tenant contribution. The portion of timated to vary from 15 minutes to 18 the approved shelter cost paid by the hours per response, including time for tenant household. The proportion of reviewing instructions, searching exist- tenant income and adjusted income ing data sources, gathering and main- paid will vary according to the type of taining the data needed, and com- subsidy provided to the tenant house- pleting and reviewing the collection of hold. information. A person is not required Total development cost (TDC). The cost to respond to a collection of informa- of constructing, purchasing, improving, tion unless it displays a currently valid altering, or repairing MFH and related OMB control number.
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Subpart B—Direct Loan and Grant used to purchase the site does not ex- Origination ceed the appraised market value of the site immediately prior to purchase. § 3560.51 General. (e) Develop and install necessary sys- This subpart contains the Agency’s tems. Funds may be used to install loan origination requirements for streets, a water supply, sewage dis- multi-family housing (MFH) direct posal, heating and cooling systems, loans for Rural Rental Housing, Rural electric, gas, solar, or other power Cooperative Housing, and Farm Labor sources for lighting and other features Housing. Additional requirements for necessary for the housing. If such fa- farm labor housing loans and grants cilities are located off-site, loan funds are contained in subpart L of this part may only be used if the following addi- for Off-Farm Labor Housing and sub- tional requirements are met: part M of this part for On-Farm Labor (1) The loan applicant will hold title Housing. to the facility or have a legal right to use the facility in the form of an ease- § 3560.52 Program objectives. ment or other instrument acceptable The Agency uses appropriated funds to the Agency for a period of at least 50 to finance the construction, rehabilita- percent longer than the term of the tion of program properties, or purchase loan or grant and the title or right is and rehabilitation of MFH and related transferable to any subsequent owner facilities to serve eligible persons in of the housing. rural areas. The Agency encourages the (2) The facilities will either be pro- use of such financing in conjunction vided for the exclusive use of the pro- with funding or financing from other posed housing project, or Agency funds sources. are limited to the prorated part of the total cost of the facility according to § 3560.53 Eligible use of funds. the use and benefit to the MFH project. Funds may be used for the following If entities other than the housing purposes. project financed by the Agency use the (a) Construct housing. Funds may be facilities on a reimbursable fee basis, used to construct MFH. the loan applicant must agree, in writ- (b) Purchase and rehabilitate buildings. ing, to apply any fees collected in ex- Funds may be used to purchase and re- cess of operating expenses to their habilitate buildings that have not been Agency loan account as an extra loan previously financed by the Agency. payment. (1) Rehabilitation must meet the def- (f) Landscaping and site development. inition of either moderate or substan- Funds may be used to provide land- tial rehabilitation as defined in 7 CFR scaping and site development related part 1924, subpart A. to a MFH project such as lighting, (2) The building to be rehabilitated walks, fences, parking areas, and drive- must be structurally sound and the im- ways. provements to the building must be (g) Tenant-related facilities. Funds necessary to meet the requirements of may be used to develop tenant-related decent, safe, and sanitary living units. facilities appropriate to the size, eco- (3) The total development cost (TDC) nomics, and prospective tenants of a for the purchase and rehabilitation of MFH project, such as a community existing buildings must not be more room, development of space for edu- than the estimated TDC for construc- cation and training purposes for ten- tion of a similar type and unit size ants, central laundry facility, outdoor property in the same area. seating, space for passive recreation, (c) Subsequent loans. Funds may be tot lots, and a small emergency care used to provide subsequent loans in ac- infirmary. In congregate housing and cordance with the provisions of group homes, funds may be used for § 3560.73. central cooking and dining areas. (d) Purchase and improve sites. Funds (h) Management-related facilities. may be used to purchase and improve Funds may be used to develop manage- the site on which MFH will be located, ment-related facilities appropriate to provided that the amount of loan funds the size and economics of a MFH
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project such as a maintenance work- 515, or up to 4 percent of total develop- shop, storage facilities, office, and liv- ment costs for off-farm labor housing, ing quarters for a resident manager for costs that are reasonable and typ- and other personnel. ical for the area, including: (i) Purchase and install equipment and (1) Development and packaging of a appliances. Funds may be used to pur- loan application and a MFH proposal; chase and install equipment and appli- and ances affixed to the property as cus- (2) Legal, technical, and professional tomary and appropriate for the area in fees incurred in the formation of the which the housing is located. loan application and MFH proposal; or (j) Household furnishings (Section 514/ (3) Technical assistance from another 516). For farm labor housing sections nonprofit organization to assist in the 514 and 516 only, funds may be used to organization’s formation and in the de- purchase household furnishings. velopment and packaging of a loan ap- (k) Initial operating capital. Loan plication and MFH proposal. funds equal to 2 percent of total devel- (p) Educational programs. Funds may opment cost or appraised value, which- be used for educational programs re- ever is less, may be used by a state or lated to owning and managing a coop- political subdivision thereof, Indian erative housing project for the board of tribe, consumer cooperative, or any directors of a housing cooperative dur- public or private nonprofit borrower ing the first year of the housing oper- who is not receiving low-income hous- ation. Such funds will be available ing tax credits (LIHTC), to make the from the initial operating account. The initial operating capital contribution amount of the funds disbursed will be required by § 3560.64. Other borrowers subject to Agency approval and avail- must use their own resources to make ability of financial resources from the the required initial operating capital project. contribution and may not use loan (q) Interest and customary charges. funds for that purpose. Funds may be used for interest accrued (l) Builder’s profit, overhead and gen- and customary charges necessary to eral requirements. Subject to the fol- obtain interim financing. lowing limits, funds may be used for (r) Purchase housing from an interim builder’s profit, overhead and general lender. Funds may be used to purchase requirements. MFH from an interim lender that holds (1) Up to 10 percent of the construc- fee simple title to Agency-financed tion contract may be used for builder’s housing upon which construction com- profit. menced and a letter of commitment (2) Up to 4 percent of the construc- had been issued by the Agency but the tion contract may be used for general original applicant for whom funds were overhead. obligated will not or cannot continue (3) Up to 7 percent of the construc- with construction of the housing. In tion contract may be used for general order for the purchase to take place, requirements. there must be no outstanding unpaid (m) Legal, technical and professional obligations in connection with the services. Funds may be used for the housing. costs of legal, technical, and profes- (s) Uniform Relocation Assistance and sional services related to the bor- Real Property Acquisition Act of 1970. rower’s MFH project, including ap- Funds may be used for necessary costs praisals, environmental documenta- incurred to comply with the Uniform tion, and construction plans and speci- Relocation Assistance and Real Prop- fications. erty Acquisition Act of 1970. (n) Permit and application fees. Funds (t) Demonstration programs. With the may be used for required MFH permits RHS Administrator’s approval, funds and application fees. may be used to construct demonstra- (o) Reimbursement to nonprofit organi- tion housing involving innovative units zations and public bodies. Funds may be and systems which do not meet exist- used to reimburse a nonprofit organiza- ing published standards, rules, regula- tion or public body for up to 2 percent tions, or policies but meet the intent of of total development costs for section providing affordable, decent, safe, and
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sanitary rural housing, and are con- (11) Purchasing land for a site in ex- sistent with the requirements of Title cess of what is needed, except when: V of the Housing Act of 1949. (i) The applicant cannot acquire an (u) Conversion of section 502 properties. alternate site or cannot acquire the In accordance with § 3560.506, loan funds needed land as a separate parcel; may be used to finance the conversion (ii) The applicant agrees to sell the of real estate owned units originally fi- excess land as soon as practical and to nanced under section 502 of the Hous- apply the proceeds to the loan; and ing Act of 1949, to MFH authorized by (iii) Program site density require- section 515 of the Housing Act of 1949. ments are met in accordance with the site requirements established under § 3560.54 Restrictions on the use of § 3560.58. funds. (b) Obligations incurred before loan ap- (a) Ineligible uses of funds. Funds may proval. Funds may not be used for ex- not be used for: penses incurred by an applicant prior (1) Housing intended to serve tem- to approval except when all the fol- porary and transient residents, with lowing conditions are met: the exception of housing to serve mi- (1) The debts were incurred for eligi- grant farm workers in accordance with ble purposes; § 3560.554; (2) Contracts, materials, construc- (2) Special care facilities or institu- tion, and any land purchased meet tional-type homes; Agency standards and requirements; (3) Payment of the debts will remove (3) Facilities which are not in com- any attached liens and any basis for pliance with the design requirements liens that may attach to the property specified in § 3560.60; on account of such debts; and (4) Any costs associated with space in (4) The appropriate level of environ- a housing project that is leased for mental review in accordance with 7 commercial use or any commercial fa- CFR part 1940, subpart G has been com- cilities except essential service-type fa- pleted. cilities when otherwise not conven- iently available; § 3560.55 Applicant eligibility require- (5) Specialized equipment for train- ments. ing and therapy; Applicants for off-farm labor housing (6) Operating capital for a central loans and grants should also refer to dining facility or any items which do § 3560.555, and applicants for on-farm not become affixed to the real estate labor housing loans should refer to security with the exception of house- § 3560.605. hold furnishings for farm labor housing (a) General. To be eligible for Agency units financed under sections 514 and assistance, applicants must meet the 516; following requirements: (7) Compensation to a loan applicant (1) Be a U. S. citizen or qualified for value of land contributed in excess alien(s); a corporation; a state or local of the equity contribution require- public Agency; an Indian tribe as de- ments in § 3560.63(c); fined in § 3560.11; or a limited liability (8) Refinancing of an applicant’s debt company (LLC), nonprofit organiza- except when the debt involves interim tion, consumer cooperative, trust, financing or when refinancing is nec- partnership, or limited partnership in essary to obtain a release of an exist- which the principals are U.S. citizens ing lien on land owned by a nonprofit or qualified aliens; organization; (2) Be unable to obtain similar credit (9) Payment of any fee, charge, or elsewhere at rates that would allow for commission to a broker or anyone else rents within the payment ability of eli- as a developer’s fee or for referral of a gible residents; prospective loan applicant or solicita- (3) Possess the legal and financial ca- tion of a loan; pacity to carry out the obligations re- (10) Payment to any officer, director, quired for the loan or grant; trustee, stockholder, member, or agent (4) Be able to maintain, manage, and of an applicant; or operate the housing for its intended
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purpose and in accordance with all eligibility requirements of paragraphs Agency requirements; (a) and (b) of this section, nonprofit or- (5) With the exception of applicants ganizations must meet the following who are a nonprofit organization, hous- criteria: ing cooperative or public body, be able (1) The applicant must have received to provide the borrower contribution a tax-exempt ruling from the IRS des- from their own resources (this con- ignating the applicant as a 501(c)(3) or tribution must be in the form of cash, 501(c)(4) organization. or land, or a combination thereof); (2) The applicant must have in its (6) Have or be able to obtain a min- charter the provision of affordable imum of 2 percent of the total develop- housing. ment costs for use as initial operating capital (for nonprofit organizations, (3) No part of the applicant’s earn- cooperatives, or public bodies, this ings may benefit any of its members, amount may be financed through Agen- founders, or contributors. cy funds); and (4) The applicant must be legally or- (7) Not be suspended, debarred, or ex- ganized under state and local law. cluded based on the ‘‘List of Parties Ex- (5) In the case of off-farm labor hous- cluded from Federal Procurement and ing loans and grants, nonprofit organi- Nonprocurement Programs.’’ The list is zations must be ‘‘broad-based’’ non- available to Federal agencies from the profit organizations (refer to U.S. Government Printing Office. Non- § 3560.555(a)(1)). federal parties should contact the Su- (d) Additional requirements for limited perintendent of Documents, U.S. Gov- partnerships. In addition to the appli- ernment Printing Office, Washington, cant eligibility requirements of para- DC 20402, (202) 512–1800. graphs (a) and (b) of this section, lim- (8) Not delinquent on Federal debt or ited partnership loan applicants must a Federal judgment debtor, with the meet the following criteria: exception of those debtors described in (1) The general partners must be able § 3560.55 (b). to meet the borrower contribution re- (b) Additional requirement for appli- cants with prior debt. If an applicant or quirements if the partnership is not the managing general partner of a bor- able to do so at the time of loan re- rower, as well as any affiliated entity quest. having a 10 percent or more ownership (2) The general partners must main- interest, has a prior or existing Agency tain a minimum 5 percent financial in- debt, the following additional require- terest in the residuals or refinancing ments must be met. proceeds in accordance with the part- (1) The applicant must be in compli- nership organizational documents. ance with any existing loan or grant (3) The partnership must agree that agreements and with all legal and regu- new general partners can be brought latory requirements or must have an into the organization only with the Agency-approved workout agreement prior written consent of the Agency. and be in compliance with the provi- (e) Additional requirements for Limited sions of the workout agreement. The Liability Companies (LLCs). In addition Agency may require that applicants to the applicant eligibility require- with monetary or non-monetary defi- ments of paragraphs (a) and (b) of this ciencies be in compliance with an section, LLC loan applicants must Agency-approved workout agreement meet the following criteria: for a minimum of 6 consecutive months before becoming eligible for further as- (1) One member who holds at least a sistance. 5 percent financial interest in the LLC (2) The applicant must be in compli- must be designated the authorized ance with the Title VI of the Civil agent to act on the LLC’s behalf to Rights Act of 1964, section 504 of the bind the LLC and carry out the man- Rehabilitation Act of 1973, and all agement functions of the LLC. other applicable civil rights laws. (2) No new members may be brought (c) Additional requirements for non- into the organization without prior profit organizations. In addition to the consent of the Agency.
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(3) The members must commit to (1) The following criteria will be used meet the equity contribution require- to score housing proposals as more ments if the LLC is not able to do so at completely established in the NOFA: the time of loan request. (i) The presence and extent of lever- aged assistance in the proposal for the § 3560.56 Processing section 515 hous- units that will serve tenants meeting ing proposals. Agency income limits at basic rents Processing requirements for farm comparable to what the rent would be labor housing proposals are found in if the Agency provided full financing. subpart L of this part for Off-Farm and (ii) The proposal will provide rental subpart M of this part for On-Farm. units in a colonia, tribal land, Rural (a) Notice of Funding Availability Economic Area Partnership (REAP) (NOFA) responses. (1) The Agency will community, Enterprise Zone or Em- publish an annual NOFA with deadlines powerment Community (EZ/EC) or in a and other information related to sub- place identified in the state Consoli- mission of new construction MFH pro- dated Plan or a state needs assessment posals, including expansion of existing as a high need community for MFH. MFH in designated places selected in (iii) The proposal supports Agency accordance with § 3560.57. initiatives announced in the NOFA. (2) To be eligible for funding consid- (iv) The proposal uses a donated site eration, MFH proposals must be sub- which meets the following conditions: mitted in accordance with the NOFA (A) The site is donated by a state, and must provide information re- unit of local government, public body quested in the NOFA for the Agency to or a nonprofit organization; score and rank the proposals. (B) The site is suitable for the hous- (3) MFH proposals needing rental ing proposals and meets Agency re- subsidies must include requests for quirements; Agency rental assistance or a descrip- (C) Site development costs do not ex- tion of any non-Agency rental subsidy ceed what they would be to purchase to be used with the proposal and must and develop an alternative site; provide information required by (D) The overall cost of the MFH is re- § 3560.260 (c). duced by the donation of the site; and (4) The Agency will consider housing proposals requesting rental assistance (E) A return on investment is not in rank order to the extent rental as- paid to the borrower for the value of sistance is available. When there is no the donated site nor is the value of the rental assistance available, the Agency site considered as part of the bor- will consider only those housing pro- rower’s contribution. posals in rank order that do not re- (2) The Agency will rank housing pro- quire rental assistance. posals based on their scoring. (b) Preliminary proposal assessment. (i) When proposals have an equal The Agency will make a preliminary score, preference will be given to In- assessment of the application using the dian tribes as defined in § 3560.11 and following criteria and will reject those local nonprofit organizations or public applications which do not meet all of bodies whose principal purposes in- these criteria: clude low-income housing that meet (1) The proposal was received by the the conditions of § 3560.55(c) and the fol- submission deadline specified in the lowing conditions. NOFA, (A) Is exempt from Federal income (2) The proposal is complete as speci- taxes under section 501(c)(3) or 501(c)(4) fied in the NOFA, of the Internal Revenue code; (3) The proposal is for an authorized (B) Is not wholly or partially owned purpose, and or controlled by a for-profit or limited- (4) The applicant meets Agency eligi- profit type entity; bility requirements. (C) Whose members, or the entity, do (c) Scoring and ranking project pro- not share an identity of interest with a posals. The Agency will score and rank for-profit or limited-profit type entity; each housing proposal that meets the (D) Is not co-venturing with another criteria of paragraph (b) of this section. entity; and
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(E) The entity or its members will (f) Other assistance. During each stage not be receiving any direct or indirect of loan application processing, loan ap- benefits pursuant to LIHTC. plicants must notify the Agency of all (ii) A drawing will be held in the other assistance, including other Fed- event of a tie score, first for proposals eral Government assistance proposed from applicants who meet the condi- or approved for use in connection with tions of paragraph (c)(2)(i) of this sec- the loan application. tion and next for proposals from appli- (g) Proposal withdrawal or rejection. cants for which paragraph (c)(2)(i) of An applicant may withdraw a housing this section is not applicable. Each pro- proposal, an initial loan application, or posal will be numbered in the order in a final loan application at any time which it is drawn. during the Agency review process with (3) The Agency will request initial a written request. The Agency may re- loan applications from parties who sub- ject a housing proposal, an initial loan mitted the housing proposals with the application, or a final loan application highest ranking, taking into consider- at any time during the Agency review ation available funds. The Agency will process when an applicant fails to pro- notify non-selected parties with the vide information requested by the reasons for their non-selection, and the Agency within the time frame specified process that may be used to seek a re- by the Agency. view of the non-selection decision. (h) Final applications. Applicants, (d) Processing initial loan applications. with initial loan applications that are The Agency will review all initial loan selected by the Agency for further applications submitted in accordance processing, must submit a final appli- with Agency requirements to further cation, with any additional informa- evaluate the eligibility and feasibility tion requested by the Agency, to con- of the housing proposals. This deter- firm and document a housing pro- mination will include: posal’s eligibility and feasibility, in- (1) A review of the preliminary plans cluding an affirmative fair housing and cost estimates, marketing plan. The Agency will no- (2) A market feasibility review, tify applicants with initial loan appli- (3) An Agency site visit to gather cations that are not selected for fur- preliminary environmental informa- ther processing of their non-selection, tion and determine that the proposed the reasons for their non-selection, and site meets the site requirements of the process that may be used to seek a § 3560.58, review of the non-selection decision. (4) A review of the Affirmative Fair (i) Rural cooperative housing proposals. Housing Marketing Plan, Rural cooperative housing loan pro- (5) An analysis of current credit re- posals will be solicited through a ports, NOFA and will be assessed and proc- (6) A review of Civil Rights Impact essed in the same manner described in Analysis in accordance with 7 CFR part paragraphs (a) through (h) of this sec- 2006, subpart P, and tion. (7) Completion of the appropriate level of environmental review in ac- § 3560.57 Designated places for section cordance with 7 CFR part 1940, subpart 515 housing. G. (a) Establish a list of designated places. (e) Processing order of initial loan ap- The Agency will establish a list of des- plications. The Agency will process ini- ignated places from which loan pro- tial loan applications in rank order, posals will be accepted. The list is up- taking into account available funds. If dated each fiscal year and is available any initial loan applications are with- when the NOFA is published. The drawn, rejected, or delayed for a period NOFA provides information on obtain- of time that will not permit funding in ing the list. This list will be developed the current funding cycle, the Agency from a list of rural places which the will process, in rank order, the next Agency identifies as having the great- initial loan application as funding lev- est need for multifamily housing based els permit. on the following factors:
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(1) Qualification as a rural area as de- (iii) Existing assisted MFH in the fined in § 3560.11, designated place is experiencing high (2) Lack of mortgage credit, and vacancy levels. (3) Demonstrated need for MFH based (iv) A special note rent or other loan on: servicing tool is pending or in effect for (i) The incidence of poverty, other assisted housing in the des- (ii) The existence of substandard ignated place, or housing, (v) The need in the market area is for (iii) The lack of affordable housing, additional rental assistance and not and additional rental units. (2) Exceptions to the provisions in (iv) The following high need areas: § 3560.57(d)(1) may be made: (A) Places identified in the state (i) When a group home is proposed for Consolidated Plan or similar state plan persons with disabilities in an area or needs assessment report, where the existing MFH is insufficient (B) Indian reservations or commu- or unavailable for their needs; or nities located within the boundaries of (ii) There is a compelling need for ad- tribal allotted or trust land, and ditional MFH, for example when the (C) EZ/EC or REAP communities. units that have been approved or are (b) Establishing partnership designated under development represent only a place list. The Agency, in states with an small portion of the total units needed active leveraging program and formal in the community. partnership agreement with the state agency, may establish a partnership § 3560.58 Site requirements. designated place list consisting of (a) Location. (1) New construction places identified by the partnership as section 515 loans will be made only in high need areas based on criteria con- designated places selected by the Agen- sistent with the Agency’s and the cy in accordance with the requirements state’s authorizing statutes. The part- of § 3560.57. nership agreement and partnership des- (2) Agency-financed MFH must be lo- ignated place list must have the con- cated in residential areas as part of es- currence of the Administrator. tablished rural communities, except as (c) Administrator’s discretion. The Ad- permitted in § 3560.58(b), and for farm ministrator may add to the list of des- labor housing units financed under sec- ignated places any place that is deter- tions 514 and 516, which may be devel- mined to have a compelling need for oped in any area where a need for farm MFH, for example, a place that has had labor housing exists. a substantial increase in population (3) Communities in which Agency-fi- not reflected in the most recent census nanced MFH is located must have ade- data, or a place that has experienced a quate facilities and services to support loss of affordable housing because of a the needs of tenants. natural disaster. (4) Housing complexes will not be lo- (d) Restrictions on loans in certain des- cated in areas where there are undesir- ignated places. (1) Initial loan applica- able influences such as high activity tions will not be requested and final railroad tracks; adjacent to or near in- loan applications will not be closed for dustrial sites; bordering sites or struc- housing proposals in designated places tures which are not decent, safe, or where any of the following conditions sanitary; or bordering sites which have exist: potential environmental concerns such (i) The Agency has selected another as processing plants. Sites which are MFH proposal in the designated place not an integral part of a residential for processing. community and do not have reasonable (ii) A previously funded Agency, the access, either by location or terrain, to U.S. Department of Housing and Urban essential community facilities such as Development (HUD), low-income hous- water, sewerage removal, schools, ing tax credit or other similar assisted shopping, employment opportunities, MFH in the designated place has not medical facilities, may not be accept- been completed or has not reached pro- able. Consistent with Federal law and jected occupancy levels. Departmental Regulation, the Agency
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must conduct an environmental assess- § 3560.59 Environmental requirements. ment and a civil rights impact analysis Under the National Environmental before a site can be accepted. Sites Policy Act, the Agency is required to may be determined by the Agency to be assess the potential impact of the pro- unacceptable if any of the adverse con- posed action on protected environ- ditions described in this paragraph mental resources. Measures to avoid or exist. at least mitigate adverse impacts to (b) Structures located in central busi- protected resources may require a ness areas. The Agency will consider fi- change in the site or project design. nancing construction or the purchase Therefore, a site cannot be approved and substantial rehabilitation of an ex- until the Agency has completed the en- isting structure located in the central vironmental review in accordance with business area of a rural community. 7 CFR part 1940, subpart G, or any suc- With prior consent from the Agency, a cessor regulation. Likewise, the appli- portion of such a structure may be des- cant should be informed that the envi- ignated for commercial use on a lease ronmental review must be completed basis. RHS funds may not be used to fi- and considered before the Agency can nance any cost associated with the make a commitment of resources to commercial space. the project. (c) Site development costs and stand- § 3560.60 Design requirements. ards. The cost of site development must (a) Standards. All Agency-financed be less than or comparable to the cost MFH will be constructed in accordance of site development at other available with 7 CFR part 1924, subpart A and sites in the community and the site will consist of two or more rental units must be developed in accordance with 7 plus appropriate related facilities. Sin- CFR part 1924, subpart C and any appli- gle family structures may be used for cable standards imposed by a state or group homes and cooperative housing. local government. Also, manufactured homes may be used (d) Densities. Allowable site densities to create MFH and single family hous- will be determined based on the fol- ing originally financed through section lowing criteria: 502 of the Housing Act of 1949 may be (1) Compatibility and consistency converted to MFH. Maintenance re- with the community in which the MFH quirements are listed in § 3560.103(a)(3). is located; (b) Residential design. All MFH must (2) Impact on the total development be residential in character, except as costs; and provided for in § 3560.58(b), and must (3) Size sufficient to accommodate meet the needs of eligible residents. necessary site features. (c) Economical construction, operation and maintenance. Taking into consider- (e) Flood or mudslide-prone areas. (1) ation life-cycle costs, all housing must The Agency will not approve sites sub- be economical to construct, operate, ject to 100-year floods when non-flood- and maintain and must not be of elabo- plain sites exist. The environmental re- rate design or materials. view process will assess the avail- (1) Economical construction means ability of a reasonable site outside the construction that results in housing of 100-year floodplain. at least average quality with amenities (2) Sites located within the 100 year that are reasonable and customary for floodplain are not eligible for federal the community and necessary to appro- financial assistance unless flood insur- priately serve tenants. ance is available through the National (2) Economical operating and mainte- Flood Insurance Program (NFIP). The nance means housing with operational Agency will complete Federal Emer- and maintenance costs that allow a gency Management Agency (FEMA) basic rent structure less than or con- Form 81–93, Standard Flood Hazard De- sistent with conventional rents for termination, to document the site’s lo- comparable units in the community or cation in relation to the floodplain and in a similar community except that the availability of insurance under when determined necessary by the NFIP. Agency to allow for decent, safe and
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sanitary housing to be provided in mar- ered substantial if the total cost for a ket areas where conventional rents are twelve month period amounts to 50 per- not sufficient to cover necessary oper- cent or more of the full and fair cash ating, maintenance, and reserve costs. value of the building * * *’’ UFAS fur- Basic rents may be allowed to exceed ther defines full and fair cash value as comparable rents for conventional ‘‘the assessed valuation of a building or units, but in no case may the rent ex- facility as recorded in the assessor’s of- ceed 150% of the comparable rent for fice of the municipality and as equal- conventional unit rent level. ized at one hundred percent (100%) (3) In meeting the Agency objective valuation, or the replacement cost, or of economical construction, operation the fair market value.’’ The 5 percent and maintenance, housing proposals rule will also apply to repair or renova- must: tion work on a single unit. For in- (i) Contain costs without jeopard- izing the quality and marketability of stance, if a unit is damaged by fire and the housing; extensive repair is necessary, to the ex- (ii) Employ life-cycle cost analyses tent possible the unit is to be con- acceptable to the Agency to determine verted to a fully accessible unit. the types of materials which will re- (3) The variety of bedroom quantities duce overall costs by lowering oper- of fully accessible units will be com- ation and maintenance costs, even parable to the variety of bedroom though their initial costs may be high- quantities of units which are not fully er; and accessible. Borrowers will not, how- (iii) Provide assurances that costs ever, be required to exceed the 5 per- will be reduced when the Agency deter- cent requirement simply to have an ac- mines that housing costs are not eco- cessible unit of each bedroom quantity. nomical. If assurances cannot be pro- In addition, accessible units should be vided, funding may be withdrawn. distributed throughout the complex so (4) The housing proposal will give not to concentrate the units in one lo- maximum consideration to energy con- cation. servation measures and practices. (4) All MFH must meet: (d) Accessibility. All housing will meet (i) The accessibility requirements as the following accessibility require- contained in section 504 of the Reha- ments. bilitation Act of 1973; (1) For new construction of MFH, at least 5 percent of the units (but not (ii) The requirements of the Fair less than one) must be constructed as Housing Amendments Act of 1988; fully accessible units to persons with (iii) The requirements of the Ameri- disabilities. The Uniform Federal Ac- cans with Disabilities Act of 1990, as cessibility Standards (UFAS) will be applicable; and followed. Individual copies of these (iv) All other Federal, State, and standards are available from the Archi- local requirements. When architectural tectural and Transportation Barriers standards differ, the most stringent Compliance Board, 1331 F Street, NW, standard will be followed. Suite 1000, Washington, DC 20004–1111, Telephone: (202) 272–0080, TTY: (202) § 3560.61 Loan security. 272–0082, e-mail address: info@access- (a) General. Each loan made by the board.gov. When calculating how many Agency will be secured in a manner accessible units are required, always that adequately protects the financial round up to the next whole number to interest of the Federal Government ensure the 5 percent requirement is throughout the period of the loan. met. (2) For existing properties that do (b) Lien position. (1) The Agency will not have fully accessible units, the 5 seek a first or parity lien position on percent requirement will apply when Agency-financed property in all in- making substantial alterations as de- stances. The Agency may accept a jun- fined by UFAS. The UFAS defines sub- ior lien position if the Federal Govern- stantial alteration as ‘‘alteration to ment’s interests are adequately se- any building or facility is to be consid- cured.
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(2) The Agency will seek a first or § 3560.62 Technical, legal, insurance, parity lien on revenue from rent; Agen- and other services. cy, HUD, state or private rental sub- (a) Legal services. Applicants must sidy payments; chattels; assignments; have written contracts for any legal and operating and reserve accounts. services that are to be paid out of The Agency will accept a junior lien Agency loan funds. position if the Federal Government’s (b) Title clearance. Applicants must interests are adequately secured. obtain title clearance in accordance (c) Liability. Personal liability will be with the provisions of 7 CFR part 1927, required of all individual borrowers. subpart B applicable to title clearance, Personal liability will not be required which would include title insurance or for the members or stockholders of any title opinion, unless the loan applicant corporation or trust or any partners in is leasing the property or is an organi- a limited partnership. zation or an individual with special (d) Housing and land ownership. Appli- title or loan closing problems, in which cants must own the MFH and related case title clearance and related legal land for which the loan is being re- services will be obtained in accordance quested, or become the owner when the with procedures approved by the Agen- cy. loan is closed or have a leasehold inter- (c) Architectural services. Applicants est in the land. If an applicant is not must obtain a written contract for ar- the owner of the housing and the re- chitectural services in accordance with lated land, the following conditions the provisions of 7 CFR part 1924, sub- must be met prior to or at loan closing. part A. (1) A recorded mortgage on the im- (d) Insurance. Applicants must have provements is given as collateral. property and liability coverage at loan (2) The amount of the loan against closing as well as flood insurance, if the collateral does not exceed its esti- needed. Fidelity coverage must be in mated security value. force as soon as there are assets within (3) The unexpired term of the lease the organization and it must be ob- on the date of loan closing is at least 50 tained before any loan funds or interim percent longer than the term of the financing funds are made available to loan and rent charged for the lease the borrower. At a minimum, appli- does not exceed the rate being paid for cants must meet the property, liabil- similar leases in the area. ity, flood, and fidelity insurance re- (4) The applicant’s leasehold interest quirements in § 3560.105. is not subject to summary foreclosure (e) Surety bonding. Applicants must or cancellation. comply with the surety bonding provi- (5) The lease permits: sions of 7 CFR part 1924, subpart A. (i) The Agency to foreclose the mort- § 3560.63 Loan limits. gage and to transfer the lease; (a) Determining the security value. The (ii) The Agency to bid at a fore- security value for an Agency loan is closure sale or to accept voluntary con- the lesser of the total development cost veyance of the security in lieu of fore- (exclusive of any developer’s fee as pro- closure; vided by paragraph (d)(2) of this sec- (iii) The Agency to occupy the prop- tion) or the housing project’s security erty, sublet the property, or sell the value as determined by an appraisal leasehold for cash or credit if the lease- conducted in accordance with subpart hold is acquired through foreclosure, if P of this part, minus any prior or par- the Agency accepts voluntary convey- ity liens on the housing project. For ance in lieu of foreclosure, or if the purposes of determining security value: borrower abandons the property; and (1) Total development cost must be (iv) The applicant, in the event of de- calculated excluding costs not consid- fault or inability to continue with the ered allowable under § 3560.54(a), and lease and the loan, to transfer the excluding costs related to compliance leasehold subject to the mortgage to a with the Uniform Relocation Assist- transferee that will assume the prop- ance and Real Property Acquisition erty ownership obligations. Act of 1970.
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(2) The appraisal, which will deter- (d) Review of assistance from multiple mine the market value, subject to re- sources. The Agency will analyze Fed- stricted rents, will be obtained by the eral Government and other assistance Agency and conducted in accordance provided to any MFH project to estab- with subpart P of this part. lish the maximum loan amount and to (b) Limitations on loan amounts. The assure that the assistance is not more Agency will not make any loans with- than the minimum necessary to make out adequate security. The following the housing affordable, decent, safe, limitations will be set on loan and sanitary to potential tenants. amounts: (1) Determining minimum assistance. (1) For all loan applicants who will For purposes of determining minimum receive benefits from the low-income assistance, the total amount paid for housing tax credit program, the builder’s profit, overhead, and general amount of Agency financing for the requirements may not exceed 21 per- housing will not exceed 95 percent of cent of the construction contract. Un- the security value available for the less specified differently in a Memo- Agency loan. randum of Understanding between the (2) For all loan applicants who will Agency and the state agency that allo- not receive low-income housing tax cates low-income housing tax credits, credit benefits and who are comprised limits will be those specified in § 3560.53(l). solely of nonprofit organizations, con- (2) Developer’s fee. While, in accord- sumer cooperatives, or state or local ance with § 3560.54(a)(9), payment of a public agencies, the amount of the loan developer’s fee is not an eligible use of will be limited to the security value Agency loan funds, the Agency will in- available for the Agency loan, plus the clude in total development costs a de- 2 percent initial operating capital and veloper’s fee paid from other sources any necessary relocation costs in- when analyzing the Federal Govern- curred. ment assistance to the housing. The (3) For all other loan applicants who Agency may recognize a developer’s fee will not receive low-income housing paid from other sources on construc- tax credit benefits, the loan amount tion or rehabilitation of up to 15 per- will be limited to no more than 97 per- cent of the total development costs au- cent of the security value available for thorized for low-income housing tax the Agency loan. credit purposes, or by another Federal (c) Equity contribution. Loan appli- Government program. Likewise for cants, with the exception of nonprofit transfer proposals that include acquisi- organizations, consumer cooperatives, tion costs, the developer’s fee on the or state or local public agencies who acquisition cost may be recognized up will not be receiving tax credits, must to 8 percent of the acquisition costs make an equity contribution from only when authorized under a Federal their own resources. Government program providing assist- (1) Loan applicants who will receive ance. The developer’s fee is not in- benefits from the low-income housing cluded in determining the Agency’s tax credit program must make an eq- maximum debt limit and loan amount. uity contribution in the amount of 5 (e) Limits on equity loans. For equity percent of the Agency loan. The max- loans to avert prepayment, the amount imum Agency loan will be determined of the Agency equity loan will be lim- in accordance with § 3560.63(b). ited to no more than the difference be- (2) Loan applicants who will not re- tween 90 percent of market value of the ceive benefits from the low-income property when appraised as conven- housing tax credit program and are not tional unsubsidized MFH and all cur- nonprofit organizations, consumer co- rent unpaid balances. For information operatives, or state or local public on appraisal issues, refer to subpart P agencies must make an equity con- of this part. tribution in the amount of 3 percent of (f) Cost overruns. (1) All applicants the Agency loan. The maximum Agen- must agree in writing to provide funds cy loan will be determined in accord- at no cost to the housing and without ance with § 3560.63(b). pledging the housing as security to pay
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any cost for completing planned con- loan closing, whichever comes first, struction after the maximum debt and such funds thereafter, may only be limit is reached. used for authorized budgeted purposes. (2) After loan approval, the Agency (d) If the conditions specified in will only approve cost increases for § 3560.304(c) are met, funds contributed housing proposals involving new con- as initial operating capital may be re- struction or major rehabilitation when turned to the borrower. the additional costs will not cause the limits specified in § 3560.53(l) or the § 3560.65 Reserve account. maximum debt limit to be exceeded To meet major capital expenses of a and the cost increases were caused by: housing project, borrowers must estab- (i) Unforeseen factors that are deter- lish and fund a reserve account that mined by the Agency to be beyond the meets requirements of § 3560.306. At a borrower’s control; minimum, the borrower must agree to (ii) Design changes required by the make monthly contributions to the re- Agency, state, or the local government; serve account at the rate of 1 percent or annually of the amount of the total de- (iii) Financing changes approved by velopment cost until the reserve ac- the Agency. count equals 10 percent of the total de- velopment cost. § 3560.64 Initial operating capital con- tribution. § 3560.66 Participation with other Borrowers are required to make an funding or financing sources. initial operating capital contribution (a) General requirements. The Agency to the general operating account in the encourages the use of funding or fi- amount of at least 2 percent of the nancing from other sources in conjunc- total development cost or appraised tion with Agency loans. When the value, whichever is less. Agency is not the sole source of financ- (a) Borrowers that are nonprofit or- ing for MFH, the following conditions ganizations, consumer cooperatives, or must be met. state or local public agencies and are (1) The Agency will enter into a par- not receiving low-income housing tax ticipation (or intercreditor) agreement credits, may use loan funds for their with the other participants that clear- initial operating capital contribution. ly defines each party’s relationship and All other borrowers must fund the ini- responsibilities to the others. tial operating capital contribution (2) The rental units that will serve from their own resources. tenants eligible for housing under the (b) Borrowers must provide to the Agency’s income standards must meet Agency for approval a list of materials Agency standards and the number of and equipment to be funded from the units that will serve the Agency’s ten- general operating account for initial ants are at least equal to the units fi- operating expenses. As specified in nanced by the Agency. § 3560.304(b), initial operating capital (3) All rental units must be operated may be used only to pay for approved and managed in compliance with the budgeted expenses. If total initial oper- requirements of the Agency and the ating expenses exceed 2 percent, the ad- other sources. To the extent these re- ditional amount must be paid by the quirements overlap, the most stringent borrower from its own resources, ex- requirement must be met. The Agency cept that borrowers meeting the provi- may negotiate the resolution of over- sions of § 3560.64(a) who do not have suf- lapping requirements on a case-by-case ficient resources for this purpose may basis; however, at a minimum, Agency request Agency assistance. With- requirements must be met. drawals from the reserve account will (4) If the number of units subject to not be approved for such expenses. the LIHTC rent and income restric- (c) Borrowers must provide the Agen- tions is greater than the number of cy with documentation of their initial units projected to receive Agency rent- operating capital contribution depos- al assistance (RA) or similar tenant ited into the general operating account subsidy, the market feasibility docu- prior to the start of construction or mentation must clearly reflect a need
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and demand by LIHTC income-eligible § 3560.67 Rates and terms for section households financially able to afford 515 loans. the projected rents without such a sub- Rates and terms for farm labor hous- sidy for the units not receiving RA or ing loans are found in subpart L of this similar tenant subsidy. part for Off-Farm and subpart M of this (b) Rental assistance. The Agency may part for On-Farm. provide rental assistance with MFH (a) Interest. Loans will be closed at loans participating with other sources the lower of the interest rate in effect of funding under the following condi- at the time of loan approval or the in- tions: terest rate that is in effect at time of (1) The Agency’s loan equals at least loan closing. 25 percent of the housing’s total devel- (b) Interest credit. The Agency will provide interest credit to subsidize the opment cost. interest on the Agency loan to a pay- (2) The rental assistance is provided ment rate of 1 percent for all of the only to those rental units where the Agency’s initial and subsequent loans. basic rents do not exceed what basic (c) Amortization period and term. (1) rents would have been had the Agency Except for manufactured housing, provided full financing. loans will be amortized over a period (3) The provisions of subpart F of this not to exceed the lesser of the eco- part are met. nomic life of the housing being fi- (c) Security requirements. The security nanced or 50 years and paid over a term requirements of § 3560.61 must be met not to exceed 30 years from the date of for all Agency-financed MFH partici- loan. The Agency may make a loan to pating with other sources of funding. the borrower to finance the final pay- (d) Reserve requirements. Reserve ac- ment of a loan in accordance with count requirements will be determined § 3560.74. on a case-by-case basis, taking into (2) Loans for manufactured housing consideration the reserve requirements will be amortized and paid over a term of the other participating lenders, so not to exceed 30 years as specified in § 3560.70(c). that the aggregate fully funded reserve account is consistent with the require- § 3560.68 Permitted return on invest- ments of § 3560.65. Reserve require- ment (ROI). ments and procedures for reserve ac- (a) Permitted return. Borrowers oper- count withdrawals must be agreed ating on a limited profit basis will be upon by all lenders and included in the permitted a return not to exceed 8 per- intercreditor or participation agree- cent of their required initial invest- ment. ment determined at the time of loan (e) Design requirements. Housing and approval in accordance with § 3560.63(c). related facilities must be planned and (b) Calculation of permitted return. The constructed in accordance with 7 CFR permitted return will be based on the 1924, subparts A and C. If housing in- borrower’s contributions from their cludes non-Agency financed common own resources, which, when added to facilities, the following conditions the Agency loan amount and all must be met: sources of funding or financing, do not (1) The non-Agency-financed common exceed the security value of the MFH facility’s operating and maintenance project as specified in § 3560.63(a). costs must be paid through collection (1) Proceeds received by the borrower of a user fee from residents who use the from the syndication of low-income housing tax credit and contributed to facility, the MFH project may be considered (2) The non-Agency-financed common funds from the borrower’s own re- facility must be designed and operated sources for the portion of the proceeds with appropriate safeguards for the which exceeds: health and safety of tenants, and (i) The allowable developer’s fee de- (3) The facility must be fully avail- termined by the state agency admin- able and accessible to all tenants. istering the low-income housing tax credit, and
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(ii) The borrower’s expected contribu- the following services will be provided tion to the transaction, as determined or made available: by the state agency administering the (i) One cooked meal per day, seven low-income housing tax credit. days per week; (2) A building site contributed by the (ii) Transportation to and from the borrower will be appraised by the property; Agency to determine its market value. (iii) Assistance in housekeeping; A return may not be allowed on the (iv) Personal services; amount above the equity contribution (v) Recreational and social activities; required by § 3560.63(c) if the market and value as determined by the Agency, (vi) Access to medical services. when added to the loan and grant (2) For group homes, the resident amounts from all sources, exceeds the services plan must address how access security value of the MFH project as to the following services will be pro- specified in § 3560.63(a). vided or made available: (c) Return on additional investment. (i) A common kitchen in which to The initial investment may exceed the prepare meals; equity contribution required by (ii) Transportation; § 3560.63(c) and a return allowed on the (iii) Nearby recreational and social investment if the additional return activities which may be coordinated by does not increase basic rents and rental the resident assistant, if applicable; assistance costs above what basic rents and and rental assistance costs would have (iv) Medical services as necessary. been with the Agency financing 95 or 97 (d) Necessary items. Borrowers must percent of the total development cost. ensure items such as tables, chairs, and cookware necessary to furnish common (d) Compensation to nonprofit organiza- areas are made available to congregate tions. Although nonprofit organizations housing or group homes. The 2 percent are not eligible to take a return on in- initial operating capital may be used vestment, with prior Agency approval, to purchase these items. cooperatives and nonprofit organiza- (e) Association with other organiza- tions may use housing project funds to tions. Congregate housing and group pay asset management expenses di- homes may coordinate services or rectly attributable to ownership re- training with another organization, sponsibilities, as described in such as a workshop for the develop- § 3560.303(b)(1)(ii). mentally disabled. However, the hous- ing facility must be a separate entity § 3560.69 Supplemental requirements for congregate housing and group and not dependent on the other organi- homes. zation. (f) Market feasibility documentation. (a) General. Congregate housing and Market feasibility documentation for group homes must be planned and de- congregate housing and group homes is veloped in accordance with 7 CFR part subject to the following requirements: 1924, subparts A and C. (1) Must address the need for housing (b) Design criteria. Congregate hous- with services and include information ing and group homes must be designed concerning alternative service pro- to accommodate all special services viders; that will be provided. (2) Must contain demographic infor- (c) Services. Congregate housing and mation pertaining to the population group home loan applicants, as part of that is to be served by the congregate their loan request, must submit a plan housing or group home project; and to make affordable services available (3) May consider an expanded market to residents to assist the residents in area that includes nondesignated living independently. The plan must places, but the facility must be located address the availability of this assist- in a designated place. ance from service providers throughout (g) Rental assistance for group homes. the term of the loan. A unit in a group home consists of a (1) For congregate housing, the resi- space occupied by a specific tenant dent services plan must address how household, which may be an apartment
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unit, a bedroom, or a part of a bed- if such taxation is permitted under ap- room. Agency rental assistance will be plicable law when the loan is closed. made available to tenants sharing a (e) Special warranty requirements. The unit so long as the total rent for the general contractor or dealer-con- unit does not exceed conventional tractor, as applicable, must provide a rents for comparable units in the area warranty in accordance with the provi- or a similar area. sions of 7 CFR part 1924, subpart A. (1) The warranty must establish that § 3560.70 Supplemental requirements the manufactured homes, foundations, for manufactured housing. positioning and anchoring of the units (a) Design requirements. Manufactured to their permanent foundations, and all housing must meet the requirements of contracted improvements, are con- 7 CFR part 1924, subpart A applicable structed in conformity with applicable to manufactured housing. approved plans and specifications. (b) Eligible properties. The manufac- (2) The warranty must include provi- tured housing must include two or sions that the manufactured homes more housing units. The applicant will sustained no hidden damage during become the first owner purchasing the transportation and, for double-wide units, that the sections were properly manufactured homes for purposes other joined and sealed. than resale. The following exceptions (3) The general contractor or dealer may be made to this provision: contractor must warrant that the man- (1) A housing proposal may include ufacturer’s warranty is in addition to the purchase of the real property with and does not diminish or limit all other existing manufactured housing which warranties, rights, and remedies that will be redeveloped with the placement the borrower or lender may have. of new manufactured homes. (4) The seller of the manufactured (2) A housing proposal may include homes must deliver to the borrower the the rehabilitation of existing manufac- manufacturer’s warranty with an addi- tured housing only if the units to be re- tional copy for RHS. The warranty habilitated are currently financed by must identify the units by serial num- the Agency. The proposal will include ber. the results of the applicant’s consulta- tion with the manufacturer to deter- § 3560.71 Construction financing. mine if the proposed rehabilitation (a) Construction financing plan. Prior work will affect the structural integ- to loan approval, applicants must sub- rity of the unit and, if so, the state- mit to the Agency for its concurrence a ment will include an explanation as to plan for the construction financing and how. securing of the loan. (c) Terms. The maximum loan amount (b) Interim financing. Interim financ- will be determined in accordance with ing is required by the Agency for any the requirements of § 3560.63. The amor- construction, except as noted in para- tization period and term of loans for graph (c) of this section. manufactured housing will not exceed (1) The Agency reserves the right to the lesser of the economic life of the review and approve the interim financ- housing being financed or 30 years. ing arrangements proposed by the ap- (d) Security. A mortgage or deed of plicant. trust will be taken on the entire prop- (2) When interim financing is used, erty purchased or improved with the the Agency will obligate the funds and loan. The encumbered property must provide an interim financing letter to be covered under a standard real estate the lender that will confirm the proce- title insurance policy or attorney’s dures and conditions for the construc- title opinion that identifies the hous- tion financing. The take-out loan will ing as real property and insures or in- be closed and the interim lender paid demnifies against any loss if the manu- off when the conditions of the interim factured home is determined not to be financing letter have been met. part of the real property. The property (3) The applicable provisions of 7 CFR must be taxed as real estate by the ju- part 1924, subpart A will be used to risdiction where the housing is located monitor the construction.
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(4) An environmental review must be seek enforcement of this provision as completed in accordance with 7 CFR well as the Government.’’ part 1940, subpart G, prior to issuance (ii) All other loans are subject to re- of the interim financing letter. strictive-use provisions as outlined in (c) Multiple advances. When interim subpart N of this part. financing is not available or when it is (3) Provide evidence that construc- in the best interest of the Federal Gov- tion financing arrangements are ade- ernment, the Agency may provide for quate when interim financing is going multiple advances of the funds to cover to be used; the cost of construction. (4) Provide evidence that all the (1) The Agency will review and ap- funds from other sources as proposed in prove the multiple advances proposed the application are available and that by the borrower. there have been no changes in the (2) When multiple advances are used, Sources and Uses Comprehensive Eval- the Agency will close the loan prior to uation (SAUCE). any advancement of funds and the rel- (5) Provide evidence of the title to all evant provisions of 7 CFR part 1924, security required by the Agency; subpart A will be used to monitor the (6) Provide a certification that all construction. construction in the case of interim fi- (3) The loan check will be handled in nancing has been or, in the case of mul- accordance with 7 CFR part 1902, sub- tiple advances, will be paid; part A. (7) Provide, in the case of interim fi- nancing, a dated and signed statement § 3560.72 Loan closing. from the owner’s architect certifying to substantial completion of the hous- (a) Requirements. Loans will be closed ing project; in accordance with 7 CFR part 1927, (8) Provide a certification that all subpart B and any state supplements. construction in the case of interim fi- In all cases, the borrower must: nancing has been or, in the case of mul- (1) Provide evidence that an Agency- tiple advances, will be in accordance approved accounting system is in with the plans and specifications con- place; curred in by the Agency; (2) Execute a restrictive-use contract (9) Provide evidence, if applicable, acceptable to the Agency that estab- that the conditions of the interim fi- lishes the borrower’s obligation to op- nancing letter have been met; and erate the housing for program purposes (10) Attend a pre-occupancy con- for the term of the Agency loan; ference with the Agency. (i) For all section 514 loans, except as (b) Cost certification. In all cases, the provided in § 3560.621, made pursuant to borrower must report actual construc- a contract entered into on or after the tion costs. Whenever the State Direc- effective date of this regulation, the tor determines it appropriate, and in following language will be included in all situations where there is an iden- the mortgage and deed of trust: ‘‘The tity of interest as defined in 7 CFR borrower and any successors in interest 1924.4 (i), the borrower, contractor and agree to use the housing for the pur- any subcontractor, material supplier, pose of housing people eligible for oc- or equipment lessor having an identity cupancy as provided in sections 514 and of interest must each provide certifi- 516 of title V of the Housing Act of 1949, cation as to the actual cost of the work and Rural Housing Service regulations performed in connection with the con- then in effect. The restrictions are ap- struction contract in accordance with 7 plicable for a term of 20 years from the CFR part 1924, subpart A. The con- date on which the last loan was closed. struction costs must also be audited in No eligible person occupying the hous- accordance with Governmental Audit- ing will be required to vacate nor any ing Standards, by a Certified Public eligible person denied occupancy for Accountant (CPA). In some cases, the housing prior to the close of such pe- Agency will contract directly with a riod because of a prohibited change in CPA for the cost certification. Funds the use of the housing. A tenant or per- that were included in the loan for cost son wishing to occupy the housing may certification and which are ultimately
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not needed because Agency contracts quired for a subsequent loan approved for the cost certification will be re- under the conditions set in § 3560.63(f) turned on the loan. Agency personnel to complete housing construction but will utilize exhibit M of 7 CFR part is not required for a subsequent loan to 1924, subpart A to assist in the evalua- repair or improve existing housing. tion of the cost certification process. (e) Environmental requirements. Subse- (c) Notification of loan cancellation. quent loans are subject to the comple- Loans may be canceled after approval tion of an environmental review in ac- and before loan closing. The Agency cordance with 7 CFR part 1940, subpart will notify all parties of the cancella- G. tion and the reasons for the cancella- (f) Design requirements. All improve- tion in accordance with 7 CFR part ments, repairs, and modifications will 1927, subpart B. be in accordance with 7 CFR part 1924, subparts A and C. § 3560.73 Subsequent loans. (g) Architectural services. The appli- (a) Applicability. The Agency may cant must obtain architectural services make a subsequent loan to a borrower when any of the following conditions to complete, improve, repair, or make exist: modifications to MFH initially fi- (1) Enclosed space is being added, nanced by the Agency or for equity for (2) When required by state law, and preservation purposes. Loan requests (3) When the Agency determines that to add units to comply with accessi- the work being proposed requires archi- bility requirements may be processed tectural services. as a subsequent loan; however, loan re- (h) Restrictive-use requirements. Subse- quests to add units to meet market de- quent loans are subject to restrictive- mand will be processed as an initial use provisions as outlined in loan request and must compete under § 3560.662(a) and borrowers must exe- the NOFA. cute a restrictive-use contract in ac- (b) Application requirements and proc- cordance with § 3560.72(a)(2). essing. Upon receipt of a subsequent (i) Designation changes from rural to loan request, the Agency will inform nonrural. If the designation of an area the applicant what information is re- changes from rural to nonrural after quired based on the nature and purpose the initial loan is made, a subsequent of the loan request. Subsequent loan loan may be made only to make nec- requests do not have to compete for essary improvements and repairs to the funding against initial loan proposals. property or for equity when needed to (c) Amortization and payment period. avert prepayment. Subsequent loans will be amortized (j) Agency’s discretion. The Adminis- over a period not to exceed the lesser of trator may approve a subsequent loan the economic life of the housing being in a place that is not on the list of des- financed or 50 years and paid over a ignated places as a servicing action, for term not to exceed the lesser of the example, to replace units destroyed by economic life of the housing or 30 years a natural disaster. from the date of the loan. (d) Equity contribution. Applicants for § 3560.74 Loan for final payments. subsequent loans must make contribu- (a) Use. The Agency may finance tions on the loans in the same propor- final payments for borrowers holding tion as outlined in § 3560.63(c). Loan ap- existing loans for which the Agency ap- plicants will not be given consideration proved an amortization period that ex- for any increased equity value that the ceeded the term of the loan. property may have since the initial (b) Requirements. The Agency may fi- loan. nance final payments if documentation (1) Excess initial investment on an regarding the market area shows that initial loan may be credited toward the a need for low-income rental housing required investment on a subsequent still exists for that area and one of the loan. following conditions has been met. (2) An initial operating capital con- (1) It is more cost efficient and serves tribution to the general operating ac- the tenant base more effectively to count as described in § 3560.64 is re- maintain existing MFH than to build
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another property in the same location; and Federal laws and ordinances. or Project operations shall be conducted (2) The MFH has been maintained to to meet the actual needs and necessary such an extent that it can be expected expenses of the property or for any to continue providing affordable, de- other purpose authorized under Agency cent, safe and sanitary housing for 20 regulations. Any party not meeting years beyond the date of the loan to fi- these responsibilities may be subject to nance a final payment; and penalties. It is expected that only typ- (3) Funds are available. ical and reasonable expenses be in- (c) Term. The term of Agency loans to curred for the services rendered. Con- finance final payments will not exceed sequently, methods to inflate, dupli- 20 years from the date of the initial cate, obscure, or failure to disclose the loan final payment. true nature and cost of work performed for the services rendered will cause the §§ 3560.75–3560.99 [Reserved] Agency to deny budget requests for the § 3560.100 OMB control number. services or issue a demand for recovery and reimbursement for unauthorized The information collection require- actions. ments contained in this regulation have been approved by the Office of (b) Management plan. Borrowers must Management and Budget (OMB) and develop and maintain a management have been assigned OMB control num- plan for each housing project covered ber 0575–0189. Public reporting burden by their loan or grant. The manage- for this collection of information is es- ment plan must establish the systems timated to vary from 15 minutes to 18 and procedures necessary to ensure hours per response, including time for that housing project operations comply reviewing instructions, searching exist- with Agency requirements. ing data sources, gathering and main- (1) At a minimum, management plans taining the data needed, and com- must address the following items: pleting and reviewing the collection of (i) Maintenance systems, including information. A person is not required procedures for routine maintenance, to respond to a collection of informa- capital item repair and replacement, tion unless it displays a currently valid and effective energy conservation prac- OMB control number. tices; (ii) Personnel policies, job descrip- Subpart C—Borrower Manage- tions, staffing plans, training proce- ment and Operations Respon- dures for on-site staff. The Borrower will include specific duties and respon- sibilities sibilities of each property manager, § 3560.101 General. site manager and caretaker; (iii) Front-line management func- This subpart sets forth borrower obli- tions to be performed by off-site staff; gations regarding management and op- erations of multi-family housing (iv) Plans and procedures for pro- (MFH) projects financed by the Agen- viding supplemental services including cy. As noted in § 3560.6, the borrower re- laundry, vending, and security; quirements listed in this subpart must (v) Plans for accounting, record keep- be complied with by the borrower. The ing and meeting Agency reporting re- borrower may designate in writing a quirements; person to act as the borrower’s author- (vi) Procurement procedures; ized agent. (vii) Rent and occupancy charge col- lection procedures, and procedures for § 3560.102 Housing project manage- requesting and implementing changes ment. in rents, utility allowances, or occu- (a) General. Borrowers hold final re- pancy charges; sponsibility for housing project man- (viii) Plans and procedures for mar- agement and must ensure that oper- keting rental units and maintaining ations comply with the terms of all compliance with the Affirmative Fair loan or grant documents, Agency re- Housing Marketing Plan in accordance quirements and applicable local, state with § 3560.104;
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(ix) Unit leases and leasing policies (3) If the Agency determines that op- and procedures, including procedures erations are in compliance with Agen- for maintaining and purging waiting cy requirements, loan or grant agree- lists, determining applicant eligibility, ments, or applicable local, state, and certifying and recertifying income, Federal laws, but are not consistent tenant selection, and occupancy poli- with the management plan, the Agency cies such as security deposit amounts, will require the borrower to: occupancy rules, termination of leases (i) Revise the management plan to or occupancy agreements and eviction; accurately reflect housing operations; (x) Plans for allowing tenant partici- (ii) Take actions to ensure the man- pation in property operations and for agement plan is followed; or fostering tenant relationships with (iii) Advise the Agency in writing of management; the action taken. (xi) Procedures for applicant and ten- (4) When a housing project is being ant appeals; and transferred from one borrower to an- (xii) Describe how management will other, the transferee must submit a make known to tenants and applicants management plan that addresses the that management will provide reason- required items identified in paragraph able accommodations under the Fair (b)(1) of this section in sufficient detail Housing Act, section 504 of the Reha- to enable the Agency to give final ap- proval of the transfer. bilitation Act of 1973, and regulations (d) Housing projects with compliance implemented thereunder at the bor- violations. Upon receiving notice of rower’s expense unless to do so would compliance violations in accordance cause an undue financial or adminis- with § 3560.354, borrowers must submit trative burden, how such requests are to the Agency: to be made, and who within manage- (1) Revisions to the management plan ment will have the authority to ap- establishing the changes in housing op- prove or disapprove a request for an ac- erations that will be made to restore commodation. compliance; (2) Loan or grant applicants must (2) If the borrower determines the submit a management plan before the compliance violations were due to a Agency will give final approval to the failure to follow the management plan, loan or grant application. The plan the borrower must certify to the Agen- must address the required items identi- cy that the management plan is ade- fied in paragraph (b)(1) of this section quate to assure compliance with the in sufficient detail to enable the Agen- applicable requirements of this part cy to monitor housing project perform- and submit a written description of the ance. actions they will take to ensure the (c) Management plan effective period. A management plan is followed; or management plan remains in effect as (3) If the Agency discovers continued long as it accurately reflects housing discrepancies between a management project operations and the housing plan and housing project operations or project is in compliance with the Agen- compliance violations, the Agency may cy requirements. require the borrower to install a dif- (1) Borrowers must submit an up- ferent management agent acceptable dated management plan to the Agency to the Agency as described in para- if operations change or are no longer graph (e) of this section. consistent with the management plan (e) Acceptable management agents. Bor- on file with the Agency. rowers must obtain Agency approval of (2) When there are no changes in op- the agent proposed to manage a hous- erations, borrowers must submit a cer- ing project prior to entering into any tification to the Agency every 3 years formal agreement with the agent and stating that operations are consistent prior to allowing the agent to assume with the management plan and the responsibility for housing project oper- plan is adequate to assure compliance ations. Borrowers that plan to self- with the loan and grant documents and manage a housing project also must re- Agency requirements or applicable ceive Agency approval before assuming local, state and Federal laws. responsibility for housing operations.
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(1) Borrowers must submit a written (iii) The borrower or the manage- request for Agency approval of the pro- ment agent and employees of any of posed management agent at least 45 the above. days prior to the date the agent is to (2) Failure to disclose such relation- assume responsibility for operations. ships may subject the borrower, the This request must include a profile of management agent, and the other the proposed management agent that firms or employees found to have an provides sufficient information to identity of interest relationship to sus- allow the Agency to evaluate whether pension, debarment, or other remedies the agent is acceptable. available to the Agency. (2) The Agency will deny approval of (3) After disclosure of an identity-of- any proposed management agent that interest relationship: (i) The borrower, management agent, cannot provide evidence of at least two and supplier of goods and services must years of experience and satisfactory provide documentation proving that performance in directing and over- use of identity-of-interest firms is in seeing the management of similar fed- the best interest of the housing erally-assisted MFH. project; (3) The Agency may issue approval of (ii) Any supplier of goods and serv- a management agent that does not ices must certify in writing to the meet the requirements of § 3560.102(e)(2) Agency that the individual or organiza- if the management agent can provide tion has a viable, on-going trade or evidence that indicates the ability to business qualified and licensed, if ap- successfully manage a MFH project in propriate, to do the work for which a accordance with Agency requirements. contract is being proposed; (4) If a borrower enters into an agree- (iii) The borrower, management ment with a management agent or be- agent, and supplier of goods and serv- gins to self-manage prior to receiving ices must agree, in writing, that all Agency approval, the Agency will place records related to the housing project the borrower in non-monetary default will be made available to the Agency, status and will require the borrower to Office of the Inspector General (OIG), immediately terminate the contract General Accountability Office (GAO), with the management agent. or a representative of the Agency, upon (f) Self-management. Borrowers may request; and self-manage a housing project but must (iv) The Agency will deny the use of receive Agency approval before assum- an identity-of-interest firm when the ing responsibility for housing oper- Agency determines such use is not in ations. Borrowers that plan to self- the best interest of the Federal Gov- manage must meet all requirements of ernment or the tenants. § 3560.102, except for paragraph (h) of (h) Management agreement. Borrowers this section. contracting with a management agent must execute a management agree- (g) Identity-of-interest disclosure. Bor- ment that establishes: rowers and management agents must (1) The management agent’s responsi- disclose to the Agency all identity-of- bility to comply with Agency require- interest relationships which they have ments and local, state, and Federal with firms and must receive Agency laws; approval to use such firms prior to en- (2) That the management fee is pay- tering into any contractual relation- able out of the housing project’s gen- ships with such entities that involve eral operating account consistent with Agency funds. the requirements of paragraph (i) of (1) This disclosure must include any this section; and identity-of-interest relationships be- (3) The Agency’s authority to termi- tween: nate the agreement for failure to oper- (i) The borrower and the manage- ate the housing project in accordance ment agent; with Agency requirements or local, (ii) The borrower or management state, or Federal laws. agent and the providers of supplies and (i) Management fees. Management fees services to the housing project; and will be an allowable expense to be paid
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from the housing project’s general op- sistance requests, and overage. Submis- erating account only if the fee is ap- sion of payments where required. proved by the Agency as a reasonable (xii) Preparation, approval, and dis- cost to the housing project and docu- tribution of operating disbursements; mented on the management certifi- oversight of project receipts; and rec- cation. Management fees must be de- onciliation of deposits. veloped in accordance with the fol- (xiii) Overhead of management agent, lowing: including: (1) The management fee may com- (A) Establish, maintain, and control pensate the management entity only an accounting system sufficient to for the specifically identified bundle of carry out accounting supervision re- services to be provided to the housing sponsibilities. project. Costs and services to be paid as (B) Maintain agent office arrange- part of the bundle of services include: ments, staff, equipment, furniture, and (i) Supervision by the management services necessary to communicate ef- agent and its staff (time, knowledge, fectively with the properties, the Agen- and expertise) of overall operations and cy or other governmental agency and capital improvements of the site. with the borrowers. (ii) Hiring, supervision, and termi- (C) Postage expenses related to the nation of on-site staff. normal responsibility for mailings to (iii) General maintenance of project the properties, the Agency or other books and records (general ledger, ac- governmental agency, the tenants, the counts payable and receivable, payroll, vendors, and the owners. etc.). Preparation and distribution of (D) Expense of telephone and fac- payroll for all on-site employees, in- simile communication to the prop- cluding the costs of preparing and sub- erties, tenants, the Agency or other mitting all appropriate tax reports and governmental agency, and the bor- deposits, unemployment and workers’ rowers. compensation reports, and other IRS- (E) Direct costs of insurance (fidelity or state-required reports. bonds covering central office staff, computer and data coverage, general (iv) Training provided to on-site staff liability, etc.) directly related to pro- at the project site. tection of the funds and records of the (v) Preparation and submission of borrower. proposed annual budgets and negotia- (F) Central office staff training and tion of approval with the Agency, other ongoing certifications. governmental agencies and the bor- (G) Maintenance of all required pro- rowers. fession and business licenses and per- (vi) Preparation and distribution of mits. (This does not include project the Agency or other governmental site office permits or licenses.) agency forms and routine financial re- (H) Insurance coverage for agent’s of- ports to borrowers. fice and operations (Property, Auto, (vii) Preparation and distribution of Liability, E&O, Casualty, Workers required year-end reports to the Agen- Compensation, etc.) cy or other governmental agency and (I) Travel of agent staff to the prop- borrowers. erties for on-site inspection, training, (viii) Preparation of requests for re- or supervision activities. serve withdrawals, rent increases, or (J) Agent bookkeeping for their own other required adjustments. business. (ix) Arranging for preparation by (xiv) Attendance at meetings (includ- outside contractors of energy audits ing travel) with tenants, owners, and and utility allowance analysis. Imple- the Agency or other governmental ment appropriate changes. agency. (x) Preparation and implementation (xv) Development, preparation, and of Affirmative Fair Housing Marketing revision of management plans or agree- Plans as well as general marketing ments. plans and efforts. (xvi) Coordination of U.S. Depart- (xi) Review of tenant certifications ment of Housing and Urban Develop- and submission of monthly rental as- ment (HUD) certifications or vouchers
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with tenants, including all reporting to (ii) Periodically, the Agency will de- all pertinent agencies and borrowers. velop the amount and qualifications to (xvii) Directing the investment of receive add-on fees. The final set of project funds into required accounts. qualifications will be made available to (xviii) Maintenance of bank accounts all borrowers. and monthly reconciliations. (3) Allowable Administrative Ex- (xix) Preparation, request for, and penses. (i) Identifying the Type of Ad- disbursement of borrower’s initial op- ministrative Expense. Management Plans erating capital (for new projects) as and Agreements must describe if ad- well as administration of annual own- ministrative expenses are to be paid er’s return on investment. from the management fee or paid for as (xx) Account maintenance, settle- a project cost. ment, and disbursement of security de- (A) A management plan is required posits. for all projects. The management plan (xxi) Working with third party audi- should describe administrative ex- tors for initial set-up of audits and an- penses paid from management agent nually thereafter for audit preparation fees or project operations. The manage- and review. Assistance with supple- ment plan should provide job descrip- mental letters and preparation of tions for the site manager, the manage- Agency financial reports or other gov- ment agent and other personnel. It is ernmental agency reports. important that these documents accu- rately reflect the duties being per- (xxii) Storage of records and adher- formed by the various personnel. The ence to records retention requirements. management plan must meet the (xxiii) Assist on-site staff with ten- standards set out in this rule. ant relations and problems. Provide as- (B) A task list should be used to iden- sistance to on-site staff in severe ac- tify which services are included in the tions (eviction, death, insurance loss, management fee, which services are in- etc.). cluded in project operations, and which (xxiv) Oversight of general and pre- are pro-rated along with the method- ventive maintenance procedures and ology used to pro-rating of expenses be- policies. tween management agent fees and (xxv) Development and oversight of project operations. Some property re- asset replacement plans. sponsibilities are completed at the (xxvi) Oversight of preparation of property and some offsite. Agent re- section 504 reviews, development of sponsibilities may be performed at the plans, and implementation of improve- property, the management office, or at ments necessary to comply with plans some other location. and section 504 requirements. (C) Disputes may arise as to who per- (xxvii) Reporting to general and lim- forms certain services. The manage- ited partners and State agencies for ment plan and job descriptions should Low Income Housing Tax Credit normally provide sufficient clarity to (LIHTC)-compliance purposes. avoid or resolve any such disputes; (2) Management fees may consist of a however, sometimes clarifications and base per occupied unit fee and add-on supporting materials may be required fees for specific housing project charac- to resolve disputes. The decision must teristics. Management entities may be be made based on the most complete eligible to receive the full base per oc- evaluation of the facts presented. cupied unit fee for any month or part (ii) Allowable Administrative Expenses. of a month during which the unit is oc- Payroll related administrative ex- cupied. penses are allowable expenses. Postage (i) Periodically, the Agency will de- expense to mail out rental applica- velop a range of base per occupied unit tions, third-party (asset income and fees that will be paid in each state. The adjustments to income) verifications, Agency will develop the fees based on a application processing correspondence review of housing industry data. The (acceptance or denial letters), mailing final base for occupied unit fees for project invoice payments, required cor- each state will be made available to all respondence, and report submittals to borrowers. various regulatory authorities for the
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managed property are allowable and some software, and telephone pur- project expenses no matter what loca- chases. tion or point of origin the mail is gen- (ii) It is inappropriate to charge for erated. Photocopying or printing ex- legal services to represent any interest pense related to actual production of other than the borrower’s interest (i.e., project brochures, marketing pieces, representing a general partner or lim- forms, reports, notices, and newsletters ited partner to defend their individual are allowable project expenses no mat- owner interest is not allowable). Where ter what location or point of origin the there is no finding of a borrower’s work is performed including outsourc- fault, commercially reasonable legal ing the work to a professional printer. expenses and costs for defending or set- Correspondence or reports required for tling lawsuits (without admission of li- record retention or project compliance ability) are allowable. are allowable project expenses. The (iii) Charging for payment of pen- cost or expense of equipment and any alties, including opposition legal fees related equipment service contract is a resulting from an award finding im- management agent direct expense, un- proper actions on the part of the owner less the machine becomes the property or management agent is generally an of the project after purchase. inappropriate project expense. The (iii) Determining if Expenses are Rea- party responsible generally pays such sonable. Generally, expenses charged to expenses for violating the standards or project operations, whether for man- by their insurance carriers. agement agent services or other ex- (iv) Association dues to be paid by penses, must be reasonable, typical, the project should only be related to necessary and show a clear benefit to training for site managers or manage- the residents of the property. Services ment agents. To the extent that asso- and expenses charged to the property ciation dues can document training for must show value added and be for au- site managers or management agents thorized purposes. If such value is not related to project activities by actual apparent, the service or expense should be examined. cost or pro-ration, a reasonable ex- (A) Administrative expenses for pense may be billed to the project. project operations exceeding 23 per- (v) It is inappropriate for the project cent, or those typical for the area, of to pay for bonuses or monetary per- gross potential basic rents and reve- formance awards to site managers or nues (i.e., referred to as gross potential management agents that are not clear- rents in industry publications) high- ly provided for by the site manager sal- light a need for closer review for un- ary contract. necessary expenditures. Budget ap- (vi) Billing the project for parties proval is required and project resources that are large or unreasonable, such as may not always permit an otherwise renting expensive party halls or hotel allowable expense to be incurred if it is rooms and payment for alcoholic bev- not fiscally prudent in the market. erages or gifts to management agent (B) Excessive administrative ex- staff are also inappropriate. penses can result in inadequate funds (vii) It is inappropriate to bill the to meet other essential project needs, project for computer hardware, some including expenditures for repair and software, and internal connections that maintenance needed to keep the are beyond the scope and size reason- project in sound physical condition. ably needed for the services supplied Actions that are improper or not fis- (i.e., purchasing equipment or software cally prudent may warrant budget dis- for use by a site manager that is clear- approval and/or a demand for recovery ly beyond that needed to support action. project operations). Note that com- (4) Unallowable Administrative Ex- puter learning center activities bene- penses. fiting tenants are not covered in this (i) Certain expenses are not allowable prohibition. such as legal fees, association dues, bo- (viii) It is inappropriate to bill the nuses or monetary performance project for practices that are ineffi- awards, parties, computer hardware cient such as routine use of collect
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calls from a site manager to a manage- property of the housing project and ment agent office. that the Agency, OIG, or GAO may in- (j) Management certification. (1) As a spect the housing records and the condition of approval of the manage- records of the borrower, management ment agent and the management fee, agent, and suppliers of goods and serv- the borrower and the management ices having an IOI with the borrower or agents must execute an Agency-ap- with a management agent acting as an proved certification establishing an al- agent of the borrower upon demand. lowable management fee to be paid out (2) A certification will be executed of the housing project’s general oper- each time a management agent is pro- ating account and certifying that: posed and a management agreement is (i) The borrower and management executed or renewed. Any amendment agent agree to operate the housing to a management certification must be project in accordance with the manage- approved by the Agency and the bor- ment plan; rower. (ii) The borrower and the manage- (k) Procurement. The borrower and ment agent will comply with Agency the agents of the borrower must obtain requirements, loan or grant agree- contracts, materials, supplies, utili- ments, applicable local, state and Fed- ties, and services at a reasonable cost eral laws and ordinances, and contract and seek the most advantageous terms obligations, will certify that no pay- to the housing project. Any discounts, ments have been made to anyone in re- rebates, fees, proceeds, or commissions turn for awarding the management obtainable with respect to purchases, contract to the management agent, service contracts, or other transactions and will agree that such payments will must be credited to the housing not be made in the future; project. (iii) The borrower and the manage- (l) Electronic Submission of Data to ment agent will comply with Agency Agency. For properties with eight or notices or other policy directives that more housing units, the Agency may relate to the management of the hous- specify that borrowers submit informa- ing project; tion required by this part electroni- (iv) The management agreement be- cally. tween the borrower and management agent complies with the requirements § 3560.103 Maintaining housing of this section; projects. (v) The borrower and the manage- (a) Physical maintenance. (1) The pur- ment agent will comply with Agency poses of physical maintenance are the requirements regarding management following: fees as specified in paragraph (i) of this (i) Provide decent, safe, and sanitary section, and allocation of management housing; and costs between the management fee and (ii) Maintain the security of the prop- the housing project financial accounts erty. specified in § 3560.302(c)(3); (2) Borrowers are responsible for the (vi) The borrower and the manage- long-term, cost-effective preservation ment agent will not purchase goods of the housing project. and services from entities that have an (3) At all times, borrowers must identity-of-interest (IOI) with the bor- maintain housing projects in compli- rower or the management agent until ance with local, state and federal laws the IOI relationship has been disclosed and regulations and according to the to the Agency according to paragraph following Agency requirements for af- (g) of this section, not denied by the fordable, decent, safe, and sanitary Agency under paragraph (d)(3) of this housing. Agency design requirements section, and it has been determined are discussed in § 3560.60. The Agency that the costs are as low as or lower acknowledges that property mainte- than arms-length, open-market pur- nance is an ongoing process and will chases; and not penalize borrowers for less than 100 (vii) The borrower and the manage- percent compliance as long as it is evi- ment agent agree that all records re- dent that the borrower is striving to lated to the housing project are the achieve the standards listed in this
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paragraph. In addition, the Agency un- common areas which permits safe ac- derstands that although its multi- cess and security. family housing portfolio is relatively (ix) Foundation. The housing project homogeneous, no one standard is ap- must have a foundation that is free of propriate for all properties. evidence of structural failure, such as (i) Utilities. The housing project must uneven settlement indicated by hori- have an adequate and safe water sup- zontal cracks or severe bowing of the ply, a functional and safe waste dis- foundation wall. Structural members posal system, and must be free of haz- must not have evidence of rot or insect ardous waste material. or rodent infestation. (ii) Drainage and erosion control. The (x) Exterior walls and siding. The hous- housing project must have drainage ing project must have walls that are that effectively protects the housing free from deterioration which allows project from water damage from stand- elements to infiltrate the structure, ing water and erosion. Units, base- eaves, gables, and window trim that ments, and crawl spaces must be free of are free from deterioration, exterior water seepage. wall coverings that are intact, securely (iii) Landscaping and grounds. The attached, and in good condition. Brick housing project must be landscaped at- veneers must be free of missing mortar or bricks. tractively. Lawns, plants and shrubs (xi) Roofs, flashing, and gutters. The must be maintained and must allow air housing project must have gutters and to windows, vents, and sills. Recreation downspouts, where appropriate for cli- areas must be maintained in a safe and matic conditions, that are securely at- clean manner and trash collection tached, clean, and finished or painted areas must be adequately sized, properly with splash blocks or extend- screened, and maintained. ers that direct water flow away from (iv) Drives, parking services and walks. the building. The housing project must The housing project must have drives, have a roof that is free of leaks, defec- parking lots, and walks that are free of tive covering, curled or missing shin- holes and deterioration. Walks with gles and which is not sagging or buck- changes in height between slabs of ap- ling. Fascia and soffits must be intact. 1 proximately ⁄2 inch or greater will be (xii) Windows, doors, and exterior considered unacceptable. structures. The housing project must (v) Exterior signage. All signs at the have screens that are free of tears, housing project, including those re- breaks and rips and windows that are lated to the housing project name, unbroken. Window thermopane seals buildings, parking spaces, unit num- must be unbroken and caulking on the bers and other informational directions exterior of windows and doors must be must be visible and well-kept. Sign re- continuous and free of cracks. Doors quirements must conform to must be weather tight, free of holes, § 3560.104(d). and provide security with functional (vi) Fences and retaining walls. The locks. Porches, balconies, and exterior housing project must have fence lines stairs must be free of broken, missing, that are free of trash, weeds, vines, and or rotting components. other vegetation. Fences must be free (xiii) Common area accessibility. The of holes and damaged or loose sections. housing project must have accessible, The bases of all retaining walls must designated handicapped parking spaces be erosion free and drainage weep holes with handicapped space signs properly must be cleaned out to prevent exces- posted. Common areas must be acces- sive pressure behind the retaining wall. sible through walks, ramps, porches, (vii) Debris and graffiti. The housing and thresholds. The laundry room must project, including common areas, must have accessible appliances and mail- be free of trash, litter, and debris. Pub- boxes must be at an accessible level. lic walkways, walls of buildings and Elevators or mechanical lifts must be common areas must be free of graffiti. functional and kept in good repair. (viii) Lighting. The housing project (xiv) Common area signage. The fol- must have functional exterior lighting lowing must be posted in a conspicuous and functional interior lighting in place in a common area: ‘‘Justice for 565
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All’’ poster, HUD equal housing oppor- tem, the switches must be located in tunity poster including the Spanish the bathroom and bedroom, furnished version if there are Hispanic Limited with a pull cord, with the down posi- English Proficiency tenants or appli- tion set to ‘‘ON’’, and must operate cants, current affirmative fair housing properly. marketing plan, the tenant grievance (xxii) Insect or vermin infestation. The and appeal procedure, housing project housing project must have all units occupancy rules, office hours and free of visible signs of insects or ro- phone number, and emergency hours dents and must be free of signs of in- and phone number. sect or rodent damage. (xv) Flooring. If a housing project has (xxiii) Range and range hood. The carpeting, the carpet must be clean, housing project must have range units without excessive wear, and seams that in which all elements are operable, are secure and stretched properly. If electrical connections are secure and the housing project has resilient floor- insulated, doors and drawers which are ing, the flooring must be clean, secure, control knobs and handles unstained, free of tears and breaks, and which are in place and secure, and seams that are secure. housing which is sound and the finish (xvi) Walls, floors, and ceilings. The is free of chips, damage, or signs of housing project must have walls, rust. The range hood fan and light floors, and ceilings that are free of must be operable. holes, evidence of current water leaks, (xxiv) Refrigerator. The housing and free of material that appears in project must have refrigerators in danger of falling. The housing project which the cooler and freezer are oper- must have wallboard joints that are se- ating properly, the shelves and door cure and free of cracks. containers are secure and free of rust, (xvii) Doors and windows. The housing door gaskets are in good condition and project must have doors that are free functioning properly, and the housing of holes, secure, unbroken and easily is sound and the finish is free of chips, operable hardware, deadbolt locks which are in place and secure, and, if damage, or signs of rust. doors are metal, free of rust. The hous- (xxv) Sinks. The housing project must ing project must have windows which have sinks in which the fittings work are easily operated, free of bent blinds properly and are free of leaks, plumb- or torn curtains, and window interiors ing connections under the cabinet must be free of evidence of moisture which are free of leaks, the finish is damage. free of chips, damage, or signs of rust, (xviii) Electrical, air conditioning and the strainer is in good condition and in heating. The housing project must have place, and which are secured to a wall, heating and cooling units that are free counter, or vanity top. of bare wires and which are functioning (xxvi) Cabinets. The housing project properly, including thermostats. The must have cabinets and vanities which housing project must not have uncov- are secure to walls or floor and have ered outlets or other evident safety faces, doors, and drawer fronts that are hazards, switches which work improp- in good condition and free of breaks erly, or light fixtures which are broken and peeling. Shelving must be in place, and inoperable. fastened securely, and free of warps. (xix) Water heaters. The housing The housing project must have counter project must have water heaters which tops which are secure and free of burn are operating properly, free of leaks, marks or chips, bottoms under sinks supply adequate hot water, and are which are free of evidence of warping, fitted with temperature and pressure breaks, or being water soaked. Kitchen relief valves. counter, vanity tops, and back splashes (xx) Smoke alarms. The housing must be properly caulked. project must have smoke alarms which (xxvii) Water closets. The housing are properly located according to local project must have the base of the water code and which operate properly. closets at the floor properly caulked. (xxi) Emergency call system. If a hous- The tanks must be free of cracks or ing project has an emergency call sys- leaks and have a lid which fits and is in
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good condition. The seats must be se- (iii) A ‘‘work order’’ process for man- cure and in good condition, and the aging and tracking responses to main- flushing mechanisms must be in good tenance requests and the performance condition and operating properly. The of maintenance tasks. stools must be free of cracks and (3) A system for preventive mainte- breaks and be securely fastened to the nance including: floor. (i) Maintenance of mechanical sys- (xviii) Bathtub and shower stalls. The tems, building exteriors, elevators, and housing project must have tubs or heating and cooling systems which re- shower stalls which are free of cracks, quire specially trained personnel; and breaks, and leaks, and a strainer in (ii) Maintenance that supports en- good condition and in place. The hous- ergy-efficient operation of the housing ing project must have walls and floors project. of the bathtubs which are properly (4) A system for correcting defi- caulked, tops and sides of shower stalls ciencies identified by periodic inspec- must be properly caulked, and the fin- tions, which must include: ish is free of chips, damage, or signs of (i) A move-in inspection; rust. (ii) A move-out inspection; and (4) The Agency expects that upon dis- (iii) An annual inspection of occupied covery of a condition not in compli- units. ance with the standards listed in this section that the borrower will remedy (c) Capital budgeting and planning. (1) the situation in a timeframe required Borrowers must develop a capital budg- by the Agency. The Borrower must pro- et as part of their annual housing vide documentation and justification project budget required under § 3560.303. for any failure to meet such timeframe. The capital budget must include an- Properties with deficiencies in the ticipated expenditures on the long- process of being addressed will not be term capital needs of the housing deemed to be out of compliance unless project to assure adequate mainte- there are so many deficiencies that it nance and replacement of capital would result in a declaration of sub- items. stantial noncompliance and call into (2) If the borrower requests an in- questions the viability of the property crease in the project’s reserve for re- and the effectiveness of the borrower’s placement account, the borrower must maintenance program. Failure to make have a capital needs assessment pre- such corrections or repairs constitutes pared and submitted to the Agency to a non-monetary default under reflect anticipated needs of the housing § 3560.452(e). project for replacement of capital (b) Maintenance systems. Borrowers equipment and systems. The cost for must establish the following mainte- preparation of a capital needs assess- nance systems and must describe these ment will be approved by the Agency systems in their management plan. as an eligible housing project expense (1) A system for routine mainte- provided the capital needs assessment nance, including: is reasonable in cost and meets Agency (i) Regular maintenance tasks that requirements. can be prescheduled or planned; and (3) [Reserved] (ii) Tasks performed on a regular (4) As a part of the annual budget basis to maintain compliance with the process, borrowers may request an in- standards established in paragraph crease in the amount to be contributed (a)(3) of this section. and held in the housing project reserve (2) A system for responsive mainte- account to fund the needs identified in nance including: an Agency-approved capital needs as- (i) A process for responding to re- sessment. quests for maintenance from tenants; (5) At any time, borrowers may re- (ii) A process for responding to unex- quest and the Agency may approve pected malfunctions of equipment or amendments to loan or grant docu- damages to building systems such as a ments to increase the amount of funds furnace breakdown or a water leak; and to be contributed and held in a reserve
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account to cover the cost of capital im- of housing units in advance of their provements based on the needs identi- availability to allow time to receive fied in an Agency approved capital and process applications. Advertising needs assessment. Borrowers must as- by newsprint or electronic media must sure improvements are performed as occur at least annually to promote specified in the capital needs assess- project visibility, even if there is an ment. adequate waiting list. (2) Posters, brochures, etc. Any radio, § 3560.104 Fair housing. TV or newspaper advertisement, pam- (a) General. Borrowers must comply phlets, or brochures used must identify with the requirements of the Fair that the complex is operated on an Housing Amendments Act of 1988, and equal housing opportunity basis. This this section to meet their fair housing must be done through the use of the responsibilities. equal housing opportunity statement, (b) Affirmative Fair Housing Marketing slogan, or logo type. Copies of the pro- Plan. (1) Borrowers with housing posed material must be sent when re- projects that have four or more rental questing approval of the plan. units must prepare and maintain an (B) Community contacts. Community Affirmative Fair Housing Marketing leaders and special interest groups Plan (AFHMP) as defined in 24 CFR such as community, public interest, re- part 200, subpart M. ligious organizations, and organiza- (2) Loan or grant applicants must tions for the disabled must be con- submit an AFHMP for Agency approval tacted. Owners and managers of prior to loan closing or grant approval. projects with fully accessible apart- Plans must be updated by the borrower ments must adopt suitable means to whenever components of the plan ensure that information regarding the change. availability of accessible units reaches (3) Borrowers must post the approved eligible persons with disabilities. In ad- AFHMP for public inspection at the dition, owners and managers of elderly housing project site, rental office, or at housing must ensure that information any other location where tenant appli- regarding eligibility reaches people cations for the project are received. who are less than 62 years old but who (4) When developing the plan, the fol- are eligible because they are disabled. lowing items must be considered by the Appropriate contacts are with physical borrower: rehabilitation centers, hospitals, work- (i) Direction of marketing activities. shops for the disabled, commissions on The plan should be designed to attract aging, and veterans organizations. applications for occupancy from all po- (C) Rental staff. All staff persons re- tentially eligible groups of people in sponsible for renting the units must the housing marketing area, regardless have had training provided on Federal, of race, color, religion, sex, age, famil- state, and local fair housing laws and ial status, national origin, or dis- regulations and in the requirements of ability. The plan must show which ef- fair housing marketing and in those ac- forts will be made to reach very low-in- tions necessary to carry out the mar- come or low-income groups who would keting plan. Copies of instructions to least likely be expected to apply with- the staff regarding fair housing and a out special outreach efforts. summary of the training they have re- (ii) Marketing program. The applicant ceived must be attached to the plan or borrower should determine which when requesting approval. methods of marketing such as radio, (iii) Marketing records. Records must newspaper, TV, signs, etc., are best be maintained by the borrower reflect- suited to reach those very low-income ing efforts to fulfill the plan. These or low-income groups who are in the records will be reviewed by the Agency market area but who are least likely to during civil rights compliance reviews. apply for occupancy. Marketing must Plans will be updated as needed. not rely on ‘‘word of mouth’’ adver- (c) Accommodations and communica- tising. tion. The borrower must take appro- (A) Advertising. (1) Frequency. The priate steps to ensure effective commu- borrower should advertise availability nication with applicants, tenants, and
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members of the public with disabil- undue financial or administrative bur- ities. At a minimum, the following den, the borrower must permit the ten- steps must be taken: ant to make reasonable modifications (1) Furnish appropriate auxiliary aids at the tenant’s expense. Requests for (electronic, mechanical, or personal as- reasonable accommodations must be sistance) where necessary, to afford an handled in accordance with the man- individual with disabilities an equal agement plan. opportunity to participate in and enjoy (d) Housing sign requirements. (1) A the benefits of Agency financed hous- permanent sign identifying the housing ing. project is required for all housing (i) In determining what auxiliary projects approved on or after Sep- aids are necessary, the borrower must tember 13, 1977. Permanent signs are give primary consideration to the re- recommended for all housing projects quests of individuals with disabilities. approved prior to September 13, 1977. (ii) The borrower is not required to The sign must meet the following re- provide individually prescribed devices, quirements: readers for personal use or study, or (i) Must be located at the primary other devices of a personal nature. site entrance and be readable and rec- (2) Where a borrower communicates ognizable from the roadside; with applicants and tenants by tele- (ii) Must be located near the site phone, telecommunication devices for manager’s office when the housing deaf persons or equally effective com- project has multiple sites and portable munication systems must be available signs must be placed where vacancies for use. exist at other site locations of a ‘‘scat- (3) The borrower must implement tered site’’ housing project; procedures to ensure that interested (iii) May be of any shape; persons, including persons with im- (iv) Must be not less than 16 square paired vision or hearing, can obtain in- feet of area for housing projects with 8 formation concerning the existence or more rental units (smaller housing and location of accessible services, ac- projects may have smaller signs); tivities, and facilities in the housing (v) Must be made of durable material project and community. including its supports; (4) The borrower is required to pro- (vi) Must include the housing project vide reasonable accommodations at the name; project’s expense unless doing so would (vii) Must show rental contact infor- result in undue financial or adminis- mation including but not limited to trative burden on the project. Exam- the office location of the housing ples of reasonable accommodations project and a telephone number where may include such items as the installa- applicant inquiries may be made; tion of grab bars, ramps, and roll-in (viii) Must show either the equal showers. Reasonable accommodations housing opportunity logotype (the may also include the modification of house and equal sign, with the words rules or policies such as permitting a equal housing opportunity underneath disabled tenant to have a two-bedroom the house); the equal housing oppor- unit to accommodate a resident assist- tunity slogan ‘‘equal housing oppor- ant or to permit a disabled tenant to tunity’’; or the equal housing oppor- have a companion animal. The decision tunity statement, ‘‘We are pledged to whether the requested accommodation the letter and spirit of U.S. policy for is reasonable or unreasonable or the achievement of equal housing op- whether to provide the accommodation portunity throughout the nation. We would cause an undue financial or ad- encourage and support an affirmative ministrative burden lies with the bor- advertising and marketing program in rower and would be for the borrower to which there are no barriers to obtain- defend should a complaint subse- ing housing because of race, color, reli- quently be filed. Borrowers may wish gion, sex, handicap, familial status, or to consult with their legal counsel national origin.’’ If the logotype is prior to denying a request. If the bor- used, the size of the logo must be no rower takes the position that providing less than 5 percent of the total size of an accommodation would cause an the project sign.
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(ix) May display the Agency or De- requirements of paragraph (f) of this partment logotype; and section. (x) Must comply with state and local (4) The Agency must be named as loss codes. co-payee on all property insurance (2) Accessible parking spaces must be policies where it holds first lien posi- reserved for individuals with disabil- tion. The Agency must be named as an ities by a sign showing the inter- additional insured if its lien position is national symbol of accessibility. The other than first. sign must be mounted on a post at a (c) Borrower failure or inability to meet height that is readily visible from an insurance requirements. The Agency will occupied vehicle. In snow areas, the take the following actions in cases sign must be visible above piled snow. where a borrower is unwilling or un- If there is an office, the designated able to meet the Agency’s insurance re- parking space must be van accessible. quirements: (3) When the continuous unob- (1) The Agency will obtain insurance structed ingress or egress disabled ac- for Agency financed property if the cessibility route to a primary building borrower fails to do so. If borrowers entrance is other than the usual or ob- refuse to pay the insurance premium, vious route, the alternate route for dis- the Agency will pay the insurance pre- abled accessibility must be clearly mium and charge the premium pay- marked with international accessi- ment amount to the borrower’s Agency bility symbols and directional signs to account and will place the borrower in aid a disabled person’s ingress or egress default as described in § 3560.452(c). to the building, through an accessible entrance, and to the accessible com- (2) If borrowers habitually fail to pay mon use and public and living areas. premiums in a timely manner, the Agency will require borrowers to es- § 3560.105 Insurance and taxes. crow amounts appropriate to pay in- surance premiums. (a) General. Borrowers must purchase (3) If insurance that meets the Agen- and maintain property insurance on all cy’s specified requirements is not buildings included as security for an available (e.g., flood or hurricane in- Agency loan. Also, borrowers must fur- surance), the Agency may accept the nish fidelity coverage, liability insur- ance, and any other insurance coverage insurance policy that most nearly con- required by the Agency in accordance forms to established requirements. with this paragraph to protect the se- (4) If the best insurance policy a bor- curity of the asset. Failure to maintain rower can obtain at the time the bor- adequate insurance coverage or pay rower receives the loan or grant con- taxes may lead to a non-monetary de- tains a loss deductible clause greater fault under § 3560.452(c). than that allowed by paragraph (f)(8) of (b) General insurance requirements. All this section, the insurance policy and insurance policies must meet the re- an explanation of the reasons why quirements established by the loan more adequate insurance is not avail- documents and this section. able must be submitted to the Agency (1) At loan closing, prior to loan ap- prior to loan or grant approval. proval, applicants must provide docu- (d) Credits, refunds, or rebates. Bor- mentary evidence that insurance re- rowers must credit any refund or re- quirements have been met. The bor- bate from an insurance company to the rower must maintain insurance in ac- project’s general operating account or cordance with requirements of their reserve account. loan or grant documents and this sec- (e) Insurance company requirements. tion until the loan is repaid or the All insurers, insurance agents, and bro- terms of the grant expire. kers must meet the following require- (2) Insurance companies must meet ments: the requirements of paragraph (e) of (1) Be licensed or authorized to do this section. business in the state or jurisdiction (3) Insurance coverage amount, where the housing project is located; terms, and conditions must meet the and
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(2) Be deemed reputable and finan- (ii) If the coverage amount is less cially sound as determined by the than the depreciated replacement Agency. value of all essential buildings, bor- (f) Property insurance. The following rowers must obtain coverage on one or conditions apply to property insurance more of the most essential buildings, purchased for Agency-financed housing as determined by the Agency. projects. (iii) When required, the coverage (1) At a minimum, borrowers must amount for flood insurance must equal obtain the following types of property the outstanding loan balance or the insurance: maximum coverage allowed by FEMA’s (i) Hazard insurance. A policy which ‘‘National Flood Insurance Program.’’ generally covers loss or damage by fire, (4) Except for flood insurance, prop- smoke, lightning, hail, explosion, riot, erty insurance is not required if the civil commotion, aircraft, and vehicles. housing project: These policies may also be known as (i) Has a depreciated replacement ‘‘Fire and Extended Coverage,’’ ‘‘Home- value of $2,500 or less; or owners,’’ ‘‘All Physical Loss,’’ or ‘‘Broad (ii) Is in a condition which the Agen- Form’’ policies. cy determines makes insurance cov- (ii) Flood insurance. This coverage is erage not economical. required for properties located in Spe- (5) Policies for several buildings or cial Flood Hazard Areas (SFHA) as de- properties located on noncontiguous fined in 44 CFR part 65, as determined sites are acceptable if the insurer pro- by the Federal Emergency Manage- vides proof that each secured building ment Agency (FEMA). or property related to the housing (iii) Builder’s risk insurance. A policy project is as fully protected as if a sep- that insures dwellings under construc- arate policy were issued. tion or rehabilitation. (6) Borrowers must notify the Agency (iv) Elevators, boiler, and machinery and their insurance company agents of coverage. This coverage is required for any loss or damage to insured property properties that operate elevators, and collect the amount of the loss. steam boilers, turbines, engines, or (7) When the Agency is in the first other pressure vessels. lien position and an insurance settle- (2) Other types of insurance that the ment represents a satisfactory adjust- Agency may require: ment of a loss, the insurance settle- (i) Windstorm Coverage. ment will be deposited in the housing (ii) Earthquake Coverage. project’s general operating account un- (iii) Sinkhole Insurance or Mine Sub- less the settlement exceeds $5,000. If sidence Insurance. the settlement exceeds $5,000, the funds (3) For property insurance, the min- will be placed in the reserve account imum coverage amount must equal the for the housing project. ‘‘Total Estimated Reproduction Cost of (i) Insurance settlement funds which New Improvements,’’ as reflected in the remain after all repairs, replacements, housing project’s most recent ap- and other authorized disbursements praisal. At a minimum, property insur- have been made retain their status as ance coverage must be adequate to housing project funds. cover the lesser of the depreciated re- (ii) If the indebtedness secured by the placement value of essential buildings insured property has been paid in full or the unpaid balance of all secured or the insurance settlement is in pay- debt, unless such coverage is finan- ment for loss of property on which the cially unfeasible for the housing Agency has no claim; a loss draft which project. includes the Agency as co-payee may (i) If the cost of the minimum level be endorsed by the Agency without re- of property insurance coverage exceeds course and delivered to the borrower. what the housing project can reason- (8) When the Agency is not in the ably afford, the borrower, with Agency first lien position and the insurance concurrence, must obtain the max- settlement represents satisfactory ad- imum amount of property insurance justment of the loss, the Agency will coverage that the housing project can release the settlement funds to the pri- afford. mary mortgagee upon agreement of all
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parties to the provisions contained in injury, bodily injury, or property dam- agreements between the Agency and age under the terms of coverage must the primary lienholder. be at least $1 million. (9) Allowable deductible amounts are (h) Fidelity coverage. Borrowers must as follows: provide fidelity coverage on any per- (i) Hazard/Property Insurance. (A) sonnel entrusted with the receipt, cus- $1,000 on any housing project with an tody, and disbursement of any housing insurable value under $200,000; or monies, securities, or readily salable (B) One-half of one percent (0.0050) of property other than money or securi- the insurable value, up to $10,000 on ties. Borrowers must have fidelity cov- housing projects with insurance values erage in force as soon as there are as- over $200,000. sets within the organization and it (ii) Flood Insurance. The Agency al- must be obtained before any loan funds lows a maximum deductible of $5,000 or interim financing funds are made per building. available to the borrower. In addition, (iii) Windstorm Coverage. When wind- the following conditions apply to fidel- storm coverage is excluded from the ity insurance: ‘‘All Risk’’ policy, the deductible must (1) Fidelity insurance coverage must not exceed five percent of the total in- be documented on a bond form accept- sured value. able to the Agency. (iv) Earthquake Coverage. In the event (2) Fidelity coverage policies must that the borrower obtains earthquake declare in the insuring agreements coverage, the Agency is to be named as that the insurance company will pro- a loss payee. The deductible should be vide protection to the insured against no more than 10 percent of the cov- the loss of money, securities, and prop- erage amount. erty other than money and securities, (v) Sinkhole Insurance or Mine Subsid- through any criminal or dishonest act ence Insurance. The deductible for sink- or acts committed by any employee, hole insurance or mine subsidence in- whether acting alone or in collusion surance should be similar to what with others, not to exceed the amount would be required for earthquake in- of indemnity stated in the declaration surance. of coverage. (10) Deductible amounts (excluding (i) The fidelity insurance policy, at a flood, windstorm, earthquake and sink- minimum, must include an insuring hole insurance or mine subsidence in- agreement that covers employee dis- surance) must be accounted for in the honesty. replacement reserve account. Bor- (ii) Fidelity coverage amounts and rowers who wish to increase the de- deductible: ductible amount must deposit an addi- tional amount to the reserve account Deductible Fidelity coverage level equal to the difference between the Agency’s maximum deductible and the Under $50,000 ...... $1,000 requested new deductible. The Bor- In the area of $100,000 ...... 2,500 In the area of $250,000 ...... 5,000 rower will be required to maintain this In the area of $500,000 ...... 10,000 additional amount so long as the high- In the area of $1,000,000 ...... 15,000 er deductible is in force. (g) Liability insurance. The borrower (3) Blanket crime insurance coverage must carry comprehensive general li- or fidelity bonds are acceptable types ability insurance with coverage of fidelity coverage. amounts that meet or exceed Agency (4) At a minimum, borrowers must requirements. This coverage must in- provide an endorsement, listing all of sure all common areas, commercial the borrower’s Agency financed prop- space, and public ways in the security erties and their locations covered premises. Coverage may also include under the policy or bond as evidence of borrower exposure to certain risks such required fidelity insurance. The policy as errors and omissions, environmental or bond may also include properties or damages, or protection against dis- operations other than Agency financed crimination claims. The insurer’s limit properties on separate endorsement of liability per occurrence for personal listings.
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(5) Individual or organizational bor- (2) Failure to pay taxes and assess- rowers must have fidelity coverage ments when due will be considered a when they have employees with access default. If a borrower fails to pay out- to the MFH complex assets. Borrowers standing taxes and assessments, the who use a management agent with ex- Agency will pay the outstanding bal- clusive access to housing assets must ance and charge the tax or assessment require the agent to have fidelity cov- amount, assessed penalties, and any erage on all principals and employees additional incurred costs to the bor- with access to the housing assets. If ac- rower’s Agency account. tive management reverts to the bor- (3) The Agency will require borrowers rower, the borrower must obtain fidel- who have demonstrated an inability to ity coverage, as a first course of busi- pay taxes in a timely manner to escrow ness. amounts sufficient to pay taxes. (6) Fidelity coverage is not required under the following circumstances: §§ 3560.106–3560.149 [Reserved] (i) The borrower is an individual or a general partnership and the individual § 3560.150 OMB control number. or general partner will be responsible The information collection require- for the financial activities of the hous- ments contained in this regulation ing project. have been approved by the Office of (ii) In the case of a land trust where Management and Budget (OMB) and the beneficiary is responsible for man- have been assigned OMB control num- agement, the beneficiary will be treat- ed as an individual. ber 0575–0189. Public reporting burden for this collection of information is es- (iii) A limited partnership (or its gen- eral partners) unless one or more of its timated to vary from 15 minutes to 18 general partners perform financial acts hours per response, including time for within the scope of the usual duties of reviewing instructions, searching exist- an ‘‘employee.’’ ing data sources, gathering and main- (7) The premium for fidelity coverage taining the data needed, and com- of employees and general partners at a pleting and reviewing the collection of housing project is an eligible operating information. A person is not required account expense. to respond to a collection of informa- (i) The premium of a management tion unless it displays a currently valid agent’s fidelity coverage for the OMB control number. agent’s principals and employees will be the management agent’s business Subpart D—Multi-Family Housing expense (i.e., it is included within the Occupancy management fee). (ii) When a housing project employee § 3560.151 General. is covered under the umbrella of the ‘‘ ’’ (a) Applicability. This subpart con- management agent’s fidelity coverage, tains borrower and tenant require- the premium may be prorated among ments and Agency responsibilities re- the housing projects covered. lated to occupancy of Agency-financed (8) Borrowers must review fidelity multi-family housing (MFH) projects. coverage annually and adjust it as nec- essary to comply with the require- Occupancy eligibility requirements ments of this section. apply to the following: (i) Taxes. The borrower is responsible (1) Family housing projects, includ- for paying all taxes and assessments on ing farm labor housing; a housing project before they become (2) Elderly housing projects; and delinquent. (3) Congregate housing or group (1) An exception to the above may be homes for persons with special needs. made if the borrower has formally con- (b) Civil rights requirements. All occu- tested the amount of the property as- pancy policies must meet applicable sessment and escrowed the amount of civil rights requirements, as stated in taxes in question in a manner approved § 3560.2. by the Agency.
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§ 3560.152 Tenant eligibility. (ii) Tenants must be able to dem- onstrate a need for the special services (a) General requirements. Except as provided by the group home. specified in paragraph (b) of this sec- (iii) Tenants cannot be required to tion, a tenant eligible for occupancy in participate in an ongoing training or Agency-financed housing must either: rehabilitation program. (1) Be a United States citizen or (iv) Tenants must be selected from qualified alien, and the market area prior to considering (2) Qualify as a very low-, low-, or applicants from other areas. moderate-income household; or (d) Ineligible tenant waiver. The Agen- (3) Be eligible under the require- cy may authorize the borrower in writ- ments established to qualify for hous- ing, upon receiving the borrower’s ing benefits provided by sources other written request with the necessary doc- than the Agency, such as U.S. Depart- umentation, to rent vacant units to in- ment of Housing and Urban Develop- eligible persons for temporary periods ment (HUD) Section 8 assistance or to protect the financial interest of the Low Income Housing Tax Credit Government. Likewise, this provision (LIHTC), when a tenant receives such may extend to a cooperative. This au- housing benefits. thority will be for the entire project (b) Exception. Households with in- for periods not to exceed one year. comes above the moderate-income Within the period of the lease, the ten- level may occupy housing projects with ant may not be required to move to an Agency loan approved prior to 1968 allow an eligible applicant to obtain with a loan agreement that does not occupancy, should one become avail- restrict occupancy by income. able. The Agency must make the fol- (c) Requirements for elderly housing, el- lowing determinations: derly units in mixed housing, congregate (1) There are no eligible persons on a housing, and group homes. In addition to waiting list. the requirements of paragraph (a) of (2) The borrower provided docu- this section, the following occupancy mentation that a diligent but unsuc- requirements apply to elderly housing, cessful effort to rent any vacant units elderly units in mixed housing, and to an eligible tenant household has congregate housing or group homes: been made. Such documentation may (1) For elderly housing, elderly units consist of advertisements in appro- in mixed housing, and congregate hous- priate publications, posting notices in ing the following provisions apply: several public places, including places (i) Households must meet the defini- where persons seeking rental housing tion of an elderly household in § 3560.11 would likely make contacts, holding to be eligible for occupancy in elderly open houses, making appropriate con- or congregate housing. tacts with public housing agencies and (ii) If non-elderly persons are mem- organizations, Chambers of Commerce, bers of a household where the tenant or and real estate agencies. co-tenant is an elderly person, the non- (3) The borrower agrees to continue elderly persons are eligible for occu- with aggressive efforts to locate eligi- pancy in the tenant’s or co-tenant’s ble tenants and retain documentation rental unit. of all marketing. (iii) Applicants who will agree to par- (4) The borrower is temporarily un- ticipate in the services provided by a able to achieve or maintain a level of congregate housing project may be occupancy sufficient to prevent finan- given occupancy priority. cial default and foreclosure. The Agen- (2) For group homes, the following cy’s approval of the waiver would then provisions apply: be for a limited duration. (i) Occupancy may be limited to a (5) The lease agreement will not be specific group of tenants, such as elder- more than 12 months and at its expira- ly persons or persons with develop- tion will convert to a month-to-month mental disabilities, or mental impair- lease. The monthly lease will require ments, if such an occupancy limitation that the unit be vacated upon 30 days is contained in the borrower’s manage- notice when an eligible applicant is ment plan. available.
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(6) Tenants residing in Rural Rental tive date of an initial certification or Housing (RRH) units who are ineligible any changes in a tenant’s status. The because their adjusted annual income effective date of an initial or updated exceeds the maximum for the RRH tenant certification form will always project will be charged the Rural Hous- be a first day of the month. ing Service (RHS) approved note rent (iv) Since tenant certifications are for the size of unit occupied in a Plan used to document interest credit and II RRH project. In projects operated rental assistance eligibility and are a under Plan I, ineligible tenants will be basic responsibility of the borrower charged a rental surcharge of 25 per- under the loan documents, borrowers cent of the approved note rent. who fail to submit annual or updated (e) Tenant certification and tenant certification forms within the verification. Tenants and borrowers time period specified in paragraph must execute an Agency-approved ten- (e)(2)(iii) of this section will be charged ant certification form establishing the overage, as specified in § 3560.203(c). Un- tenant’s eligibility prior to occupancy. authorized assistance, if any, will be In addition, tenant households must be handled in accordance with subpart O recertified and must execute a tenant of this part. certification form at least annually or (v) Borrowers must submit tenant whenever a change in household in- certification forms to the Agency using come of $100 or more per month occurs. a format approved by the Agency. Borrowers must recertify for changes (vi) Borrowers must retain executed of $50 per month, if the tenant requests tenant certification forms and any sup- that such a change be made. porting documentation in the tenant (1) Tenant requirements. (i) Tenants file for at least 3 years or until the must provide borrowers with the nec- next Agency monitoring visit or com- essary income and other household in- pliance review, whichever is longer. formation required by the Agency to (3) The Agency maintains the right determine eligibility. to independently verify tenant eligi- (ii) Tenants must authorize bor- bility information. rowers to verify information provided EFFECTIVE DATE NOTE: At 70 FR 8503, Feb. to establish their eligibility or deter- 22, 2005, in § 3560.152(a)(1), implementation of mination of tenant contribution. the words ‘‘Be a United States citizen or (iii) Tenants must report all changes qualified alien, and’’ was delayed indefi- in household status that may affect nitely. their eligibility to borrowers. (iv) Tenants who fail to comply with § 3560.153 Calculation of household in- tenant certification and recertification come and assets. requirements will be considered ineli- (a) Annual income will be calculated gible for occupancy and will be subject in accordance with 24 CFR 5.609. to unauthorized assistance claims, if (b) Adjusted income will be cal- applicable, as specified in subpart O of culated in accordance with 24 CFR this part. 5.611. (2) Borrower requirements. (i) Bor- rowers must verify household income § 3560.154 Tenant selection. and other information necessary to es- (a) Application for occupancy. Bor- tablish tenant eligibility for the re- rowers must use tenant application quested rental unit type, in a format forms that collect sufficient informa- approved by the Agency, prior to a ten- tion to properly determine household ant’s initial occupancy and prior to an- eligibility and to enable the Agency to nual or other recertifications. monitor compliance with the Fair (ii) Borrowers must review all re- Housing Act, section 504 of the Reha- ported changes in household status and bilitation Act of 1973, and title VI of assess the impact of these changes on the Civil Rights Act of 1964 during the tenant’s eligibility or tenant con- compliance reviews. At a minimum, tribution. borrowers must use application forms (iii) Borrowers must submit initial or that collect the following information: updated tenant certification forms to (1) Name of the applicant and present the Agency within 10 days of the effec- address;
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(2) Number of household members and Affirmative Fair Housing Mar- and their birthdates; keting Plan. (3) Annual income information cal- (d) Selection of eligible applicants. (1) culated in accordance with § 3560.153(a); Applicants may be determined ineli- (4) Adjustments to income calculated gible for occupancy based on selection in accordance with § 3560.153(b); criteria other than Agency require- (5) Net assets calculated in accord- ments only if such criteria are con- ance with § 3560.153(c); tained in the borrower’s management (6) Indication of a need for a unit ac- plan. Borrower established selection cessible to individuals with disabilities criteria may not contain arbitrary or and any disability adjustments to in- discriminatory rejection criteria, but come; may consider an applicant’s past rental (7) Certification by the applicant and credit history and relations with that the unit will serve as the house- other tenants. hold’s primary residence, and a certifi- (2) Borrowers with projects receiving cation that the applicant is a U.S. cit- low-income housing tax credits izen or a qualified alien as defined in (LIHTCs), may leave a housing unit va- § 3560.11; cant if they are required to rent the (8) Signature of the applicant and available unit to an LIHTC-eligible ap- date; plicant, and none of the applicants on (9) Race, ethnicity, and sex designa- the waiting list meet the applicable tion. The following disclosure notice LIHTC eligibility requirements. shall be used: (e) Recordkeeping. Borrowers must re- tain all tenant application forms for at ‘‘The information regarding race, eth- nicity, and sex designation solicited on this least 3 years. The Agency may require application is requested in order to assure borrowers to submit application infor- the Federal Government, acting through the mation for Agency review. Rural Housing Service, that the Federal laws (f) Waiting lists. (1) When an applicant prohibiting discrimination against tenant has submitted an application form the applications on the basis of race, color, na- borrower must place the applicant on tional origin, religion, sex, familial status, the waiting list. All applications, age, and disability are complied with. You whether complete, eligible, or ineli- are not required to furnish this information, but are encouraged to do so. This informa- gible, will be placed on the list. The tion will not be used in evaluating your ap- waiting list will document the final plication or to discriminate against you in disposition of all applications (re- any way. However, if you choose not to fur- jected, withdrawn, or placed in a unit). nish it, the owner is required to note the (2) The date and time a complete ap- race, ethnicity, and sex of individual appli- plication was submitted will be re- cants on the basis of visual observation or corded on the waiting list and will es- surname,’’ and tablish priority for selection from the (10) Social security number. list. If an applicant submits an incom- (b) Additional information. Applicants plete application (see paragraph (a) of are to be provided a list of any addi- this section), they must be notified in tional information that must be sub- writing within 10 days of the items mitted with the application for the ap- that are needed for the application to plication to be considered complete (an be considered complete and that pri- application will be considered complete ority will not be established until the without verification of the applicant additional items are received. information). The list of information (3) The race and the ethnicity of each will be restricted to the same items for applicant shall be recorded on the wait- all Agency-assisted properties of a par- ing list. This information shall be col- ticular type, such as a family or elder- lected for statistical purposes only and ly complex. must not be used when making eligi- (c) Application submission. Borrowers bility determinations or in any other must establish when applications may discriminatory manner. The informa- be submitted. Information on the place tion shall be recorded using the race and times for tenant application sub- and ethnicity codes that are utilized on mission must be documented in the the Agency tenant certification form housing project’s management plan available in the servicing office.
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(4) Within 10 days of receipt of a com- with § 3560.160, the notice must advise plete application, the Borrower must the applicant of ‘‘the right to respond notify the applicant in writing that he to the notice within ten calendar days has been selected for immediate occu- after receipt’’ and of ‘‘the right to a pancy, placed on a waiting list, or re- hearing in accordance with § 3560.160 jected. which is available upon request.’’ When (5) Selections from the completed ap- an applicant is rejected based on the plications on the waiting list shall be information from a credit bureau re- made in the following priority order: port, the source of the credit bureau re- (i) Very low-income applicants; port must be revealed to the applicant (ii) Low-income applicants; and in accordance with the Fair Credit Re- (iii) Moderate-income applicants. porting Act. (g) Priorities and preferences for admis- (i) Purging waiting list. Procedures sion. (1) Eligible applicants that meet used by borrowers to purge waiting list the following conditions must be given must be documented in the project’s priority for occupancy over all other management plan and must be based tenants regardless of income. Such ap- on the length of the waiting list or the plicants, however, will be ranked extent of time an applicant will be ex- among themselves by income level, pected to wait for housing. At a min- giving priority first to very low-income imum, borrowers must document re- households, then to low-income house- moval of any names from the waiting holds, and finally to moderate-income list with the time and date of the re- households. moval. If an electronic waiting list is (i) Persons who require the special used, borrowers must periodically print design features of a unit accessible to out electronic waiting lists or preserve individuals with disabilities will have backup copies showing how the waiting priority only for units with these fea- list appeared before and after the re- tures. moval of each name. (ii) In congregate housing facilities, (j) Criminal activity. Borrowers may persons who agree to use the services deny admission for criminal activity or provided by the facility will have pri- alcohol abuse by household members in ority over other applicants. accordance with the provisions of 24 (2) Eligible applicants that meet any CFR 5.854, 5.855, 5.856, and 5.857. of the following conditions must be EFFECTIVE DATE NOTE: At 70 FR 8503, Feb. given priority over other applicants in 22, 2005, in § 3560.154(a)(7), implementation of their same income category. the words ‘‘* * * and a certification that the (i) The applicant has a Letter of Pri- applicant is a U.S. citizen or a qualified alien ority Entitlement (LOPE) issued in ac- as defined in § 3560.11 * * *’’ was delayed in- cordance with § 3560.660(c). definitely. (ii) The applicant was displaced from Agency-financed housing but was not § 3560.155 Assignment of rental units issued a LOPE. and occupancy policies. (iii) The applicant was displaced in a (a) General. Available rental units are Federally declared disaster area. assigned in accordance with the re- (3) Borrowers receiving Section 8 quirements of this section and the pri- project-based assistance may establish orities and preferences outlined in preferences in accordance with U.S. De- § 3560.154. partment of Housing and Urban Devel- (b) Rental units accessible to individ- opment (HUD) regulations. The use of uals with disabilities. If a rental unit ac- such preferences must be documented cessible to individuals with disabilities in the project’s management plan. is available and there are no applicants (h) Notices of ineligibility or rejection. that require the features of the unit, Borrowers must provide written notifi- borrowers may rent the unit to a non- cation to applicants who are deter- disabled tenant subject to the inclusion mined to be ineligible or who are re- of a lease provision that requires the jected for occupancy. Notices of ineli- tenant to vacate the unit within 30 gibility or rejection must give specific days of notification from management reasons for the ineligibility determina- that an eligible individual with disabil- tion or rejection and, in accordance ities requires the unit and provided the
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accessible unit has been marketed as of the housing project. All modifica- an accessible unit, outreach has been tions to occupancy rules must be post- made to organizations representing the ed for tenant comment in accordance disabled, and marketing of the unit as with § 3560.160 and receive Agency con- an accessible unit continues after it currence prior to implementation. has been rented to a tenant who is not in need of the special design features. § 3560.156 Lease requirements. (c) Transfer of existing tenants within a (a) Agency approval. Borrowers must housing project. When a rental unit be- use a lease approved by the Agency. comes available for occupancy and an The lease must be consistent with eligible tenant in the housing project is Agency requirements and the require- either over housed or under housed as ments of all programs participating in provided for in paragraph (e) of this the housing project. Prior to submit- section, the borrower must use the ting the lease to the Agency for ap- available unit for the over housed or proval, borrowers must have their at- under housed tenant, if suitable, prior torney certify that the lease complies to selecting an eligible applicant from with state and local laws, Agency re- the waiting list. quirements, and the requirements of (d) Applicant placement. When a spe- all programs participating in the hous- cific rental unit type becomes avail- ing project. If there are conflicting re- able for occupancy, borrowers must se- quirements the borrower shall notify lect eligible applicants suitable for the the Agency of the conflict and request available unit according to the prior- guidance. Borrowers must execute ities established in § 3560.154. their Agency approved lease with each (e) Occupancy policies. Borrowers tenant household prior to tenant occu- must establish occupancy policies for pancy of a rental unit. each housing project. Households living (b) Lease requirements. (1) All leases in a rental unit with more bedrooms must be in writing. than persons in the household will be (2) Initial leases must be for a 1-year considered over housed and must be re- period. located in accordance with paragraph (3) If the tenant is not subject to oc- (c) of this section. Households under cupancy termination according to housed as defined by the project’s occu- § 3560.158 and § 3560.159, a renewal lease pancy standards must be relocated in or lease extension must be for a 1-year accordance with paragraph (c) of this period. section. Borrowers with no one-bed- (4) In areas with a concentration of room units in a housing project may non-English speaking populations, make an exception to this requirement leases (including the occupancy rules) in their occupancy policies. In addi- must be available in both English and tion, a borrower’s occupancy policies the non-English language. must establish: (5) Leases must give the address of (1) Reasonable standards for deter- the management agent to which ten- mining when a tenant household is ants may direct complaints. considered under housed. The stand- (6) Leases must include a statement ards will describe the maximum num- of the terms and conditions for modi- ber of persons that may occupy units of fying the lease. a given size based on occupancy guide- (c) Required items and provisions. (1) lines provided by the Agency or an- Leases for tenants who hold a Letter of other governmental source; Priority Entitlement (LOPE) issued ac- (2) The order in which eligible appli- cording to § 3560.655(d) and are tempo- cants and existing tenants will be rarily occupying a unit for which they housed or re-housed; and are not eligible must include a clause (3) How fair housing requirements establishing the tenant’s responsibility will be met, including how reasonable to move when a suitable unit becomes accommodations will be made for ap- available in the housing project. plicants and tenants with disabilities. (2) Leases must contain a clause per- (f) Agency concurrence. The Agency mitting escalation in the tenant con- must concur with a borrower’s occu- tribution when there is an Agency-ap- pancy rules prior to initial occupancy proved change in basic or note rate
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rents prior to the expiration of the by legal means, subject to state and lease. The escalation clause also must local law. specify that the tenant contribution (10) Leases must include a require- may be changed prior to expiration of ment that tenants who are no longer the lease if the change is due to eligible for occupancy under the hous- changes in tenant status, as docu- ing project’s occupancy rules or do not mented on the tenant certification meet the criteria set forth in form, or the tenant’s failure to prop- § 3560.155(c) and (e) must vacate the erly recertify. property within 30 days of being noti- (3) Leases must specify that no fied by the borrower that they are no change in the tenant contribution will longer eligible for occupancy or at the occur due to monetary or non-mone- expiration of their lease, or whichever tary default or when rental assistance is greater, unless the conditions cited or interest credit, is suspended, can- in § 3560.158(c) exist; celed, or terminated due to the bor- (11) Leases for rental units receiving rower’s fault. For information on ten- rental assistance must include clauses ant contributions when a borrower pre- that specify that the tenant’s monthly pays the Agency loan, refer to subpart tenant contribution and a description N of this part. of the circumstances under which the (4) Leases must contain a require- tenant’s contribution may change. ment that tenants make restitution (12) Leases must include a require- when unauthorized assistance is re- ment that tenants notify borrowers ceived due to applicant or tenant fraud or misrepresentation and a statement when changes occur in their income or advising tenants that submission of assets, their qualifications for adjust- false information could result in legal ments to income, their citizenship sta- action. tus, or the number of persons living in (5) Leases must include a statement the unit. that the housing project is financed by (13) A requirement that tenants agree the Agency and that the Agency has to fulfill the tenant income the right to further verify information verification and certification require- provided by the applicant. ments established under § 3560.152. (6) Leases must state that the hous- (14) Leases for tenants living in Plan ing project is subject to: II interest credit rental units must in- (i) Title VI of the Civil Rights Act of clude provisions establishing the net 1964; monthly tenant contribution. (ii) Title VIII of the Fair Housing (15) Leases, including renewals, must Act; include the following language: (iii) Section 504 of the Rehabilitation ‘‘It is understood that the use, or posses- Act of 1973; and sion, manufacture, sale, or distribution of an (iv) The Age Discrimination Act of illegal controlled substance (as defined by 1975. local, State, or federal law) while in or on (7) Leases must establish the tenant’s any part of this apartment complex or coop- responsibility according to the housing erative is an illegal act. It is further under- stood that such action is a material lease project’s occupancy rules to move to violation. Such violations (hereafter called a the next available appropriately sized ‘‘drug violation’’) may be evidenced upon the rental unit if the household becomes admission to or conviction of the use, posses- over housed or under housed in the unit sion, manufacture, sale, or distribution of a they occupy. controlled substance (as defined by local, (8) Leases must include provisions state, or Federal law) in any local, state, or that establish when a guest will be con- Federal court. sidered a member of the household and The landlord may require any lessee or be required to be added to the tenant other adult member of the tenant household certification. occupying the unit (or other adult or non- adult person outside the tenant household (9) Leases must include a provision who is using the unit) who commits a drug stating that tenancy continues until violation to vacate the leased unit perma- the tenant’s possessions are removed nently, within timeframes set by the land- from the housing either voluntarily or lord, and not thereafter to enter upon the
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landlord’s premises or the lessee’s unit with- (18) All leases must contain the fol- out the landlord’s prior consent as a condi- lowing information and provisions: tion for continued occupancy by the remain- (i) The name of the tenant, any co- ing members of the tenant’s household. The landlord may deny consent for entry unless tenants, and all members of the house- the person agrees to not commit a drug vio- hold residing in the rental unit; lation in the future and is either actively (ii) The identification of the rental participating in a counseling or recovery unit; program, complying with court orders re- (iii) The amount and due date of lated to a drug violation, or has successfully completed a counseling or recovery program. monthly tenant contributions, any late The landlord may require any lessee to payment penalties, and security de- show evidence that any non-adult member of posit amounts; the tenant household occupying the unit, (iv) The utilities, services, and equip- who committed a drug violation, agrees not ment to be provided for the tenant; to commit a drug violation in the future, and (v) The tenant’s utility payment re- to show evidence that the person is either sponsibility; actively seeking or receiving assistance through a counseling or recovery program, (vi) The certification process for de- complying with court orders related to a termining tenant occupancy eligibility drug violation, or has successfully completed and contribution; a counseling or recovery program within (vii) The limitations of the tenant’s timeframes specified by the landlord as a right to use or occupancy of the dwell- condition for continued occupancy in the unit. Should a further drug violation be com- ing; mitted by any non-adult person occupying (viii) The tenant’s responsibilities re- the unit the landlord may require the person garding maintenance and consequences to be severed from tenancy as a condition for if the tenant fails to fulfill these re- continued occupancy by the lessee. sponsibilities; If a person vacating the unit, as a result of (ix) The agreement of the borrower to the above policies, is one of the lessees, the person shall be severed from the tenancy and accept the tenant contribution toward the lease shall continue among any other re- rent charges prior to payment of other maining lessees and the landlord. The land- charges that the tenant owes and a lord may also, at the option of the landlord, statement that borrowers may seek permit another adult member of the house- legal remedy for collecting other hold to be a lessee. charges accrued by the tenant; Should any of the above provisions gov- (x) The maintenance responsibilities erning a drug violation be found to violate any of the laws of the land the remaining en- of the borrower in buildings and com- forceable provisions shall remain in effect. mon areas, according to state and local The provisions set out above do not supplant codes, Agency regulations, and Federal any rights of tenants afforded by law.’’ fair housing requirements; (xi) The responsibility of the bor- (16) Leases for rental units accessible to individuals with disabilities occu- rowers at move-in and move-out to pro- pied by those not needing the accessi- vide the tenant with a written state- bility features must establish the ten- ment of rental unit’s condition and ant’s responsibility to move to another provisions for tenant participation in unit when an appropriate unit becomes inspection; available or when the unit is needed by (xii) The provision for periodic in- an eligible individual with disabilities. spections by the borrower and other Additionally, the lease clause must re- circumstances under which the bor- quire the borrower to provide tenants rower may enter the premises while a written notification of the date by tenant is renting; which they must move to another unit (xiii) The tenant’s responsibility to in the project. notify the borrower of an extended ab- (17) If loan prepayment occurs and sence; the housing project is subject to re- (xiv) A provision that tenants may strictive use provisions, leases and re- not assign the lease or sublet the prop- newals must be amended to include a erty; clause specifying the tenant protec- (xv) A provision regarding transfer of tions required under subpart N of this the lease if the housing project is sold part. to an Agency-approved buyer;
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(xvi) The procedures that must be against the tenant, even if the court followed by the borrower and the ten- finds in favor of the tenant. ant in giving notices required under (e) Housing projects and units receiving terms of the lease including lease vio- HUD assistance. (1) In housing projects lation notices; receiving Section 8 project-based as- (xvii) The good-cause circumstances sistance, borrowers may use the HUD under which the borrower may termi- model lease. The provisions of the HUD nate the lease and the length of notice model lease will prevail, unless they required; conflict with Agency lease require- (xviii) The disposition of the lease if ments in accordance with this section. the housing project becomes uninhabit- If there is conflict between HUD re- able due to fire or other disaster, in- quirements and Agency requirements, cluding rights of the borrower to repair the provision that will be enforced will building or terminate the lease; be the one that is most favorable to the (xix) The procedures for resolution of tenant. tenant grievances consistent with the (2) For units occupied by Section 8 requirements of § 3560.160; certificate and voucher holders, bor- (xx) The terms under which a tenant rowers may use: may, for good cause, terminate their (i) A standard HUD-approved lease; lease, with 30 days notice, prior to (ii) A HUD-approved lease that in- lease expiration; and cludes a number of modifications from (xxi) The signature and date clause the standard HUD-approved lease; or indicating that the lease has been exe- (iii) An Agency-approved lease may cuted by the borrower and the tenant. be used if acceptable by HUD or the local housing authority. (d) Prohibited provisions. Borrowers (f) State and local requirements. Bor- are prohibited from including any of rowers must use a lease that is con- the following clauses in the lease: sistent with state and local require- (1) Clauses prohibiting families with ments. children under 18; (1) If any lease provision is in viola- (2) Clauses requiring prior consent by tion of state or local law, the lease tenant to any lawsuit that borrowers may be modified to the extent needed may bring against the tenant in con- to comply with the law, but any nection with the lease; changes must be consistent with the (3) Clauses authorizing borrowers to provisions established in paragraph (c) hold any of a tenant’s property until of this section. the tenant fulfills an obligation; (2) Leases must include a procedure (4) Clauses in which tenants agree for handling tenant’s abandoned prop- not to hold borrowers liable for any- erty, as provided by state or local law. thing they may do or fail to do; EFFECTIVE DATE NOTE: At 70 FR 8503, Feb. (5) Clauses in which tenants agree 22, 2005, in § 3560.156(c)(12), implementation of that borrowers may institute suit the words ‘‘* * * their citizenship status, without any notice to the tenant that ***’’ was delayed indefinitely. the suit has been filed; (6) Clauses in which tenants agree § 3560.157 Occupancy rules. that borrowers may evict the tenant or (a) General. The purpose of a bor- sell their possessions whenever bor- rower’s occupancy rules is to outline rowers determine that a breach or de- the basis for the tenant and manage- fault has occurred; ment relationship. Prior to Agency ap- (7) Clauses authorizing the bor- proval of occupancy rules, borrowers rower’s attorneys to appear in court on must provide written certification behalf of the tenant, and to waive the from their attorney that the housing tenant’s right to a trial by jury; project’s occupancy rules are con- (8) Clauses authorizing the bor- sistent with applicable Federal, state, rower’s attorneys to waive the tenant’s and local laws, as well as Agency re- right to appeal or to file suit; and quirements, and the requirements of (9) Clauses requiring the tenant to all programs participating in the hous- agree to pay legal fees and court costs ing project. Borrowers must obtain whenever the borrower takes action Agency approval of the occupancy
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rules prior to initial occupancy and ob- (f) Tenant organizations. Borrowers tain Agency approval prior to the im- must not infringe on the rights of ten- plementation date of any subsequent ants to organize an association of ten- modifications to the rules. ants. Borrowers (or a designated man- (b) Requirements. The occupancy rules agement representative) should be must be in writing and posted for easy available and willing to work with a tenant access. A copy of these rules tenant organization. must be attached to the tenant’s lease (g) Community rooms. Borrowers may upon initial occupancy. At a minimum, not place unreasonable restrictions on the occupancy rules must address: tenants that desire to use a community (1) The tenant’s rights and respon- room. sibilities under the lease or occupancy agreement; § 3560.158 Changes in tenant eligi- bility. (2) The rent payment or occupancy charge policies; (a) General requirements. Tenants (3) The policies regarding periodic in- must continue to meet the require- spection of units; ments of § 3560.152 to remain eligible for (4) The system for responding to ten- occupancy. ant complaints; (b) Tenants no longer eligible. Tenants (5) The maintenance request and who are no longer eligible for occu- work order procedures; pancy under the housing project’s oc- cupancy rules or do not meet the cri- (6) The housing services and facilities teria set forth in § 3560.155(c) and (e) available to tenants or members; must vacate the property within 30 (7) The office locations, hours, and days of being notified by the borrower emergency telephone numbers; that they are no longer eligible for oc- (8) The restrictions on storage and cupancy or at the expiration of their prohibitions on non-functional vehicles lease, whichever is greater, unless the in the housing project area; conditions specified in paragraph (c) of (9) Other requirements related to a this section exist. subsidy provided to a tenant from non- (c) Temporary continuation of tenancy. Agency sources; If conditions described in § 3560.454(b) or (10) When a guest becomes a member the following conditions exist, bor- of the tenant household; and rowers may permit tenants who are no (11) The procedures tenants must fol- longer eligible for occupancy to con- low to request reasonable accommoda- tinue to reside at the housing project tions. with prior approval of the Agency. (c) Modification of occupancy rules. (1) The waiting list for the specific The Agency must concur with any rental unit type has no eligible appli- modification to the occupancy rules cants; or prior to implementation. Proper notice (2) The required time period for must be given to each tenant at least vacating the rental unit would create a 30 days in advance of implementation hardship on the tenant household. of such rules in accordance with (d) Surviving and remaining household § 3560.160. members. (1) Members of a household (d) Federal, state and local require- may continue to reside in a housing ments. The occupancy rules must be project after the departure or death of consistent with Federal, state, and the tenant or co-tenant, provided that: local law. (i) They are eligible with respect to (e) Pets/Assistance Animals. All hous- adjusted income; ing projects should establish reason- (ii) They occupied a rental unit in able written pet rules. No rules may be the housing project at the time of the promulgated that would prevent occu- departure or death of the tenant or co- pancy by a household member who re- tenant; quires a service or assistance animal. (iii) They execute a tenant certifi- In elderly housing, borrowers must not cation form establishing their own ten- prohibit tenants from keeping domes- ancy; and tic animals in their rental units as (iv) They have the legal ability to pets. sign a lease for the rental unit, except
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where a legal guardian may sign when rial non-compliance with the lease pro- the tenant or member is otherwise eli- visions, material non-compliance with gible. the occupancy rules, or other good (2) Surviving or remaining members causes. Prior to terminating a lease, of the household may remain in the the borrower must give the tenant housing project, taking into consider- written notice of the violation and give ation the conditions of paragraph (d)(1) the tenant an opportunity to correct of this section, but must move to a the violation. Subsequently, termi- suitably sized rental unit within 30 nation may only occur when the days of its availability. incidences related to the termination (3) After the death of a tenant or co- are documented and there is docu- tenant in elderly housing, the sur- mentation that the tenant was given viving members of the household, re- notice prior to the initiation of the ter- gardless of age but taking into consid- mination action that their activities eration the conditions of paragraph would result in occupancy termination. (d)(1) of this section, may remain in (1) Material non-compliance with the rental unit in which they were re- lease provisions or occupancy rules, for siding at the time of the tenant’s or co- purposes of occupancy termination by tenant’s death, even if the household is a borrower, includes actions such as: over housed according to the housing (i) Violations of lease provisions or project’s occupancy rules as follows: occupancy rules that are substantial (i) Continued occupancy of the rental and/or repeated; unit will not be allowed when in either (ii) Non-payment or repeated late situation of paragraph (d)(1) or (d)(3) of payment of rent or other financial obli- this section, the rental unit has acces- gations due under the lease or occu- sibility features for individuals with pancy rules; or disabilities, the household no longer (iii) Admission to or conviction for has a need for such accessibility fea- use, attempted use, possession, manu- tures, and the housing project has a facture, selling, or distribution of an il- tenant application from an individual legal controlled substance when such with a need for the accessibility fea- activity occurred on the housing tures; project’s premises by the tenant, a (ii) If the housing project does not member of the tenant’s household, a have a tenant application from an indi- guest of the tenant, or any other per- vidual with a need for the accessibility son under the tenant’s control at the features, the household may remain in time of the activity. the rental unit with such features until (2) Good causes, for purposes of occu- the housing project receives an appli- pancy terminations by a borrower, in- cation from an individual with a need clude actions such as: for accessibility features. The house- (i) Actions by the tenant or a mem- hold in the unit with accessibility fea- ber of the tenant’s household which tures will be required to move within disrupt the livability of the housing by 30 days of the housing project’s receipt threatening the health and safety of of a tenant application requiring acces- other persons or the right of other per- sibility features if another suitably sons to enjoyment of the premises and sized unit without accessibility fea- related facilities; tures is available in the project. If a (ii) Actions by the tenant or a mem- suitably sized unit is not available in ber of the tenant’s household which re- the project within 30 days, the tenant sult in substantial physical damage may remain in the unit with accessi- causing an adverse financial effect on bility features until the first available the housing or the property of other unit in the project becomes available persons; or and then must move within 30 days. (iii) Actions prohibited by state and local laws. § 3560.159 Termination of occupancy. (b) Lease expiration or tenant eligi- (a) Tenants in violation of lease. Bor- bility. A tenant’s occupancy in an rowers, in accordance with lease agree- Agency-financed housing project may ments, may terminate or refuse to not be terminated by a borrower when renew a tenant’s lease only for mate- the lease agreement expires unless the
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tenant’s actions meet the conditions he or she is being discriminated described in paragraph (a) of this sec- against because of age, race, color, reli- tion, or the tenant is no longer eligible gion, sex, familial status, disability, or for occupancy in the housing. Bor- national origin may file a complaint in rowers must handle terminations of oc- person with, or by mail to the U.S. De- cupancy due to a change in tenant eli- partment of Agriculture’s Office of gibility status in accordance with Civil Rights, Room 326–W, Whitten § 3560.158. At a minimum, the occu- Building, 14th and Independence Ave- pancy termination notice must include nue, SW., Washington DC 20250–9410 or the following information: to the Office of Fair Housing and Equal (1) A specific date by which lease ter- Opportunity, U.S. Department of Hous- mination will occur; ing and Urban Development (HUD), (2) A statement of the basis for lease Washington, DC 20410. Complaints re- termination with specific reference to ceived by Agency employees must be the provisions of the lease or occu- directed to the National Office Civil pancy rules that, in the borrower’s Rights Staff through the State Civil judgment, have been violated by the Rights Manager/Coordinator. tenant in a manner constituting mate- (b) Applicability. (1) The requirements rial non-compliance or good cause; and of this section apply to a borrower ac- (3) A statement explaining the condi- tion regarding housing project oper- tions under which the borrower may ations, or the failure to act, that ad- initiate judicial action to enforce the versely affects tenants or prospective lease termination notice. tenants. (c) Other terminations. If occupancy is (2) This section does not apply to the terminated due to conditions which are following situations: beyond the control of the tenant, such (i) Rent changes authorized by the as a condition related to required re- Agency in accordance with the require- pair or rehabilitation of the building, ments of § 3560.203(a); or a natural disaster, the tenants who (ii) Complaints involving discrimina- are affected by such a circumstance are tion which must be handled in accord- entitled to benefits under the Uniform ance with § 3560.2(b) and paragraph Relocation Act and may request a Let- (a)(2) of this section; ter of Priority Entitlement (LOPE) (iii) Housing projects where an asso- from the Agency. If tenants need addi- ciation of all tenants has been duly tional time to secure replacement formed and the association and the housing, the Agency may, at the ten- borrower have agreed to an alternative ant’s request, extend the LOPE entitle- method of settling grievances; ment period. (iv) Changes required by the Agency (d) Criminal activity. Borrowers may in occupancy rules or other operational terminate tenancy for criminal activ- or management practices in which ity or alcohol abuse by household proper notice and opportunity have members in accordance with the provi- been given according to law and the sions of 24 CFR 5.858, 5.859, 5.860, and provisions of the lease; 5.861. (v) Lease violations by the tenant that would result in the termination of § 3560.160 Tenant grievances. tenancy and eviction; (a) General. (1) The requirements es- (vi) Disputes between tenants not in- tablished in this section are designed volving the borrower; and to ensure that there is a fair and equi- (vii) Displacement or other adverse table process for addressing tenant or actions against tenant as a result of prospective tenant concerns and to en- loan prepayment handled according to sure fair treatment of tenants in the subpart N of this part. event that an action or inaction by a (c) Borrower responsibilities. Borrowers borrower, including anyone designated must permanently post tenant griev- to act for a borrower, adversely affects ance procedures that meet the require- the tenants of a housing project. ments of this section in a conspicuous (2) Any tenant/member or prospective place at the housing project. Borrowers tenant/member seeking occupancy in also must maintain copies of the ten- or use of Agency facilities who believes ant grievance procedure at the housing
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project’s management office for inspec- tenant or prospective tenant of ‘‘the tion by the tenants and the Agency right to respond to the notice within upon request. Each tenant must re- ten calendar days after date of the no- ceive an Agency summary of tenant’s tice’’ and of ‘‘the right to a hearing in rights when a lease agreement is accordance with § 3560.160 (f), which is signed. If a housing project is located available upon request.’’ The notice in an area with a concentration of non- must contain the information specified English speaking individuals, the bor- in paragraph (a)(2) of this section. For rower must provide grievance proce- housing projects in areas with a con- dures in both English and the non- centration of non-English speaking in- English language. The notice must in- dividuals, the notice must be in clude the telephone number and ad- English and the non-English language. dress of USDA’s Office of Civil Rights (f) Grievances and responses to notice of and the appropriate Regional Fair adverse action. The following proce- Housing and Enforcement Agency. dures must be followed by tenants, pro- (d) Reasons for grievance. Tenants or spective tenants, or borrowers involved prospective tenants may file a griev- in a grievance or a response to an ad- ance in writing with the borrower in verse action. response to a borrower action, or fail- (1) The tenant or prospective tenant ure to act, in accordance with the lease must communicate to the borrower in or Agency regulations that results in a writing any grievance or response to a denial, significant reduction, or termi- notice within 10 calendar days after oc- nation of benefits or when a tenant or currence of the adverse action or re- prospective tenant contests a bor- ceipt of a notice of intent to take an rower’s notice of proposed adverse ac- adverse action. tion as provided in paragraph (e) of this (2) Borrowers must offer to meet with section. Acceptable reasons for filing a tenants to discuss the grievance within grievance may include: 10 calendar days of receiving the griev- (1) Failure to maintain the premises ance. The Agency encourages bor- in such a manner that provides decent, rowers and tenants or prospective ten- safe, sanitary, and affordable housing ants to make an effort to reach a mu- in accordance with § 3560.103 and appli- tually satisfactory resolution to the cable state and local laws; grievance at the meeting. (2) Borrower violation of lease provi- (3) If the grievance is not resolved sions or occupancy rules; during an informal meeting to the ten- (3) Modification of the lease; ant or prospective tenant’s satisfac- (4) Occupancy rule changes; tion, the borrower must prepare a sum- (5) Rent changes not authorized by mary of the problem and submit the the Agency according to § 3560.205; or summary to the tenant or prospective (6) Denial of approval for occupancy. tenant and the Agency within 10 cal- (e) Notice of adverse action. In the case endar days The summary should in- of a proposed action that may have ad- clude: The borrower’s position; the ap- verse consequences for tenants or pro- plicant/tenant’s position; and the re- spective tenants such as denial of ad- sult of the meeting. The tenant also mission to occupancy and changes in may submit a summary of the problem the occupancy rules or lease, the bor- to the Agency. rower must notify the tenant or pro- (g) Hearing process. The following pro- spective tenant in writing. In the case cedures apply to a hearing process. of a Borrower’s proposed adverse action (1) Request for hearing. If the tenant including denial of admission to occu- or prospective tenant desires a hearing, pancy, the Borrower shall notify the a written request for a hearing must be applicant/tenant in writing. The notice submitted to the borrower within 10 must be delivered by certified mail re- calendar days after the receipt of the turn receipt requested, or a hand-deliv- summary of any informal meeting. ered letter with a signed and dated ac- (2) Selection of hearing officer or hear- knowledgement of receipt from the ap- ing panel. In order to properly evaluate plicant/tenant, The notice must give grievances and appeals, the borrower specific reasons for the proposed ac- and tenant must select a hearing offi- tion. The notice must also advise the cer or hearing panel. If the borrower
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and the tenant cannot agree on a hear- solved through informal discussion or ing officer, then they must each ap- by the hearing officer or panel. point a member to a hearing panel and (ii) The escrow account must be in a the members selected must appoint a Federally-insured institution or with a third member. If within 30 days from bonded independent agent. the date of the request for a hearing, (iii) Failure to make timely rent pay- the tenant and borrower have not ments into the escrow account will re- agreed upon the selection of a hearing sult in a termination of the tenant officer or hearing panel, the borrower grievance and appeals procedure and must notify the Agency by mail of the all sums will immediately become due situation. The Agency will appoint a and payable under the lease. person to serve as the sole hearing offi- (iv) Receipts of escrow account de- cer. The Agency may not appoint a posits must be available for examina- hearing officer who was earlier consid- tion by the borrower. ered by either the borrower or the ten- (7) Failure to request a hearing. If the ant, in the interest of ensuring the in- tenant or prospective tenant does not tegrity of the process. request a hearing within the time pro- (3) Standing hearing panel. In lieu of vided by paragraph (f)(1) of this sec- the procedure contained in paragraph tion, the borrower’s disposition of the (g)(2) of this section for each grievance grievance or appeal will become final. or appeal presented, a borrower may (h) Requirements governing the hearing. ask the Agency to approve a standing The following requirements will govern hearing panel for the housing project. the hearing process. (4) Examination of records. The bor- (1) Subject to paragraph (f)(2) of this rower must allow the tenant the oppor- section, the hearing will proceed before tunity, at a reasonable time before a a hearing officer or hearing panel at hearing and at the expense of the ten- which evidence may be received with- ant, to examine or copy all documents, out regard to whether that evidence records, and policies of the borrower could be used in judicial proceedings. that the borrower intends to use at a (2) The hearing must be structured so hearing unless otherwise prohibited by as to provide basic due process safe- law or confidentiality agreements. guards for both the borrower and the (5) Scheduling of hearing. If a standing tenants or prospective tenants, which hearing panel has been approved, a must protect: hearing will be scheduled within 15 cal- (i) The right of both parties to be rep- endar days after receipt of the tenant’s resented by counsel or another person or prospective tenant’s request for a chosen as their representative; hearing. If a hearing officer or hearing (ii) The right of the tenant or pro- panel must be selected, a hearing will spective tenant to a private hearing be scheduled within 15 calendar days unless a public hearing is requested; after the selection or appointment of a (iii) The right of the tenant or pro- hearing panel or a hearing officer. All spective tenant to present oral or writ- hearings will be held at a time and ten evidence and arguments in support place mutually convenient to both par- of their grievance or appeal and to ties. If the parties cannot agree on a cross-examine and refute the evidence meeting place or time, the hearing offi- of all witnesses on whose testimony or cer or hearing panel will designate the information the borrower relies; and place and time. (iv) The right of the borrower to (6) Escrow deposits. If a grievance in- present oral and written evidence and volves a rent increase not authorized arguments in support of the decision, by the Agency, or a situation where a to refute evidence relied upon by the borrower fails to maintain the property tenant or prospective tenant, and to in a decent, safe, and sanitary manner, confront and cross-examine all wit- rental payments may be deposited by nesses in whose testimony or informa- the tenant into an escrow account, pro- tion the tenant or prospective tenant vided the tenant’s rental payments are relies. otherwise current. (3) At the hearing, the tenant or pro- (i) The escrow account deposits must spective tenant must present evidence continue until the complaint is re- that they are entitled to the relief
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sought, and the borrower must present (5) Upon receipt of written notifica- evidence showing the basis for action tion from the hearing officer or hearing or failure to act against that which the panel, the borrower and tenant must grievance or appeal is directed. take the necessary action, or refrain (4) The hearing officer or hearing from any actions, specified in the deci- panel must require that the borrower, sion. the tenant or prospective tenant, coun- sel, and other participants or spec- §§ 3560.161–3560.199 [Reserved] tators conduct themselves in an or- derly manner. Failure to comply may § 3560.200 OMB control number. result in exclusion from the pro- The information collection require- ceedings or in a decision adverse to the ments contained in this regulation interests of the disorderly party and have been approved by the Office of granting or denial of the relief sought, Management and Budget (OMB) and as appropriate. have been assigned OMB control num- (5) If either party or their representa- ber 0575–0189. Public reporting burden tive fails to appear at a scheduled hear- for this collection of information is es- ing, the hearing officer or hearing timated to vary from 15 minutes to 18 panel may make a determination to hours per response, including time for postpone the hearing for no more than reviewing instructions, searching exist- five days or may make a determination ing data sources, gathering and main- that the absent party has waived their taining the data needed, and com- right to a hearing under this subpart. If pleting and reviewing the collection of the determination is made that the ab- information. A person is not required sent party has waived their rights, the to respond to a collection of informa- hearing officer or hearing panel will tion unless it displays a currently valid make a decision on the grievance. Both OMB control number. the tenant or prospective tenant and the borrower must be notified in writ- Subpart E—Rents ing of the determination of the hearing officer or hearing panel. § 3560.201 General. (i) Decision. Hearing decisions must This subpart sets forth the require- be issued in accordance with the fol- ments for establishing and collecting lowing requirements. rents charged to occupants of multi- (1) The hearing officer or hearing family housing (MFH) projects fi- panel has the authority to affirm or re- nanced by the Agency. verse a borrower’s decision. (2) The hearing officer or hearing § 3560.202 Establishing rents and util- panel must prepare a written decision, ity allowances. together with the reasons thereof based (a) General. Rents and utility allow- solely and exclusively upon the facts ances for rental units in Agency-fi- presented at the hearing within 10 cal- nanced housing projects are set by the endar days after the hearing. The no- borrower and must be based on the op- tice must state that the decision is not erating, management and maintenance effective for 10 calendar days to allow expenses and other costs related to the time for an Agency review as specified housing project including loan pay- in paragraphs (i)(3) and (i)(4) of this ment amounts due to the Agency. section. (b) Agency approval. All rents and (3) The hearing officer or hearing utility allowances set by borrowers are panel must send a copy of the decision subject to Agency approval. to the tenant, or prospective tenant, (c) Rents. As applicable, borrowers borrower, and the Agency. must establish the following rents: (4) The decision of the hearing officer (1) Note rent; or hearing panel shall be binding upon (2) Basic rent; the parties to the hearing unless the (3) U.S. Department of Housing and parties to the hearing are notified Urban Development (HUD) contract within 10 calendar days by the Agency rents; and that the decision is not in compliance (4) Low-income housing tax credit with Agency regulations. (LIHTC) rents.
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(d) Utility allowances. In projects able to cover expenses in the housing where tenants pay the utilities, bor- project’s approved budget, including rowers must establish utility allow- the required payments on the bor- ances for each size and type of rental rower’s Agency loan. Borrowers must unit in the housing project based on es- not use housing project funds to make timated utility costs. Borrowers must up any difference between rents re- review utility allowances annually, ad- quired under Agency program require- just for accuracy, and submit any util- ments and the maximum allowed rents ity allowance changes to the Agency under the LIHTC program. for approval. If no changes are needed, the borrower must notify the Agency § 3560.203 Tenant contributions. that no changes were made. Docu- (a) Tenant contributions. A tenant’s mentation to justify utility allowances contribution to rent charged for a rent- must be maintained in the housing al unit in an Agency financed housing project files. project is based on the tenant’s in- (e) Funds contributed to reduce rents. If come, as calculated on the Agency’s borrowers use funds contributed from tenant certification forms, and the sources other than the Agency (e.g., availability of Agency or non-Agency state or local grants, private contribu- rental subsidies. tions) to reduce general operating and (1) Tenant contributions. Borrowers management expenses, housing project must set tenant contributions to rent rents must be reduced to reflect the at the highest of the following stand- funding being used to offset housing ards but never more than the note rent: project expenses. When funds contrib- (i) Thirty percent of monthly ad- uted from sources other than the Agen- justed income; cy are used for housing project ex- (ii) Ten percent of gross monthly in- penses, the borrower must certify to come; the Agency, in writing, that the funds (iii) An amount equal to the portion provided will not need to be repaid of an assistance payment specifically with Agency funds. Funds from bor- designated to meet the household’s rower contributions or rehabilitation shelter costs if the household is receiv- loans will not be counted towards re- ing assistance payments from a public ducing rents. agency; or (f) Rents for resident manager, care- (iv) The basic rent, unless RHS rental taker, or owner-occupied unit. (1) If ap- assistance is provided to the household. proved as a part of a management plan, (2) Tenant contribution surcharge. Ten- a borrower may occupy a rental unit in ants in a Plan I housing project with a housing project when they are acting incomes above the eligibility standards as a management agent or resident set in § 3560.152(a)(1) must pay a 25 per- manager as specified in § 3560.102(e). cent surcharge in addition to note rent. (2) If the rental unit being occupied (b) Adjustment of tenant contribution. by a borrower or resident manager is Borrowers must adjust the tenant con- designated as a revenue-producing tribution whenever there is a change in unit, borrowers must calculate the tenant household status or income suf- rental charge to the borrower or resi- ficient to generate a revised tenant dent manager in the same manner as certification in accordance with tenant contributions. § 3560.152(e) or an Agency approved rent (3) If the rental unit being occupied or utility allowance change that af- by a borrower or resident manager is fects the tenant contribution amount. designated as a non-revenue producing (c) Overage. If a tenant’s tenant con- unit, borrowers must treat the cost of tribution is higher than basic rent, bor- providing the unit the same as other rowers must remit to the Agency the non-revenue producing portions of the rent collected in excess of the basic housing project. rent and up to the note rent. (g) LIHTC. Borrowers who receive LIHTCs may establish rents in accord- § 3560.204 Security deposits and mem- ance with LIHTC requirements. How- bership fees. ever, borrowers are obligated to ensure (a) General. Borrowers may collect se- that sufficient annual funds are avail- curity deposits when it is reasonable
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and customary for the area in which hold security deposits to pay for such the housing is located. Borrowers must costs. hold security deposits in a separate (2) Borrowers may withhold security bank or bookkeeping account in ac- deposits and may charge tenants for cordance with § 3560.302(c)(3). damage or loss costs above security de- (b) Allowable amounts. Borrowers may posit amounts. charge security deposits that are typ- (e) State and local security deposit re- ical for the area in which the housing quirements. Borrowers must follow all is located, as long as the security de- state and local laws and other require- posit charged a tenant does not exceed ments governing the handling and dis- that tenant’s net contribution for one position of security deposits. month’s rent or basic rent, whichever (1) Resolution of any security deposit is greater. disputes must be handled in accordance (1) As noted in § 3560.102(b)(1)(viii) and with state and local law. § 3560.156(c)(18)(iii), borrowers must (2) Any interest earned on security specify in the housing project’s man- deposits will accrue in accordance with agement plan how the amount to be state law. charged as a security deposit will be es- (f) Unclaimed security deposits. Any tablished and must specify the amount funds in the housing project’s security to be charged to individual tenants in deposit account unclaimed by a tenant the lease to be signed by the tenant. must be deposited into the housing project’s general operating account. (2) Borrowers may charge security deposits to households receiving HUD § 3560.205 Rent and utility allowance assistance in accordance with HUD re- changes. quirements. (a) General. Borrowers must fully (3) Members of a cooperative shall be document that changes to rents and required to pay a membership fee no utility allowances are necessary to greater than one month’s occupancy cover housing or utility costs allowed charge. under the approved budget for the (4) Additional security deposits for housing. Any changes must apply to all pets may be charged as long as the ad- similar units in the housing project. ditional deposit is not greater than (b) Agency approval. Borrowers must basic rent for 1 month. No additional submit a fully documented request to security deposit for assistance animals the Agency to effect any rent or utility is allowed where an assistance animal allowance change. is necessary for the normal functioning (1) Borrowers must obtain written of a household member with a dis- consent or approval from the Agency ability. as specified in paragraph (e) of this sec- (5) Borrowers must not charge addi- tion before implementing any changes tional security deposits based on dis- in the rents or utility allowances. abilities of tenants or other personal (2) If a borrower implements an unau- characteristics. thorized rent or utility allowance (c) Payment plans. Borrowers must charge, the Agency will require the offer, for persons who are eligible for borrower to roll back rents to the last rental assistance or Section 8 assist- authorized rent charge, and the bor- ance, the option of paying the security rower must reimburse tenants for any deposit on an installment payment unauthorized rents collected. plan. Should installments not be met, (c) Timing of request for changes. Bor- the total charge may become due and rowers must submit rent and utility al- payable in full. lowance change requests in conjunc- (d) Charges for damage or loss. Bor- tion with the annual budget submis- rowers may charge tenants for damage sion as required under § 3560.303(d). The or loss caused or allowed by the tenant effective dates of any approved changes equal to the cost of the damage or loss. will coincide with the start of the (1) Borrowers must consider expenses housing project’s fiscal year or the due for addressing normal wear and start of the season for seasonally occu- tear as normal operating expenses and pied farm labor housing. However, the must not charge tenants a fee or with- Agency will accept borrower requests
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for rent or utility allowance changes § 3560.207 Annual adjustment factors anytime during the year if a change is for Section 8 units. necessary to preserve the financial in- (a) General. For rental units receiving tegrity of the housing complex and the project-based Section 8 assistance, the financial distress is due to cir- Agency will review rents annually cumstances beyond the borrower’s con- without regard to HUD’s automatic an- trol. nual adjustment. (d) Tenant notification. Borrowers (b) Establishing rents in housing with must notify tenants and solicit their HUD rent assistance. Borrowers will set comments to proposed rent or utility note and basic rents for housing receiv- allowance change requests that are ing HUD project based Section 8 assist- submitted to the Agency at the same ance, as specified in § 3560.202(c)(3). time that the initial request is made to (1) Borrowers must notify the Agency the Agency. of any HUD rent changes. (1) Tenants will be given 20 calendar (2) If allowed by the interest credit days to provide their comments to the agreement, the borrower will remit the Agency. amount collected in excess of the basic (2) Borrowers must deliver the pro- rent up to the note rent to the Agency posed rent or utility allowance change as overage. request notice to each tenant and post (3) When HUD contract rents exceed at least one copy of the notice at the note rents, borrowers must deposit housing project site in a visible loca- HUD funds equal to the difference be- tion frequented by tenants. tween the Agency approved note rent (e) Approval. If the Agency approves a and the HUD approved rent into the re- rent or utility allowance increase re- serve account for the housing project. quest on which the comments were so- (c) Excess HUD rents. When permitted licited, the borrower will deliver a no- by the Agency interest credit agree- tice announcing the rent or utility al- ment, the Agency may reduce or cancel lowance change to the tenants to be ef- the interest credit on the housing, if fective 30 calendar days from the date excess HUD rents deposited in the re- of the notification. serve account result in the reserve ac- (f) Denial of change request. The Agen- count being funded beyond the fully cy may deny a rent or utility allow- funded level approved by the Agency. ance increase request in the following circumstances. § 3560.208 Rents during eviction or (1) The Agency determines that the failure to recertify. borrower did not provide sufficient in- (a) Rents during eviction. If a tenant is formation to justify operating costs. appealing an eviction and the borrower (2) The borrower is out of compliance refuses to accept rent payment during with Agency requirements including the appeal of the eviction, the tenant any corrective action requirements must escrow required rent payments to agreed to in a workout agreement de- safeguard their occupancy, unless veloped according to subpart J of this State or local laws specify otherwise. part. (b) Rents when tenants fail to recertify. (3) Sufficient funds are being col- If a borrower can document that a ten- lected under existing rents to meet ap- ant received a notice specifying a ten- proved expenses. ant recertification date and the tenant (g) Notice of denial. If the rent change fails to comply by the specified date or will not be approved as requested, the fails to cooperate with verification or Agency will notify the borrower of the other procedures related to the ten- denial in accordance with § 3560.303(d). ant’s recertification so that the tenant recertification cannot be completed by § 3560.206 Conversion to Plan II (Inter- the recertification date, the borrower, est Credit). within 10 days of the recertification The Agency encourages any borrower date, shall give the tenant and the not on Plan II to convert to Plan II to Agency written notification that: provide more favorable rent costs to (1) Termination proceedings are very-low, low, and moderate-income being initiated, in accordance with households. § 3560.159; and
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(2) The tenant will be charged note (c) Improperly advanced rents. Improp- rent until the tenant’s lease is termi- erly advanced interest credit or rental nated. assistance is considered unauthorized (c) Unauthorized assistance due to ten- assistance and is subject to recapture ant recertification failure. Any unau- in accordance with subpart O of this thorized assistance received because of part. the tenant’s failure to be recertified will be collected in accordance with § 3560.210 Special note rents (SNRs). the provisions of subpart O of this part. When a Plan II housing project is ex- (d) Rents when borrowers fail to recer- periencing severe vacancies due to tify tenants. If a borrower cannot docu- market conditions, the Agency may ment that a tenant received a recertifi- allow the borrower to charge an SNR, cation notice, and a tenant is not re- which is less than note rent but higher certified within 12 months of the most than basic rent, to attract or retain recently executed tenant certification, tenants whose income level would re- tenants shall continue to make net quire them to pay special note rent. tenant contributions to rent based on The requirements for requesting and their most recent tenant certification receiving an SNR are established under and the borrower must remit to the § 3560.454. Agency full overage as if the tenant was paying the note rent until the ten- §§ 3560.211–3560.249 [Reserved] ant is recertified. (e) Unauthorized assistance due to bor- § 3560.250 OMB control number. rower recertification failure. Any unau- The information collection require- thorized assistance received as a result ments contained in this regulation of the borrower’s failure to recertify a have been approved by the Office of tenant will be collected from the bor- Management and Budget (OMB) and rower in accordance with the provi- have been assigned OMB control num- sions of subpart O of this part and may ber 0575–0189. Public reporting burden not be paid from housing project funds for this collection of information is es- or funds collected from the tenant. timated to vary from 15 minutes to 18 hours per response, including time for § 3560.209 Rent collection. reviewing instructions, searching exist- (a) General. Borrowers must collect ing data sources, gathering and main- rents on a monthly basis and maintain taining the data needed, and com- a system for collecting and tracking pleting and reviewing the collection of rents. information. A person is not required to respond to a collection of informa- (b) Fees for late rent payments. Bor- tion unless it displays a currently valid rowers may adopt a late fee schedule OMB control number. for overdue rental payments. Late fee schedules must be submitted to the Agency for approval as part of the Subpart F—Rental Subsidies housing project’s management plan, be in accordance with State and local law, § 3560.251 General. and consistent with the following re- This subpart contains policies for quirements: borrower administration and tenant (1) A grace period of 10 days from the use of rental subsidies in Agency fi- rental payment due date must be al- nanced multi-family housing (MFH) lowed for all tenants. projects. (2) The late fee must not exceed the higher of $10 or an amount equal to 5 § 3560.252 Authorized rental subsidies. percent of the tenant’s gross tenant (a) General. The purpose of rental contribution. subsidies is to reduce amounts paid by (3) Tenants receiving housing bene- tenants for rent. Rental subsidies equal fits from sources other than the Agen- the difference between the approved cy may be subject to the late rent fee shelter costs and tenant contributions requirements of the other funding as calculated in accordance with sources. § 3560.203(a)(1).
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(b) Forms of rental subsidies. Rental (1) Housing projects that operate subsidies may be in the form of: under an Interest Credit Plan II RA (1) Agency rental assistance; agreement. (2) HUD section 8 assistance, includ- (2) Housing projects financed with an ing project-based and vouchers; Agency off-farm labor housing loan or (3) Private rental subsidies; or grant. On-farm labor housing is not eli- (4) State or local government rental gible for rental assistance. subsidies. (3) Housing projects financed with a (c) Multiple rent subsidies. (1) Multiple direct or insured Rural Rental Housing types of rent subsidies may be used in loan approved prior to August 1, 1968, the same MFH project. and operated under an interest credit (2) Tenants with subsidies from agreement that identifies the housing sources other than the Agency may be project as a Plan RA project. eligible for Agency rental assistance if (4) Housing projects financed from the following conditions are met. Agency and other sources if the condi- (i) The tenant qualifies for Agency tions of § 3560.66 are met. rental assistance. (b) Eligible units. Borrowers may not (ii) The rental subsidy the tenant is request RA for rental units that the receiving is not a HUD voucher. Agency determines are not habitable in (iii) The rental subsidy being re- accordance with § 3560.103. ceived by the tenant is less than the (c) Eligible households. Households eli- full amount of Agency rental assist- gible for rental assistance are those: ance for which the tenant would qual- (1) With very low-or low-incomes who ify. In such cases, the Agency may pro- are eligible to live in MFH; vide the difference between the subsidy (2) Whose net tenant contribution to received by the tenant and the amount rent determined in accordance with of Agency rental assistance for which § 3560.203(a)(2) is less than the basic the tenant qualifies. rent for the unit; (d) Agency rental assistance (RA). (3) Whose head of the household is a Agency RA is obligated to MFH U.S. citizen or a legal alien as defined projects on a rental unit basis. The ob- in § 3560.11; ligation is composed of a number of (4) Who meet the occupancy rules es- rental units and associated dollar tablished by the borrower in accord- amounts of RA specified in a RA agree- ance with § 3560.155(e); and ment with a borrower. The following (5) Who have a signed, unexpired ten- types of Agency RA may be obligated ant certification form on file with the to a housing project. borrower. (1) Renewal units. RA may be assigned to a housing project to replace existing EFFECTIVE DATE NOTE: At 70 FR 8503, Feb. rental unit obligations because funds 22, 2005, in § 3560.254(c)(3), implementation of associated with the units have been the words ‘‘Whose head of the household is a fully disbursed. U.S. citizen or a legal alien as defined in (2) New construction units. RA may be § 3560.11.’’ was delayed indefinitely. provided in conjunction with initial § 3560.255 Requesting rental assist- Agency loans for construction or sub- ance. stantial rehabilitation of MFH projects. (a) Submitting requests. Borrowers (3) Servicing units. Additional RA may seeking an allocation of rental assist- be provided to operational MFH ance for MFH must request the rental projects as a part of the Agency’s gen- assistance from the Agency as follows. eral loan servicing or preservation ac- (1) Renewal rental assistance. To the tivities. extent sufficient funds are available, the Agency will automatically renew § 3560.253 [Reserved] expiring rental assistance agreements at the existing number of units. § 3560.254 Eligibility for rental assist- (2) New construction units. Loan appli- ance. cants proposing to use Agency rental (a) Eligible housing. Housing projects assistance must include their request eligible for Agency RA include the fol- for rental assistance in their loan pro- lowing types of projects. posal in accordance with § 3560.56.
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(3) Servicing units. Borrowers request- ity allowance exceeds the net tenant ing rental assistance must have ten- contribution to rent. Such utility pay- ants or eligible tenant applicants on a ments to tenants must be made on a waiting list who are RA eligible. monthly basis. (b) Denial of requests. (1) If a rental (e) Administrative errors. Borrowers assistance request is denied due to the are responsible for correcting borrower loan applicant’s or borrower’s ineligi- errors made in regard to RA requests bility, the Agency will send the loan for payments. In accordance with sub- applicant or borrower written notifica- part O of this part, borrowers will be tion of the decision with an expla- required to repay the Agency for any nation of the denial. unauthorized RA received or any unau- (2) If a rental assistance request to thorized use of RA except in certain renew expiring rental assistance agree- cases of tenant error or fraud. ments is denied because funding is not available, the Agency will notify the § 3560.257 Assigning rental assistance. borrower and the borrower must notify (a) Priorities for rental assistance. (1) the tenants of rent increases in accord- Borrowers must use the following pri- ance with their lease and state and orities when assigning available rental local law. Tenants losing rental assist- assistance. ance due to a lack of Agency funding (i) First priority is to eligible very may quit the lease and vacate the low-income tenants paying the highest housing without penalty in accordance percentage of their adjusted annual in- with the terms of their lease. come for Agency approved shelter (3) Loan applicants or borrowers de- costs. termined to be eligible for RA as a re- sult of an appeal or funding review will (ii) Second priority, if the housing receive RA, if RA funding is available, project has vacant rental units, is to beginning with the month following eligible very low-income applicants on the date of the appeal or funding re- the waiting list. view decision or beginning in the first (iii) Third priority is to eligible low- month that RA funding becomes avail- income tenants paying the highest per- able. centage of their adjusted annual in- come for Agency approved shelter § 3560.256 Rental assistance payments. costs. (a) Borrower submission requirements. (iv) Fourth priority, if the housing The borrower must submit monthly re- project has vacant rental units, is to quests for RA payments to the Agency eligible low-income applicants on the based on occupancy as of the first day waiting list. of the month previous to the month in (v) Fifth priority is to households which the request is being made. which are residing in a rental unit for (b) Basis of RA requests. Borrower re- which they do not qualify on the basis quests for RA payments must be based of an occupancy waiver or other special on the difference between the basic approval situations. rent plus utility allowances for each (2) In order to provide rental assist- rental unit eligible for RA and the net ance to the third, fourth, and fifth pri- tenant contribution of the tenant. ority categories, a borrower must fully (c) Payments to borrower. Prior to document either that there are no very making RA payments to a borrower, low-income households on the housing the Agency will deduct from the ap- project’s waiting list or that occupancy proved RA payment amount any un- by low-income households is limited as paid loan payments, late fees, and follows: other amounts which the borrower (i) For housing occupied on or after owes to the Agency. November 30, 1983, no more than 5 per- (d) Utility payments to tenants. The cent of the units in the housing are oc- borrower must pay tenants the dif- cupied by low-income households; or ference between the utility allowance (ii) For housing occupied before No- and the tenant’s net contribution to vember 30, 1983, no more than 25 per- rent when a tenant receiving RA is cent of the units in the housing are oc- billed directly for utilities and the util- cupied by low-income households.
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(b) Continued eligibility. Tenants re- (3) After a liquidation or prepayment; ceiving rental assistance may continue (4) To the extent permitted by law, to do so as long as they remain eligible when any rental assistance units have for occupancy and for rental assistance not been used for a 6-month period; or under § 3560.254(c), and as long as rental (5) When the loan cannot be closed. assistance units are available. (b) Agency review before transferring (c) Assignment of rental assistance. Ex- rental assistance. The Agency must per- cept as provided in § 3560.454(c) and form a review to determine if all eligi- using the priorities given in paragraph ble tenants in the project are receiving (a) of this section, borrowers must as- rental assistance before the Agency sign available rental assistance units transfers it to another project. as soon as rental assistance units be- (c) Transferring rental assistance for come available. displaced tenants. The Agency may (1) When a rental assistance unit is transfer rental assistance from one assigned to an eligible existing tenant housing project to another eligible on a day other than the first day of a housing project for a tenant who is month, the Agency will not provide the moving due to displacement as a result borrower rental assistance for the of prepayment, liquidation, or a nat- newly assigned existing tenant and the ural disaster. The tenant must begin tenant will not pay reduced rental using the rental assistance within 4 charges until the first of the month fol- months of the transfer or the RA will lowing the assignment of the rental as- become available for use by the next sistance. rental assistance eligible tenant in the (2) When an eligible applicant moves housing project. into a rental assistance unit on a day other than the first day of a month, § 3560.260 Rental subsidies from non- they will pay a prorated rent based on Agency sources. the number of days they occupy the (a) General. The Agency may author- rental assistance unit and the amount ize the use of rental subsidies from of rental assistance they will be receiv- sources other than the Agency in Agen- ing. cy financed housing projects. The (d) Incorrectly assigned rental assist- Agency will make no commitment to ance. Incorrectly assigned rental as- providing Agency rental assistance at sistance is viewed as unauthorized as- the expiration of the rental subsidies sistance and handled in accordance from other sources. with subpart O of this part. (b) HUD vouchers. For tenants with HUD vouchers, the borrower must set § 3560.258 Terms of agreement. the rental unit rent at the basic rent or (a) Term of agreement. Rental assist- the rent standard set by the public ance agreements will be consistent housing authority, whichever is less. with available funding. Rental assist- The public housing authority distrib- ance agreements expire when the funds uting the HUD vouchers may set the obligated for rental assistance units utility allowance. are fully disbursed in accordance with (c) Loan proposals using non-Agency the conditions of the agreement. rental subsidy. Loan applicants or bor- (b) Replacing expiring obligations. To rowers proposing to use rental subsidy the extent funds are available for re- from sources other than the Agency placement units, the Agency will renew must provide: rental assistance agreements. (1) Documentation demonstrating that a market exists for households eli- § 3560.259 Transferring rental assist- gible for the subsidy and the house- ance. holds are at income levels that would (a) Agency authority. The Agency may benefit from the amount of rental sub- transfer rental assistance in the fol- sidy that will be provided; lowing instances: (2) A plan describing actions to be (1) To accompany the transfer of a taken when the rental subsidy expires housing project to a different borrower; to minimize the impact on tenants los- (2) After a voluntary conveyance or a ing the rental assistance and to avoid foreclosure sale; displacement; and
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(3) A copy of the project-based rental tion unless it displays a currently valid assistance agreement to be signed by OMB control number. the borrower and the provider of the rental assistance. Subpart G—Financial (d) Rental subsidy agreement. The bor- Management rower and the provider of rental sub- sidies from sources other than the § 3560.301 General. Agency must execute a rental subsidy This subpart contains requirements agreement and submit a copy of the for the financial management of Agen- agreement to the Agency. At a min- cy-financed multi-family housing imum, the rental subsidy agreement (MFH) projects, including accounts, between the borrower and the source of budgets, reports, and engagements. Fi- the rental subsidy must include the fol- nancial management systems and pro- lowing provisions: cedures must cover all housing oper- (1) A description of how the subsidy ations and provide adequate docu- will be paid. The rental subsidy pay- mentation to ensure that program ob- ments may be paid directly to the ten- jectives are met. ants, to the borrower on behalf of the tenants, or deposited to a separate ac- § 3560.302 Accounting, bookkeeping, count established for the subsidy. The budgeting, and financial manage- tenants must be advised of the amount ment systems. and source of the subsidy through the (a) General. Borrowers must establish lease or a supplement to the lease. the accounting, bookkeeping, budg- (2) The life of a project-based rental eting and financial management proce- subsidy agreement with a non-Agency dures necessary to conduct housing source must be similar to existing or project operations in a financially safe current Agency rental assistance fund- and sound manner. Borrowers must ing levels and sufficient funds must be maintain records in a manner suitable set aside to assure availability of the for an engagement and must be able to rental subsidy for this term. The meth- report accurate operational results to od of supplying the funds must be the Agency from these accounts and clearly established. records. (b) Acceptable methods of accounting. § 3560.261 Improperly advanced rental (1) Borrowers may use a cash, accrual, assistance. or modified accrual method of account- Improperly advanced RHS rental as- ing, bookkeeping, and budget prepara- sistance resulting from tenant or bor- tions as long as the method is con- rower error or fraud constitutes unau- sistent with the statements required thorized assistance and the provisions by the engagement in accordance with of subpart O of this part apply. the standards identified in § 3560.308. (2) Borrowers must describe their ac- §§ 3560.262–3560.299 [Reserved] counting, bookkeeping, budget prepa- ration, and financial reporting proce- § 3560.300 OMB control number. dures, including Agency-approved en- The information collection require- gagements, in their management plan. ments contained in this regulation (3) Borrowers must notify the Agency have been approved by the Office of of any changes in their accounting, Management and Budget (OMB) and bookkeeping, budget preparation, and have been assigned OMB control num- financial management reporting sys- ber 0575–0189. Public reporting burden tems through a revision of their man- for this collection of information is es- agement plan. timated to vary from 15 minutes to 18 (c) Account requirements. (1) As used hours per response, including time for in this paragraph, the term account is reviewing instructions, searching exist- used interchangeably to mean a book- ing data sources, gathering and main- keeping account (ledger) or a bank ac- taining the data needed, and com- count. pleting and reviewing the collection of (2) At a minimum, borrowers must information. A person is not required maintain the accounts required by to respond to a collection of informa- their loan agreement or resolution.
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(3) The following list identifies the fi- (v) Borrowers must be able to ac- nancial accounts that are required for count for housing project funds with each housing project. Additional ac- accounting methods or practices that counts may be required by third-party maintain the proprietary identity of lenders. Accounts are to be funded in the funds for each project. A borrower the following priority order, except may operate one account for multiple that paragraphs (c)(3)(iv), (v), and (vi) projects as long as the funds for each of this section are funded directly by project themselves are accounted for tenant security deposits or patron cap- separately. ital receipts respectively: (vi) Each borrower must have access (i) General operating account; to at least one demand deposit or (ii) Real estate tax and insurance ac- checking account. count (if not part of the general oper- (vii) Housing project funds may not ating account); be pledged as collateral for debts with- (iii) Reserve account; out Agency approval. If such a need (iv) Tenant security deposit account; arises for an eligible program purpose, the borrower must obtain prior Agency (v) Membership fee account for coop- approval. erative housing; and (6) Tenant security deposit accounts (vi) For cooperative housing only, a or membership fee accounts and patron patron capital account. capital accounts must be maintained in (4) Amounts escrowed for taxes and a separate account in trust for the ten- insurance may be kept in the general ants or members and handled in a man- operating account as long as the ac- ner consistent with state and local counting system reflects the amount laws. escrowed. (d) Documentation of separate account- (5) Regardless of the number or types ability. Housing project funds may be of accounts established, the borrower combined in one or more bank ac- must meet the following requirements: counts for two or more housing (i) All housing project funds must be projects as long as the borrower’s ac- held only in financial institution ac- counting system segregates and tracks counts insured by an agency of the funds for each project separately. Federal Government, backed by collat- (1) When borrowers request Agency eral provided by the bank, or held in approval of an accounting system that securities meeting the conditions in combines funds from two or more hous- this subpart. ing projects, they must demonstrate to (ii) Funds maintained in an institu- the Agency that the accounting sys- tion may not exceed the limit estab- tems are structured to segregate and lished for Federal deposit insurance. If maintain separate accountability for funds exceed the amount covered by each housing project. Such demonstra- Federal deposit insurance, borrowers tion must include a statement issued must obtain a collateral pledge from by a Certified Public Accountant (CPA) the institution to cover all funds or stating that the accounting system is must move funds to an institution that structured to meet this principle of will insure the funds. separate accountability. (iii) All funds and proceeds in any ac- (2) The accounting system and man- count must be used only for authorized agement plan must document the purposes as described in Agency’s regu- method for prorating revenue and ex- lations, loan or grant documents. Use penses that are not clearly identifiable of funds for non-program purposes con- as being associated with a particular stitutes non-monetary default as de- housing project. scribed in § 3560.452(c). (3) Funds for housing projects man- (iv) All funds received and held in aged by the same management com- any account, except the tenant secu- pany must not be co-mingled. rity deposit, membership fee, and pa- (e) Records. (1) Borrowers must retain tron capital accounts, must be held in all housing project financial records, trust by the borrower for the loan obli- books, and supporting material for at gation until used and serve as security least three years after the issuance of for the Agency loan or grant. the engagement and financial reports.
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Upon request, these materials will im- long-term capital needs as specified in mediately be made available to the § 3560.103(c). Agency, its representatives, the USDA (2) Budget projections regarding in- Office of the Inspector General (OIG), come, expenses, vacancies, and contin- or the General Accountability Office gencies must be realistic given the (GAO). housing project’s history, current cir- (2) Borrower accounts and records cumstances, and market conditions. will be kept or made available in a lo- (3) Borrowers must document that cation with reasonable access for in- the operating expenses included in the spection, review, and copying by the budget accurately reflect reasonable Agency, other authorized representa- and necessary costs to operate the tives of the USDA, OIG, or GAO. housing project in a manner consistent (3) Automated records may be used if with the objectives of the loan and in they meet the conditions of paragraph accordance with the applicable Agency (f) of this section. requirements. (f) Forms generated by automated sys- (4) Borrower must submit supporting tems. (1) The forms and formats ap- documentation to justify housing proved for use by borrowers may be project utility allowances. prepared on automated systems when (5) Upon Agency request, borrowers they meet the requirements of this must submit any additional docu- paragraph. mentation necessary to establish that (2) Forms may be automated if they applicable Agency requirements have meet the following requirements: been met. (i) The identical wording and nomen- (b) Allowable and unallowable project clature of an official form must be in- expenses. Expenses charged to project cluded in the automated version of the operations, whether for management form, including the Office of Manage- agent services or other expenses, must ment and Budget (OMB) approval num- be reasonable, typical, necessary and ber. show a clear benefit to the residents of (ii) The logic or mathematical cal- the property. Services and expenses culation of an official form must be the charged to the property must show same in an automated version of the value added and be for authorized pur- form. poses. (iii) The name or logo of the source of (1) Allowable expenses. Allowable ex- the automated form must be visible on penses include those expenses that are each output of the automated form. directly attributable to housing project (iv) Output size must be 81⁄2 × 11 operations and are necessary to carry inches. out successful operations. (v) Nominal spacing adjustment and (i) Housing project expenses must not colored paper are allowed. duplicate expenses included in the (g) Farm Labor Housing. Borrowers management fee as defined in with on-farm labor housing units will § 3560.102(i). be considered in compliance with this (ii) Actual costs for direct personnel section by virtue of completing the costs of permanent and part-time staff record keeping and reporting require- assigned directly to the project site. ments outlined in subpart M of this This includes managers, maintenance part. staff, and temporary help including their: § 3560.303 Housing project budgets. (A) Gross salary; (a) General requirements. (1) Using an (B) Employer FICA contribution; Agency-approved format, borrowers (C) Federal unemployment tax; must submit to the Agency for ap- (D) State unemployment tax; proval a proposed annual housing (E) Workers compensation insurance; project budget prior to the start of the (F) Health insurance premiums; housing project’s fiscal year. The cap- (G) Cost of fidelity or comparable in- ital budget section of the annual surance; project budget must include antici- (H) Leasing, performance incentive pated expenditures on the project’s or annual bonuses;
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(I) Direct costs of travel to off-site plies (e.g., checks, deposit slips, re- locations by on-site staff for property turned check fees, service fees). business or training; and/or (D) Costs of site-based telephone in- (J) Retirement benefits. cluding initial installation, basic serv- (iii) Legal fees directly related to the ices, directory listings, and long-dis- operation and management of the prop- tances charges. erty including tenant lease enforce- (E) All advertising costs related spe- ment actions, property tax appeals and cifically to the operations of that suits, and the preparation of all legal project. This can include advertising documents. for applicants or employees in news- (iv) All outside account and auditing papers, newsletters, radio, cable TV, fees, if required by the Agency, directly and telephone books. related to the preparation of the an- (F) Postage and delivery costs from nual audit, partnership tax returns and the site including expenses to the 401–K’s, as well as other outside reports Agency or other governmental agen- and year-end reports to the Agency, or cies, tenants, verifying third parties, other governmental agency. central management offices, etc. (v) All repair and maintenance costs (G) Partnership or corporate business for the project including: expenses including state taxes and (A) Maintenance staffing costs and other mandated state or local fees as related expenses. well as other relevant expenses re- (B) Maintenance supplies. quired for operation of the property by (C) Contract repairs to the projects a third-party governmental unit. Costs (e.g., heating and air conditioning, of continuation financing statements painting, roofing). and site license and permit costs. (D) Make ready expenses including (H) Expenses related to site utilities painting and repairs, flooring replace- including actual costs and surcharges ment and appliance replacement as as well as deposits and expense of util- well as drapery or mini-blind replace- ity bonds in lieu of bonds. ment. (Turnover maintenance). (I) Site office furniture and equip- (E) Preventive maintenance expenses ment including site based computer including occupied unit repairs and and copiers. Service agreements and maintenance as well as common area warranties for copiers, telephone sys- systems repairs and maintenance. tems and computers are also included (F) Snow removal. (if approved by the Agency). (G) Elevator repairs and maintenance (J) Real estate taxes (personal tan- contracts. gible property and real property taxes) (H) Section 504 and other Fair Hous- and expenses related to controlling or ing compliance modifications and reducing taxes. maintenance. (K) All costs of insurance including (I) Landscaping maintenance, re- property liability and casualty as well placements, and seasonal plantings. as fidelity or crime and dishonesty cov- (J) Pest control services. erage for on-site employees and the (K) Other related maintenance ex- owners. penses. (L) Costs of collecting rents on-site (vi) All operational costs related to including bookkeeping supplies and the project including: recordkeeping items. (A) The costs of obtaining and receiv- (M) Costs of preparing and maintain- ing credit reports, police reports, and ing tenant files and processing tenant other checks related to tenant selec- certifications including all office sup- tion criteria for prospective residents. plies, copies and other associated ex- (B) The cost of duplicating forms for penses. those properties not owning a copier. (N) Public relations expense relative This will include the costs of producing to maintaining positive relationships or purchasing forms and mailing or de- between the local community and the livering those forms to the project site. tenants with the management staff and (C) All bank charges related to the the borrowers. Chamber of Commerce property including purchases of sup- dues, contributions to local charity
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events, and sponsorship of tenant ac- ing for site managers or management tivities, are examples. agents. To the extent that association (O) Tax Credit Compliance Moni- dues can document training for site toring Fees imposed by HFAs. managers or management agents re- (P) All insurance deductibles as well lated to project activities by actual as adjuster expenses. cost or pro-ration, a reasonable ex- (Q) Professional service contracts pense may be billed to the project. (audits and compilations, tax returns, (vii) Pay for bonuses or monetary energy audits, utility allowances, ar- performance awards to site managers chitectural, construction, rehabilita- or management agents that are not tion and inspection contracts, etc.) clearly provided for by the site man- (R) On-site training pre-approved by ager salary contract. the Agency provided by outside train- (viii) Billing for parties that are ing vendors. large or unreasonable, such as renting (S) Site manager salary for addi- expensive party halls or hotel rooms tional hours associated with con- and payment for alcoholic beverages or gregate housing. gifts to management agent staff. (vii) With prior Agency approval, co- (ix) Billing for practices that are in- operatives and nonprofit organizations efficient such as routine use of collect may use housing project funds to pay calls from a site manager to a manage- asset management expenses directly ment agent office. attributable to ownership responsibil- (c) Priorities. The priority order of ities. Such expenses may include: planned and actual budget expendi- (A) Errors and omissions insurance tures will be: policy for the Board of Directors. (1) Senior position lienholder, if any; (B) Board of Director review and ap- (2) Operating and maintenance ex- proval of proposed Agency’s annual op- penses, including taxes and insurance; erating budgets, including proposed re- (3) Agency debt payments; pair and replacement outlays and ac- (4) Reserve account requirements; cruals. (5) Other authorized expenditures; (C) Board of Director review and ap- and proval of capital expenditures, finan- (6) Return on owner investment. cial statements, and consideration of (d) Agency review and approval. (1) any management comments noted. The Agency will only approve housing (D) Long-term asset management re- project budgets that meet the require- views. ments of paragraphs (a), (b) and (c) of (2) Unallowable expenses. Housing this section. project funds may not be used for any (2) If no rent change is requested, of the following: borrowers must submit budget docu- (i) Equity skimming as defined in 42 ments for Agency approval 60 calendar U.S.C. 543 (a). days prior to the start of the housing (ii) Purposes unrelated to the hous- project’s fiscal year. The Agency will ing project. notify borrowers if the budget submis- (iii) Reimbursement of inaccurate or sion does not meet the requirements of false claims. paragraphs (a), (b), and (c) of this sec- (iv) Settlement agreements, court or- tion. The borrower will have 10 days to dered decrees, legal fees, or other costs submit the additional material. that result from the filing of civil (3) If a rent change is requested, the rights complaints or legal action alleg- borrower must submit budget docu- ing the borrower, or a representative of ments to the Agency and notify ten- the borrower, has committed a civil ants of the requested rent change at rights violation. least 90 calendar days prior to the start (v) Fines, penalties, and legal fees of the housing project’s fiscal year. where the borrower or a borrower’s rep- (i) The Agency will notify borrowers resentative has been found guilty of if the budget submission does not meet violating laws, including, but not lim- the requirements of paragraphs (a), (b), ited to, civil rights, and building codes. and (c) of this section, or if the rent (vi) Association dues to be paid by and utility allowance request has been the project should be related to train- denied in accordance with § 3560.205(f).
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The borrower will have 10 days to sub- (7) There are no outstanding defi- mit the additional material to address ciencies in management’s physical any issues raised by the Agency. maintenance of the housing project. (ii) The rent change is not approved until the Agency issues a written ap- § 3560.305 Return on investment. proval. If there is no response from the (a) Borrower’s return on investment. Agency within the 30-day period, the Borrowers may receive a return on rent change is considered automatic. their investment (ROI) in accordance The following budgets are not eligible with the terms of their loan agreement for automatic approval: and the following: (A) Budgets with rent increases (1) If there is a positive net cash flow above $25 per unit; and in housing project operations, the ROI (B) Budgets that are submitted late may be taken by the borrower after the or that miss other deadlines set by the housing project’s fiscal year, provided Agency. that the balance of the reserve account (4) If the Agency denies the budget is equal to or greater than required de- approval, the Agency will notify the posits minus authorized withdrawals. If borrower in writing. the annual financial reports indicate (5) If budget approval is denied, the that an ROI should not have been borrower shall continue to operate the taken, borrowers will be required to re- housing project on the basis of the turn any unauthorized ROI. most recently approved budget. (2) If there is negative cash flow in housing project operations, the Agency § 3560.304 Initial operating capital. may authorize the borrower to take the ROI only after the Agency has re- (a) Purpose. To provide a source of viewed the housing project’s annual fi- capital for start-up costs, such as the nancial reports and determines: purchase of equipment, and paying op- (i) Surplus cash exists in either the erating, maintenance, and debt service general operating account as defined in expenses. Borrowers are required to § 3560.306(d)(1) or the reserve account, if make an initial operating capital con- the balance is greater than the re- tribution to the general operating ac- quired deposits minus authorized with- count as described in § 3560.64. drawals. (b) Authorized uses of initial operating (ii) The housing project has sufficient capital. Initial operating capital may funds to address identified capital or be used only to pay for approved budg- operational needs. eted expenses. (b) Unpaid return on investment. An (c) Withdrawal of initial operating cap- earned, but unpaid ROI for the previous ital. Initial operating capital funds may year only may be requested by the bor- be withdrawn by a borrower if: rower and authorized by the Agency (1) The initial operating capital was under the provisions of § 3560.305(a)(2) provided from the borrower’s own provided the current year’s ROI has funds; been paid first and a rent increase is (2) The borrower requests the with- not required to generate funds to pay drawal after the second year of housing the unpaid ROI. project operations and prior to the 7th year of operations; § 3560.306 Reserve account. (3) The housing project has had a 90 (a) Purpose. To meet the major cap- percent occupancy rate for a period of ital expense needs of a housing project, 12 months prior to the withdrawal re- borrowers must establish and maintain quest; a reserve account. (4) The withdrawal will not affect the (b) Financial management of the reserve financial viability of the housing account. Borrower management of the project; reserve account is subject to the re- (5) Contributions to the reserve ac- quirements of 7 CFR part 1902, subpart count are at authorized levels; A regarding supervised bank accounts. (6) The withdrawal request will not (c) Funding of the reserve account. result in rent increases; and Borrowers must make payments to the
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reserve account in the amount estab- When designated as a reserve deposit, lished in loan documents, beginning the price paid must equal the required with the first loan payment or a date contribution to reserves. specified in loan documents. (3) Borrowers must be knowledgeable (d) Transfer of surplus general oper- about industry practices and consider ating account funds. (1) The general op- the impact of typical fees and charges erating account will be deemed to con- for purchases and sales and mainte- tain surplus funds when the balance at nance of an account when making in- the end of the housing project’s fiscal vestment decisions. Such fees may be year, after all payables, exceeds 20 per- paid for out of reserves, only with the cent of the operating and maintenance consent of the Agency. Housing project expenses. If the borrower is escrowing funds may not be used to pay for a fi- taxes and insurance premiums, include nancial advisor. the amount that should be escrowed by (g) Use of the reserve account. (1) Bor- year end and subtract such tax and in- rowers must request Agency approval surance premiums from operating and of reserve account withdrawals prior to maintenance expenses used to cal- the withdrawal. Borrowers must in- culate 20 percent of the operating and form the Agency of planned uses of re- maintenance expenses. serve accounts in their annual capital (2) If a housing project’s general op- budget if known at budget planning erating account has surplus funds at time. Any item on the approved capital the end of the housing project’s fiscal budget does not require additional pre- year, the Agency will require the bor- approval by the Agency. rower to use the surplus funds to ad- (2) The Agency will indicate any con- dress capital needs, make a deposit in ditions governing withdrawals from a the housing project’s reserve account, reserve account at the time it approves reduce the debt service on the bor- the withdrawal. rower’s loan, or reduce rents in the fol- (3) In emergency situations, the lowing year. At the end of the bor- Agency may specify special procedures rower’s fiscal year, if the borrower is to provide an expedited approval proc- required to transfer surplus funds from ess for the use of the reserve account. the general operating account to the (4) The Agency may approve the use reserve account, the transfer does not of reserve funds for operating costs change the future required contribu- when circumstances that are deter- tions to the reserve account. mined by the Agency to be beyond the (e) Account requirements. Borrowers borrower’s control have resulted in a must establish and maintain the re- shortfall in the housing project’s gen- serve account according to § 3560.65, eral operating account. § 3560.302(c)(5), and the following re- (h) Allowable uses. Allowable uses of quirements: reserve funds include the following: (1) Reserve accounts must be depos- (1) Major capital improvements and ited in interest-bearing accounts or se- replacements. curities; and (2) Housing project operating ex- (2) Reserve accounts must be super- penses provided the requirement of vised accounts that require Agency paragraph (g)(4) of this section has countersignatures on all withdrawals. been met, including: (f) Funds invested in securities. In addi- (i) Payments due on the loan, or tion to the requirements specified in (ii) Payment of a return on invest- paragraph (e) of this section, the fol- ment at the end of the borrower’s fiscal lowing requirements apply when re- year if such payment comes from sur- serve funds are invested in securities: plus operating funds in the reserve ac- (1) The reserve account must be held count. either at a Federally insured domestic (3) With Agency approval, borrowers institution such as a bank, savings and operating on a for-profit or a limited loan association, credit union, or at a profit basis may make an annual with- domestic institution authorized to sell drawal from the reserve account, equal securities. to no more than 25 percent of the inter- (2) The borrower must record the est earned on a reserve account during price actually paid for the securities. the prior year.
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(4) For other purposes, which in the requirements of 7 CFR part 1924, sub- judgment of the Agency will promote part A. the loan purposes, strengthen the secu- rity or facilitate, improve, or maintain § 3560.307 Reports. the housing and the orderly collection (a) Required reports. Borrowers must of the loan without jeopardizing the submit required reports using Agency- loan or impairing the adequacy of the approved formats. security. (b) Quarterly and monthly reports. The (i) Records. Borrowers must maintain Agency may require quarterly or records documenting all expenses that monthly reports to monitor financial were paid by withdrawals from the re- progress when closer supervision is serve account. warranted. (j) Changes to reserve requirements. (1) As projects age, the required reserve § 3560.308 Annual financial reports. account level may be adjusted to meet anticipated ‘‘life-cycle’’ needs, including (a) General. Borrowers must submit equipment and facility replacement annual financial reports that meet the costs, by amending the loan agreement/ requirements of this section. The an- resolution. nual financial reports to be submitted (2) The Agency may approve a change are the Multi-Family Housing (MFH) in the reserve account funding level Project Budget with actual expendi- based on the findings of an approved tures and the MFH Balance Sheet. An- capital needs assessment. The approval nual financial reports are due to the to increase reserve account funding Agency within 90 days of the end of the levels will take into consideration the borrower’s fiscal year. housing project’s approved budget and (1) Borrowers with 16 or more units in the housing project’s ability to support their housing project must base their increased reserve account deposits annual financial reports on an engage- without causing basic rents to exceed ment report completed according to conventional rents for comparable agreed upon procedures established by units in the area. the Agency as specified in paragraph (k) Excess reserves. Amounts in the re- (b) of this section. Borrowers must in- serve account which exceed the total clude the engagement report with their required by the loan or grant agree- annual financial reports submitted to ment must be used, at the direction of the Agency. the Agency, for any of the following: (2) Borrowers with less than 16 units (1) Pay for expenses specified in a in their housing project must submit long-term capital plan; annual financial reports using a lim- (2) Make payments and reamortize ited scope engagement based on Agen- the Agency loan; cy approved procedures and certify (3) Reduce rents by a transfer to the that the housing meets the perform- general operating account; ance standards established in para- (4) Fund preservation incentives au- graph (c) of this section. Borrowers thorized in subpart N of this part; or may use a CPA to prepare this report. (5) Cover other expenditures deter- For properties that prepare a limited mined to be related to the purpose of scope engagement, the Agency may un- the housing project and in the best in- dertake random audits, once every two terest of the Federal Government. or three years. (l) Procurement. The requirements of (3) If a third party requires it, the § 3560.102(g), (j), and (k), and all other borrower may have a CPA prepare an Agency requirements relating to pro- audit in accordance with generally ac- curement, bidding, identity-of-interest, cepted government auditing standards cost-reasonableness, and construction (GAGAS). Costs incurred to obtain this management apply to any work or audit are an allowable project expense. services paid out of reserve funds. (b) Engagement requirements. Bor- Structural repairs and other signifi- rowers required to submit annual fi- cant work on major building systems nancial reports based on an engage- such as heating or air conditioning ment performed by a CPA must meet must be done in accordance with the the following requirements:
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(1) Borrowers must use an Agency ap- (3) Any audits independently ob- proved engagement letter. Borrowers tained by the borrower also must be must submit the results of an engage- submitted to the Agency. ment that examines specific records using agreed upon procedures estab- § 3560.309 Advancement (loan) of lished by the Agency and that de- funds to a RRH project by the scribes the borrower’s performance in owner, member of the organization, or agent of the owner. meeting the standards described in paragraph (c) of this section. (a) Prior written approval by the (2) The engagement will be initiated Servicing Office is required. Such ad- by the borrower using the Agency’s en- vances may be authorized when justi- gagement letter, which will specify the fied by unusual short-term conditions. engagement program and establish the When conditions are not short-term in reporting requirements for the engage- nature, a servicing plan may be devel- ment. oped and advances may be approved in (3) The engagement must be con- accordance with the provisions set out ducted by a CPA in accordance with in § 3560.453 of this part. Justification American Institute of Certified Public will be based on the following: Accountant (AICPA) Standards and (1) A review of the documented cir- Agency requirements. cumstances and the project operating (4) All engagement reports must be budget before any funds are advanced prepared for use by the Agency. (loaned). The financial position of the project must not be jeopardized. (c) Performance standards. Borrowers must ensure that: (2) Funds are not immediately avail- able from any of the following sources: (1) Required accounts are properly (i) Reserve funds; maintained and tracked separately; (ii) Initial operating capital; and (2) Payments from operating ac- counts are disclosed and accurately (iii) An imminent rent increase. represented on financial reports; (b) The funds will be applied to ordi- (3) The reserve amount is at the au- nary project operating and mainte- thorized level and there are no encum- nance expenses. brances; (c) Interest may be charged or paid (4) Tenant security deposit accounts on the loan from project income; how- are fully-funded and are maintained in ever, interest must be reasonable. The proposal may be denied if Rural Devel- separate accounts and meet state and opment financing can be provided to local requirements; resolve the problem in a more cost-ef- (5) Amount of payment of owner re- fective manner. turn was consistent with the terms of (d) No lien in connection with the the applicable loan agreement; loan will be filed against the property (6) The borrower has maintained securing the Rural Development loan proper insurance in accordance with or against project income. The advance the requirements of § 3560.105(b); and may show as an unsecured project li- (7) All financial records are adequate ability on financial statements pre- and suitable for examination. pared for year-end reports until such (d) Other financial reports. (1) Non- time as it is authorized to be repaid. profit and public borrower entities (e) The payback of the advance (loan) must submit audits in accordance with may be permitted by the Servicing Of- 7 CFR part 3052 that must also include ficial provided the terms and condi- the requirements set forth in the lim- tions were mutually agreed to by the ited scope engagement. borrower and Rural Development at (2) The Agency may require addi- the time of the advance and the finan- tional opinions of financial condition cial position of the project will not be and compliance, such as audits, to as- jeopardized. Payback should only be sure the security of the asset, deter- permitted on the advance when the mine whether the housing project is Rural Development debt is current and being operated at a reasonable cost, or the reserve requirements are being to detect fraud, waste, or abuse. maintained at the authorized levels.
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§§ 3560.310–3560.349 [Reserved] ance with Agency requirements for af- fordable, decent, safe, and sanitary § 3560.350 OMB control number. housing; The information collection require- (2) Preserve the value of the Agency- ments contained in this regulation financed housing projects; have been approved by the Office of (3) Detect waste, fraud, and abuse in Management and Budget (OMB) and housing project operations or manage- have been assigned OMB control num- ment and to ensure the cost of oper- ber 0575–0189. Public reporting burden ations and management are necessary for this collection of information is es- and reasonable; timated to vary from 15 minutes to 18 (4) Verify compliance with Affirma- hours per response, including time for tive Fair Housing Marketing require- reviewing instructions, searching exist- ments, Title VI of the Civil Rights Act ing data sources, gathering and main- of 1964, Title VIII of the Civil Rights taining the data needed, and com- Act of 1968, as amended, section 504 of pleting and reviewing the collection of the Rehabilitation Act of 1973, the Age information. A person is not required Discrimination Act of 1975, Americans to respond to a collection of informa- with Disabilities Act of 1990, other ap- tion unless it displays a currently valid plicable Federal laws, and Agency re- OMB control number. quirements related to occupancy and tenant eligibility. Subpart H—Agency Monitoring (c) Borrower responsibilities. The bor- rower is responsible for cooperating § 3560.351 General. fully and promptly with Agency moni- This subpart contains policies for toring activities. Agency monitoring Agency monitoring of operations and activities do not diminish borrower op- management at multi-family housing eration and management responsibil- (MFH) projects. ities and do not relieve borrowers from any Agency requirements including, § 3560.352 Agency monitoring scope, but not limited to, borrower require- purpose, and borrower responsibil- ments to comply with: ities. (1) The terms of all agreements with (a) Scope of Agency monitoring activi- the Agency, including the loan or grant ties. The Agency will review reports, agreement, assurance agreement, loan records, and other materials related to resolution, promissory note, mortgage, the housing project, including borrower interest credit agreement, rental as- financial reports, housing project sistance agreement, mitigation meas- records, and other communications. ures contained in the environmental The Agency also will review material review document, and workout agree- related to a housing project submitted ment; by a tenant or other source. To assess (2) The requirements contained in conditions such as a housing project’s this part; physical condition, record keeping pro- (3) The requirements of Title VI of cedures, and operations and manage- the Civil Rights Act of 1964, Title VIII ment activities, including borrower of the Civil Rights Act of 1968, as compliance with Federal, state, and amended; section 504 of the Rehabilita- local laws and Agency requirements, tion Act of 1973, the Age Discrimina- the Agency will conduct periodic on- tion Act of 1975, Americans with Dis- site monitoring reviews of a housing abilities Act of 1990; and project. (4) Applicable Federal, state, and (b) Purpose of Agency monitoring ac- local laws. tivities. Agency monitoring activities are designed to assess borrower and § 3560.353 Scheduling of on-site moni- tenant compliance with Agency re- toring reviews. quirements, and to: Generally, the Agency will provide (1) Ensure housing projects are man- the borrower prior notice of an on-site aged in accordance with the goals and monitoring review and will conduct the objectives of the Agency’s MFH pro- on-site monitoring review in the pres- grams and are maintained in accord- ence of the borrower. However, the
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Agency may visit a housing project, Subpart I—Servicing without prior notice, to observe phys- ical conditions, operations and man- § 3560.401 General. agement activities, or other borrower (a) Purpose. This subpart contains ac- or tenant activities. In addition, the tions the Agency may take to service Agency may conduct on-site reviews and collect loans or other debts owed without the presence of the borrower, by multi-family housing (MFH) bor- the management agent, or other des- rowers. The loan servicing and other ignated representative of the borrower. actions set forth are designed to pro- tect Agency and tenant interests and § 3560.354 Borrower response to moni- toring review notifications. assist borrowers in meeting program objectives. The Agency will notify borrowers, in (b) General servicing policies. Bor- writing, whenever Agency monitoring rowers must repay loans or other activities result in deficiency findings amounts due to the Agency according or compliance violations. The moni- to provisions specified in promissory toring review notification will describe notes, loan agreements and resolu- the deficiencies findings or compliance tions, mortgages, deeds-of-trust, as- violations and will specify a time pe- sumption agreements, reamortization riod by which corrective action must agreements, or other agreements exe- be taken by the borrower. The notifica- cuted between the borrower and the tion will offer borrowers an oppor- Agency. tunity to discuss the reported defi- (c) Special servicing actions. The Agen- ciency findings or compliance viola- cy will not agree to any proposal for tions with the Agency and will explain loan servicing or debt collection action enforcement actions that the Agency other than actions consistent with this may take if corrective action is not section, debt instruments, and other taken within the time period specified agreements. When payments due to the in the monitoring review notification. Agency from a borrower remain unpaid When civil rights non-compliance is for more than 30 days after the due found, the State Civil Rights Coordi- date, past due, after the Agency may nator or Manager (SCRC/M) will be no- initiate the special servicing actions tified. If voluntary compliance cannot described in subpart J of this part. be obtained, appropriate enforcement or remedial action will be taken. § 3560.402 Loan payment processing.
§§ 3560.355–3560.399 [Reserved] (a) Predetermined Amortization Sched- ule System (PASS) requirements. All § 3560.400 OMB control number. loans, except the loans specified in paragraph (c) of this section, must be The information collection require- closed and serviced using the PASS. ments contained in this regulation (b) Required conversion to PASS. Bor- have been approved by the Office of rowers with Daily Interest Accrual Management and Budget (OMB) and System (DIAS) accounts must convert have been assigned OMB control num- to PASS whenever a loan servicing ac- ber 0575–0189. Public reporting burden tion on the account involves a change for this collection of information is es- in the loan rates or terms or whenever timated to vary from 15 minutes to 18 a subsequent loan to the borrower is hours per response, including time for closed. reviewing instructions, searching exist- (c) Exceptions. Seasonal farm labor ing data sources, gathering and main- housing loans and on-farm labor hous- taining the data needed, and com- ing loans may be closed on DIAS, pleting and reviewing the collection of monthly, or annual payment schedules. information. A person is not required to respond to a collection of informa- § 3560.403 Account servicing. tion unless it displays a currently valid (a) Payment due dates. Loan or other OMB control number. payments due to the Agency are due on
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the first day of each month unless oth- (1) Late fees charged to a borrower’s erwise established in the debt instru- account will equal 6 percent of the ment or other agreement executed with total regular payments due as specified the Agency. in any promissory notes, assumption (b) Payment application order. Loan agreements, or reamortization agree- payments will be applied to the bor- ments related to the borrower’s ac- rower’s account in the following order count. of priority: (2) Late fees are a borrower expense (1) Amortized audit receivables. (i.e., and must not be paid from housing amounts due to the Agency, over a pe- project funds. riod of time, as a result of a finding (3) The Agency may waive late fees from an audit or other monitoring ac- for circumstances beyond a borrower’s tivity.) control and when a waiver is deter- (2) Unamortized audit receivables. mined by the Agency to be in the best (i.e., amounts due to the Agency, in a financial interest of the Federal Gov- lump sum payment, as a result of a ernment. finding from an audit or other moni- (d) toring activity.) Interest on unpaid overdue prin- cipal. On the first day of the month fol- (3) Late fees. (i.e., amounts due to the lowing a payment due date, the Agency Agency as a result of late payments.) will charge interest at the note rate on (4) Amortized recoverable costs. (i.e., any unpaid principal payment due ac- amounts due to the Agency, over a pe- riod of time, as a result of Agency pay- cording to the loan’s amortization ments made on behalf of a borrower for schedule (i.e., interest will be charged housing project related expenses such on delinquent principal). The interest as taxes or insurance premiums.) charged on the unpaid principal pay- (5) Unamortized recoverable costs. ment due will be charged to the bor- (i.e., amounts due to the Agency, in a rower in addition to the scheduled in- lump sum payment, as a result of terest due on payments according to Agency payments made on behalf of a the loan’s amortization schedule. borrower for housing project related expenses such as taxes or insurance § 3560.404 Final loan payments. premiums.) (a) Payoff statements. At the bor- (6) Overage. (i.e., amounts due to the rower’s request, the Agency will pro- Agency as a result of a tenant’s tenant vide a statement indicating the pay off contribution being higher than basic amount necessary to pay the bor- rent.) rower’s account in full. (7) Interest. (i.e., amounts due to the (b) Final payments. A borrower’s final Agency as a result of scheduled inter- loan payment must include repayment est on a loan and as a result of interest of all outstanding obligations to the charged on unpaid delinquent principal Agency. amounts.) (1) Any supervised funds being held (8) Principal. (i.e., amounts due to by the Agency will be applied to the the Agency as the loan principal.) borrower’s account or, at the bor- (9) Advance payments. (Any funds re- rower’s option, will be returned to the maining after disbursement of a pay- borrower following acceptance of final ment to all other payment priorities payment on all outstanding obliga- will be applied to the borrower’s ac- tions. count as an advance regular payment unless a borrower specifically des- (2) If a balance due remains on a bor- ignates, in writing, another applica- rower’s account after Agency accept- tion.) ance of a final payment, due to bor- (c) Late fees. If payments on a bor- rower error or fraud or Agency error, rower’s account, under PASS, are more the Agency will initiate collection ac- than $15 delinquent after the close of tion in accordance with the unauthor- business on the 10th day after the pay- ized assistance collection procedures ment due date, a late fee will be described in subpart O of this part. charged to the borrower’s account.
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(c) Final payment loans. Borrowers § 3560.405 Borrower organizational with loans for which the Agency ap- structure or ownership interest proved an amortization period that ex- changes. ceeded the term of the loan may re- (a) General. The requirements of this quest a loan to finance the final pay- section apply to changes in a borrower ment in accordance with the require- entity’s organizational structure or to ments of § 3560.74. a change in a borrower entity’s con- (d) Loan prepayment requests. If pre- trolling interest. If 100 percent of a bor- payment of an Agency loan is re- rower entity’s ownership interest is quested, the applicable preservation re- transferred, within a 12-month period, quirements of subpart N of this part, the change will be considered a housing including the execution of any appro- project transfer and the provisions of priate restrictive-use agreements, must § 3560.406, which covers transfers or be met prior to the Agency’s accept- sales of housing projects, will apply. ance of a final loan payment under the (b) Agency requirements. Borrowers must notify the Agency prior to the prepayment request. implementation of any changes in a (e) Payment forms. Final payments borrower entity’s organizational struc- may be made by cashier’s check, cer- ture. The Agency must give its consent tified check, money order, bank draft, prior to the implementation of changes or other withdrawal instruments ap- in a borrower entity’s controlling in- proved by the Agency. terest. (1) If borrowers use forms of payment (1) Borrowers must submit written requiring special handling, the bor- requests for Agency consent to the rower is responsible for the cost of the Agency at least 45 days prior to the an- special handling. ticipated effective date of the proposed (2) When payment is provided in a organizational change. The request form that is not the equivalent of cash, must document that the proposed the Agency will consider the payment changes will not adversely affect the to be received at the time the payment program purposes or security interest has been converted to cash and funds of the Agency and will not adversely have been transferred to the Agency. affect tenants. (f) Release of security instruments. The (2) If the controlling interest change Agency will release security instru- involves a transfer of interest to an en- ments, subject to applicable restric- tity not previously holding an owner- tive-use agreements referenced in sub- ship interest in the borrower entity, part N of this part, when full payment the request for consent must include a of all outstanding obligations to the written certification, executed by the Agency has been received, accepted, party receiving the ownership interest, and the funds have been transferred to certifying that the recipient of the the Agency. ownership interest agrees to assume re- sponsibilities and obligations required (1) If the Agency and the borrower of a borrower as established in Agency agree to settle an account for less than program requirements including re- the full amount owed, the Agency will quirements in the promissory note, release security instruments when the loan agreement, or other document re- borrower has paid in full all agreed lated to Agency loans held by the bor- upon obligations. rower entity. (2) Recording costs for the release of (3) The Agency will not take a con- the security instruments will be the re- sent request for a controlling interest sponsibility of the borrower, except change under consideration if the bor- where state law requires the mortgagee rower’s request fails to meet the re- to record or file the satisfaction. quirements specified in paragraph (g) Special circumstances—Refund of (b)(2) of this section. entire principal. If the entire principal (c) Documentation of organizational of the loan is refunded after the loan is structures and ownership interest. Bor- closed, the borrower must pay interest rowers must annually document their from the date of the note to the date of organizational structure and owner- receipt of the refund. ship.
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(1) Documentation must be sub- cumstances beyond the borrower’s con- mitted with the annual financial re- trol. ports required by § 3560.308 and must re- (2) Ownership transfers or sales with flect any changes made during the 12- an assumption of debt at an amount month period preceding the submission less than the borrower’s debt amount of the annual financial reports. will only be approved by the Agency (2) If no changes in a borrower enti- when all persons in the borrower entity ty’s organizational structure or owner- who are transferring their ownership ship were made during the 12-month interest or are involved in the selling period prior to submission of the an- of the property are not part of the nual financial reports, borrowers are transferee organization. not required to submit documentation, (c) Consent request requirements. Bor- but must submit a statement certi- rowers must submit written requests fying that no changes have been made for Agency consent to an ownership in the documents on file with the transfer or sale of a housing project to Agency. the Agency at least 45 days prior to (3) Organizational structure and own- proposed ownership transfer or sale ership documentation must include the date. The consent request must docu- following items: ment that the proposed transfer or sale (i) A current organization description meets the requirements of paragraph reflecting all approved changes in the (d) of this section and must include the organizational structure of the bor- following items: rower entity and listing the names, ad- (1) A statement disclosing any iden- dresses, and tax identification numbers tity-of-interest between the borrower of all parties with an ownership inter- and the party to which the housing est in the borrower entity; and project ownership is being transferred (ii) A written statement by the bor- or sold. rower certifying that the changes in (2) A statement certifying that the the borrower entity’s organizational housing project’s financial accounts structure or ownership interests were are funded at required levels, less au- completed in compliance with state thorized withdrawals, and that pay- and local laws and in accordance with ments due for operation and mainte- organizational requirements of the bor- nance expenses, tax assessments, insur- rower entity. ance premiums, any required tenant se- curity deposit accounts, and other obli- § 3560.406 MFH ownership transfers or gations incurred as a part of the hous- sales. ing project operations are paid in full (a) General. The provisions of this with no overdue balances or a state- section apply to ownership transfers or ment explaining the housing project’s sales (e.g., title transfers) involving an financial situation and the reasons for Agency financed housing project. The overdue payments or under funded ac- provisions cover situations where counts. Agency loans are being assumed as a (3) A proposed housing project budget part of a housing project transfer or covering the partial year, if applicable, sale. and first full year operation following (b) Agency consent requirements. Agen- the ownership transfer or housing cy consent must be obtained prior to project sale. an ownership transfer or sale and (4) A written statement, signed by Agency consent will only be given the proposed transferee or buyer, certi- when the transfer or sale is in the best fying that the transferee or buyer will interest of the Federal Government. assume the borrower responsibilities Any ownership transfer or sale without and obligations specified in Agency the consent of the Agency will be con- program requirements including re- sidered a default and will be handled in quirements in a promissory note, loan accordance with subpart J of this part. agreement or other documents related (1) Priority consideration will be to Agency loans held by the borrower given to ownership transfers or sales entity. needed to remove a hardship to the (5) A certification from the borrower borrower that was caused by cir- and the proposed transferee or buyer
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that the borrower does not and will not conducted in accordance with subpart have a reversionary interest in the P of this part. housing project. (iii) The Agency may approve a loan (d) Requirements for ownership trans- write-down, in accordance with fers or sales. An ownership transfer or § 3560.455, prior to an ownership trans- sale of a housing project with an as- fer or sale to reduce the amount of debt sumption of Agency loans by the trans- being assumed by the transferee or feree or buyer must comply with the buyer. following conditions: (4) Prior to Agency approval of an (1) The transferee or buyer must be ownership transfer or sale, an environ- an eligible borrower under the require- mental review, as required under the ments established by subpart B of this National Environmental Policy Act part; and in accordance with 7 CFR part 1940, (2) The transferee or buyer must subpart G, must be conducted on all agree to set basic rents at the housing project covered by the assumed loans property related to the ownership at levels that do no exceed conven- transfer or sale. If contamination from tional rents for comparable units in hazardous substances or petroleum the area, except that when determined products is found on the property, the necessary by the Agency to allow for finding must be disclosed to the Agen- decent, safe and sanitary housing to be cy and the transferee or buyer and provided in market areas where con- must be taken into consideration in ventional rents are not sufficient to the determination of the housing cover necessary operating, mainte- project’s value. nance, and reserve costs. Basic rents (5) All immediate and long-term re- may be allowed to exceed comparable pair and rehabilitation needs must be rents for conventional units, but in no identified by a capital needs assess- case by more than 150% of the com- ment. The reserve requirements for the parable rent for conventional unit rent housing project will be reviewed by the level; and Agency and adjusted, if necessary, to (3) The value of the housing project adequately cover the cost of addressing covered by the loans to be assumed, at the property’s capital needs. The Agen- the time of an ownership transfer or cy may approve the release of the cur- sale, must be sufficient to ensure that rent reserve amount to the transferor all Agency loans being assumed and all provided the transferee agrees to de- subsequent loans being offered as a posit the amount to cover the project’s part of the transfer or sale can be se- immediate needs into the reserve ac- cured to a level that fully protects the count at closing. Agency’s interest. Loans from third- (6) The borrower and transferee must party sources that are not dependent disclose to the Agency all terms, condi- on project revenue for payment will tions, or other considerations related not be included in this determination. to the ownership transfer or sale. All (i) If the total value of the loans side or other agreements must be dis- being offered as a part of an ownership transfer or sale is $100,000 or less, the closed and all sources and uses of funds security value of the housing project related to the ownership transfer or may be determined through either: An sale must be disclosed. Agency review of monitoring reports (7) An agreement must be signed be- conducted in accordance with the re- tween the borrower and the transferee quirements in subpart H of this part or listing all repairs known by the bor- an appraisal paid for by the borrower rower to be necessary to bring the and conducted in accordance with sub- housing project into compliance with part P of this part. Agency requirements for decent, safe, (ii) If the total value of the loans and sanitary housing as listed in sub- being offered as a part of an ownership part C of this part. transfer or sale exceeds $100,000, the se- (i) The agreement must include re- curity value of the housing project pairs required to correct compliance must be determined through an ap- violations cited in a compliance viola- praisal obtained by the Agency and tion notice issued by the Agency.
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(ii) The agreement must specify The Agency will require that all or whether each repair listed will be com- part of an equity payment be applied pleted by the borrower prior to the against other Agency loans owed by ownership transfer or by the transferee the borrower if payments on the other in accordance with a workout agree- loans are not current. ment developed in accordance with the (2) Any non-Agency prior liens requirements of § 3560.453 and executed against a housing project are not paid between the transferee or buyer and in full. the Agency. (3) Any housing project financial ac- (8) A civil rights compliance review, counts are not funded at required lev- as required by 7 CFR part 1901, subpart els, less authorized withdrawals, or any E, will be conducted by the Agency payments due for operation and main- prior to the ownership transfer or sale. tenance expenses, tax assessments, in- (9) During or immediately after the surance premiums, tenant security de- transfer, a review of the property must posits or other obligations incurred as be conducted to ensure that it complies a part of housing project operations are with or will comply with section 504(c) not paid in full. of the Americans with Disabilities Act (4) Any management deficiencies (ADA), which covers accessibility re- cited in a compliance violation notice quirements, and the Title VI of the issued by the Agency to the borrower Fair Housing Act of 1968. have not been corrected or the housing (10) A transferee must ensure that project is not operating under an ap- tenant certifications in compliance proved management plan or, if applica- with subpart D of this part for all occu- ble, an approved management agree- pied rental units are on file with the ment. Agency. (11) A transferee must comply with (5) Any operation and maintenance insurance and bonding requirements deficiencies cited in compliance viola- established in subpart C of this part at tion notices issued by the Agency have the time of the transfer. not been corrected or are not scheduled (12) A transferee must agree to sub- for correction in a workout agreement mit financial reports to the Agency ac- developed in accordance with the re- cording to subpart G of this part. quirements of § 3560.453. (13) A transferee must establish that (6) The borrower entity is, at the there are no liens, judgments, or other time of the ownership transfer or sale, claims against the housing project cited by the Agency or other Federal, other than those by the Agency and state, or local agencies for violations those to which the Agency has pre- of Fair Housing or Equal Opportunity viously agreed. requirements. (14) A limited profit Rural Rental (7) The borrower entity is, at the Housing transferee’s initial investment time of the ownership transfer or sale, and return on investment will remain cited by the Agency or any other enti- the same as that originally provided to ty involved in the financing of the the transferor unless: housing project for misappropriation of (i) The property is transferred to a funds. non-profit entity and the return on in- (f) Equity payment funding sources. Eq- vestment is eliminated; or uity may be provided in cash or (ii) The transferee contributes addi- through a loan. If a full equity pay- tional funds for repair or rehabilitation ment to the transferor is not paid at and the Agency agrees to recognize a the time of the ownership transfer or higher initial investment. sale or has not been paid through an (e) Equity payments. The Agency will Agency equity loan or third-party eq- withhold any equity payment due to uity loan approved by the Agency to the borrower, as part of an ownership the borrower, the transferee must cer- transfer or sale, if any of the following tify that equity payments due to the conditions exist: borrower will be paid from sources (1) The borrower’s indebtedness to other than housing project’s funds and the Agency has not been paid in full or must identify the sources of such pay- is not being assumed by the transferee. ments.
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(g) Restrictive-use requirement. Trans- (2) The interest rate on farm labor ferees assuming Agency loans, includ- housing loans will be the rate specified ing loans approved prior to December in the note, except that loans trans- 21, 1979, will be required to execute a ferred to public bodies, nonprofit orga- restrictive-use agreement that con- nizations of farm workers, and broadly- tains the language specified in based nonprofit corporations for farm § 3560.662. The restrictive-use agree- labor housing purposes may be at a one ment will require the housing project percent interest rate regardless of the to be used for program purposes for a rate specified in the note if the Agency specified period of time beyond the determines that such a reduction is date that the ownership transfer or necessary to maintain affordable rent- sale is closed. When an equity loan is al rates for tenants. involved at the time of transfer, the re- (j) Loan assumption terms. The strictions will be for 30 years. amount of the loan balance that may (h) Subsequent loans. The Agency may be assumed through an ownership approve a subsequent loan or permit a transfer or sale must not exceed the se- loan from a third-party source in con- curity value of the housing project de- junction with an ownership transfer or termined according to § 3560.406(d)(3)(i). sale of a housing project. The subse- (1) The Agency may reamortize a quent loan may be in the form of a jun- loan assumed through an ownership ior or parity lien. transfer or sale over a period not to ex- (1) Subsequent loans on a housing ceed the remaining economic life of the project proposed in conjunction with housing or 50 years, whichever is less. an ownership transfer or sale must be (2) The Agency may extend the term requested and processed in accordance of the loan to a period not to exceed 30 with the Agency loan origination re- years or the remaining economic life of quirements in subpart B of this part. the housing, whichever is less. (2) The Agency may amortize the (3) When loans assumed through an subsequent loan over a period not to ownership transfer or sale are amor- exceed the remaining economic life of tized on an annual payment basis, the the housing or 50 years, whichever is loans will be converted, at the time of less. the transfer or sale, to a monthly pay- ment amortization and will be made (3) The Agency may extend the term subject to PASS. When on- or off-farm of the existing loan to a period not to labor housing projects are involved in exceed 30 years or the remaining eco- an ownership transfer or sale, the re- nomic life of the housing, whichever is lated loans may be transferred on a less. DIAS basis or converted to PASS if the (i) The Loan assumption interest rates. Agency determines that such a conver- interest rate for Agency loans assumed sion will not be detrimental to the op- in conjunction with an ownership eration of the farm labor housing. transfer or sale will be determined as (k) Processing ownership transfers or follows: sales. (1) At the time of the transfer, (1) The interest rate for all loans, ex- the Agency will require the borrower cept farm labor housing loans, will be to transfer all equipment, related fa- set at the lower of: cilities, and housing project financial (i) The note rate of the existing accounts to the transferee including Agency loan; the operation and maintenance ac- (ii) The Agency note rate on the day count, reserve account, tenant security the transfer is approved; deposit account, tax and insurance es- (iii) The Agency note rate on the day crow accounts. the transfer is closed; or (i) Any funds remaining in a rental (iv) If the rents are increased due to assistance contract not dispersed by a transfer, the transfer will be done the transferor will be assigned to the under new rates and terms when the transferee unless the rental assistance Agency determines that it is in the is not needed for tenants or another best interest of the government. Subse- form of rental subsidy is to be used. quent loan may be in the form of a sen- (ii) Any rental assistance determined ior, junior or parity lien or soft second. to be unnecessary will be reassigned to
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other housing projects in accordance the Agency approves all such sales or with the provisions of subpart F of this other dispositions of security property. part. (b) Request requirements. Requests for (2) The Agency will require that ap- Agency approval of transactions re- propriate loan documents are executed lated to security property must docu- by the transferee. The Agency may re- ment that the following conditions will quire such documents to be referenced be met. in security instruments (e.g., mortgage (1) The borrower’s ability to repay or deed of trust). the Agency debt will not be impaired; (3) If all of a borrower’s outstanding (2) The transaction will not interfere Agency debt is not assumed or paid off with the successful operation of the at the time of the transfer or sale, the housing project or prevent the bor- Agency will not release a borrower rower from carrying out the purpose from liability unless the Agency deter- for which the loan was made. mines that the borrower is unable to (3) The monetary or other consider- pay the remaining debt from assets ation offered in the transaction is taken as security through the debt set- equal to or greater than the market tlement procedure in accordance with value of the security property being § 3560.457. disposed of or the rights being granted, (l) Ownership transfers or sales under except that right-of-way easements special rates, terms, and conditions. may be granted or conveyed with mini- Housing projects may be transferred or mal or no consideration being offered sold to entities that do not meet bor- if: rower eligibility requirements for the (i) The value of the security property type of loans being assumed. However, will not be reduced; such a transfer or sale will only be con- (ii) The suitability of the security sidered when it is determined by the property for the intended purpose will Agency to be in the best interest of the not be impaired; and Federal Government and the objectives (iii) The easement is granted to allow of the original loan can no longer be the borrower to develop additional lots met. The following special rates, or units that will be integrated into terms, and conditions will apply to the housing project or for enhancement such situations. of streets, utilities or other services (1) The transferee makes a down pay- provided by a public body. ment of at least 10 percent of the re- (4) The property that will remain as maining loan balance to be assumed. security for Agency loans, after any (2) The transferee has the ability to transaction related to security prop- pay the Agency debt. erty, will fully secure the borrower’s (3) Monthly or annual installments debt to the Agency. will be amortized over the term of the (5) Borrowers must report to the loan and the interest rate will be at a Agency the total of all proceeds de- rate of interest at least one percent rived from the sale or other disposition higher than the interest rate offered to of property serving as security for eligible borrowers as specified in para- Agency loans. The proceeds from the graphs (i)(1) or (2) of this section. disposition of the security property will be used for purposes approved by § 3560.407 Sales or other disposition of the Agency. security property. (a) General. Borrowers must obtain § 3560.408 Lease of security property. Agency approval prior to selling or ex- (a) General. Borrowers must obtain changing all or a part of, or an interest Agency approval prior to entering into in, property serving as security for a lease agreement related to any prop- Agency loans. Agency approval also erty serving as security for Agency must be requested and received prior to loans. An environmental review must the granting or conveyance of rights- be completed in accordance with 7 CFR of-way through property serving as se- part 1940, subpart G, before the Agency curity property. An environmental re- can give lease approval for real prop- view must be completed in accordance erty serving as security for Agency with 7 CFR part 1940, subpart G, before loans.
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(b) Leases to public housing authorities. (6) When another lienholder’s mort- Borrowers may not lease all or part of gage requires that lienholder’s consent their housing facilities to a housing au- to a lease, the borrower must obtain thority. Lease agreements in place written consent from the lienholder be- prior to the effective date of this regu- fore the Agency will consider approv- lation may be continued provided that ing the lease. leases are in a form acceptable to the (d) Mineral leases. Mineral leases will housing authority and are on terms be handled according to 7 CFR 3550.159 that will enable the borrower to com- except that all references to County ply with Agency program require- Supervisor will be construed to mean ments, to meet Agency program objec- District Director when applied to the tives, and make loan and other re- MFH Programs. quired payments to the Agency on an Agency approved schedule. § 3560.409 Subordinations or junior (c) Lease of a portion of the security liens against security property. property. The Agency may, subject to (a) General. Borrowers must obtain the applicable provisions governing Agency consent prior to entering into loan purposes found in of § 3560.53, any financial transaction that will re- § 3560.553 and § 3560.603, approve the quire a subordination of the Agency se- leasing of facilities related to a hous- curity interest in the property (i.e., ing project (e.g., central kitchens, granting of a prior interest to another recreation facilities, laundry rooms, lender.) An environmental review must and community rooms) when the bor- be completed in accordance with 7 CFR rower will continue to operate the fa- part 1940, subpart G, before the Agency cilities for the purposes for which the can consent to a subordination or jun- loan was made. Agency approval is not ior lien against the property. Bor- required for leases with a term of less rowers must use an Agency approved than 30 days. The Agency will only ap- subordination agreement. prove a lease with a term over 30 days (1) If a lien is placed against property if the following conditions are met: serving as security for an Agency loan (1) The lease is in the best interest of without prior Agency consent, the the borrower, the tenants, and the Fed- Agency will declare the borrower to be eral Government. in default and will pursue liquidation (2) The amount of the consideration of the borrower’s loans in accordance agreed to in the lease is adequate to with the procedures specified in pay all prorated operating and mainte- § 3560.457, unless an agreement can be nance expenses, a prorated share of the reached between the borrower and the annual reserve deposit, and the pro- Agency to work out removal of the lien rated part of the loan amortization at or post approve the lien. the note rate of interest. (2) Subordinations or junior liens (3) All compensation and consider- need not encompass the entire site, ations, whether payments, a share of (e.g., a subordination or junior lien re- proceeds, or improvements to the prop- quested to permit an interim lender to erty paid for by the lessee, must be dis- advance construction funds may only closed to the Agency. No payments or cover the portion of the site proposed compensation for entering into a lease for construction.) shall flow to the borrower or any iden- (3) The subordination or junior lien tity-of-interest related to the bor- must be for a specific amount. rower. (4) The subordination or junior lien (4) The lease provides at its termi- must not adversely impact the Agen- nation for the restoration of the leased cy’s ability to service the loan accord- space to its original condition or a con- ing to the requirements of this part. dition acceptable to the owner and the (b) Consent request requirements. Bor- Federal Government. rowers proposing to have the Agency (5) Consent to the lease will not ex- subordinate its interest to another ceed 3 years at a time unless the Agen- lender or to give a creditor a junior cy determines that a longer lease is ad- lien against property serving as secu- vantageous to the borrower, the ten- rity for an Agency loan must submit a ants, and the Federal Government. consent request to the Agency. The
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consent request must document the nancial condition and allow for im- following: provements or repairs that are con- (1) The action will enable the bor- sistent with the purposes of the Agency rower to obtain financial resources for loan secured by the property. improvements or repairs on the secu- (1) Farm Labor Housing loans on rity property that are consistent with farm tracts may be subordinated for es- the purposes of the Agency loan se- sential farm improvements and oper- cured by the property. ations. (2) The action will not adversely im- (2) Any proposed development must pact the borrower’s financial condition be planned and performed according to and the borrower’s ability to repay the 7 CFR part 1924, subpart A, or in a Agency loan being secured by the prop- manner directed by the other erty. lienholder that meets the objectives of (3) The action will not result in basic 7 CFR part 1924, subpart A. rents at the security property that ex- (d) Other liens against a property or ceed conventional rents for comparable other assets. (1) Borrowers must not units in the area. enter into any agreements to place a (4) The terms and conditions of the lien on a housing project or any equip- credit to be secured by the subordina- ment related to a housing project with- tion or junior lien are not expected to out prior Agency approval and unless adversely affect the borrowers ability the following conditions are met: to meet the terms and conditions of (i) The transaction will not adversely the Agency loan secured by the prop- affect the Agency’s security position; erty. (ii) The lien is not related to a non- (5) The proposed use of the funds ob- program eligible action; tained through the granting of a subor- (iii) The items to be acquired by the dination or junior lien will not ad- funding related to the lien is needed for versely affect the borrower’s ability to the operation of the property; and meet Agency program requirements or (iv) The financing arrangements are to operate and manage the housing otherwise sound. project in a manner consistent with (2) In cases where the above criteria program objectives. are met, borrowers must complete and (6) The creditor receiving the ‘‘subor- provide the Agency a copy of the fi- dination’’ of interest in the property or nancing statement, loan document, or the junior lien will agree that a fore- contract, as applicable, as well as a se- closure or acceptance of a deed-in-lieu curity agreement acceptable to the of foreclosure will not be initiated Agency. without at least 30 days prior notice to the Agency. § 3560.410 Consolidations. (7) The subordination or junior lien is (a) General. With Agency approval, not being secured with any funding loans, loan agreements, or loan resolu- from housing project financial ac- tions may be consolidated to reduce counts. the administrative burden (i.e., record (8) The ‘‘subordination’’ of interest or keeping, budgeting), to improve the junior lien will not cause the debt from cost effectiveness and efficiencies of all sources to exceed the value of the housing project operations, and to ef- security property. fectively utilize facilities common to (9) The transaction related to the housing projects. placement of a ‘‘subordination’’ of inter- (b) Loan consolidations. Loan consoli- est or junior lien against the property dations will only be considered when: serving as security for an Agency loan (1) Multiple loans to the one bor- is in the best interest of the Federal rower entity are being transferred to a Government. different borrower entity in accordance (c) Required conditions for subordina- with § 3560.406, or tions and junior liens. Subordinations of (2) One borrower entity has an initial interest in or junior liens against prop- loan and one or more subsequent loans erty serving as security for an Agency for the same housing project and all loan may be approved by the Agency the loans were closed on the same date only if they improve a borrower’s fi- and with the same rates and terms.
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(c) Loan agreement or loan resolution plemented either as a part of a work- consolidations. Loan agreements or loan out agreement, developed in accord- resolutions may be consolidated, even ance with § 3560.453, or as an action ap- if the loans related to the agreement or proved by the Agency separate from a resolution are not consolidated, to workout agreement unless indicated allow borrowers to comply with report- otherwise in this subpart. ing, accounting, and other Agency re- quirements as a single housing project. § 3560.452 Monetary and non-monetary (1) The loan agreements or loan reso- defaults. lutions may only be consolidated when they are related to loans made for the (a) General. Borrowers are in default same purposes, to the same borrower, when they have received a compliance and operating under the same type of violation notice, issued in accordance interest credit, if applicable. with § 3560.354, and have failed to cor- (2) All of a borrower’s loan accounts rect the compliance violation identi- must be current after the loan agree- fied in the compliance violation notice ment or loan resolution consolidation within the time period specified in the is processed, unless otherwise approved notice. Compliance violations include, by the Agency. but are not limited to, violations of promissory note provisions, loan or §§ 3560.411–3560.449 [Reserved] grant agreement provisions, regu- § 3560.450 OMB control number. latory, or other Agency requirements, including requirements imposed on a The information collection require- borrower through a workout agreement ments contained in this regulation developed in accordance with § 3560.453. have been approved by the Office of Management and Budget (OMB) and (b) Monetary defaults. A monetary de- have been assigned OMB control num- fault exists when any amount due to ber 0575–0189. Public reporting burden the Agency or a third party (such as for this collection of information is es- real estate taxes and insurance) under timated to vary from 15 minutes to 18 a promissory note, loan or grant agree- hours per response, including time for ment, workout agreement, or other reviewing instructions, searching exist- agreement remains due more than 30 ing data sources, gathering and main- days after the due date. taining the data needed, and com- (c) Nonmonetary defaults. A nonmone- pleting and reviewing the collection of tary default exists when a borrower information. A person is not required fails to correct a compliance violation, to respond to a collection of informa- other than a monetary amount past tion unless it displays a currently valid due, within the time period specified in OMB control number. a compliance violation notice issued in accordance with § 3560.354. Nonmone- Subpart J—Special Servicing, En- tary defaults include, but are not lim- forcement, Liquidation, and ited to, failure to: Other Actions (1) Operate and manage a housing project in accordance with the Agency § 3560.451 General. approved management plan or Agency This subpart contains special serv- requirements; icing, enforcement, liquidation, and (2) Maintain the physical condition of other actions that the borrower may a housing project in a decent, safe, and request or the Agency may implement sanitary manner and in accordance when compliance violations, monetary with Agency requirements; defaults, or non-monetary defaults can- (3) Keep general operating expense, not be resolved through regular serv- reserve, and other financial accounts icing. related to a housing project at required (a) Agency obligations. The Agency is funding levels; under no obligation to offer or agree to any special servicing actions. (4) Occupy rental units with eligible (b) Relationship to workout agreements. tenants, unless granted an exception Special servicing actions may be im- by the Agency;
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(5) Charge correct rents or to cor- (ii) A change in operations and man- rectly calculate net tenant contribu- agement at a housing project; or tions, utility allowances, or rental as- (iii) A commitment of additional fi- sistance payments or to properly ad- nancial resources to the housing minister the Agency rental assistance project with the amount and source of assigned to the housing project; the additional resources to be com- (6) Submit required annual financial mitted to the housing project specifi- reports to the Agency within time peri- cally identified. ods specified in § 3560.308; (b) Workout agreement approval. (1) (7) Submit management plans, leases, The Agency is under no obligation to occupancy rules, and other required approve a workout agreement as sub- materials to the Agency in accordance mitted by a borrower or to act with with Agency requirements; and, forbearance when a housing project is (8) Comply with applicable Federal in monetary or non-monetary default. laws including laws related to civil (2) Borrower developed workout rights, fair housing, disabilities, and agreements may not be implemented environmental conditions. until the borrower receives written ap- (d) Default notice. When borrowers are proval from the Agency. in default, the Agency will notify bor- rowers, in writing, that they are in de- (3) The Agency will only approve a fault. The default notice will identify workout agreement if the Agency de- the compliance violation that led to termines that the actions proposed are the default, will specify actions nec- likely to prevent or correct compliance essary to cure the default, and will es- violations or cure a default and ap- tablish a date by which the default proval is in the best interest of the must be cured to preclude Agency initi- Federal Government and tenants. ation of enforcement actions, liquida- (4) The Agency will only approve a tion, or other actions. workout agreement if the proposed ac- (e) Agency action. If a borrower fails tions are consistent with the bor- to cure a default within the time pe- rower’s management plan. If proposed riod specified in the default notice, the actions are not consistent with the Agency may initiate the enforcement borrower’s management plan, applica- actions described in § 3560.461 or liq- ble revisions to the borrower’s manage- uidation as described in § 3560.456. Also, ment plan must be made before ap- Agency compliance violation notices proval of the workout agreement is and related default notices may be re- given. ferred to Federal, state, and local agen- (c) Workout agreement required con- cies with jurisdictions related to the tent. (1) Workout agreements submitted violations for handling, in accordance to the Agency for approval must be in with their requirements. writing and signed by the borrower. Workout agreements must describe § 3560.453 Workout agreements. proposed actions in sufficient detail to (a) General. (1) Prevention or resolu- demonstrate the likelihood of the ac- tion of compliance violations or de- tions to prevent or correct compliance fault cures are a borrower’s responsi- violations or cure defaults. bility. (2) At a minimum, workout agree- (2) A borrower may develop and sub- ments must include the following. mit to the Agency for approval a work- (i) The name and address of the hous- out agreement that proposes actions to ing project, project number, borrower’s be taken over a period of time to pre- tax identification number, and other vent or correct a compliance violation information necessary to identify the or to cure a monetary or non-monetary housing project. default. (ii) A description of the potential or (3) A borrower developed workout actual compliance violation or default agreement may propose, but is not lim- situation, including an explanation of ited to, the following actions: related causes, such as cash flow con- (i) A combination of one or more of cerns, budget revisions, deferred main- the special servicing actions outlined tenance, vacancies, or violations of in §§ 3560.454 and 3560.455; statutes.
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(iii) A definition and description of tives, or a revised budget, at any time the housing project’s market area, in- during a housing project’s fiscal year. cluding information on housing avail- (b) Occupancy waivers. If the Agency ability, rents, and vacancy rates in the determines that a housing project with market area. high vacancies could be kept oper- (iv) A description of the proposed ac- ationally and financially viable by al- tions to prevent or correct compliance lowing the borrower to accept as ten- violations or to cure defaults along ants persons with incomes above the with a date specific schedule indicating income eligibility standards specified when interim and final actions will be in § 3560.152(a), the Agency, in writing, taken to correct the compliance viola- may grant the borrower an occupancy tion or cure the default. waiver to allow such persons as ten- (v) A description of financial and ants. Occupancy waivers will be in ef- other resources necessary to prevent or fect only during the time period speci- correct the compliance violation or fied by the Agency when the waiver is cure the default including an identi- granted. In addition, borrowers must fication of the sources for such re- rent to all eligible applicants on the sources. housing projects waiting list prior to (d) Workout agreement budgets. Budget accepting persons with incomes above revisions submitted as a part of a the Agency standards as tenants. workout agreement for a housing (c) Additional rental assistance (RA). If project experiencing cash flow prob- the Agency determines that a housing lems must prioritize cash disburse- project with high vacancies could be ments in the following order: kept operationally and financially via- (1) Prior lienholder, if any; ble by increasing the amount of RA al- (2) Critical operating and mainte- located to the housing project, the nance expenses, including taxes and in- Agency, subject to available funds, surance; may offer the housing project RA as a (3) Agency debt payments; means of preventing or correcting a (4) Reserve account requirements; compliance violation or curing a de- and fault. (5) Other authorized expenditures. (d) Special note rents. When a Plan II (e) Workout agreement terms and can- housing project is experiencing severe cellation. (1) Workout agreements shall vacancies due to market conditions, be in effect for no longer than a 2-year the Agency may approve a rent less time period, beginning on the date of than the note rent to attract and keep Agency approval. If an approved work- tenants whose incomes, according to out agreement calls for actions that the formula in § 3560.203, would require extend beyond a 2-year period, bor- them to pay the note rent. The reduced rowers must submit an updated and, if rent is called a Special Note Rent necessary, revised workout agreement (SNR) and, as noted in § 3560.210, ap- to the Agency for approval. The up- proval of an SNR may affect approvals dated workout agreement must be sub- of loan proposals submitted to the mitted to the Agency, 30 days prior to Agency for the market area where the the expiration of the workout agree- SNR is in effect. ment in effect. (1) An SNR rent may only be re- (2) The Agency may cancel a workout quested as a part of a proposed work- agreement at any time if the borrower out agreement and must include docu- fails to comply with the terms of the mentation of market conditions, the agreement. The Agency will provide housing project’s vacancy rates, evi- notice to the borrower upon cancella- dence of marketing efforts, and other tion of the workout agreement. concerns necessitating the request for an SNR. § 3560.454 Special servicing actions re- (2) Borrowers must forego the annual lated to housing operations. return to owner for each housing (a) Changing rents or revising budgets. project’s fiscal year that an SNR is in The Agency may approve a borrower effect for all or part of a fiscal year at request for a rent change, rent incen- a housing project.
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(3) SNR’s may be increased, de- specified period of time, not to exceed creased, or terminated any time during the effective period of the workout a housing project’s fiscal year when agreement. market conditions, vacancy rates, or (b) Loan reamortizations. A loan re- other concerns that necessitated the amortization is a restructuring of loan SNR warrant a change. terms and conditions over a period of (4) In addition to any state lease law time that does not exceed the remain- requirements that might be related to ing useful life of the housing project. the implementation of an SNR, the (1) Loan reamortizations will only be borrower must notify each tenant of approved when they are in the best in- any change in rents or utility allow- terest of the Federal Government and ances that result from approval of an tenants and when the following condi- SNR, in accordance with § 3560.205(c) tions are met. and must submit the appropriate budg- (i) The Agency determines that the et changes to the Agency for approval. borrower will be unable to meet their (e) Termination of management agree- obligations without a reduction in ment. If the Agency determines that a monthly payment installments; and compliance violation or loan default (ii) The Agency is satisfied that the was caused, in full or in part, by ac- security, including the potential in- tions or inactions of the housing come for debt service, will be adequate project’s management agent, the Agen- to protect the Agency’s interest over cy will require the borrower to termi- the term of the reamortization and nate the management agreement with that the reamortization will not ad- that agent, or in the case of a borrower versely affect the Federal Govern- managed housing project, to enter an ment’s lien priority. agreement with a third-party non-iden- (2) If the Agency approves a re- tity of interest management agent, un- amortization of a loan under this sec- less the borrower and the Agency agree tion, it will be at the existing note on a written plan to prevent reoccur- rate, or the current interest rate at the rence of the violation. Housing project time of reamortization closing or ap- funds may not be used to pay a man- proval, whichever is less. agement fee to a management agent (3) Loan reamortization may be used after the Agency has directed the bor- to: rower to terminate a management (i) Restructure loan repayments to agreement with that agent, except dur- prevent or correct a compliance viola- ing an Agency approved transition pe- tion or cure a default caused by cir- riod. cumstances beyond the borrower’s con- trol in situations where the borrower is § 3560.455 Special servicing actions re- otherwise in compliance with Agency lated to loan accounts. requirements; (a) General. To prevent or correct a (ii) Repay principal, outstanding in- compliance violation or to prevent or terest, overage, and advances made by cure a default in a situation that can- the Agency for recoverable cost items not be resolved through regular serv- when less than full payments were au- icing, the Agency may approve a defer- thorized under the provisions of an ral of loan payments or a loan restruc- Agency approved workout agreement; turing. Nothing herein precludes the (iii) Restructure a borrower’s loan Agency from initiating appropriate payments in conjunction with an in- legal action to correct a compliance centive package developed in accord- violation if the Agency determines ance with § 3560.656 to prevent prepay- such action is more in the Govern- ment of the loan; ment’s interest than entering into a (iv) Restructure an existing loan in special servicing agreement as pro- conjunction with a subsequent loan for vided for in this section. Procedures for rehabilitation; or debt collection are discussed in (v) Restructure remaining debt when § 3560.460. As part of a workout agree- a portion of the property serving as ment, the Agency may agree to accept loan security is sold and there is a need less than full monthly payment install- to reestablish the financial stability of ments due on an Agency loan for a the housing project.
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(c) Loan writedowns. A loan (b) Acceleration. When a borrower is writedown is a reduction of a bor- in monetary or non-monetary default, rower’s debt approved by the Agency. the Agency will accelerate the loan un- (1) Loan writedowns will only be ap- less the Agency decides other enforce- proved when they are in the best inter- ment measures are more appropriate. est of the Federal Government and (1) If the borrower does not pay the when the following conditions exist: full account balance and meet the (i) Sound management of the housing other terms of the acceleration notice project is evident or sound manage- within the time period set forth in the ment practices are proposed for correc- acceleration notice, the Agency will tion in accordance with an Agency ap- foreclose or acquire the security prop- proved workout agreement; and erty through deed in lieu of fore- (ii) The housing project’s financial closure. stability is being affected by condi- (2) The Agency will suspend interest tions beyond the borrower’s control, credit and rental assistance. such as market weaknesses, unforeseen (3) The Agency will not accept par- site problems, or natural disasters. tial payment of an accelerated loan un- (2) Prior to Agency approval for a less required by state law. loan writedown, the borrower must ob- (c) Voluntary liquidation. After accel- tain an appraisal of the housing project eration, borrowers may voluntarily liq- that concludes the ‘‘ ‘as-is’ market uidate through either of the following value,’’ subject to restricted rents, con- mechanisms: ducted in accordance with subpart P of this part. The Agency will not approve (1) Deed in lieu of foreclosure. RHS a loan write-down unless the appraisal may accept a deed in lieu of foreclosure indicates the Federal Government’s in- to convey title to the security property terests are secured at the proposed only after the debt has been acceler- writedown level. ated and when it is in the Govern- (3) Any writedown will be condi- ment’s best interest. tioned on a finding that the borrower (2) Offer by third party. If a junior does not have the ability to pay a high- lienholder or cosigner makes an offer er loan payment, even if the loan is re- in the amount of at least the net recov- amortized. ery value, RHS may assign the note (4) Loan writedowns may be used to and mortgage after all appeal rights allow for a loan transfer and assump- have expired. tion for less than the total amount of (d) Foreclosure. (1) The Agency will outstanding debt. initiate foreclosure when a borrower is in monetary or non-monetary default § 3560.456 Liquidation. and foreclosure is in the best interest Prior to any servicing action which of the Federal Government. might lead to the acquisition of real (2) When a junior lienholder fore- property by the Agency, the Agency closure does not result in payment in must complete a due diligence report full of the Agency debt but the prop- to assess any potential contamination erty is sold subject to the Agency lien, of the property from hazardous sub- the Agency will liquidate the account. stances, hazardous wastes, or petro- (e) Acquisition of chattel properties. (1) leum products. The borrower must co- The Agency will accept voluntary con- operate with the Agency in the devel- veyance of chattel property only when opment of this report. the borrower can convey ownership (a) Before acceleration. Before accel- free of other liens and the Agency has erating a project loan, the Agency will agreed to release the borrower from consider the possibility that the bor- further liability on the account. rower is forcing an acceleration to cir- (2) If the Agency decides to accept an cumvent the prepayment process. If it offer of voluntary conveyance of chat- is found that this is the borrower’s mo- tel property, the borrower must pro- tivation, the Agency will consider al- vide an itemized listing of each chattel ternatives to acceleration, such as property item being conveyed and pro- suing for specific performance under vide title to vehicles or other equip- loan and management documents. ment, where applicable.
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§ 3560.457 Negotiated debt settlement. of the borrower and will be charged to (a) Borrower proposals to settle debt. A the borrower’s account until liquida- borrower who cannot pay the full tion is completed. amount of loan payments may propose (b) Other security. The Agency will an offer to settle an outstanding debt service security such as collateral as- for less than the full amount of that signments, assignments of rents, Hous- debt. The Agency may approve a nego- ing Assistance Payments Contracts, tiated debt settlement only in cases and notices of lienholder interest ac- where a default is evident and doing so cording to acceptable practices in the is in the best interest of the Federal respective states. Government and tenants. (c) Taking of additional security to pro- (b) Required information. Borrowers tect Agency interests. The Agency may requesting debt settlement must sub- require borrowers to provide additional mit complete and accurate information security in the form of real estate, cash from which a full determination of fi- reserves, letters of credit, or other se- nancial condition can be made. Debt curity when needed to improve the settlement offers will not be approved chances that the Agency will not suffer by the Agency unless the financial in- a loss, and when: formation submitted by the borrower (1) The account is in default; or indicates that the borrower will be able (2) The property has not been prop- to make the debt settlement payments erly managed or maintained. as proposed. (d) Due diligence. When the Agency (c) Effective date of approval. Debt set- has completed an environmental re- tlement offers will not be accepted view in accordance with 7 CFR part until the borrower receives written ap- 1940, subpart G, and decides not to ac- proval from the Agency. quire security property through liq- (d) Appraisal requirement. No debt set- uidation action or chooses to abandon tlement offer will be accepted for less its security interest in real property, than the net recovery value of the se- whether due in whole or in part, to the curity as determined by a licensed ap- presence of contamination from haz- praiser or other qualified official, and ardous substances, hazardous wastes, concurred in by the Agency’s qualified or petroleum products, the Agency will appraisal review official or other quali- provide the appropriate environmental fied official. authorities with a copy of its due dili- (e) Disposition of security prior to offer. gence report. Borrowers are not required to dispose of security prior to making a debt set- § 3560.459 Special borrower cir- tlement offer. However, if a borrower cumstances. has disposed of security prior to mak- (a) Deceased borrower, bankruptcy, in- ing a debt settlement offer, the pro- solvency, and divorce actions. The Agen- ceeds from the disposed security must cy will address borrower accounts af- be applied to the borrower’s account fected by special circumstances such as prior to any negotiations on the debt death, bankruptcy, insolvency, and di- settlement offer. vorce on a case-by-case basis. The (f) Final release condition. Upon full Agency will make servicing decisions payment of the approved debt settle- in such cases on the basis of best inter- ment, the Agency will release the bor- est to the Federal Government and ten- rower from liability. ants. The Agency will bring a legal ac- tion to establish the legal capacity of § 3560.458 Special property cir- the borrower to administer the project cumstances. if found necessary to protect the gov- (a) Abandonment. When the Agency ernment’s interests. In order for the determines that a borrower has aban- Agency to make servicing decisions in doned security for a loan under this such cases, the borrower or the bor- part, the Agency will take the steps rower’s representative will provide to necessary to protect the Federal Gov- the Agency: ernment’s interest in the security. (1) On the part of the heirs or execu- Costs associated with managing aban- tor of the borrower’s estate, evidence doned property are the responsibility of legal action due to a will or court
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actions that establish who is to become (i) Any individual or entity that bor- the owner; rows funds in accordance with pro- (2) The financial status of the bor- grams authorized by this section; rower and any member pledging addi- (ii) Any individual or entity holding tional security for the debt; 25 percent or more interest in any enti- (3) The status of the security prop- ty that the Agency funds in accordance erty; and with programs authorized by this sec- (4) The impact of the identified ac- tion; and tions on the operation of the project. (iii) Any officer, director, or partner of an entity that borrows funds in ac- (b) Membership liability agreements. If cordance with programs authorized by a borrower’s note is endorsed by indi- this section. viduals other than the borrower or a (b) Amount recoverable. (1) In any borrower has security agreements with judgment favorable to the United members of the organization for the States entered under this section, the purchase of shares of stock or for the Attorney General may recover double payment of a pro rata share of the loan the value of the assets and income of in the event of default, or has indi- the project that the court determines vidual liability agreements, which are to have been used in violation of the usually assigned to and held by the provisions of a loan made by the Agen- Agency as additional security for the cy under this section or any applicable loan, the security and liability agree- statute or regulation, plus all costs re- ments must be adequate to protect the lated to the actions, including reason- Agency’s interest. able attorney and auditing fees. (c) Security issues in participation (2) Notwithstanding any other provi- loans. When a multi-family housing sions of law, the Agency may use (MFH) project is receiving financing or amounts recovered under this section a subsidy from sources other than the for activities authorized under this sec- Agency, the Agency will service the ac- tion and such funds must remain avail- count in accordance with the participa- able for such use until expended. tion agreements made with the Agency (c) Time limitation. Notwithstanding and the other funding sources under any other provisions of law, an action § 3560.65. under this section may be commenced at any time during the six-year period § 3560.460 Double damages. beginning on the date that the Agency (a) Action to recover assets or income. discovered or should have discovered (1) The Agency may request to the At- the violation of the provisions of this torney General to bring an action in a section or any related statutes or regu- United States district court to recover lations. any assets or income used by any per- (d) Continued availability of other rem- son in violation of the provisions of a edies. The remedy provided in this sec- loan made by the Agency under this tion is in addition to and not in substi- section or in violation of any applica- tution of any other remedies available ble statute or regulation. to the Agency or the United States. (2) For the purposes of this section, a use of assets or income in violation of § 3560.461 Enforcement provisions. the applicable loan, statute, or regula- (a) Equity skimming—(1) Criminal pen- tion includes any use for which the alty. Whoever, as an owner, agent, em- documentation in the books and ac- ployee, or manager, or is otherwise in counts does not establish that the use custody, control, or possession of prop- was made for a reasonable operating erty that is security for a loan made expense or necessary repair of the under this title, willfully uses, or au- project or for which the documentation thorizes the use, of any part of the has not been maintained in accordance rents, assets, proceeds, income, or with the requirements of the Agency other funds derived from such prop- and in reasonable condition for proper erty, for any purpose other than to audit. meet actual, reasonable, and necessary (3) For the purposes of this section, expenses of the property, or for any the term ‘‘person’’ means: other purpose not authorized by this 621
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title or the regulations adopted pursu- that is secured for a loan under this ant to this title, must be fined under section suffered or would have suffered title 18, United States Code, or impris- as a result of the violation, or $50,000 oned not more than five years, or both. per violation. (2) Civil sanctions. An entity or indi- (ii) Determination. In determining vidual who as an owner, operator, em- the amount of a civil monetary penalty ployee, or manager, or who acts as an under this section, the Agency must agency for a property that is security take into consideration: for a loan made under this title where (A) The gravity of the offense; any part of the rents, assets, proceeds, (B) Any history of prior offenses by income, or other funds derived from the violator (including offenses occur- such property are used for any purpose ring prior to the enactment of this sec- other than to meet actual, reasonable, tion); and necessary expenses of the property, (C) Any injury to tenants; or for any other purpose not authorized by this title of the regulations adopted (D) Any injury to the public; pursuant to this title, must be subject (E) Any benefits received by the vio- to a fine of not more than $25,000 per lator as a result of the violation; violation. The sanctions provided in (F) Deterrence of future violations; this paragraph may be imposed in addi- and tion to any other civil sanctions or (G) Such other factors as the Agency civil monetary penalties authorized by may establish by regulation. law. (3) Payment of penalties. No payment (b) Civil monetary penalties—(1) When of a penalty assessed under this section civil monetary penalties may be imposed. may be made from funds provided The Agency may, after notice and op- under this title or from funds of a portunity for a hearing, impose a civil project which serve as security for a monetary penalty in accordance with loan made under this title. this section against any individual or (4) Remedies for noncompliance. (i) Ju- entity, including its owners, officers, dicial intervention. If a person or entity general partners, limited partners, or fails to comply with a final determina- employees, who knowingly and materi- tion by the Agency imposing a civil ally violate, or participate in the viola- monetary penalty, the Agency may re- tion of, the provisions of this title, the quest the Attorney General of the regulation issued by the Agency pursu- United States to bring an action in an ant to this title, or agreements made appropriate district court to obtain a in accordance to this title by: monetary judgment against such an in- (i) Submitting information to the dividual or entity and such other relief Agency that is false. as may be available. The monetary (ii) Providing the Agency with false judgment may, in the court’s discre- certifications. tion, include attorney’s fees and other (iii) Failing to submit information expenses incurred by the United States requested by the Agency in a timely manner. in connection with the action. (iv) Failing to maintain the property (ii) Reviewability of determination. In subject to loans made under this title an action under this paragraph, the va- in good repair and condition, as deter- lidity and appropriateness of a deter- mined by the Agency. mination by the Agency imposing the (v) Failing to provide management penalty must not be subject to review. for a project that received a loan made (c) Conditions for renewal extension. under this title that is acceptable to The Agency may require that expiring the Agency. loan or assistance agreements entered (vi) Failing to comply with the provi- into under this title must not be re- sions of applicable civil rights statutes newed or extended unless the owner and regulations. executes an agreement to comply with (2) Amount. (i) The amount of a civil additional conditions prescribed by the penalty imposed under this section Agency, or executes a new loan or as- must not exceed the greater of twice sistance agreement in the form pre- the damages the Agency or the project scribed by the Agency.
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§ 3560.462 Money laundering. § 3560.502 Tenant notifications and as- sistance. The Agency will act in accordance with U.S. Code Title 18, part I, chapter Each tenant in an REO property des- 95, section 1956(c)(7)(D). ignated to be sold as a non-program property will be notified by the Agen- § 3560.463 Obstruction of Federal au- cy, in writing, of the housing projects’ dits. non-program designation and will be given an opportunity to obtain a Let- The Agency will act in accordance ter Of Priority Entitlement (LOPE) as with U.S. Code Title 18, part I, chapter specified in § 3560.159(c). 73, section 1516(a). § 3560.503 Disposition of REO prop- §§ 3560.464–3560.499 [Reserved] erty. (a) Preference will be given to offers § 3560.500 OMB control number. from bidders who are determined eligi- The information collection require- ble by the Agency to purchase REO ments contained in this regulation property designated to be sold as pro- have been approved by the Office of gram property. It is the Agency’s pri- Management and Budget (OMB) and ority that property previously operated have been assigned OMB control num- as program property prior to becoming ber 0575–0189. Public reporting burden REO inventory property be sold as pro- for this collection of information is es- gram property. However, REO property timated to vary from 15 minutes to 18 may be sold under whatever Agency hours per response, including time for program is most appropriate for the reviewing instructions, searching exist- property and the community needs re- ing data sources, gathering and main- gardless of the program under which the property was originally financed or taining the data needed, and com- whether the property was being used to pleting and reviewing the collection of secure loans under more than one information. A person is not required Agency program. to respond to a collection of informa- (b) When the Agency determines that tion unless it displays a currently valid the REO property to be sold is not de- OMB control number. cent, safe, and sanitary and/or does not meet cost effective energy conserva- Subpart K—Management and Dis- tion standards, it will disclose the position of Real Estate Owned basis for this determination to prospec- (REO) Properties tive purchasers. The deed by which such an REO property is conveyed will § 3560.501 General. contain a covenant restricting it from residential use until it is decent, safe, This subpart contains Agency proce- and sanitary, and meets the Agency’s dures and other policies related to the cost effective conservation standards. management and disposition of multi- The Agency will also notify any poten- family housing (MFH) projects in the tial purchaser of any known lead based Agency’s inventory (Real Estate Owned paint hazards. (REO) property). Housing projects will not be accepted into the Agency’s in- § 3560.504 Sales price and bidding ventory unless one of the following has process. occurred: (a) The loan documents related to (a) The borrower has abandoned the REO property sold for program pur- housing project and the Agency has poses must contain the restrictive-use performed the required steps to take language specified in § 3560.662(a). the housing project into custody. (b) Entities bidding on REO property (b) The housing project title has been designated to be sold as program prop- transferred to the Agency as a result of erty must submit a loan application package that meets the requirements foreclosure, voluntary conveyance, re- specified in subpart B of this part. demption, or other action. (1) Bidders on REO property des- ignated to be sold as program property
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must meet the eligibility requirements as applicable, may finance such costs established under § 3560.55. as part of the Agency loan. (2) Bidders determined by the Agency (b) Agency loans to finance the pur- to be ineligible to purchase REO prop- chase of REO property designated to be erty designated to be sold as program sold as non-program property must property will be notified in writing. meet the following terms. The bidding process will continue re- (1) A down payment of not less than gardless of pending appeals. 10 percent of the purchase price is re- (3) All offers from bidders determined quired at closing. to be eligible to purchase REO property (2) The interest rate will equal the designated to be sold as program prop- lesser of the prevailing interest rate at erty will be considered in the bidding the time of loan approval or loan clos- process and must provide evidence of ing for MFH loans plus one-half per- financial stability and credit worthi- cent. ness. (3) The note amount will be amor- (c) The Agency will determine the tized over a period not to exceed 10 successful bidder on REO property des- years. If the Agency determines that ignated to be sold as program property more favorable terms are necessary to by conducting a drawing of sealed bids. facilitate the sale, the note amount (1) The Agency may authorize the may be amortized using a 30-year fac- sale of an REO property by sealed bid tor with payment in full due no later or public auction when it is in the best than 10 years from the date of closing interest of the Government. The Agen- (balloon payment). In no case will the cy will publicly solicit requests for term be longer than the useful life of sealed bids and publicize auctions. If the property. the highest bid is lower than the min- (4) Agency loans to finance the pur- imum acceptable bid established by the chase of non-program REO property Agency, or if no acceptable bids are re- are subject to the availability of funds. ceived, the Agency may negotiate a (c) Loan limits and allowable uses of sale without further public notice. loan funds specified in subparts B, L, (2) Bidders who desire to withdraw and M of this part, as applicable, are their bids must do so prior to the draw- applicable to any Agency-financed ing date. (credit) sale of REO property. (d) Property designated to be sold as (d) Title clearance and loan closing non-program property may be sold to for an Agency financed sale and any entities that do not meet the Agency’s subsequent loan to be closed simulta- eligible borrower requirements speci- neously with the sale must meet the fied in § 3560.55, and must be sold for requirements in subpart B of this part cash or on terms approved by the Agen- for an initial loan, with the following cy. Cash sales will be given first pref- exceptions: erence and will be drawn before any (1) A ‘‘Quit Claim’’ or other non-war- sales on terms. ranty deed will be used; and (2) The buyer must pay attorney’s § 3560.505 Agency loans to finance pur- fees, insurance costs, recording fees chases of REO properties. and other customary fees unless they (a) Agency loans to finance the pur- are included in a subsequent loan and chase of REO property designated to be the subsequent loan is for purposes sold as program property must meet other than closing costs and fees. the same requirements as specified in (e) After approval of an Agency-fi- subparts A and B of this part. In addi- nanced sale of occupied REO property tion, the following provisions apply. designated to be sold as program prop- (1) At the borrower’s option, the in- erty, but prior to closing, the pur- terest rate will be the prevailing rate chaser must prepare a budget for hous- at the time of loan approval or the pre- ing operations in accordance with sub- vailing rate at loan closing. part B of this part. If a rent increase is (2) Purchasers may pay closing costs necessary, procedures specified in sub- from their own funds or, if allowable parts E and F of this part for calcu- under subparts B, L, or M of this part, lating rents, net tenant contributions,
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and rental assistance will be followed tion unless it displays a currently valid by the borrower. OMB control number.
§ 3560.506 Conversion of single family Subpart L—Off-Farm Labor type REO property to MFH use. Housing Single family type REO property may be sold for conversion to MFH pro- § 3560.551 General. gram use under the following condi- This subpart establishes the require- tions: ments for making loans and grants for (a) The Agency will allow nonprofit off-farm labor housing and for ongoing organizations, public bodies, or for- operations of this housing. Unless oth- profit entities to purchase single fam- erwise specified in this subpart, the re- ily type REO property for conversion quirements of subparts A through K, N, to MFH program use. When the Agency O, and P of this part will apply in addi- finances the sale of single family-type tion to the requirements in this sub- REO property for conversion to rural part. rental housing program use (i.e., MFH including group homes and homes for § 3560.552 Program objectives. the elderly or disabled, farm labor (a) In addition to the objectives stat- housing, or rural cooperative housing), ed in § 3560.52, off-farm labor housing the sale price will be the lesser of the loan and grant funds will be used to in- Federal Government’s investment or crease: an amount based on the ‘‘as-is’’ market (1) The supply of affordable housing value of the housing project as deter- for farm labor; and mined by an appraisal conducted in ac- (2) The ability of communities to at- cordance with subpart P of this part. tract farm labor by providing housing (b) The Agency will only accept writ- which is affordable, decent, safe and ten offers to purchase two or more sin- sanitary. gle family type REO properties for con- (b) Under section 516(i) of the Hous- ing Act of 1949 (42 U.S.C. 1486(i)), the version to rural rental housing from Agency may award technical assist- nonprofit organizations, public bodies, ance grants to encourage the develop- or for-profit entities with a good record ment of farm labor housing. of providing housing under the Agen- cy’s MFH programs. The single family § 3560.553 Loan and grant purposes. type properties are not required to be (a) In addition to the purposes stated contiguous, however, they must be lo- in § 3560.53, off-farm labor housing loan cated in close enough proximity so and grant funds may be used to provide that management capabilities are not facilities for seasonal or temporary diminished because of distance. residential use with appropriate fur- nishings and equipment. A temporary §§ 3560.507–3560.549 [Reserved] residence is a dwelling which is used § 3560.550 OMB control number. for occupancy, usually for a short pe- riod of time, but is not the legal domi- The information collection require- cile for the occupant. ments contained in this regulation (b) The Agency may award technical have been approved by the Office of assistance grants to eligible private Management and Budget (OMB) and and public nonprofit agencies. These have been assigned OMB control num- grant recipients will, in turn, assist ber 0575–0189. Public reporting burden other organizations to obtain loans and for this collection of information is es- grants for the construction of farm timated to vary from 15 minutes to 18 labor housing. hours per response, including time for (c) Technical assistance services may reviewing instructions, searching exist- not be used to reimburse a nonprofit or ing data sources, gathering and main- public body applicant for technical taining the data needed, and com- services provided by a nonprofit orga- pleting and reviewing the collection of nization, with housing and/or commu- information. A person is not required nity development experience, to assist to respond to a collection of informa- the nonprofit applicant entity in the
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development and packaging of its loan/ lished in the FEDERAL REGISTER each grant docket and project. In addition, fiscal year. technical assistance will not be funded by the Agency when an identity of in- § 3560.557 [Reserved] terest exists between the technical as- sistance provider and the loan or grant § 3560.558 Site requirements. applicant. The requirements established in § 3560.58 apply to all applications for § 3560.554 Use of funds restrictions. off-farm labor housing loans and grants Off-farm labor housing loan and except that off-farm labor housing are grant funds may not be used for any not limited to rural areas. purpose prohibited by § 3560.54 except § 3560.54(a)(1). Off-farm labor housing § 3560.559 Design and construction re- may be used to serve migrant farm- quirements. workers. (a) General. The requirements estab- lished in § 3560.60 apply to all applica- § 3560.555 Eligibility requirements for tions for off-farm labor housing loans off-farm labor housing loans and and grants except that seasonal off- grants. farm labor housing that will be occu- (a) Eligibility for loans. Applicants for pied for eight months or less per year off-farm labor housing loans must be: by migrant farmworkers while they are (1) A broad-based nonprofit organiza- away from their residence, may be con- tion, a nonprofit organization of farm- structed in accordance with Exhibit I workers, a federally recognized Indian of 7 CFR part 1924, subpart A. tribe, a community organization, or an (b) Additional requirements. In addi- agency or political subdivision of State tion to the requirements established in or local government, and must meet § 3560.60, it is encouraged that the de- the requirements of § 3560.55, excluding sign of off-farm labor housing incor- § 3560.55(a)(6). A broad-based nonprofit porate outdoor shower, boot washing organization is a nonprofit organiza- station, and/or hose bibb facilities as tion that has a membership that re- necessary to protect the resident and flects a variety of interests in the area the asset from excess dirt and chemical where the housing will be located; or exposure. (2) A limited partnership with a non- (c) Davis-Bacon wage requirements. profit general partner which meets the Construction financed with the assist- requirements of § 3560.55(d). ance of a Section 516 grant will be sub- (b) Eligibility for grants. To be eligible ject to the provisions of the Davis- for off-farm labor housing grants, ap- Bacon Act (40 U.S.C. 276(a)–276(a)(7)), plicants must: and the implementing regulations pub- (1) Meet the requirements in lished by the Department of Labor at § 3560.555(a)(1); and 29 CFR parts 1, 3, and 5. (2) Be able to contribute at least one- tenth of the total farm labor housing § 3560.560 Security. development cost from its own or other resources. The applicant’s contribution The security requirements estab- must be available at the time of grant lished in § 3560.61 will apply to all appli- closing. An off-farm labor housing loan cations for off-farm labor housing financed by RHS may be used to meet loans. this requirement. § 3560.561 Technical, legal, insurance (c) Limitation. Limited partnerships and other services. eligible under paragraph (a)(2) of this section are not eligible for farm labor The requirements established under housing grants. § 3560.62 apply to all applications for off-farm labor housing loans and § 3560.556 Application requirements grants. and processing. Off-farm loans and grants will be § 3560.562 Loan and grant limits. available under a Notice of Funding (a) Determining the security value. The Availability (NOFA) that will be pub- requirements established under
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§ 3560.63(a) apply to off-farm labor hous- ule will take into account the deprecia- ing loans. tion of the security and ensure that the (b) Maximum amount of loan. The re- loan will be adequately secured. quirements established in § 3560.63(c)(1) (b) Interest rate. The effective interest and (2), regarding borrower equity con- rate will be 1 percent. tribution apply to all applications for (c) Term of grant agreement. The grant off-farm labor housing loans. (For ap- agreement will remain in effect for so plicants eligible under § 3560.555(a)(2), long as there is a need for farm labor the amount of Agency financing for the housing. housing will not exceed 95 percent of the total development cost or 95 per- § 3560.567 Establishing the profit base cent of the security value available for on initial investment. the Agency loan, whichever is lower.) The requirements established under In determining the amount of the loan, § 3560.68 apply to applicants eligible the Agency will also review the capac- under § 3560.555(a)(2) and operating as a ity of the applicant to amortize such limited partnership with a nonprofit loan, considering any rental assistance general partner. provided for use in the housing, and any rents anticipated to be paid by § 3560.568 Supplemental requirements farmworkers expected to occupy the for seasonal off-farm labor housing. housing. For off-farm labor housing operating (c) Maximum amount of grant. The on a seasonal basis, the management amount of any off-farm labor housing plan must establish specific opening grant must not exceed the lesser of: and closing dates. During the off-sea- (1) Ninety percent of the total devel- son, off-farm labor housing may be opment cost, or used as defined in subpart A of this (2) That portion of the total develop- part under short-term lease provisions. ment cost which exceeds the sum of Where rents are charged on a per-unit any amount provided by the applicant basis and family income qualifies the from their own resources plus the household for rental assistance, rental amount of any loans approved for the assistance may be used. applicant, considering the capacity of the applicant to amortize the loan. § 3560.569 Supplemental requirements for manufactured housing. § 3560.563 Initial operating capital. The requirements established in The requirements for § 3560.64 apply § 3560.70 apply to all applications for to all applications for off-farm labor off-farm labor housing loans and housing loans and grants. grants.
§ 3560.564 Reserve accounts. § 3560.570 Construction financing. The requirements for § 3560.65 apply The requirements established in to all applications for off-farm labor § 3560.71 apply to all applications in- housing loans and grants. volving off-farm labor housing loans and grants. In addition, the following § 3560.565 Participation with other requirements apply. funding or financing sources. (a) Equity contributions being made The requirements established in by a borrower or grantee must be con- § 3560.66 apply to all applications for tributed and disbursed prior to any dis- off-farm labor housing loans and bursement of interim loan funds and grants, except that the 25 percent re- any loan or grant funds from the Agen- quirements stated in paragraph cy. § 3560.66(b)(1) may consist of loan and/or (b) If the Agency is providing both grant funds. loan and grant funds, loan funds must be fully released and expended prior to § 3560.566 Loan and grant rates and the release of grant funds by the Agen- terms. cy. (a) Amortization period. The loan will (c) If construction is financed with a be amortized over a period not to ex- Labor Housing grant, it is subject to ceed 33 years. The amortization sched- the provisions of the Davis-Bacon Act
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(published in the Department of Labor However, total rent charged for a unit regulations 29 CFR parts 1, 2, and 5). must not exceed conventional rent for comparable units in the area or a simi- § 3560.571 Loan and grant closing. lar area and per bed rents must be com- The requirements established in parable to per bed rents in the market. § 3560.72 apply to all applications for off-farm labor housing loans and § 3560.574 Operating assistance. grants. In addition, the following re- Operating assistance may be used in quirements apply. lieu of tenant-specific rental assistance (a) A nonprofit organization will in off-farm labor housing projects fi- have its Board of Directors adopt an nanced under section 514 or section Agency-approved loan and/or grant res- 516(i) of the Housing Act of 1949 (U.S.C. olution, which is required as part of 1486(i)) that serve migrant farm- the loan docket before loan and/or workers. Owners of eligible projects grant approval. All other loan appli- may choose tenant-specific rental as- cants will execute an Agency-approved sistance as described in § 3560.573 or op- loan agreement. erating assistance, or a combination of (b) For grants, an Agency approved both, however, any tenant or unit as- grant agreement, must be executed by sisted under this section may not re- the applicant on the date of grant clos- ceive rental assistance under § 3560.572. ing. The objective of this program is to pro- (c) The obligations incurred by the vide assistance toward the cost of oper- applicant, as a condition of accepting ating the project so that rents may be the grant, will be in accordance with set at rates that are affordable to very the off-farm labor housing grant agree- low and low-income migrant farm- ment. workers. (d) Off-farm labor housing loans used (a) Project eligibility requirements. To to build or acquire new units made pur- be eligible for the operating assistance suant to a contract entered into on or program, projects must be: after the effective date of this regula- (1) Off-farm labor housing projects fi- tion, will be subject to the restrictive- nanced under section 514 or section 516 use provision stated in § 3560.72(a)(2)(ii). with units that are for migrant farm- All other off-farm labor housing loans workers. Housing units for year-round are subject to the restrictive-use provi- farmworker households are ineligible; sions contained in their loan docu- and ments and as outlined in subpart N of (2) Eligible for the Agency’s rental this regulation. Such restrictions must assistance program as defined in be included in the mortgage and deed § 3560.573. of trust. (b) Operating assistance limits. The amount of operating assistance re- § 3560.572 Subsequent loans. quested by the owner must be based on The requirements established in the project’s actual income and ex- § 3560.73 will apply to all applications penses and must be approved by the for subsequent off-farm labor housing Agency. In the case of a mixed project, loans. the amount of operating assistance must be based on the portion of actual § 3560.573 Rental assistance. income and expenses that are attrib- (a) Rental assistance may be pro- utable to the units that are for mi- vided to income eligible tenants living grant farmworkers. In no instance may in off-farm labor housing in accordance the annual amount of operating assist- with subpart F of this part. The re- ance exceed 90 percent of the annual quirements established in § 3560.252 operating costs that are attributable to apply to all tenants receiving rental the migrant units. assistance. (c) Owner responsibilities—(1) Request- (b) For dormitory style facilities op- ing for operating assistance program. erating on a per bed basis, rental as- Owners of off-farm labor housing sistance will be made available to the projects with units for migrant farm- housing on a per unit basis, but may be workers may request operating assist- pro-rated to tenants on a per bed basis. ance by submitting a request to the
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Agency, which must include a budget. (2) Tenant selection should be in ac- The budget must include: cordance with the loan agreement, sub- (i) Estimated operating costs for the part D of this part and § 3560.577. migrant units, including authorized ex- (3) No borrower or grantee will dis- penditures such as reserve deposits; criminate, or permit discrimination by (ii) Proposed rental rates for the mi- any agent, lessee, or other operator in grant units to generate sufficient funds the use or occupancy of the housing or for operating costs of those units, tak- related facilities because of race, color, ing into consideration all other sources religion, sex, age, disability, familial of project income; and status, or national origin. (iii) Estimated rental income from (b) Eligible households. To be eligible tenants, based on a tenant contribu- for occupancy in off-farm labor hous- tion of 30 percent of the average ad- ing, households must meet the fol- justed monthly income of migrant lowing requirements. farmworker households in the area. (1) Occupational. An eligible house- (2) Requesting operating assistance pay- hold must include a domestic tenant or ments. Each month, the owner will sub- co-tenant farm laborer, a retired do- mit a request for operating assistance mestic farm laborer, or a disabled do- to the Agency. mestic farm laborer. (3) Verifying tenant income eligibility. (2) Income. The household must meet Owners are responsible for verifying the definition of income eligible as es- tenant income eligibility. Only very tablished in § 3560.152 and the tenant or low or low-income households are eligi- co-tenant must receive a substantial ble for the operating assistance rents. portion of income from farm labor em- Households with incomes above the ployment. To determine if a substan- low-income limits must pay the full tial portion of income is from farm rent. labor employment, the following meas- (4) Reporting requirements. (i) Owners ures will be used. will complete and submit to the Agen- (i) For housing rented to farm labor- cy tenant certifications to document ers and owned by public bodies, public tenant income and eligibility. or private nonprofit organizations, and (ii) Owners will complete and submit limited partnerships when charging monthly to the Agency a project work- rent. sheet for operating assistance. (A) Actual dollars earned from farm (iii) Owners must submit an annual labor by domestic farm laborers other planning budget to the Agency prior to than migrant farmworkers must equal the project’s fiscal year. at least 65 percent of the annual in- come limits indicated for the Standard § 3560.575 Rental structure and Federal regions as published by the changes. Agency for their particular region of Off-farm labor housing is subject to the country. For migrant farmworkers the tenant contribution and rental unit living in seasonal housing the actual rent requirements for Plan II housing dollars earned from farm labor by a do- established under subpart E of this mestic farm laborer must equal at part, except where seasonal housing least 50 percent of annual income lim- will be occupied for less than a 3-month its indicated for the Standard Federal period. In such instances the best regions, as published by the Agency. available and practical income (B) An alternate measure for deter- verification methods may be used with mining substantial portion of income prior approval of the Agency. when actual earnings are not available may be the duration of time a farm la- § 3560.576 Occupancy restrictions. borer worked on a farm or other farm- (a) Restrictions on conditions of occu- ing enterprise as a domestic farm- pancy. (1) No borrower or grantee will worker during the preceding 12 months. be permitted to require that an occu- In order to be considered as substantial pant work on any particular farm or the farm laborer must have worked at for any particular owner or interest as least 110 whole days in farm work. For a condition of occupancy of the hous- purposes of this section one whole day ing. is the equivalent of at least 7 hours.
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When using a period of more than 1 identical to the market analysis that is year, a yearly average must amount to required of loan applicants in the loan at least 110 days per year. origination process. The borrower’s de- (ii) For housing owned by a farmer, termination and the State Director’s family-farm partnership, family-farm recommendation should be forwarded corporation, or an association of farm- to the National Office for concurrence. ers which was initially provided on a The procedures specified in § 3560.158 non-rental basis, a substantial portion shall be followed when tenants are re- of income is earned when housing is quired to vacate housing to allow for provided by the owner as part of em- occupancy by persons eligible under ployment compensation for farm labor. paragraph (b) of this section. (iii) When a natural disaster has oc- curred, such as a drought, flood, freeze, § 3560.577 Tenant priorities for labor etc., figures for the 12 months pre- housing. ceding such disaster will be used to de- Tenant occupancy in off-farm labor termine substantial portion of income under paragraph (b)(2) of this section. housing is based on eligible farm labor (iv) The tenant who qualifies as a do- certified through the income certifi- mestic farm laborer residing in a prop- cation process required by § 3560.152 and erty with a nonrestrictive farm labor is prioritized in the following order. clause in the mortgage covenants must (a) First priority is to be given to eli- not have adjusted income which ex- gible active farm laborer households ceeds the moderate income limit for with first priority going to very low-in- the appropriate household size and ap- come households, next priority to low- propriate geographical area. income households, and last to mod- (3) Occupancy. The household must erate-income households. remain in compliance with the bor- (b) Second priority is given to retired rower’s occupancy policy as established domestic farm laborer households and in § 3560.155. disabled domestic farm laborer house- (c) Tenant eligibility requirements for holds who were active in the local farm operating assistance rents. To be eligible labor market area at the time of retir- for operating assistance rents, tenants ing or becoming disabled. Occupancy must meet the rental assistance eligi- priority will be given in accordance bility requirements described in with paragraph (a) of this section. § 3560.573 and in § 3560.252. (c) Third priority is to be given to re- (d) Ineligible tenants. Tenants who, at tired domestic farm laborer households any time, fail to meet all the require- and disabled domestic farm laborer ments in paragraph (b) of this section households who were not active in the will be deemed ineligible for occupancy local farm labor market at the time of in off-farm labor housing. Ineligible retiring or becoming disabled. Occu- tenants in off-farm labor housing will pancy priority will be given in accord- be addressed in accordance with the re- ance with paragraph (a) of this section. quirements of § 3560.158. (e) Non-farm laborer tenants. When § 3560.578 Financial management of there is a diminished need for housing labor housing. for persons or families in the above categories, units in off-farm labor The requirements established in sub- housing complexes may be made avail- part G of this part will apply to all off- able to persons or families eligible for farm labor housing. occupancy under § 3560.152. Eligible ten- ants under this section may occupy the § 3560.579 Servicing off-farm labor housing. labor housing until such time the units are again needed by persons or families The requirements established in sub- eligible under paragraph (b) of this sec- parts I and J of this part will apply to tion. As the basis for Agency approval all off-farm labor housing. Servicing or disapproval of the borrower’s deter- according to subparts I and J of this mination of diminished need, the bor- part shall apply throughout the term rower must submit a current analysis of the loan or grant, whichever is of need and demand to the Agency, longer.
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§§ 3560.580–3560.599 [Reserved] used to provide housing for members of the immediate family of the applicant § 3560.600 OMB control number. when the applicant is an individual The information collection require- farm owner, family farm corporation, ments contained in this regulation family farm partnership, or a member have been approved by the Office of of an association of farmers. Imme- Management and Budget (OMB) and diate family includes mother, father, have been assigned OMB control num- brothers, sisters, sons, and daughters of ber 0575–0189. Public reporting burden the applicant and spouse. for this collection of information is es- timated to vary from 15 minutes to 18 § 3560.605 Eligibility requirements. hours per response, including time for (a) To be eligible for an on-farm labor reviewing instructions, searching exist- housing loan, the applicant must meet ing data sources, gathering and main- the requirements of § 3560.55(a) with the taining the data needed, and com- exception of § 3560.55(a)(1), (5), and (6) pleting and reviewing the collection of information. A person is not required and the following requirements. to respond to a collection of informa- (1) The applicant must be a farm tion unless it displays a currently valid owner, family farm partnership, family OMB control number. farm corporation, or an association of farmers engaged in agricultural or Subpart M—On-Farm Labor aquacultural farming operations whose Housing farming operations demonstrate a need for on-farm labor housing and who will § 3560.601 General. own the housing and operate it on a This subpart contains the require- nonprofit basis. ments for making loans for on-farm (2) The applicant must agree to use labor housing and for ongoing oper- the labor housing to engage in the ation and management of on-farm farming operations of the individual labor housing. Unless otherwise speci- farm owner applicant, or in the farm- fied in this subpart, the requirements ing operations of its members if it is a of subparts A through K, N, O, and P of family farm corporation or partner- this part will apply in addition to re- ship, or an association of farmers. quirements given in this subpart. (3) The applicant must, as deter- mined by the Agency, be unable to pro- § 3560.602 Program objectives. vide the necessary housing from the In addition to the objectives stated applicant’s own resources and be un- in § 3560.52, on-farm labor housing funds able to obtain credit from any other will be used to increase: source upon terms and conditions (a) The supply of affordable housing which the applicant could reasonably for farm labor; and be expected to fulfill. If the applicant (b) The ability of the farmer to pro- is an association of farmers or family vide affordable, decent, safe and sani- farm corporation or partnership, the tary housing for farm workers. individual members, individually and § 3560.603 Loan purposes. jointly, must be unable to provide the necessary housing by utilizing their On-farm labor housing loans may be own resources and be unable, by pledg- made only for the purposes established ing their personal liability, to obtain in § 3560.553. Grants are not available other credit that would enable them to for on-farm labor housing. provide housing for farm workers at § 3560.604 Restrictions on use of funds. rental rates they can afford to pay. The individual resources of family farm On-farm labor housing loans may not corporation or partnership members be used for any purpose prohibited by § 3560.54 except § 3560.54(a)(1). On-farm with less than a 10 percent corporate or labor housing may be used to serve mi- partnership interest should not be con- grant workers. In addition, on-farm sidered when determining if the appli- labor housing loan funds may not be cant can obtain credit elsewhere.
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(b) The Agency may make an excep- § 3560.607 [Reserved] tion to the requirement that an indi- vidual farm owner, family farm cor- § 3560.608 Site and construction re- poration, family farm partnership or quirements. an association of farmers be unable to (a) General. Cost and development obtain the necessary credit elsewhere standards for on-farm labor housing when all of the following conditions will be consistent with the require- exist: ments, standards, and cost limits speci- (1) There is a housing need in the fied in subpart B of this part, if the area for domestic farmworkers who are housing is a multi-family housing type migrants and the applicant will provide structure, or consistent with section such housing; and 502 of the Housing Act of 1949, if the (2) There are no qualified state or po- housing is a single family type struc- litical subdivisions or public or private ture. nonprofit organizations available, or (b) Permanent units. On-farm labor likely to become available within 12 housing occupied for 8 months or more months of the application, that are of the year will be required to meet the willing and able to provide the housing. following requirements. (c) When an applicant is determined (1) Housing may be multi-family or eligible under paragraph (b) of this sec- single family in type and may be lo- tion, the interest rate for such loans cated on the farm away from farm will be determined in accordance with service buildings, or in the nearby com- 7 CFR part 1810, subpart A. munity. Single-family type housing is (d) On-farm labor housing that con- defined as an individual or a group of sists of buildings with less than three individual single family detached units is not subject to the requirement dwelling units. All sites and housing that five percent of the units be con- shall be planned and constructed in ac- structed as fully accessible units, as cordance with 7 CFR part 1924, subparts described in § 3560.60(d). A and C. (2) Sites must be accessible from a § 3560.606 Application requirements and processing. public road, when feasible. (c) Seasonal units. On-farm labor (a) On-farm labor housing loan appli- housing occupied for less than 8 cations will be processed according to 7 months of the year will be considered CFR part 1940, subpart L. Applicants seasonal housing. Such housing must must submit an application in an meet the following requirements. Agency-approved format that ade- (1) Housing designed for seasonal oc- quately documents the need for the cupancy may be either single family or housing and the eligibility of the appli- cant. multi-family. (b) The applicant must certify that (2) Seasonal housing may be con- the farm workers for which the housing structed in accordance with exhibit I of is intended are or will be involved in 7 CFR part 1924, subpart A. If con- the applicant’s agricultural or structed in accordance with exhibit I, aquacultural farming operations. the housing must be suitable to allow (c) The applicant must certify that for conversion to full-year occupancy if housing operations will be conducted in the need for migrant farmworkers in a non-profit manner such that income the area declines. from the housing does not exceed eligi- (d) Accessibility. On-farm labor hous- ble expenses associated with the hous- ing that consists of buildings with less ing. Eligible expenditures for the hous- than three units, need not meet the re- ing include, but are not limited to quirement that five percent of the housing repairs and upkeep, payment units be constructed as fully accessible of installments on the loan, taxes, in- units, as described in § 3560.60(d). This surance and reserves and other essen- does not, however, eliminate any other tial uses needed for success of the oper- accessibility requirements. ations.
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§ 3560.609 [Reserved] § 3560.613 [Reserved] § 3560.610 Security. § 3560.614 Reserve accounts. (a) Security instruments must meet When on-farm labor housing oper- the requirements established under ations include 12 or more units, the § 3560.560. Agency will require such properties to (b) When feasible, the on-farm labor comply with the reserve account re- housing will be located on a tract of quirements in § 3560.65. land that is surveyed such that, for se- curity purposes, it is considered sepa- § 3560.615 Participation with other rate and distinct from the farm. The funding sources. security for the loan must include a The Agency encourages the use of lien on the tract of land where the on- other funding sources in conjunction farm labor housing is located and the with on-farm labor housing loans. Use security must have adequate value to of such financing in conjunction with protect the Federal government’s in- an on-farm labor housing loan is sub- terest. The Agency will seek a first or ject to the approval of the Agency and parity lien position on Agency-financed must comply with the requirements of property in all instances, however, the § 3560.66. Agency may accept a junior lien posi- tion if the Federal government’s inter- § 3560.616 Rates and terms. ests are adequately secured. (a) The interest rate for on-farm (c) The Agency will determine the labor housing loans will be 1 percent. value of the security for the loan in ac- (b) The term of the on-farm labor cordance with 7 CFR part 1922, subpart housing loan will not exceed 33 years. B if the farm is used as security or in (c) Loan amortization for on-farm accordance with section 502 of the labor housing may be on a monthly or Housing Act of 1949, if only the on-farm an annual basis. labor housing and related land is used for security. § 3560.617 [Reserved] (d) If necessary to provide adequate security for the loan, the Agency may § 3560.618 Supplemental requirements require that any household furnishings for on-farm labor housing. purchased with loan funds also be se- The management plan for on-farm cured. labor housing operated on a seasonal (e) Personal liability and recourse basis must have specific opening and will be required of all borrowers, in- closing dates. During the off-season, cluding the individual members, stock- on-farm labor housing may be used holders or partners of an association of under short-term lease provisions. farmers, family farm corporations or partnerships, respectively. § 3560.619 Supplemental requirements for manufactured housing. § 3560.611 Technical, legal, insurance On-farm labor housing loan funds and other services. used for manufactured housing must When technical, legal, insurance, or comply with § 3560.70. Manufactured services are required for development housing located on-farm may consist of of on-farm labor housing, applicants individual units. must comply with the applicable re- quirements of § 3560.62. Regarding in- § 3560.620 Construction financing. surance coverage, the requirements of The requirements established in § 3560.62(d) apply to on-farm labor hous- § 3560.71 apply to all applications in- ing. volving on-farm labor housing loans.
§ 3560.612 Loan limits. § 3560.621 Loan closing. The maximum loan amount will be Applicants for on-farm labor housing 100 percent of the allowable total de- loans must execute an Agency-ap- velopment costs of on-farm labor hous- proved loan agreement. In addition, if ing and related facilities subject to determined appropriate by the Agency, §§ 3560.603, 3560.604 and 3560.608. on-farm labor housing loans made on
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or after the effective date of this regu- § 3560.626 Affirmative Fair Housing lation may be subject to the restric- Marketing Plan. tive-use provisions as stated in On-farm labor housing must meet the § 3560.72(a)(2)(ii). All other on-farm requirements of § 3560.104. labor housing loans are subject to the restrictive-use provisions contained in § 3560.627 Response to resident com- their loan documents and as outlined plaints. in subpart N of this regulation. The management plan submitted in accordance with § 3560.623 (a) will in- § 3560.622 Subsequent loans. clude a provision for dealing with resi- The requirements established in dent complaints. § 3560.572 apply to all applications for on-farm labor housing subsequent § 3560.628 Establishing and modifying loans. rental charges. If it becomes necessary to establish § 3560.623 Housing management and or modify a shelter cost, the borrower operations. must obtain Agency approval as speci- Borrowers with on-farm labor hous- fied in subpart E of this part. ing loans must: (a) Develop and submit to the Agency § 3560.629 Security deposits. a management plan in a format speci- Borrowers that require security de- fied by the Agency. At a minimum, the posits to be paid by the tenants will be management plan will detail the bor- required to comply with the require- rower’s operational and occupancy ments of § 3560.204. policies, how the borrower will deal with resident complaints, and how re- § 3560.630 Financial management. pairs will be completed; and Financial information must be sub- (b) Maintain a lease or employment mitted in an Agency-approved format contract with each tenant specifying and will show operation of the housing employment with the borrower as a in a non-profit manner. condition for continued occupancy. § 3560.631 Agency monitoring. § 3560.624 Occupancy restrictions. A compliance review and physical in- (a) The immediate relatives of the spection will be conducted by the borrowers are ineligible occupants for Agency at least once every 3 years. The on-farm labor housing. purpose of this review will be to in- (b) Occupants must meet the defini- spect: tion of a domestic farm laborer, as de- (a) Tenant eligibility documentation; fined in § 3560.11. (b) Financial information on the op- (a) Occupancy of on-farm labor hous- eration and management of the labor ing is restricted to employees of the housing, including relevant borrower borrower unless otherwise approved by financial materials; the Agency. (c) Payment of taxes, insurance and (d) With prior written permission of hazard insurance; the Agency, on-farm labor housing may (d) Compliance with the security de- be occupied by ineligible tenants on a posit requirements; short-term basis. The permission of the (e) Compliance with the operating Agency must also be for a limited dura- plan; tion. (f) Compliance with the loan agree- § 3560.625 Maintaining the physical ment; asset. (g) Compliance with Agency require- On-farm labor housing must meet ments for affordable, decent, safe, and state and local building and occupancy sanitary housing; and codes. (h) Compliance with civil rights re- quirements.
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§§ 3560.632–3560.649 [Reserved] (c) Loans without prepayment prohi- bitions or restrictive-use provisions in- § 3560.650 OMB control number. clude all loans made on or before De- The information collection require- cember 21, 1979 or loans that had re- ments contained in this regulation strictive-use provisions that have ex- have been approved by the Office of pired. Such loans are eligible to receive Management and Budget (OMB) and incentives subject to the provisions of have been assigned OMB control num- this subpart. ber 0575–0189. Public reporting burden (d) Loans may be prepaid if another for this collection of information is es- loan or grant from the Agency imposes timated to vary from 15 minutes to 18 the same or more stringent restrictive- hours per response, including time for use provisions on the housing project reviewing instructions, searching exist- covered by the loan being prepaid. ing data sources, gathering and main- § 3560.653 Prepayment requests. taining the data needed, and com- pleting and reviewing the collection of (a) Borrowers seeking to prepay an information. A person is not required Agency loan must submit a written to respond to a collection of informa- prepayment request to the Agency at tion unless it displays a currently valid least 180 days in advance of the antici- OMB control number. pated prepayment date and must ob- tain Agency approval before the Agen- cy will accept prepayment. Subpart N—Housing Preservation (b) Prior to submitting a prepayment § 3560.651 General. request, borrowers must take whatever actions are necessary to provide the (a) This subpart contains the Agen- following items: cy’s housing preservation requirements (1) A clear description of the loan to as related to prepayment requests and be prepaid, the housing project covered restrictive-use provisions (RUPs). The by the loan being prepaid, and the re- requirements of this subpart support quested date of prepayment. the Agency’s commitment to the pres- (2) A statement documenting the bor- ervation of decent, safe, sanitary, and rower’s ability to prepay under the affordable multi-family housing (MFH) terms specified. for very low-, low-, and moderate-in- (3) A certification that the borrower come households. will comply with any federal, state, or (b) The Agency will coordinate, di- local laws or regulations which may re- rect, and monitor the Agency’s MFH late to the prepayment request and a preservation activities from the Na- statement of actions needed to assure tional Office level. such compliance. (4) A copy of lease language to be § 3560.652 Prepayment and restrictive- used during the period between the use categories. submission date and the final resolu- (a) Loans with prepayment prohibi- tion of the prepayment request noti- tions include: fying tenant applicants that the owner (1) Initial section 515 loans made on of the housing project has submitted a or after December 15, 1989, and prepayment request to the Agency and (2) Subsequent loans made on or after explaining the potential effect of the December 15, 1989, for additional rental request on the lease. units. (5) Borrowers are required to submit (b) Loans without prepayment prohi- a signed release of information form bitions but with restrictive-use provi- along with the prepayment request. sions include: The Agency will notify nonprofit orga- (1) All loans made after December 21, nizations and public bodies involved in 1979, but prior to December 15, 1989; providing affordable housing or finan- (2) Subsequent loans made on or after cial assistance to tenants of the receipt December 15, 1989, for purposes other of a borrower’s request to prepay their than additional rental units; or loan(s). Additionally, the Agency is to (3) Loans subsequently restricted by notify nonprofit organizations and pub- servicing actions including transfers. lic bodies whenever a borrower, who
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has requested prepayment, is required § 3560.654 Tenant notification require- or elects to offer their property for sale ments. to a nonprofit or public body. (a) Within 30 calendar days of receiv- (6) A certification that the borrower ing a complete prepayment request, has notified all governmental entities the Agency will send a prepayment re- involved in providing affordable hous- quest notice to each tenant in the ing or financial assistance to tenants housing project. Borrowers must post in the project and that the borrower the Agency’s prepayment request no- has provided a statement specifying tice in public areas throughout the how long financial assistance from housing project from the date of the such parties will be provided to tenants notice until the final resolution of the after prepayment. prepayment request. The prepayment (7) A statement affirming that units request notice will establish a date and in the property applying for prepay- place where tenants may meet with the ment will continue to be available for Agency to discuss the prepayment re- rent by eligible residents during the quest and will advise tenants that: prepayment process. (1) They may review all information submitted with the prepayment re- (c) The Agency will review complete quest except financial information re- requests to determine if: garding the borrower entity, which the (1) The loan is eligible for prepay- Agency will withhold from tenant re- ment under § 3560.652(b); view unless given written permission (2) The borrower has the ability to for the release of the information from prepay; and the borrower; and, (3) The borrower has complied or has (2) They have 30 days from the date the ability to comply with applicable of the prepayment request notice to Federal, state, and local laws related give the Agency comments on the pre- to the prepayment request. payment request. (d) If a prepayment request lacks full (b) Borrowers may provide a prepay- and complete information on any item, ment request notice of their own di- the Agency will return the prepayment rectly to tenants and may establish a request to the borrower with a letter date and place where tenants may meet citing the deficiencies in the prepay- with the borrower to discuss the pre- ment request. The Agency will offer payment request. The Agency and borrowers an opportunity, within 30 other providers of housing assistance days following the date of the return, for very-low, low, and moderate-in- to address the reasons given by the come households may attend a bor- Agency for the return of the prepay- rower’s prepayment request meeting ment request and will allow the bor- with tenants. rower to submit a revised prepayment (c) If the Agency agrees to accept request. prepayment on a loan, the Agency will (e) If the Agency determines that the send a prepayment acceptance notice prepayment request appropriately sat- to each tenant in the housing project isfies all the conditions listed in para- at least 60 days prior to the prepay- graph (d) of this section, the Agency ment date. Borrowers must post copies will process the prepayment request of the Agency’s prepayment acceptance notice in public areas throughout the and make a reasonable effort to enter housing project until prepayment is into a new restrictive-use agreement made. If the prepayment acceptance with the borrower in accordance with was based on a borrower’s agreement § 3560.662 or § 3560.655. If the Agency de- to comply with restrictive-use provi- termines that a loan is ineligible for sions, the notice will describe the re- prepayment or the borrower does not strictive-use provisions that will apply have the ability to prepay, the Agency to the housing project after prepay- will return the prepayment request to ment and the tenant’s rights to en- the borrower with a written expla- forcement of the provisions. nation of the Agency’s determinations. (d) If the borrower withdraws the pre- [69 FR 69106, Nov. 26, 2004, as amended at 73 payment request, the Agency will pro- FR 65506, Nov. 4, 2008] vide a prepayment request cancellation
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notice to each tenant in the housing Under this agreement, the borrower project. Borrowers must post copies of would make a binding commitment to the prepayment request cancellation extend the low-income use of the hous- notice in the public areas throughout ing and related facilities for 20 years the housing project for a period of 60 for loans with interest credit, begin- days following the date of the prepay- ning on the date on which the new ment request cancellation notice. agreement is executed. If the borrower (e) If the borrower agrees to accept is unwilling to enter into a new restric- incentives and restrictive-use provi- tive-use provisions and restrictive-use sions, the Agency will notify each ten- agreement, the Agency should proceed ant, in writing, of the agreement and to take the actions described in provide a description of the restrictive- § 3560.658. use provision. (f) If a borrower agrees to sell a hous- § 3560.656 Incentives offers. ing project involved in a prepayment (a) The Agency will offer a borrower, request to a nonprofit organization or who submits a prepayment request public body, the Agency will notify meeting the conditions of § 3560.653(d), each tenant, in writing, of the proposed incentives to agree to the restrictive- sale to a nonprofit organization or pub- use period in § 3560.662 if the following lic body and will explain the time- conditions are met: frames involved with the proposed sale, (1) The market value of the housing any potential impact on tenants, and project is determined by the Agency, the actions tenants may take to allevi- based on an appraisal conducted in ac- ate any adverse impact. Borrowers cordance with subpart P of this part. must post copies of the Agency’s pro- posed sale notice in public areas (2) There are no restrictive-use agree- throughout the housing project until ments or prepayment prohibitions in the housing project is sold or the offer effect. to sell is withdrawn. (b) Specific incentives offered will be (g) If a tenant applicant signs a lease based on the Agency’s assessment of: in a housing project for which a pre- (1) The value of the housing project payment request has been submitted, as determined by the Agency based on the borrower must provide the tenant an ‘‘as-is’’ market value appraisal con- with copies of all notifications pro- ducted in accordance with subpart P of vided to tenants by the Agency or the this part; borrower prior to the tenant’s occu- (2) An incentive amount that will pancy in the housing project. provide a fair return to the borrower; (h) If a borrower is unable to sell a (3) An incentive amount that will not housing project involved in a prepay- cause basic rents at the housing ment request to a nonprofit organiza- project to exceed conventional rents tion or public body within 180 days as for comparable units; except that when specified in § 3560.659, the Agency will determined necessary by the Agency to send a notice to each tenant in the allow for decent, safe and sanitary housing project explaining the poten- housing to be provided in market areas tial impact of the borrower’s inability where conventional rents are not suffi- to sell the housing project on tenants cient to cover necessary operating, and the actions tenants may take to maintenance, and reserve costs. Basic alleviate any adverse impact. Bor- rents may be allowed to exceed com- rowers must post the Agency’s notice parable rents for conventional units, in public areas throughout the housing but in no case by more than 150% of the project for a period of 60 days following comparable rent for conventional unit the date of the notice. rent level; and (4) An incentive amount that will be § 3560.655 Agency requested extension. the least costly alternative for the Before accepting an offer to prepay Federal Government while being con- from a borrower with a restricted loan, sistent with the Agency’s commitment the Agency must first make a reason- to the preservation of housing for very- able effort to enter into a new restric- low, low, and moderate income house- tive-use agreement with the borrower. holds in rural areas.
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(c) The Agency may offer the fol- (ii) Borrowers with farm labor hous- lowing incentives: ing loans are not eligible to receive eq- (1) The Agency may increase the bor- uity loans as incentives. rower’s annual return on equity by one (iii) If an incentive offer for an eq- of the following two methods. The ac- uity loan is accepted, the equity loan tual withdrawal of the return remains may be processed and closed with the subject to the procedures and condi- borrower or any eligible transferee. tions for withdrawal specified in sub- (iv) Excess reserve funds will be used part G of this part. to reduce the amount of an equity loan (i) The Agency may recognize the offered to a borrower. borrower’s current equity in the hous- (v) Equity loans may not be offered ing project. The equity will be deter- unless the Agency determines that mined using an Agency accepted ap- other incentives are not adequate to praisal based on the housing project’s provide a fair return on the investment value as unsubsidized conventional of the borrower to prevent prepayment housing. of the loan or to prevent displacement (ii) When a current appraisal indi- of project tenants. cates an equity loan can not be made, (5) The Agency will offer rental as- the Agency may recognize the bor- sistance to protect tenants from rent rower’s current equity in the housing overburden caused by any rent increase as a result of a borrower’s acceptance project at the higher of the original of an incentive offer or tenants who are rate of return or the current 15-year currently overburdened. Treasury bond rate plus 2 percent (6) In housing projects with project- rounded to the nearest one-quarter per- based section 8 assistance, the Agency cent. The equity will be determined may permit the borrower to receive using the most recent Agency accepted rents in excess of the amounts deter- appraisal of the housing project prior mined necessary by the Agency to de- to receiving the prepayment request. fray the cost of long-term repair or (2) The Agency may agree to convert maintenance of such a project. projects without interest credit or with (d) The Agency must determine that Plan I interest credit to Plan II inter- the combination of assistance provided est credit or increase the interest cred- is necessary to provide a fair return on it subsidy for loans with Section 8 as- the investment of the borrower and is sistance to lower the interest rate on the least costly alternative for the the loan and make basic rents more fi- Federal Government. nancially feasible. (e) At the time a specific incentive (3) The Agency may offer additional offer is developed, the Agency must rental assistance, or an increase in as- take into consideration the costs of sistance provided under existing con- any deferred maintenance, items in the tracts under §§ 521(a)(2), 521(a)(5) of the housing project’s operating budget, and Housing Act of 1949 (42 U.S.C. any expected long-term repair or re- 1490a(a)(2)) or section 8 of the United placement costs based on a capital States Housing Act of 1937 (42 U.S.C. needs assessment developed in accord- § 1437f). ance with § 3560.103(c). Deferred mainte- (4) The Agency may make an equity nance may include specific items iden- loan to the borrower. The equity loan tified in previous Agency inspections must not adversely affect the bor- where the borrower has had the oppor- rower’s ability to repay other Agency tunity and resources available to take loans held by the borrower and must be corrective actions and did not. made in conformance with the fol- (1) Deferred maintenance does not in- lowing requirements: clude routine repair and replacement (i) The equity loan must not exceed that results from normal wear and tear the difference between the current un- of the physical asset. The amount re- paid loan balance and 90 percent of the quired for the reserve account to be housing project’s value as determined considered fully funded will be adjusted by an ‘‘as-is’’ market value appraisal accordingly. To determine if basic conducted in accordance with subpart rents exceed conventional rents for P of this part. comparable units in the area, monthly
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contributions necessary to obtain the the Agency will establish a waiting list adjusted fully funded reserve account of accepted incentive offers for funding will be included in the calculation of in the date order that the complete basic rents. prepayment request was received. (2) Deferred maintenance including (c) Unfunded incentive offers. If the any deficiencies identified in project borrower accepts the incentive offer compliance with section 504 of the Re- but the Agency is unable to fund the habilitation Act of 1973 must be ad- incentive within 15 months, the bor- dressed as part of the development of rower may choose one of the following the incentive and must be completed as actions: part of an acceptance agreement of any (1) The borrower may offer to sell the incentive. (f) Existing loans must be consoli- housing project in accordance with dated, provided consolidation retains § 3650.659. In this case the borrower will the Agency’s lien position, and reamor- be removed from the list of borrowers tized in accordance with subparts I and awaiting incentives. J of this part, provided it maintains (2) The borrower may stay on the list feasibility of the housing for the ten- of borrowers awaiting incentives until ants or reduces the debt service or the the borrower’s incentive offer is fund- level of monthly rental assistance. ed. The Agency will not negotiate the (g) The borrower must accept or re- incentive offer; but, at a borrower’s re- ject the incentive offer within 30 days. quest, may adjust the incentive If no answer to the offer is received amount to reflect an updated appraisal, within 30 days, the Agency may con- loan balance, and terms of third party sider the incentive offer to be rejected. financing. (1) If the borrower accepts the incen- (3) The borrower may withdraw the tive offer, procedures outlined in prepayment request and be removed § 3560.657 must be followed. from the list of borrowers awaiting in- (2) If the borrower rejects the incen- centives and either continue operating tive offer, the borrower must comply the housing project for program pur- with requirements listed in § 3560.658. poses and in accordance with Agency [69 FR 69106, Nov. 26, 2004, as amended at 73 requirements or continue processing FR 65506, Nov. 4, 2008] their prepayment process in accord- ance with § 3560.658. If the borrower § 3560.657 Processing and closing in- chooses to withdraw their request, the centive offers. borrower may resubmit an updated pre- (a) Borrower responsibilities. If a bor- payment request, at any time, and re- rower accepts the Agency’s offer of in- peat the prepayment process in accord- centives, the borrower must complete ance with this subpart. the following actions: (4) The borrower may elect to obtain (1) Subject to the Agency’s approval, a third-party equity loan provided the borrower must legally restrict the rents will not exceed comparable rents use of the project in accordance with in the market area. and for the number of years stated in § 3560.662. § 3560.658 Borrower rejection of the (2) If the incentive offer accepted in- incentive offer. cludes an equity loan, the borrower must complete an application for the (a) If a borrower rejects the incentive equity loan, and the borrower must package offered by the Agency or an continue to qualify as an eligible bor- Agency request to extended restrictive- rower or transferee in accordance with use provisions, made in accordance subpart B of this part. with § 3560.662, the loan will only be (3) If the incentive offer accepted in- prepaid if the borrower elects to agree cludes rent increases, the borrower to the following: must follow the rent increase require- (1) The borrower agrees to sign re- ments established in subpart E of this strictive-use provisions to extend re- part. strictive-use by 10 years from the date (b) Waiting lists. If funds for compo- of prepayment, and at the end of the nents of incentive offers are limited, restrictive-use period offer to sell the
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housing to a qualified nonprofit organi- prepayment will be accepted with no zation or public body in accordance further restriction. with § 3560.659. (c) If the borrower agrees to the re- (2) If housing opportunities for mi- strictive-use provisions, as determined norities would be lost as a result of by the Agency, the applicable language prepayment, the borrower will offer to must be included in the release docu- sell the housing to a qualified non- ments and the borrower must execute a profit organization or public body in restrictive-use agreement acceptable accordance with § 3560.659. to the Agency and a deed restriction. (b) If the borrower does not elect or (d) If the borrower will not agree to agree to enter an agreement in accord- applicable restrictive-use provisions, as ance with paragraph (a) of this section, determined by the Agency, the bor- then the Agency will assess the impact rower must offer to sell to a nonprofit of prepayment on two factors: housing or public body in accordance with opportunities for minorities and the § 3560.659 or withdraw their prepayment supply of decent, safe, sanitary, and af- request. fordable housing in the market area. The Agency will review relevant infor- [69 FR 69106, Nov. 26, 2004, as amended at 73 mation to determine the availability of FR 65506, Nov. 4, 2008] comparable affordable housing for ex- § 3560.659 Sale or transfer to nonprofit isting tenants in the market area and organizations and public bodies. if minorities in the project, on the waiting list or in the market area will (a) Sales price. For the purposes of es- be disproportionately adversely af- tablishing a sales price when a bor- fected by the loss of the affordable rower is required or elects to sell a rental housing units. housing project to a nonprofit organi- (1) If restrictive-use provisions are in zation or public body, two independent place, the borrower will agree to sign appraisals will be ordered, one by the the restrictive-use provisions, as deter- Agency and one by the borrower. Both mined by the Agency, and at the end of appraisals will conclude market value the restrictive-use period, offer to sell and be in accordance with subpart P of the housing to a qualified nonprofit or- this part. If the borrower’s assessment ganization or public body in accord- of the Agency’s appraised market value ance with § 3560.659. indicates that no further appraisal is (2) If the Agency determines that pre- needed, the borrower may agree to ac- payment will have an adverse impact cept the Agency’s appraisal. on minorities, then the borrower must (1) The expense of the borrower’s ap- offer to sell to a qualified nonprofit or- praisal shall be borne by the borrower. ganization or public body in accord- The appraiser selected may not have an ance with the provisions of paragraph identity of interest with the borrower. (a) of this section. (2) If the two appraisers fail to agree (3) If the Agency determines that the on the market value, the Agency and prepayment will not have an adverse the borrower will jointly select an ap- effect on housing opportunities for mi- praiser whose appraisal will be binding norities but there is not an adequate on the Agency and the borrower. The supply of decent, safe, and sanitary Agency and the borrower shall jointly rental housing affordable to program fund the cost of the appraisal. eligible tenant households in the mar- (b) Marketing to nonprofit organiza- ket area, the loan may be prepaid only tions and public bodies. If a borrower if the borrower agrees to sign restric- must offer the property for sale to a tive-use provisions, as determined by nonprofit organization or public body the Agency, to protect tenants at the under this paragraph, the borrower time of prepayment. must take the following actions to in- (4) If the Agency determines that form appropriate entities of the sale: there is no adverse impact on minori- (1) The borrower must advertise and ties and there is an adequate supply of offer to sell the project for a minimum decent, safe, and sanitary rental hous- of 180 days. The borrower may choose ing affordable to program eligible ten- to suspend advertising and other sales ant households in the market area the efforts while eligibility of an interested
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purchaser is determined. If the pur- low- and low-income families or per- chaser is determined to be ineligible, sons for the remaining useful life of the the borrower must resume advertising housing and related facilities. However, for the balance of the required 180 days. currently eligible moderate-income (2) The Agency will assist the bor- tenants will not be required to move. rower in initially notifying nonprofit (2) The purchaser must agree that no organizations and public bodies. subsequent transfer of the housing (3) The borrower must provide the project will be permitted for the re- nonprofit organizations and public bod- maining useful life of the housing ies contacted with sufficient informa- project unless the Agency determines tion regarding the housing project and that the transfer will further the provi- its operations for interested purchasers sion of housing for low-income house- to make an informed decision. The in- holds, or there is no longer a need for formation provided must include the the housing project. Language to be in- minimum value of the housing project cluded in the deed, conveyance instru- based on the market value determined ment, loan resolution, and assumption in accordance with paragraph (a) of agreement (as applicable) is provided this section. in § 3560.662. (4) If an interested purchaser re- (3) The purchaser must demonstrate quests additional information con- financial feasibility of the housing cerning the housing project, the bor- project including anticipated funding. rower must promptly provide the re- (4) The purchaser must certify to the quested materials. Agency that no identity-of-interest re- (c) Preference for local nonprofit and lationships in accordance with public bodies. Local nonprofit organiza- § 3560.102(g). The purchaser must not tions and public bodies have priority have any identity of interest with the over regional and national nonprofit seller or any borrower that has pre- organizations and public bodies. The viously prepaid or requested prepay- Agency may determine that no local ment of an Agency MFH loan. nonprofit organizations or public bod- ies are available to purchase the hous- (5) The purchaser must complete an ing project. After this determination, Agency-approved application and ob- the borrower may accept an offer from tain Agency approval in accordance a regional or national nonprofit organi- with subpart B of this part. zation or public body. (6) The purchaser must make a ;good (d) Eligible nonprofit organizations. To faith offer taking into consideration be eligible to purchase properties under the value of the housing project as de- the conditions of this subpart, non- termined in accordance with paragraph profit organizations may not have (a) of this section. among its officers or directorate any (f) Selection priorities. If more than persons or parties with an identity-of- one qualified nonprofit organization or interest (or any persons or parties re- public body submits an offer to pur- lated to any person with identity-of-in- chase the project at the same time, pri- terest) in loans financed under section ority will be given to local nonprofit 515 that have been prepaid. In addition organizations and public bodies over to local nonprofit organizations, eligi- regional and national nonprofit organi- ble nonprofit organizations include re- zations or public bodies. When select- gional or national nonprofit organiza- ing between offers equally meeting all tions or public bodies provided no part other criteria, the borrower will first of the net earnings of which accrue to consider the success of the nonprofit the benefit of any member, founder, organization’s or public body’s pre- contributor or individual. vious experience in developing and (e) Requirements for nonprofit organi- maintaining subsidized housing, with zations and public bodies. To purchase preference given to the most success- and operate a housing project, a non- ful. If the offers continue to be equal, profit organization or public body must the borrower will then consider the meet the following requirements: number of years experience that the (1) The purchaser must agree to nonprofit organization or public body maintain the housing project for very has had in developing and maintaining
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subsidized housing, with preference (k) When no offer to purchase is re- given to the greater number of years. ceived. Prepayment with no further re- (g) Loans made by the Agency or other striction may be accepted by the Agen- sources to nonprofit organizations and cy when the borrower agrees to offer public bodies. Agency loans to nonprofit the housing project for sale to a non- organizations or public bodies may be profit organization or public body in made for the purposes described in this accordance with § 3560.659 and no good paragraph. Agency loans will be proc- faith offer is received within 180 days essed in accordance with subpart B of from the date that the housing project this part. Loans from other sources was advertised for sale to a nonprofit will be approved by the Agency in ac- organization or public body, or a good cordance with subpart I of this part. faith offer was received within 180 days (1) Agency loans to nonprofit organi- from the advertisement date but the zations or public bodies for the pur- offeror was unable to fulfill the terms of the offer within 24 months of the chase of a housing project will be based offer date, provided the owner cooper- on the appraised value determined in ated with the potential purchaser. accordance with paragraph (a) of this section. [69 FR 69106, Nov. 26, 2004, as amended at 73 (2) With proper justification, an FR 65506, Nov. 4, 2008] Agency loan may be made to help the § 3560.660 Acceptance of prepayments. nonprofit organization or public body meet the housing project’s first year (a) When the Agency agrees to accept operating expenses if there are insuffi- prepayment, the Agency will notify cient funds in the housing project’s borrowers, in writing, of the conditions general operating and expense account under which the Agency will accept to meet such expenses. An Agency prepayment including the specific re- loan, for the purpose of covering first strictive-use provisions to which the year operating expenses, may not ex- borrower has agreed and the date by ceed 2 percent of the housing project’s which the borrower must make the pre- payment. appraised value determined in accord- (1) Prepayment must be made 180 ance with paragraph (c) of this section. days from the date of the Agency’s pre- (h) Advances for nonprofit organiza- payment acceptance notice to the bor- tions and public bodies. The Agency may rower. make advances, in accordance with (2) If the borrower’s prepayment is section 502(c)(5)(c)(i), not in excess of not received within 180 days of the pre- limits established by Congress to non- payment acceptance notice and the profit organizations or public bodies Agency has not agreed to an alter- that are purchasing housing under this native date based on a written request subpart. Grant funds may be used to from the borrower, the Agency may cover any direct costs other than the cancel the prepayment acceptance purchase price, incurred by nonprofit agreement. organizations or public bodies in pur- (b) Tenants will be notified of the chasing and assuming responsibility prepayment acceptance agreement in for the housing project. accordance with § 3560.654(c). If a pre- (i) Waiting list. If funds for sales to payment is anticipated to result in in- nonprofit organizations and public bod- creased net tenant contributions, dis- ies are limited, the Agency will add the placements or involuntary relocations, funding requests to the waiting list for the tenants, who are affected by such a incentives and follow the process estab- circumstance, may request a Letter Of lished in § 3560.657(b) and (c). Priority Entitlement (LOPE) in ac- (j) Withdrawal from sales process. A cordance with § 3560.159(c). Tenants borrower may withdraw the prepay- must request a LOPE within one year ment request at any time prior to the of the prepayment acceptance notice sale of the property. The borrower will date. be responsible for any damages associ- (c) Owners will provide certification ated with breaking a sales contract es- stating that they will meet state and tablished with a nonprofit organization local laws prior to prepayment accept- or public body. ance.
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§ 3560.661 Sale or transfers. the end of the expiration of the period (a) If a sale or transfer is to take described in paragraph (b) of this sec- place in conjunction with the Agency tion, the property will be offered for incentive offer, the sale or transfer sale to a qualified nonprofit organiza- must comply with the processing provi- tion or public body, in accordance with sions of subpart I of this part. previously cited statutes and regula- (b) If a proposed transferee is deter- tions. mined not to be eligible for the trans- (d) The Agency and eligible tenants fer and assumption, the borrower will or applicants may enforce these re- be given an additional 45 days to find strictions. another transferee. (e) The undersigned also agrees to: (c) In cases where the existing owner (1) To set rents, other charges, and is in program non-compliance or de- conditions of occupancy in a manner to fault, the Agency may make an offer of meet these restrictions; incentives contingent on the successful (2) To post an Agency approved no- transfer of the housing to an accept- tice of this restriction for the tenants able purchaser. The Agency may offer a of the property; smaller incentive or no incentive if the (3) To adhere to applicable local, borrower does not agree to transfer the state, and Federal laws; and project to an acceptable purchaser, or (4) To obtain Agency concurrence for if the transfer does not take place. any rental procedures that deviate from those approved at the time of pre- § 3560.662 Restrictive-use provisions payment, prior to implementation. and agreements. (f) The undersigned will be released All restrictions require Agency ap- from these obligations before the ter- proval and must be in accordance with mination period in paragraph (b) of the following restrictions: this section only when the Agency de- (a) The undersigned, and any succes- termines that there is no longer a need sors in interest, agree to use the prop- for the housing or that financial assist- erty (described herein) in compliance ance provided the residents of the with 42 U.S.C. 1484 or 1485, whichever is housing will no longer be provided due applicable, and applicable regulations to no fault, action or lack of action on and the subsequent amendments, for the part of the borrower. the purpose of housing: [69 FR 69106, Nov. 26, 2004, as amended at 73 (1) Very low-, or low-income house- FR 65506, Nov. 4, 2008] holds when required by § 3560.658(a)(2), or § 3560.663 Post-payment responsibil- (2) Very low-, low-, or moderate-in- ities for loans subject to continued come households. restrictive-use provisions. (b) The period of the restriction will (a) If a borrower prepays a loan and be inserted in accordance with the fol- the housing project remains subject to lowing: restrictive-use provisions, the require- (1) 10 years if required by ments of this section apply after pre- § 3560.658(a)(1); payment. (2) The last existing tenant (that oc- (b) Owners of prepaid housing cupied the property on the date of pre- projects will be responsible for ensur- payment) voluntarily vacates if re- ing that the restrictive-use provisions quired by § 3560.658(b)(3); agreed to as a condition of prepayment (3) 30 years if required by § 3560.406(g); are observed. (4) Remaining period of existing re- (c) Owners must maintain appro- strictive-use provisions and any agreed priate documentation to demonstrate extension if required by § 3560.655 or compliance with the restrictive-use § 3560.658 (b)(1); provisions and must make the docu- (5) The remaining useful life of the mentation and the housing project site housing and related facilities if re- available for Federal Government in- quired by § 3560.658(a)(2); and spection upon request. (6) 20 years in all other cases. (1) Owners must document rent in- (c) When required by § 3560.658(a)(1) or creases in accordance with subpart G of (a)(2), the undersigned agrees that at this part.
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(2) Owners must document tenant eli- to errors by the Agency, the borrower, gibility in accordance with § 3560.152. or the tenant. (3) In an Agency approved format, owners must provide the agency with a § 3560.702 Unauthorized assistance signed and dated certification within 30 sources and situations. days of the beginning of each calendar (a) Unauthorized assistance can be year for the full period of the restric- received by a borrower or tenant in the tive-use provisions establishing that form of loans, grants, interest credit, the restrictive-use provisions are being rental assistance, or other assistance met. provided by the Agency including as- (d) Owners must observe Agency poli- sistance received as a result of an in- cies on tenant grievances as described correct interest rate being applied to in § 3560.160. The Agency may enforce an Agency loan. Agency officials may restrictive-use provisions through ad- pursue identification and recapture of ministrative and legal actions. Tenants unauthorized assistance through any may enforce the restrictive-use provi- legal remedies available. sions by contacting the Agency or (b) Unauthorized assistance may re- through legal action. The Agency will sult from situations such as: release the restrictive-use provisions (1) Assistance being provided to an when the Agency conditions have been ineligible borrower or tenant; met. (2) Assistance to an eligible borrower §§ 3560.664–3560.699 [Reserved] or tenant being used for an unauthor- ized purpose; § 3560.700 OMB control number. (3) Assistance being obtained as a re- The information collection require- sult of inaccurate, incomplete, or ments contained in this regulation fraudulent information provided by a have been approved by the Office of borrower or tenant; or Management and Budget (OMB) and (4) Assistance being obtained as a re- have been assigned OMB control num- sult of errors by the Agency, borrower, ber 0575–0189. Public reporting burden or tenant. for this collection of information is es- timated to vary from 15 minutes to 18 § 3560.703 Identification of unauthor- hours per response, including time for ized assistance. reviewing instructions, searching exist- (a) The Agency will use all available ing data sources, gathering and main- means to identify unauthorized assist- taining the data needed, and com- ance, including Agency monitoring ac- pleting and reviewing the collection of tivities, OIG reports, GAO reports, and information. A person is not required reports from any source, if the infor- to respond to a collection of informa- mation provided can be substantiated tion unless it displays a currently valid by the Agency. OMB control number. (b) Borrowers have the primary re- sponsibility for identifying repayment Subpart O—Unauthorized of unauthorized assistance received by Assistance tenants.
§ 3560.701 General. § 3560.704 Unauthorized assistance de- termination notice. (a) This subpart contains the policies for recapturing unauthorized assist- (a) The Agency will notify borrowers, ance when the Agency determines that in writing, when a determination has a borrower or tenant was ineligible for, been made that unauthorized assist- or improperly used, assistance received ance was received by the borrower. from the Agency. Borrowers will notify tenants, in writ- (b) The Agency may seek repayment ing, when a determination is made that of any unauthorized assistance pro- unauthorized assistance was received vided to a borrower or tenant, plus the by the tenant and will simultaneously cost of collection, regardless of wheth- send the Agency of copy of the written er the unauthorized assistance was due notice to the tenant.
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(b) The unauthorized assistance de- amount due will be the amount stated termination notice is a preliminary no- in the unauthorized assistance deter- tice, not a demand letter. The unau- mination notice unless another amount thorized assistance determination no- has been approved by the Agency. tice will: (c) Repayment may be made either (1) Specify the reasons the assistance with a lump sum payment or through was determined to be unauthorized; payments made over a period of time. (2) State the amount of unauthorized If a borrower or tenant agrees to repay assistance to be repaid and specify the unauthorized assistance, the borrower party responsible for repayment of the or tenant proposed repayment schedule unauthorized assistance (i.e., the ten- must be approved by Agency prior to ant or borrower) according to the pro- implementation. Agency approval of a vision of § 3560.708; repayment schedule will take into con- (3) Establish a place and time when sideration the best interest of the bor- the person receiving the unauthorized rower, the tenant, and the Federal assistance determination notice may Government. meet with the Agency or, in the case of (d) Borrowers must retain copies of tenants, may meet with the borrower, all correspondence and a record of all to discuss issues related to the unau- conversations between the borrower thorized assistance notice such as the and a tenant regarding unauthorized establishment of a repayment schedule; assistance received by a tenant. and (e) When a tenant, who has received (4) Advise the borrower or tenant unauthorized assistance due to tenant that they may present facts, figures, error or fraud as determined by the written records, or other information Agency, moves out of a housing within a specified period of time which project, the borrower is no longer re- might alter the determination that the sponsible for recapturing the unauthor- assistance received was unauthorized. ized assistance provided that the bor- (c) Upon request, the Agency or bor- rower notifies the Agency of the ten- rower, in the case of tenants, will grant ant’s move and transfers all records re- additional time for discussions related lated to the tenant’s unauthorized as- to an unauthorized assistance deter- sistance to the Agency within 30 days mination notice. Borrowers must no- of the tenant’s move. The Agency will tify the Agency of schedule revisions pursue collection of the unauthorized when additional time is granted to a assistance from the tenant. tenant in unauthorized assistance claims. (f) If a borrower refuses to enter into an unauthorized assistance repayment § 3560.705 Recapture of unauthorized schedule with the Agency, the Agency assistance. will initiate liquidation procedures, in (a) The Agency will seek repayment accordance with § 3560.456, or other en- of all unauthorized assistance received forcement actions, such as suspension, by a borrower or tenant, plus the cost debarment, civil, or criminal penalties, of collection, to the fullest extent per- in accordance with § 3560.461. If a ten- mitted by law. Agency efforts to col- ant refuses to enter into an unauthor- lect unauthorized assistance may in- ized assistance repayment schedule, clude offsets, the use of private or pub- the Agency will initiate recovery ac- lic collection agents, and any other tions against the tenant. remedies available. Agency findings re- (g) Borrowers may not use housing lated to unauthorized assistance deter- project funds to pay amounts due to minations will be referred to credit re- the Agency as a result of unauthorized porting bureaus and other federal, assistance due to borrower fraud. state, or local agencies with jurisdic- tions related to the unauthorized as- § 3560.706 Offsets. sistance findings for suspension, debar- Offsets and any other available rem- ment, civil or criminal action to the edies may be used by the Agency to re- fullest extent permitted by law. capture unauthorized assistance. Guid- (b) If a borrower or tenant agrees to ance concerning use of offsets can be repay unauthorized assistance, the found at 7 CFR 3550.210.
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§ 3560.707 Program participation and (2) Assignment of rental assistance to corrective actions. a household that is ineligible under the (a) With Agency approval, a borrower requirements of subpart F of this part. or tenant, who has received unauthor- (c) When it is determined that a ten- ized assistance, may continue to par- ant has received unauthorized assist- ticipate in the project if they have the ance, the borrower shall notify the ten- legal and financial capabilities to do ant and the Agency through the proce- so. Approval considerations for such dure specified in § 3560.704. forbearance and repayment are in (d) Borrowers may not charge ten- § 3560.705. ants to pay amounts due to the Agency (b) A borrower or tenant who was re- as a result of unauthorized assistance sponsible for the circumstances caus- to tenants through borrower error. ing the unauthorized assistance must (e) Borrowers must notify the Agency take appropriate action to correct the of all collections from tenants as re- problem within 90 days of the unau- payments for unauthorized assistance thorized assistance determination no- and must remit or credit the amounts tice date, unless an alternative date is collected to applicable housing project agreed to by the Agency. accounts. (c) When the interest rate shown in a (f) When rental assistance was im- debt instrument resulted in the receipt properly assigned to a tenant, for any of unauthorized assistance, the debt in- reason, the rental assistance benefit strument will be modified to the cor- must be canceled and reassigned. rect interest rate. All payments made (1) Before a borrower notifies a ten- by the borrower at the incorrect inter- ant of rental assistance cancellation, est rate will be reapplied at the correct the borrower must request Agency ap- interest rate, and remaining payments proval. If the Agency determines that due on the loan will be recalculated on the unauthorized rental assistance was the basis of the correct interest rate, received by the tenant due to borrower plus any amounts due to the Agency as fraud or error, the borrower must give a result of the use of an incorrect in- the tenant 30 days notice, in writing, terest rate, unless the Agency agrees that the unit was assigned in error and to a separate repayment process. that the rental assistance benefit will be canceled effective on date that the § 3560.708 Unauthorized assistance re- ceived by tenants. next monthly rental payment is due after the end of the 30-day notice pe- (a) Tenant actions that require ten- riod. ant repayment of unauthorized assist- (2) Tenants also must be notified, in ance received by tenants include, but writing, that they may cancel their are not limited to: lease without penalty at the time the (1) Knowingly or mistakenly mis- rental assistance is canceled. Tenants representing income, assets, adjust- must be offered an opportunity to meet ments to income, or household status with a borrower to discuss the rental to the borrower as required under sub- assistance cancellation. part D of this part; or (2) Failure to properly report changes § 3560.709 Demand letter. in income, assets, adjustments to in- come, or household status to the bor- (a) If a borrower fails to respond to rower as required in subpart D of this an unauthorized assistance determina- part. tion notice or fails to agree to a repay- (b) Borrower actions that require ment schedule, the Agency will send borrower repayment of unauthorized the borrower a demand letter speci- assistance received by tenants include, fying: but are not limited to: (1) The amount of unauthorized as- (1) Incorrect determination of tenant sistance to be repaid and the basis for income or household status by the bor- the unauthorized assistance determina- rower, resulting in rental assistance or tion; and interest credit that is not allowable (2) The actions to be taken by the under the provisions of subparts D, E, Agency if repayment is not made by a or F of this part, as applicable; or specified date.
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(b) If a tenant fails to respond to the § 3560.752 Appraisal use, request, re- unauthorized assistance determination view, and release. notice or fails to agree to a repayment (a) Appraisal uses. The Agency will schedule, the borrower will send the use appraisals to determine whether tenant a demand letter specifying: the security offered by an applicant or (1) The amount of unauthorized as- borrower is adequate to secure a loan sistance to be repaid and the basis for or determine appropriate servicing or the unauthorized assistance determina- preservation decisions. Appraisals used tion; for Agency decision-making must be (2) The actions to be taken if repay- current, unless the Agency and the ap- ment is not made by a specified date, plicant, or borrower, mutually agree to including termination of tenancy; and the use of an appraisal that is not cur- (3) The appeal rights of the tenant as rent. A current appraisal is an ap- specified in § 3560.160. praisal with a report date that is not (c) A demand letter may be sent to a more than one year old. borrower or tenant, in lieu of an unau- (b) Appraisal requests. Appraisal re- thorized assistance determination no- quests must be in writing and must tice, when the evidence documenting specify the client and other intended the unauthorized assistance determina- users, the intended use, the purpose, tion is deemed to be conclusive by the and the scope of work of the appraisal, Agency or borrower sending the letter. including the type and definition of the value(s) to be developed. §§ 3560.710–3560.749 [Reserved] (1) Type of Value. The appraisal re- quest must indicate whether the ‘‘mar- § 3560.750 OMB control number. ket value’’, the ‘‘market value, subject The information collection require- to restricted rents’’, or any other type ments contained in this regulation of value of the housing project and re- have been approved by the Office of lated facilities is to be concluded. Management and Budget (OMB) and (i) A request for ‘‘market value, sub- have been assigned OMB control num- ject to restricted rents’’ means the ap- ber 0575–0189. Public reporting burden praisal will take into consideration for this collection of information is es- any rent limits, rent subsidies, expense timated to vary from 15 minutes to 18 abatements, or restrictive-use condi- hours per response, including time for tions that will affect the property as a reviewing instructions, searching exist- result of an agreement with the Agen- ing data sources, gathering and main- cy or any other financing source. Each taining the data needed, and com- type of financing involved, including, pleting and reviewing the collection of but not limited to, interest credit sub- information. A person is not required sidy, low-interest loans from other to respond to a collection of informa- sources, tax-exempt bond financing, tion unless it displays a currently valid tax credits, and grants, must be valued OMB control number. separately in the appraisal. (ii) A request for ‘‘market value’’ means the appraisal will take into con- Subpart P—Appraisals sideration the most probable price which a property should bring in a § 3560.751 General. competitive and open market under all This subpart sets forth appraisal conditions requisite to a fair sale, the policies for Agency-financed multi- buyer and seller each acting prudently family housing (MFH) projects con- and knowledgeably, and assuming the sisting of five or more rental units. price is not affected by undue stimulus. Agency-financed housing projects with Implicit in this definition is the con- fewer than five rental units may be ap- summation of a sale as of a specified praised in accordance with the Agen- date and the passing of title from seller cy’s single family housing appraisal to buyer under conditions whereby: policies established under 7 CFR (A) Buyer and seller are typically 3550.62. motivated;
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(B) Both parties are well informed or sional Appraisal Practice (USPAP) and well advised and acting in what they Agency requirements. consider their best interests; (d) Release of appraisals. MFH apprais- (C) A reasonable time is allowed for als procured by the Agency will be re- exposure in the open market; leased to owners/applicants, from their (D) Payment is made in terms of cash own files, upon their request. in United States dollars or in terms of financial arrangements comparable § 3560.753 Agency appraisal standards thereto; and and requirements. (E) The price represents the normal (a) General. The Agency recognizes consideration for the property sold un- USPAP as the basic standards for ap- affected by special or creative financ- praisals. Appraisals used by the Agency ing or sales concessions granted by must comply with USPAP and this anyone associated with the sale. subpart. (2) ‘‘ ‘As-is’ Value’’ or ‘‘Prospective (b) Appraisers. MFH appraisals pre- Value’’. The appraisal request must in- pared for the Agency will be written by dicate whether the ‘‘‘as-is’ value’’ or Agency appraisers or independent fee ‘‘prospective value’’ of the housing is to appraisers who are state certified gen- be concluded. eral appraisers, certified in the state (i) ‘‘ ‘As-is’ value’’ means the value of where the property is located. Tech- the housing and related facilities as of nical review reports will be written by the effective date of the appraisal. It Agency state certified general apprais- relates to what physically exists and is ers. legally permissible at the time of the (c) Appraisal report. The appraisal re- appraisal and excludes all hypothetical port format may be a form appraisal or conditions. a narrative appraisal. The Agency will specify the appraisal format that is (ii) ‘‘Prospective value’’ means the forecasted value of the housing and re- most appropriate for the scope of work lated facilities as of a specified future involved when the appraisal is re- date. For Agency appraisals, this date quested. will typically be the projected comple- (1) Form appraisal reports. The Agency tion date of proposed new construction will accept appraisal report forms that or rehabilitation. meet generally accepted industry (3) Section 8 project-based assistance. standards, comply with USPAP, and Depending on the intended use of the have been approved by the Agency. appraisal, the Agency will specify (2) Narrative appraisal reports. Nar- whether or not section 8 project-based rative appraisal reports must, at a assistance will be considered in the minimum, contain the following items: valuation of the housing. The remain- (i) Transmittal letter; ing term of the section 8 contract and (ii) Factual information about the the probability of subsequent renewal property; terms being authorized will be taken (iii) Regional and neighborhood data; into consideration when making this (iv) Description of the subject prop- determination. erty; (4) Low-Income Housing Tax Credit (v) Description of existing and (LIHTC) and other financing sources. De- planned improvements; pending on the intended use of the ap- (vi) A highest and best use analysis; praisal, the Agency will specify wheth- (vii) A statement regarding any envi- er or not tax credits and other financ- ronmental issues, such as potential ing sources involved in the housing will contamination of the property from be considered in the valuation of the hazardous substances, hazardous housing. wastes, or petroleum products; (c) Appraisal review. All MFH apprais- (viii) A cost approach analysis (if ap- als that were not written by an Agency plicable); appraiser will be reviewed by an Agen- (ix) A sales comparison approach cy appraiser, who will write and file a analysis (if applicable); technical review report that complies (x) An income approach analysis (if with the Uniform Standards of Profes- applicable);
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(xi) A reconciliation of the value in- history for the housing project being dications derived from the included ap- appraised. proaches to value; and (g) Reserve accounts. Funds in the (xii) A signed and dated certification housing project’s reserve account will of value. not be considered in the valuation of (3) At the time an appraisal is re- the housing project. quested, the Agency will specify either (h) Escrow accounts. Short-term pre- a complete or a limited appraisal and paid escrow accounts for general oper- one of the following types of appraisal ating expenses, such as taxes and in- reports, based upon the complexity of surance, shall not be considered in the the appraisal assignment. valuation of the housing project. (i) A self-contained report that com- (i) Rental rates comparison. The ap- prehensively describes all information praisal report must document whether significant to the solution of the ap- the housing project’s basic rents are praisal problem; less than, equal to, or greater than (ii) A summary report that summa- market rents for comparable conven- rizes all information significant to the tional, or non-subsidized, units in the solution of the appraisal problem; or area where the housing is located. (iii) A restricted use report, intended (j) Description of housing and property for Agency use only, that briefly states all information significant to the solu- rights. The appraisal report must iden- tion of the appraisal problem. tify and describe both the real estate, (d) Highest and best use statement and which is the land and improvements, analysis. The highest and best use is to and the real property, or property be concluded for the subject site as rights, being appraised. though it was vacant, and for the sub- (k) Exclusion of rental units from valu- ject property as improved, if improve- ation. The Agency will provide apprais- ments have been made. If the highest ers with instructions and supporting and best use of a subject property is for information on any rental units that something other than MFH, the ap- do not produce rental income at the praisal report must provide this infor- time of the appraisal. mation to the Agency for consideration (l) Non-contiguous sites. When a hous- in the loan process. In addition to ing project has real property located on being reasonably probable and appro- non-contiguous sites, a separate ap- priately supported, the highest and praisal must be developed for each site. best use of both the land as though va- cant and the property as improved §§ 3560.754–3560.799 [Reserved] must meet four implicit criteria. The highest and best use must be: § 3560.800 OMB control number. (1) Physically possible; The information collection require- (2) Legally permissible; ments contained in this regulation (3) Financially feasible; and have been approved by the Office of (4) Maximally productive. Management and Budget (OMB) and (e) Valuation methods and variances. have been assigned OMB control num- The final opinion of value presented in ber 0575–0189. Public reporting burden an appraisal report must have consid- for this collection of information is es- ered a cost approach, a sales compari- timated to vary from 15 minutes to 18 son approach, and an income approach. hours per response, including time for If one of these standard approaches is reviewing instructions, searching exist- not used, the reconciliation narrative ing data sources, gathering and main- will provide a full and complete expla- taining the data needed, and com- nation of the reasons the approach was pleting and reviewing the collection of excluded. The reconciliation will fully information. A person is not required discuss and reconcile variances in the value indications concluded by each to respond to a collection of informa- approach. tion unless it displays a currently valid (f) Real estate history. Appraisals must OMB control number. contain a 5-year ownership and sales
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PART 3565—GUARANTEED RURAL 3565.156 Certification of compliance with federal, state, and local laws and with RENTAL HOUSING PROGRAM Agency requirements. 3565.157–3565.199 [Reserved] Subpart A—General Provisions 3565.200 OMB control number.
Sec. Subpart E—Loan Requirements 3565.1 Purpose. 3565.2 Applicability and authority. 3565.201 General. 3565.3 Definitions. 3565.202 Tenant eligibility. 3565.4 Availability of assistance. 3565.203 Restrictions on rents. 3565.5 Ranking and selection criteria. 3565.204 Maximum loan amount. 3565.6 Inclusion of tax-exempt debt. 3565.205 Eligible uses of loan proceeds. 3565.7 Agency environmental requirements. 3565.206 Ineligible uses of loan proceeds. 3565.8 Civil rights compliance. 3565.207 Form of lien. 3565.9 Compliance with federal require- 3565.208 Maximum loan term. ments. 3565.209 Loan amortization. 3565.10 Conflict of interest. 3565.210 Maximum interest rate. 3565.11–3565.12 [Reserved] 3565.211 Interest credit. 3565.13 Exception authority. 3565.212 Multiple guaranteed loans. 3565.14 Review and appeals. 3565.213 Geographic distribution. 3565.15 Oversight and monitoring. 3565.214 [Reserved] 3565.16 [Reserved] 3565.215 Special conditions. 3565.17 Demonstration programs. 3565.216–3565.249 [Reserved] 3565.18–3565.49 [Reserved] 3565.250 OMB control number. 3565.50 OMB control number. Subpart F—Property Requirements Subpart B—Guarantee Requirements 3565.251 Eligible property. 3565.51 Eligible loans and advances. 3565.252 Housing types. 3565.52 Conditions of guarantee. 3565.253 Form of ownership. 3565.53 Guarantee fees. 3565.254 Property standards. 3565.54 Transferability of the guarantee. 3565.255 Environmental requirements. 3565.55 Participation loans. 3565.256 Architectural services. 3565.56 Suspension or termination of loan 3565.257 Procurement actions. guarantee agreement. 3565.258–3565.299 [Reserved] 3565.57 Modification, extension, reinstate- 3565.300 OMB control number. ment of loan guarantee. 3565.58–3565.99 [Reserved] Subpart G—Processing Requirements 3565.100 OMB control number. 3565.301 Loan standards. Subpart C—Lender Requirements 3565.302 Allowable fees. 3565.303 Issuance of loan guarantee. 3565.101 Responsibility of lenders. 3565.304 Lender loan processing responsibil- 3565.102 Lender eligibility. ities. 3565.103 Approval requirements. 3565.305 Mortgage and closing requirements. 3565.104 Application requirements. 3565.306–3565.349 [Reserved] 3565.105 Lender compliance. 3565.350 OMB control number. 3565.106 Construction lender requirements. 3565.107 [Reserved] Subpart H—Project Management 3565.108 Responsibility for actions of agents and mortgage brokers. 3565.351 Project management. 3565.109 Minimum loan prohibition. 3565.352 Preservation of affordable housing. 3565.110 Insolvency of lender. 3565.353 Affirmative fair housing marketing. 3565.111 Lobbying activities. 3565.354 Fair housing accommodations. 3565.112–3565.149 [Reserved] 3565.355 Changes in ownership. 3565.150 OMB control number. 3565.356–3565.399 [Reserved] 3565.400 OMB control number. Subpart D—Borrower Eligibility Requirements Subpart I—Servicing Requirements 3565.151 Eligible borrowers. 3565.401 Servicing objectives. 3565.152 Control of land. 3565.402 Servicing responsibilities. 3565.153 Experience and capacity of bor- 3565.403 Special servicing. rower. 3565.404 Transfer of loans or mortgage serv- 3565.154 Previous participation in state and icing. federal programs. 3565.405 Repurchase of guaranteed loans. 3565.155 Identity of interest. 3565.406–3565.449 [Reserved]
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3565.450 OMB control number. Applicable Federal Rate (AFR). The in- terest rate set by the federal govern- Subpart J—Assignment, Conveyance, and ment for federal financing programs Claims pursuant to section 42 of the Internal 3565.451 Preclaim requirements. Revenue Code. 3565.452 Decision to liquidate. Approved lender. An eligible lender 3565.453 Disposition of the property. who has been authorized by the Agency 3565.454 [Reserved] to originate and service guaranteed 3565.455 Alternative disposition methods. multifamily loans under the program. 3565.456 Filing a claim. Assignment. The delivery by a lender 3565.457 Determination of claim amount. to the Agency of the note and any 3565.458 Withdrawal of claim. other security instruments securing 3565.459–3565.499 [Reserved] 3565.500 OMB control number. the guaranteed loan; and any and all liens, interest, or claims the lender Subpart K—Agency Guaranteed Loans may have against the borrower. That Back Ginnie Mae Guaranteed Se- Assistance. Financial assistance in curities the form of a loan guarantee or inter- est credit received from the Agency. 3565.501 Applicability. Borrower. The individuals or entities 3565.502 Incontestability. responsible for repaying the loans. 3565.503 Repurchase. 3565.504 Transfers. Claim. The presentation to the Agen- 3565.505 Liability. cy of a demand for payment for losses 3565.506–3565.549 [Reserved] incurred on a loan guaranteed under 3565.550 OMB control number. the program.
AUTHORITY: 5 U.S.C. 301; 7 U.S.C. 1989; 42 Combination construction and perma- U.S.C. 1480. nent loan. The Agency may guarantee a construction contract which has credit SOURCE: 63 FR 39458, July 22, 1998, unless enhancements to protect the Govern- otherwise noted. ment’s interest. The construction guar- antee will be converted to a permanent Subpart A—General Provisions guarantee when construction is com- pleted and the requirements contained § 3565.1 Purpose. in the conditional commitment are The purpose of the Guaranteed Rural met. Rental Housing Program (GRRHP) is Conditional commitment. The written to increase the supply of affordable commitment by the Agency to guar- rural rental housing, through the use antee a loan subject to the stated of loan guarantees that encourage terms and conditions. partnerships between the Rural Hous- Correspondent relationship. A contrac- ing Service, private lenders and public tual relationship between an approved agencies. lender and a non-approved lender or mortgage broker in which the cor- § 3565.2 Applicability and authority. respondent performs certain origina- The regulation prescribes the poli- tion, underwriting or servicing func- cies, authorizations, and procedures for tions for the approved lender. the guarantee of multifamily loans Default. Failure by a borrower to under section 538 of the Housing Act of meet any obligation or term of a loan, 1949. grant, or regulatory agreement, or any program requirement. § 3565.3 Definitions. Delinquency. Failure to make a time- Administrator. The Administrator of ly payment under the terms of the the Rural Housing Service, or his or promissory note or regulatory agree- her designee. ment. Agency. The Rural Housing Service, Department of Housing and Urban De- or a successor agency. velopment (HUD). A federal agency Allowable claim amount. The total which may be a partner in some of the losses incurred by the lender, as cal- Agency guarantees. culated pursuant to subpart J of this Due diligence. The process of evalu- part. ating real estate in the context of a
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real estate transaction for the presence or guaranteed by the Federal Housing of contamination from release of haz- Administration (FHA), the Department ardous substances, petroleum products, of Veterans Affairs (VA), or the Rural or other environmental hazards and de- Housing Service (RHS) and certain termining what effect, if any, the con- other loans or mortgages guaranteed or tamination has on the regulatory sta- insured by the Government. tus or security value of the property. GRRHP. Guaranteed Rural Rental Eligible borrower. A borrower who Housing Program. meets the requirements of subpart D of Guarantee fees. The fees paid by the this part. lender to the Agency for the loan guar- Eligible lender. A lender who meets antee. the requirements of subpart C of this (1) An initial guarantee fee is due at part or any successor regulation. the time the guarantee is issued. Eligible loan. A loan that meets the (2) An annual guarantee fee is due at requirements of subpart E of this part the beginning of each year that the or any successor regulation. guarantee remains in effect. Eligible rural area. An eligible rural Guaranteed loan. Any loan for which area is an area which meets the re- the Agency provides a loan guarantee. quirements of part 3550 of this chapter Holder. A person or entity, other than or any successor regulation. the lender, who owns all or part of the Fannie Mae. A Federally chartered, guaranteed portion of the loan with no publicly owned enterprise created by servicing responsibilities. When the Congress to purchase, sell or otherwise single note option is used and the lend- facilitate the purchase or sale of mort- er assigns a part or all of the guaran- gages in the secondary mortgage mar- teed note to an assignee, the assignee ket. becomes a Holder only when the Agen- Federal Home Loan Bank System. A cy receives notice and the transaction system of member savings and loans, is completed through use of an assign- banks and other lenders whose primary ment guarantee agreement form ap- business is the making of housing proved by the Agency. loans. Housing Finance Agency (HFA). A Final claim payment. The amount due state or local government instrumen- to the lender (or the Agency) after dis- tality authorized to issue housing position of the collateral is complete bonds or otherwise provide financing and the proceeds from liquidation, as for housing. Identity of interest. With well as any other claim payments, are respect to a project, an actual or ap- applied against the allowable claim parent financial interest of any type, amount. that exists or will exist among the bor- Foreclosure. The process by which the rower, contractor, lender, syndicator, ownership interest of a borrower in a management agent, suppliers of mate- mortgaged property is extinguished rials or services, including professional and the security is liquidated with the services, or vendors (including serv- proceeds applied to the loan. icing and property disposal), in any Freddie Mac. A Federally chartered, combination of relationships which publicly owned enterprise created to may result in an actual or perceived purchase, sell or otherwise facilitate conflict of interest the purchase or sale of mortgages in Income eligibility. A determination the secondary mortgage market. that the income of a tenant at initial Ginnie Mae. Ginnie Mae is a reference occupancy does not exceed 115 percent to the Government National Mortgage of the area median income as such area Association. median income is defined by HUD or a Government National Mortgage Associa- successor agency. tion. The Government National Mort- Indian tribe. Any Indian tribe, band, gage Association (Ginnie Mae) is a gov- nation, or other organized group or ernment corporation within the De- community of Indians, including any partment of Housing and Urban Devel- Alaska Native village or regional or opment. Ginnie Mae guarantees pri- village corporation, as defined by or es- vately issued securities backed by tablished pursuant to the Alaska Na- mortgages or loans which are insured tive Claims Settlement Act (43 U.S.C.
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1601 et seq.), that is recognized as eligi- puted by applying the guarantee per- ble for the special programs and serv- centage times the allowable claim ices provided by the United States to amount, but not to exceed original Indians because of their status as Indi- principal amount. ans pursuant to the Indian Self-Deter- Mortgage. A written instrument evi- mination and Education Assistance dencing or creating a lien against real Act of 1975 (25 U.S.C. 450 et seq.); or any property for the purpose of providing entity established by the governing collateral to secure the repayment of a body of an Indian tribe, as described in loan. For program purposes, this may this definition, for the purpose of fi- include a deed of trust or any similar nancing economic development. document. Interest credit. A subsidy available to Multifamily project. A project designed eligible borrowers that reduces the ef- with five or more living units. fective interest rate of the loan to the Negligent servicing or origination. Neg- Applicable Long Term Monthly AFR. ligent servicing or origination is a fail- Land lease. A written agreement be- ure to perform those services which a tween a landowner and a borrower for reasonably prudent lender would per- the possession and use of real property form in servicing or originating its own for a specified period of time. portfolio and includes not only the fail- Lease. A contract containing the ure to act but also the failure to act in rights and obligations of a tenant or a timely manner. cooperative member and a borrower, NOFA. A ‘‘Notice of Funding Avail- including the amount of the monthly ability’’ published in the FEDERAL REG- occupancy charge and other terms ISTER to inform interested parties of under which the tenant will occupy the the availability of assistance and other housing. non-regulatory matters pertinent to Lender. A bank or other financial in- the program. stitution, including a housing finance agency, that originates or services the Non-monetary default. A default that guaranteed loan. does not involve the payment of money. Lender agreement. The written agree- ment between the Agency and the lend- Note. Any note, bond, assumption er containing the requirements the agreement, or other evidence of indebt- lender must meet on a continuing basis edness pertaining to a guaranteed loan. to participate in the program. Office of Inspector General (OIG). The Loan. A mechanism by which a lend- agency of USDA established under the er funds the acquisition and develop- Inspector General Act. ment of a multifamily project. A loan Payment effective date. For the month in this context is secured by a mort- payment is due, the day of the month gage executed by the lender and bor- on which payment will be effectively rower. applied to the account by the lender, Loan guarantee. A pledge to pay part regardless of the date payment is re- of the loss incurred by a lender in the ceived. event of default by the borrower. Permanent loan. A permanent loan is Loan guarantee agreement. The writ- defined as a mortgage loan usually cov- ten agreement between the Agency and ering development costs, interim loans, the lender containing the terms and construction loans, financing expenses, conditions of the guarantee with re- marketing, administrative, legal, and spect to an individual loan. other Agency approved costs. This loan Loan participation. A loan made by differs from the construction loan in more than one lender wherein each that financing goes into place after the lender funds an individual portion of project is completely constructed and the loan. open for occupancy. It is a long-term Loan-to-value ratio. The amount of obligation, generally for a period of no the loan divided by the appraised mar- less than 25 years and no more than 40 ket value of the project. years. Maximum guarantee payment. The Prepayment. The payment of the out- maximum payment by the Agency standing balance on a loan prior to the under the guarantee agreement com- note’s maturity date.
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Project. The total number of rental U.S. citizen. An individual who resides housing units and related facilities as a citizen in any of the 50 States, the subject to a guaranteed loan that are District of Columbia, the Common- operated under one management plan wealth of Puerto Rico, the U.S. Virgin and one Regulatory Agreement. Islands, Guam, American Samoa, the Program requirements. Any require- Commonwealth of the Northern Mari- ments contained in any loan document, nas, the Federated States of Micro- guarantee agreement, statute, regula- nesia, the Republic of Palau, or the Re- tion, handbook, or administrative no- public of the Marshall Islands. tice. USDA. The United States Depart- Promissory note. See ‘‘Note’’. ment of Agriculture. Qualified alien. For the purposes of [63 FR 39458, July 22, 1998, as amended at 67 this part, qualified alien refers to any FR 16970, April 9, 2002; 70 FR 2930, Jan. 19, person lawfully admitted into the 2005] country who meets the criteria of 42 U.S.C. 1436a. § 3565.4 Availability of assistance. Real estate owned. Denotes real estate The Agency’s authority to enter into that has been acquired by the lender or commitments, guarantee loans, or pro- the Agency (often known as ‘‘inventory vide interest credits is limited to the property’’). extent that appropriations are avail- Recourse. The lender’s right to seek able to cover the cost of the assistance. satisfaction from the borrower’s per- The Agency will publish a NOFA in the sonal financial resources or other re- FEDERAL REGISTER to notify interested sources for monetary default. parties of the availability of assist- Regulatory agreement. The agreement ance. that establishes the relationship among the Agency, the lender, and the § 3565.5 Ranking and selection cri- borrower; and contains the borrower’s teria. responsibilities with respect to all as- (a) Threshold criteria. Applications for pects of the management and operation loan guarantee submitted by lenders of the project. must include a loan request for a RHS. The Rural Housing Service project that meets all of the following within the Rural Development mission threshold criteria: area, or a successor agency, which ad- (1) The project must involve an ministers section 538 guarantees. owner and a development team with Rural area. A geographic area as de- qualifications and experience sufficient fined in section 520 of the Housing Act to carry out development, manage- of 1949. ment, and ownership responsibilities, Rural Development. A mission area and the owner and development team within USDA which includes RHS, must not be under investigation or sus- Rural Utilities Service, and Rural pension from any government pro- Business-Cooperative Service. grams; Servicing. The broad scope of activi- (2) The project must involve the fi- ties undertaken to manage the per- nancing of a property located in an eli- formance of a loan throughout its term gible rural area; and to assure compliance with the pro- (3) Demonstrate a readiness, for the gram requirements. project to proceed, including submis- Single asset ownership. A borrower sion of a complete application for a who owns only one project. loan guarantee and evidence of financ- Surplus cash. The borrower’s remain- ing; ing funds at the project’s fiscal year (4) Demonstrate market and financial end, after making all required pay- feasibility; and ments, excluding required reserves and (5) Include evidence that the credit escrows. risk is reasonable, taking into account Tenant. The individual that holds the conventional lending practices, and right to occupy a unit in accordance factors related to concentration of risk with the terms of a lease executed with in a given market and with a given bor- the project owner. rower.
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(b) Priority projects. Priority will be the provision of brokerage services; or given to projects: in smaller rural com- in making available residential real es- munities, in the most needy commu- tate transactions involving Agency as- nities having the highest percentage of sistance, must be in accordance with leveraging, having the lowest interest the Fair Housing Act, which prohibits rate, having the highest ratio of 3–5 discrimination on the basis of race, bedroom units to total units, or lo- color, religion, sex, national origin, fa- cated in Empowerment Zones/Enter- milial status or handicap. It is unlaw- prise Communities or on tribal lands. ful for a lender or borrower partici- In addition, the Agency may, at its pating in the program to: sole discretion, set aside assistance for (1) Refuse to make accommodations or rank projects that meet important in rules, policies, practices, or services program goals. Assistance will include if such accommodations are necessary both loan guarantees and interest cred- to provide a person with a disability an its. Priority projects must compete for opportunity to use or continue to use a set-aside funds. The Agency will an- dwelling unit and all public and com- nounce any assistance set aside and se- mon use areas; and lection criteria in the NOFA. (2) Refuse to allow an individual with [63 FR 39458, July 22, 1998, as amended at 64 a disability to make reasonable modi- FR 32371, June 16, 1999] fications to a unit at his or her ex- pense, if such modifications may be § 3565.6 Inclusion of tax-exempt debt. necessary to afford the individual full Tax-exempt financing can be used a enjoyment of the unit. source of capital for the guaranteed (c) Any resident or prospective resi- loan. dent seeking occupancy or use of a [64 FR 32371, June 16, 1999] unit, property or related facility for which a loan guarantee has been pro- § 3565.7 Agency environmental re- vided, and who believes that he or she quirements. is being discriminated against may file The Agency will take into account a complaint with the lender, the Agen- potential environmental impacts of cy or the Department of Housing and proposed projects by working with ap- Urban Development. A written com- plicants, other federal agencies, Indian plaint should be sent to the Secretary tribes, State and local governments, of Agriculture or of the Department of and interested citizens and organiza- Housing and Urban Development in tions in order to formulate actions Washington, DC. that advance the program goals in a (d) Lenders and borrowers that fail to manner that will protect, enhance, and comply with the requirements of title restore environmental quality. Actions VIII of the Civil Rights Act of 1968, as taken by the Agency under this sub- amended (the Fair Housing Act), are part are subject to an environmental liable for those sanctions authorized by review conducted in accordance with law. the requirements of 7 CFR part 1940, (e) For guaranteed loans with ‘‘inter- subpart G or any successor regulations. est credit,’’ the following additional civil rights laws will apply and be en- § 3565.8 Civil rights compliance. forced by the agency delivering this (a) All actions taken by the Agency, guarantee program: title VI of the Civil or on behalf of the Agency, by a lender Rights Act of 1964, section 504 of the will be conducted without regard to Rehabilitation Act of 1973, the Ameri- race, color, religion, national origin, cans with Disabilities Act, Age Dis- sex, marital status, age, income from crimination Act of 1975, and title IX of public assistance or having exercised the Education Amendments of 1972. their right under the Consumer Credit (f) In accordance with title VI, bor- Protection Act, and in accordance with rowers will be subjected to compliance the Equal Credit Opportunity Act reviews for projects that receive inter- (ECOA). est credit. (b) Any action related to the sale, rental or advertising of dwellings; in [64 FR 32371, June 16, 1999]
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§ 3565.9 Compliance with federal re- (3) Do not have any business or per- quirements. sonal relationship with any beneficiary or any employee of a beneficiary. The Agency and the lender are re- (c) Rural Development employee respon- sponsible for ensuring that the applica- sibility. Rural Development employees tion is in compliance with all applica- must disclose any known relationship ble federal requirements, including the or association with a lender or bor- following specific statutory require- rower or their agents, regardless of ments: whether the relationship or association (a) Intergovernmental review. 7 CFR is known to others. Rural Development part 3015, subpart V, ‘‘Intergovern- employees or members of their families mental Review of Department of Agri- may not purchase a Real Estate Owned culture Programs and Activities’’, or property, security property from a bor- successor regulation, including the rower, or security property at a fore- Agency supplemental administrative closure sale. instruction, RD Instruction 1940–J (d) Loan closing agent responsibility. (available in any Rural Development Loan closing agents (or members of Office). their families) who have been involved (b) National flood insurance. The Na- with a particular property are pre- tional Flood Insurance Act of 1968, as cluded from purchasing such prop- amended by the Flood Disaster Protec- erties. tion Act of 1973; the National Flood In- (e) Lender and borrower responsibility. surance Reform Act of 1994; and 7 CFR Lenders, borrowers, and their agents part 1806, subpart B, or successor regu- must identify any known relationship lation. or association with a Rural Develop- (c) Clean Air Act and Water Pollution ment employee. Control Act Requirements. For any con- tract, all applicable standards, orders §§ 3565.11–3565.12 [Reserved] or requirements issued under section § 3565.13 Exception authority. 306 of the Clean Air Act; section 508 of the Clean Water Act; Executive Order An Agency official may request and 11738; and EPA regulations at part 32, the Administrator or designee may of title 40. make an exception to any requirement (d) Historic preservation requirements. or provision, or address any omission The provisions of 7 CFR part 1901, sub- of this part, if the Administrator deter- part F or successor regulation. mines that application of the require- ment or provision, or failure to take (e) Lead-based paint requirements. The action, would adversely affect the gov- provisions of 7 CFR part 1924, subpart ernment’s interest or the program ob- A, or successor regulation. jectives, and provided that such an ex- [63 FR 39458, July 22, 1998, as amended at 64 ception is not inconsistent with any FR 32372, June 16, 1999] applicable law or statutory require- ment. § 3565.10 Conflict of interest. [64 FR 32372, June 16, 1999] (a) Objective. It is the objective with- in the Rural Development mission area § 3565.14 Review and appeals. to maintain the highest standards of Whenever RHS makes a decision that honesty, integrity, and impartiality by is adverse to a lender or a borrower, employees. RHS will provide written notice of such (b) Rural Development requirement. To adverse decision and of the right to a reduce the potential for employee con- USDA National Appeals Division hear- flict of interest, all Rural Development ing in accordance with 7 CFR part 11 or activities will be conducted in accord- successor regulations. The lender or ance with 7 CFR part 1900, subpart D, borrower may request an informal re- or successor regulation by Rural Devel- view with the decision maker and the opment employees who: use of available alternative dispute res- (1) Are not themselves a beneficiary; olution or mediation programs as a (2) Are not family members or known means of resolution of the adverse de- relatives of any beneficiary; and cision. Any adverse decision, whether
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appealable or non-appealable may also Subpart B—Guarantee be reviewed by the next level RHS su- Requirements pervisor. Adverse decisions affecting project tenants or applicants for ten- § 3565.51 Eligible loans and advances. ancy will be handled in accordance Upon approval of an application from with 7 CFR part 1944, subpart L or suc- an approved lender, the Agency will cessor regulations. commit to providing a guarantee for a § 3565.15 Oversight and monitoring. permanent loan or a combination con- struction and permanent loan, subject The lender, borrower, and all parties to the availability of funds. The Agen- involved in any manner with any guar- cy will not guarantee a construction antee under this program must cooper- loan that is not a combination con- ate fully with all oversight and moni- struction and permanent loan. toring efforts of the Agency, Office of Inspector General, the U.S. General Ac- § 3565.52 Conditions of guarantee. counting Office, and the U.S. Depart- A loan guarantee under this part will ment of Justice or their representa- be evidenced by a Loan Note Guarantee tives including making available any issued by the Agency. Each lender will records concerning this transaction. execute a Lender’s Agreement. If a This includes the annual eligibility valid Lender’s Agreement already ex- audit and any other oversight or moni- ists, it is not necessary to execute a toring activities. If the Agency imple- new Lender’s Agreement with each ments a requirement for an electronic loan guarantee. transfer of information, the lender and (a) Rights and liabilities. A guarantee borrower must cooperate fully. under this part is backed by the full § 3565.16 [Reserved] faith and credit of the United States and is incontestable except for fraud or § 3565.17 Demonstration programs. misrepresentation of which the lender had knowledge at the time the lender To test ways to expand the avail- acquired the guarantee or assigned the ability or enhance the effectiveness of loan, or in which a lender participates the guarantee program, or for similar or condones. The guarantee will be un- purposes, the Agency may, from time enforceable by the lender to the extent to time, propose demonstration pro- any loss is occasioned by a violation of grams that use loan guarantees or in- usury laws, negligent servicing or terest credit. Toward this end, the origination by the lender, including a Agency may enter into special partner- failure to acquire required security, or ships with lenders, financial inter- as a result of a use of loan funds for mediaries, or others to carry out one or purposes other than those authorized more elements of a demonstration pro- by the Agency. The acts in the pre- gram. Demonstration programs will be vious sentence constitute grounds for publicized by notices in the FEDERAL the refusal to make full payment under REGISTER. the guarantee to the lender, and will §§ 3565.18–3565.49 [Reserved] not be taken until the Agency gives the lender notice of the acts or omis- § 3565.50 OMB control number. sions that it considers to constitute According to the Paperwork Reduc- such grounds, specifying the applicable tion Act of 1995, no party is required to provisions of the Statute, Regulations, respond to a collection of information Loan Note Guarantee, or Lender’s unless it displays a valid OMB control Agreement; the lender has not cured number. The valid OMB control num- the acts or omissions within 90 cal- ber for this information collection is endar days after such notice; and the 0575–0174.
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acts or omissions can reasonably be ex- mitment, including any extensions pected to have a material adverse ef- thereto. The maximum guarantee pay- fect on the credit quality of the guar- ment for a permanent loan will be 90 anteed mortgage or the physical condi- percent of the unpaid principal and in- tion of the property securing the guar- terest up to default and accrued inter- anteed mortgage. If such acts or omis- est 90 calendar days from the date the sions cannot be cured within a 90 cal- liquidation plan is approved by the endar day period, the 90 calendar day Agency, as defined in § 3565.452. Pen- cure period automatically shall be ex- alties incurred as a result of default tended so long as curative activities are not covered by the guarantee. The are commenced during the 90 calendar Agency may provide a lesser guarantee day period. At no time shall the cura- percentage based upon its evaluation of tive period extend more than 270 cal- the credit quality of the loan. The endar days from the expiration of the Agency liability under any guarantee original 90 calendar day cure period. will decrease or increase, in proportion When a guaranteed portion of a loan is to any increase or decrease in the sold to a Holder, the Holder shall suc- amount of the unpaid portion of the ceed to all rights of the lender under loan, up to the maximum amount spec- the Loan Note Guarantee to the extent ified in the Loan Note Guarantee. of the portion purchased. The lender (2) Combination construction and per- will remain bound to all obligations manent loans. For combination con- under the Loan Note Guarantee, Lend- struction and permanent loans, the er’s Agreement, and the Agency pro- Agency will guarantee advances during gram regulations. the construction loan period, which (b) Liability of the Holder. The Holder cannot exceed 24 months. The guar- shall not be liable for the actions of the antee of construction loan advances lender including, but not limited to, will cover a permanent loan once the negligence, fraud, abuse, misrepresen- minimum level of acceptable occu- tation or misuse of funds, and its pancy of 90% for 90 consecutive days is rights under the guarantee shall be attained or an additional operating re- fully enforceable notwithstanding the serve equal to 2% of the appraised actions of the lender, unless the Holder value of the project or total develop- has knowledge of fraud, misrepresenta- ment costs, whichever is greater, is set tion or misuse of funds when it be- aside prior to closing the construction comes the Holder or condones or par- loan. This cash contribution is an addi- ticipates in such actions. tional amount, over and above the re- (c) Guarantee percentage and payment. quired initial operating and mainte- Both permanent loans and combination nance reserve contribution. The max- construction and permanent loans are imum guarantee of construction ad- eligible for a guaranty subject to the vances related to a combination con- following limitations: struction and permanent loan will not (1) Permanent loans. The Agency will at any time exceed the lesser of 90 per- issue a permanent loan guarantee after cent of the amount of principal and in- a minimum level of acceptable occu- terest up to default advanced for eligi- pancy of 90% for 90 consecutive days is ble uses of loan proceeds or 90 percent attained or an additional operating re- of the original principal amount and serve equal to 2% of the appraised interest up to default of the combina- value of the project or total develop- tion loan. Penalties incurred as a re- ment costs, whichever is greater, is set sult of default are not covered by the aside. This cash contribution is an ad- guarantee. The Agency may provide a ditional amount, over and above the re- lesser guarantee percentage based upon quired initial operating and mainte- its evaluation of the credit quality of nance reserve contribution. In either the loan. Conversion to a permanent case, the permanent guarantee will be loan guarantee will become effective issued when the 2% additional reserve when the Agency provides the lender amount is set aside prior to closing the with written confirmation of the con- construction loan or the minimum version date. level of occupancy is attained prior to In addition, the lender shall require the expiration of the Conditional Com- credit enhancements to protect the
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Government’s guarantee. Acceptable struction and will be announced in credit enhancements include: NOFA before loan approval. (i) Surety bonding or performance [63 FR 39458, July 22, 1998, as amended at 64 and payment bonding (the preferred FR 32372, June 16, 1999; 73 FR 11812, Mar. 5, credit enhancement); 2008] (ii) An irrevocable letter of credit ac- ceptable to the Agency; or § 3565.54 Transferability of the guar- (iii) A pledge by the lender of accept- antee. able collateral. A lender must receive the Agency’s (3) Maximum loss payment. The max- approval prior to any sale or transfer imum loss payment to a lender or of the loan guarantee. Holder is as follows: (i) To any Holder, 100 percent of any § 3565.55 Participation loans. loss sustained by the Holder on the Loans involving multiple lenders are guaranteed portion of the loan and on eligible for a guarantee when one of the interest due on such portion. lenders is an approved lender and (ii) To the lender, the lesser of: agrees to act as the lead lender with re- (A) Any loss sustained by the lender sponsibility for the loan under the loan on the guaranteed portion, including guarantee agreement. principal, interest and accrued interest up to 90 days evidenced by the notes or § 3565.56 Suspension or termination of assumption agreements and secured ad- loan guarantee agreement. vances for protection and preservation of collateral made with the Agency’s A guarantee agreement will termi- authorization; or nate when one of the following actions (B) The guaranteed principal ad- occurs: (In accordance with subpart H vanced to or assumed by the borrower of this part, use restrictions on the and any interest and accrued interest property will remain if the following up to 90 days due thereon. actions take place prior to the term of the loan and RHS determines the re- [70 FR 2930, Jan. 19, 2005] strictions apply.) (a) Voluntary termination. A lender § 3565.53 Guarantee fees. and borrower voluntarily request the As a condition of receiving a loan termination of the loan guarantee. guarantee, the Agency will charge the (b) Agency withdrawal of guarantee. following guarantee fees to the lender. The Agency withdraws the loan guar- (a) Initial guarantee fee. The Agency antee in the event of fraud, misrepre- will charge an initial guarantee fee sentation, abuse, negligence, or failure equal to one percent of the guarantee to meet the program requirements. amount. For purposes of calculating (c) Mortgage pay-off. The loan is paid. this fee, the guarantee amount is the product of the percentage of the guar- (d) Settlement of claim. Final settle- antee times the initial principal ment of the claim. amount of the guaranteed loan. § 3565.57 Modification, extension, rein- (b) Annual guarantee fee. An annual statement of loan guarantee. guarantee fee of at least 50 basis points (one-half percent) of the outstanding To protect its interest or further the principal amount of the loan will be objectives of the program, the Agency charged each year or portion of a year may, at its sole discretion, modify, ex- that the guarantee is in effect. This fee tend, or reinstate a loan guarantee. In will be collected on February 28, of making this decision the Agency will each calendar year. consider potential losses under the pro- (c) Surcharge for guarantees on con- gram, impact on the tenants and the struction advances. The Agency may, at public reaction that may be received its sole discretion, charge an additional regarding the action. Further, the fee on the portion of the loan advanced Agency may authorize a guarantee on during construction. This fee will be a new loan that is originated as a part charged in advance at the start of con- of a workout agreement.
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§§ 3565.58–3565.99 [Reserved] and dispose of multifamily housing loans in a prudent manner; or § 3565.100 OMB control number. (e) Be a lender who meets the fol- According to the Paperwork Reduc- lowing requirements in addition to the tion Act of 1995, no party is required to other requirements of this subpart and respond to a collection of information of subpart I of this part: unless it displays a valid OMB control (1) Have qualified staff to perform number. The valid OMB control num- multifamily housing servicing and ber for this information collection is asset management; 0575–0174. (2) Have facilities and systems that support servicing and asset manage- Subpart C—Lender Requirements ment functions; and (3) Have documented procedures for § 3565.101 Responsibility of lenders. carrying out servicing and asset man- A participating lender must originate agement responsibilities. and service a guaranteed loan in ac- [63 FR 39458, July 22, 1998, as amended at 70 cordance with the regulation and pro- FR 2931, Jan. 19, 2005] gram requirements throughout the life of a loan or guarantee, whichever is § 3565.103 Approval requirements. less. When it is in the best interests of The Agency will establish and main- the Agency, the Agency may permit tain a ‘‘list of approved lenders’’. To be the transfer of servicing from the origi- an approved lender, eligible lenders nating lender to a servicer. must meet the following requirements § 3565.102 Lender eligibility. and maintain them on a continuing basis at a level consistent with the na- An eligible lender must be a licensed ture and size of their portfolio of guar- business entity or HFA in good stand- anteed loans. ing in the state or states where it con- (a) Commitment. A lender must have a ducts business; be approved by the commitment for a guaranteed loan or Agency; and meet at least one of the an agreement to purchase a guaranteed criteria contained below. Lenders who loan. are not eligible may participate in the program if they maintain a cor- (b) Audited statement. A lender must respondent relationship with a lender provide the Agency with an annual au- who is eligible. An eligible lender dited financial statement conducted in must: accordance with generally accepted (a) Meet the qualifications of, and be government auditing standards. approved by, the Secretary of HUD to (c) Previous participation. A lender make multifamily housing loans that may not be delinquent on a federal are to be insured under the National debt or have an outstanding finding of Housing Act; deficiency in a federal housing pro- (b) Meet the qualifications and be ap- gram. proved by Fannie Mae, Freddie Mac or (d) Ongoing requirements. A lender Ginnie Mae to make multifamily hous- must meet the following requirements ing loans that are to be sold to or at initial application and on a con- securitized by such corporations; tinuing basis thereafter: (c) Be a state or local HFA, or a (1) Overall financial strength, includ- member of the Federal Home Loan ing capital, liquidity, and loan loss re- Bank system, with a demonstrated serves, to have an acceptable level of ability to underwrite, originate, proc- financial soundness as determined by a ess, close, service, manage, and dispose lender rating service (such as of multifamily housing loans in a pru- Sheshunoff, Inc.); or to be an approved dent manner; Fannie Mae, Freddie Mac, Ginnie Mae (d) Be a lender who meets the re- or HUD Federal Housing Administra- quirements for Agency approval con- tion multifamily lender; or, if a state tained in this subpart and has a dem- housing finance agency, to have a top onstrated ability to underwrite, origi- tier rating by a rating agency (such as nate, process, close, service, manage, Standard and Poor’s Corporation);
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(2) Bonding and insurance to cover policies and procedures, or corporate business related losses, including direc- structure; tors and officers insurance, business in- (d) Cooperate fully with all program come loss insurance, and bonding to se- or Agency monitoring and auditing cure cash management operations; policies and procedures, including the (3) A minimum of two years experi- Agency’s annual audit of approved ence in originating and servicing mul- lenders; and tifamily loans; (e) Maintain active participation in (4) A positive record of past perform- the multifamily guaranteed loan pro- ance when participating in RHS or gram by initiating a new loan guar- other federal loan programs; antee or holding a loan guaranteed (5) Adequate staffing and training to under this program. perform the program obligations; the head underwriter must have 3 years of § 3565.106 Construction lender re- experience and all staff must receive quirements. annual multifamily training; (6) Demonstrated overall financial A lender making a construction loan, stability of the business over the past as part of a combination construction five years; and permanent loan, must demonstrate (7) Evidence of reasonable and pru- an ability to originate and service con- dent business practices for manage- struction loans, in addition to meeting ment of the program; and the other requirements of this subpart. (8) No negative information on Dunn & Bradstreet or similar type report. § 3565.107 [Reserved] (9) The lender must certify that they have computer systems that comply § 3565.108 Responsibility for actions of with year 2000 technology. agents and mortgage brokers. [63 FR 39458, July 22, 1998, as amended at 64 An approved lender is responsible for FR 32372, June 16, 1999; 70 FR 2931, Jan. 19, the actions of its agents and mortgage 2005] brokers.
§ 3565.104 Application requirements. § 3565.109 Minimum loan prohibition. Eligible lenders must submit a lender A lender must not establish a min- approval application, in a format pre- imum loan amount for loans under this scribed by the Agency. The lender ap- program. proval application submission must occur at the time the lender submits § 3565.110 Insolvency of lender. its first application for a loan guar- The Agency may require a lender to antee, or its first application to pur- transfer a guaranteed loan or loans to chase a guaranteed loan. The applica- another approved lender prior to a de- tion must include documentation of termination of insolvency by the lend- lender compliance with § 3565.103. A er. If the lender fails to transfer a loan non-refundable application fee will be when required, the guarantee will be charged for each review of a lender’s considered null and void. application. The amount of the fee will be announced in NOFA. § 3565.111 Lobbying activities. § 3565.105 Lender compliance. An approved lender must comply A lender will remain an approved with RD Instruction 1940-Q (available lender unless terminated by the Agen- in any Rural Development Office) re- cy. To maintain approval, the lender garding lobbying activities. must comply with the following re- quirements. §§ 3565.112–3565.149 [Reserved] (a) Maintain eligibility in accordance § 3565.150 OMB control number. with §§ 3565.102 and 3565.103; (b) Comply with all applicable stat- According to the Paperwork Reduc- utes, regulations, and procedures; tion Act of 1995, no party is required to (c) Inform the Agency of any mate- respond to a collection of information rial change in the lender’s staffing, unless it displays a valid OMB control
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number. The valid OMB control num- (c) Has the ability and experience to ber for this information collection is meet the property management re- 0575–0174. quirements established by the Agency, the lender, and the loan agreement. Subpart D—Borrower Eligibility § 3565.154 Previous participation in Requirements state and federal programs. § 3565.151 Eligible borrowers. Loans to borrowers who are delin- quent on a federal debt may not be Guaranteed loans must be made to an guaranteed. Furthermore, borrowers or eligible borrower whose intention is to principals thereof who have defaulted provide and maintain rural rental on state or local government loans will housing. The ownership entity must be not be eligible for a guarantee unless a valid entity in good standing under the Agency determines that the default the laws of the jurisdiction in which it was beyond the borrower’s control, and is organized. Eligible borrowers shall that the identifiable reasons for the de- include individuals, corporations, state fault no longer exist. At the time of ap- or local public agencies or an instru- plication, the lender must obtain from mentality thereof, partnerships, lim- the borrower a certification that the ited liability companies, trusts, Indian borrower is not under any state or fed- tribes, or any organization deemed eli- eral order suspending or debarring par- gible by the Agency. Eligible borrowers ticipation in state or federal loan pro- must be U.S. citizens or permanent grams and that the borrower is not de- legal residents; a U.S. owned corpora- linquent on any non-tax obligation to tion, or a limited liability company, or the United States. partnership in which the principals are U.S. citizens or permanent legal resi- § 3565.155 Identity of interest. dents. At the time of application, the lender § 3565.152 Control of land. must certify that it has disclosed any and all identity of interest relation- At time of application, the lender ships and preexisting conditions with must have evidence of site control by respect to its relationships and that of the borrower (option to purchase, the borrower, or that no identity of in- lease, deed or other evidence accept- terest relationships exists. Identity of able to the Agency). At the time of interest relationships include any fi- loan closing, the lender’s closing dock- nancial or other relationship that ex- et must provide documentary evidence ists or will exist between a lender, bor- that the borrower owns or has a long- rower, management agent, supplier, or term lease on the land on which the any agent of any of these entities, that housing is or will be located. The form could influence, give the appearance of of ownership or the leasehold agree- influencing or have the potential to in- ment must meet Agency requirements. fluence the actions of the parties in Notwithstanding any investment in the carrying out their responsibilities site, the site may not be accepted under the program. Disclosure will be based on the Agency’s environmental in a form and manner established by assessment. the Agency.
§ 3565.153 Experience and capacity of § 3565.156 Certification of compliance borrower. with federal, state, and local laws At the time of application, the lender and with Agency requirements. must certify that the borrower: At the time of application, the lender (a) Has the ability and experience to must obtain from the borrower a cer- construct or rehabilitate multifamily tification of compliance with all appli- housing that meets the requirements cable federal, state, and local laws, and established by the Agency, the lender with Agency requirements regarding and the loan agreement; discrimination and equal opportunity (b) Has the legal and financial capac- in housing, including title VIII of the ity to meet all of the obligations of the Civil Rights Act of 1968, and the Fair loan; and Housing Amendments Act of 1988. The
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borrower must also certify that it is section 207(c) of the National Housing not the subject of any federal, state, or Act. local sanction or punitive action. (b) Loan-to-value limits. (1) In the case of a borrower that is a nonprofit orga- §§ 3565.157–3565.199 [Reserved] nization or an agency or body of any State, local or tribal government, each § 3565.200 OMB control number. guaranteed loan must involve a prin- According to the Paperwork Reduc- cipal obligation that does not exceed tion Act of 1995, no party is required to the lesser of 97 percent of: respond to a collection of information (i) The development costs of the unless it displays a valid OMB control housing and related facilities, or number. The valid OMB control num- (ii) The lender’s determination of ber for this information collection is value not to exceed the appraised value 0575–0174. of the housing and facilities. (2) In the case of a borrower that is a Subpart E—Loan Requirements for-profit entity or other entity not re- ferred to in paragraph (b)(1) of this sec- § 3565.201 General. tion, each guaranteed loan must in- To be eligible for a guarantee, a loan volve a principal obligation that does must comply with the provisions of not exceed the lesser of 90 percent of: this subpart and be originated by an (i) The development costs of the approved lender. housing and related facilities, or (ii) The lender’s determination of § 3565.202 Tenant eligibility. value not to exceed the appraised value (a) Limits on income of tenants. The of the housing and facilities. housing units subject to a guaranteed (3) To protect the interest of the loan must be available for occupancy Agency or to further the objectives of only by low or moderate-income fami- the program, the Agency may establish lies or individuals whose incomes at lower loan-to-value limits or further the time of initial occupancy do not ex- restrict the statutory maximum limits ceed 115 percent of the area median in- based upon its evaluation of the credit come. After initial occupancy, a ten- quality of the loan. ant’s income may exceed these limits. (c) Necessary assistance review. (1) A (b) Citizenship status. A tenant must lender requesting a loan guarantee be a United States citizen or a noncit- must review all loans to determine the izen who is a qualified alien as defined appropriate amount of assistance nec- in § 3565.3. essary to complete and maintain the project. The lender shall recommend to § 3565.203 Restrictions on rents. the Agency an adjustment in the loan The rent for any individual housing amount if appropriate as a result of unit, including any tenant-paid utili- this review. ties, must not exceed an amount equal (2) Where the project financing com- to 30 percent of 115 percent of area me- bines a guaranteed loan with Low-In- dian income, adjusted for family size. come Housing Tax Credits or other In addition, on an annual basis, the av- Federal assistance, the project must erage rent for a project, taking into ac- conform to the policies regarding nec- count all individual unit rents, must essary assistance in 7 CFR 3560.63 (d) or not exceed 30 percent of 100 percent of successor provision. area median income, adjusted for fam- [63 FR 39458, July 22, 1998, as amended at 69 ily size. FR 69176, Nov. 26, 2004]
§ 3565.204 Maximum loan amount. § 3565.205 Eligible uses of loan pro- (a) Section 207(c) limits and exceptions. ceeds. For that part of the property that is Eligible uses of loan proceeds must attributable to dwelling use, the prin- conform with standards and conditions cipal obligation of each guaranteed for housing and facilities contained in 7 loan must not exceed the applicable CFR part 1924, subpart A or successor maximum per-unit limitations under provision, except that the Agency, at
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its sole discretion, may approve, in ad- cifically approved in writing by the vance, a higher level of amenities, con- Agency; and struction, and fees for projects pro- (iv) The commercial activity is com- posed for a guaranteed loan provided patible with the use of the project and the costs and features are reasonable that the income is not more than 10 and customary for similar housing in percent of the total annual operating the market area. income of the project. (a) Use of loan proceeds. The proceeds (11) Costs for feasibility determina- of a guaranteed loan may be used for tion, loan application fees, appraisals, the following purposes relating to the environmental documentation, profes- project. sional fees or other fees determined by (1) New construction costs of the the Agency to be necessary to the de- project; velopment of the project; (2) Moderate or substantial rehabili- (12) Technical assistance to and by tation of buildings and acquisition non-profit entities to assist in the for- costs when related to the rehabilita- mation, development, and packaging of tion of a building as described in para- a project, or formation or incorpora- graph (b) of this section; tion of a borrower entity; (3) Acquisition of existing buildings, (13) Education programs for a board when approved by the Agency, for of directors, both before and after in- projects that serve a special housing corporation of a cooperative that will need; serve as the borrower; (4) Acquisition and improvement of (14) Construction interest accrued on land on which housing will be located; the construction loan; (5) Development of on-site and off- (15) Relocation assistance in the case site improvements essential to the use of rehabilitation projects; of the property; (16) Developers’ fees; and (6) Development of related facilities such as community space, recreation, (17) Repaying applicant debts in the storage or maintenance structures, ex- following cases: cept that any high cost recreational fa- (i) When the Agency authorizes in cility, such as swimming pools and ex- writing in advance the use of loan ercise clubs or similar facilities, must funds to pay debts for work, materials, be specifically approved in advance by land purchase, or other fees and the Agency; charges before the loan is closed; or (7) Construction of on-site manage- (ii) When the Agency concurs in writ- ment or maintenance offices and living ing with a determination by the lender quarters for operating personnel for that costs for work, fees and charges the property being financed; incurred prior to loan application are (8) Purchase and installation of appli- integral to development of the guar- ances and certain approved decorating antee application and project. items, such as window blinds, shades, (b) Rehabilitation requirements. Reha- or wallpaper; bilitation work must be classified as (9) Development of the surrounding either moderate or substantial as de- grounds, including parking, signs, land- fined in exhibit K of 7 CFR part 1924, scaping and fencing; subpart A or a successor document. In (10) Costs associated with commer- all cases, the building or project must cial space provided that: be structurally sound, and improve- (i) The project is designed primarily ments must be necessary to meet the for residential use; requirements of decent, safe, and sani- (ii) The commercial use consists of tary living units. Applications must in- essential tenant service type facilities, clude a structural analysis, along with such as laundry rooms, that are not plans and specifications describing the otherwise conveniently available; type and amount of planned rehabilita- (iii) The commercial space does not tion. The project as rehabilitated must exceed 10 percent of the gross floor meet the applicable development area of the residential units and com- standards contained in 7 CFR part 1924, mon areas, unless a higher level is spe- subpart A or a successor regulation, as
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well as any applicable historic preser- The lender must certify the following vation requirements. All proposed re- in the notice of prepayment: habilitation projects are subject to an (1) The lease documents used by the environmental review completed in ac- borrower or its agent prohibit the abro- cordance with 7 CFR part 1940, subpart gation of tenant leases in the event of G or a successor regulation. prepayment; and (2) The borrower has notified tenants § 3565.206 Ineligible uses of loan pro- of the request to prepay the loan, in- ceeds. cluding notice of the prohibition Loan proceeds must not be used for against abrogation of the lease and the the following: policy and procedure for handling com- (a) Specialized equipment for train- plaints regarding compliance with the ing and therapy; long-term use restriction as contained (b) Housing in military impact areas; in subpart H of this part. (c) Housing that serves primarily temporary and transient residents; § 3565.209 Loan amortization. (d) Nursing homes, special care facili- Each guaranteed loan shall be made ties and institutional type homes that for a period of not less than 25 nor require licensing as a medical care fa- greater than 40 years from the date the cility; loan was made and may provide for am- (e) Operating capital for central din- ortization of the loan over a period of ing facilities or for any items not af- not to exceed 40 years with a final pay- fixed to the real estate, such as special ment of the balance due at the end of portable equipment, furnishings, kitch- the loan term. en ware, dining ware, eating utensils, [67 FR 16970, April 9, 2002] movable tables and chairs, etc.; (f) Payment of fees, salaries and com- § 3565.210 Maximum interest rate. missions or compensation to borrowers The interest rate for a guaranteed (except developers’ fees); or loan must not exceed the maximum al- (g) Refinancing of an outstanding lowable rate specified by the Agency in debt, except in the case of an existing NOFA. Such rate must be fixed over guaranteed loan where the Agency de- the term of the loan. termines that the refinancing is in the government’s interest or furthers the § 3565.211 Interest credit. objectives of the program. The term (a) Limitation. For at least 20 percent and amount of any loan for refinancing of the loans made during each fiscal must not exceed the maximum loan year, the Agency will provide assist- amount or term limits. ance in the form of interest credit, to the extent necessary to reduce the § 3565.207 Form of lien. agreed-upon rate of interest to the The loan originated by the lender for AFR as such term is used in section a guarantee must be secured by a first 42(I)(2)(D) of the Internal Revenue Code lien against the property. of 1986, 26 U.S.C. 7805, § 1.42–1T. (b) Selection criteria. The Agency will § 3565.208 Maximum loan term. select projects to receive interest cred- (a) Statutory term limit. The lender its using any of such criteria as the may set the term of the loan, but in no Agency may establish for priority instance may the term of a guaranteed projects as contained in subpart A of loan exceed the lesser of 40 years or the this part. remaining economic life of the project. (b) Prepayment of loans. A guaranteed § 3565.212 Multiple guaranteed loans. loan may be prepaid in whole or in part The Agency may guarantee more at the determination of the lender, and than one loan on any project if all upon the lender’s written notice to the guaranteed loans, in the aggregate, Agency at least 30 days prior to the ex- comply with these regulations, includ- pected date of prepayment. The Agency ing without limitation: will not pay any lockout or prepay- (a) In the aggregate, loans do not ex- ment penalty assessed by the lender. ceed the maximum guaranteed loan
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amount and loan-to-value limits, as Subpart F—Property Requirements contained in § 3565.204; (b) In the aggregate, loans are all to § 3565.251 Eligible property. be secured equally by a first lien as the To be eligible for a guaranteed loan, Agency may, at its sole discretion, de- a property must be used primarily for termine necessary to ensure repayment residential dwelling purposes and must of the loans; and meet the following requirements or the (c) If different lenders originate the requirements of this subpart: loans, each lender has executed an intercreditor agreement in form and (a) Property location. All the property substance acceptable to the Agency. must be located in a rural area. (b) Minimum size of development. The [63 FR 39458, July 22, 1998, as amended at 70 property must consist of at least five FR 2931, Jan. 19, 2005] rental dwelling units. § 3565.213 Geographic distribution. (c) Non-contiguous sites. For a loan se- cured by two or more non-contiguous The Agency may refuse to guarantee parcels of land, all sites must meet a loan in an area where there is undue each of the following requirements: risk due to a concentration in the mar- (1) Located in one market area; ket of properties subject to a Agency guaranteed loan. The Agency will con- (2) Managed under one management sider the credit quality of the loan and plan with one loan agreement or reso- overall market conditions in making a lution for all of the sites; and determination of undue risk. If any of (3) Consist of single asset ownership. the Agency guaranteed loans in the (d) Compliance with statutes. All prop- market are experiencing vacancy rates erties must comply with the applicable in excess of 15% and the vacancy is due requirements in section 504 of the Re- to market conditions, the Agency will habilitation Act of 1973, the Fair Hous- invoke this provision and not guar- ing Act, the Americans with Disabil- antee the loan. ities Act, and other applicable stat- utes. § 3565.214 [Reserved] § 3565.252 Housing types. § 3565.215 Special conditions. The property may include new con- (a) Use of third party funds. As a con- struction or rehabilitation of existing dition of receiving a guaranteed loan, structures. The units may be attached, the Agency, or the lender if designated detached, semi-detached, row houses, by the Agency, must review the terms modular or manufactured houses, or and conditions of any secondary fi- nancing or funding of projects, includ- multifamily structures. Manufactured ing loans, capital grants or rental as- housing must meet Agency require- sistance. ments contained in 7 CFR part 1924, (b) Recourse. If required by the lend- subpart A or a successor regulation. er, loans guaranteed under this pro- The Agency will guarantee proposals gram may be made on a recourse or for new construction or acquisition nonrecourse basis, or with any personal with moderate or substantial rehabili- or special borrower guarantees on tation of at least $6,500 per dwelling collateralization. unit. The portion of guaranteed funds available for acquisition with rehabili- §§ 3565.216–3565.249 [Reserved] tation may be limited in the annual Notice of Fund Availability. § 3565.250 OMB control number. [70 FR 2931, Jan. 19, 2005] According to the Paperwork Reduc- tion Act of 1995, no party is required to § 3565.253 Form of ownership. respond to a collection of information unless it displays a valid OMB control The property must be owned in fee number. The valid OMB control num- simple or be subject to a ground lease ber for this information collection is or other legal right in land acceptable 0575–0174. to the Agency.
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§ 3565.254 Property standards. §§ 3565.258–3565.299 [Reserved] (a) Housing quality and site and neigh- § 3565.300 OMB control number. borhood standards. The property must meet the site and neighborhood re- According to the Paperwork Reduc- quirements established by the state or tion Act of 1995, no party is required to locality, and those standards contained respond to a collection of information under 7 CFR part 1924, subparts A and unless it displays a valid OMB control number. The valid OMB control num- C or any successor regulations. ber for this information collection is (b) Third party assessments. As part of 0575–0174. the application for a guaranteed loan, the lender must provide documentation of qualified third parties’ assessments Subpart G—Processing of the property’s physical condition Requirements and any environmental conditions or § 3565.301 Loan standards. hazards which may have a bearing on the market value of the property. An approved lender must originate These assessments must include: and underwrite the loan and appraise (1) An acceptable property appraisal. the subject property in accordance (2) A Phase I Environmental Site As- with prudent lending practices and Agency criteria addressing the fol- sessment (American Society of Testing lowing factors: and Materials). (a) Borrower qualifications and cred- (3) A Standard Flood Hazard Deter- itworthiness; mination. (b) Property, vacancy, market va- (4) In the case of the purchase of an cancy or collection loss; existing structure, rehabilitation or re- (c) Rental concessions and rent lev- financing, a physical needs assessment. els; (d) Tenant demand and housing sup- § 3565.255 Environmental require- ments. ply; (e) Property operating and mainte- Under the National Environmental nance expense; Policy Act, the Agency is required to (f) Property requirements as con- assess the potential impact of the pro- tained in subpart F of this part; posed actions on protected environ- (g) Debt coverage ratio; mental resources. Measures to avoid or (h) Operating and long-term capital at least mitigate adverse impacts to requirements; protected resources may require a (i) Loan-to-value ratio; change in site or project design. A site (j) Return on borrower equity; and will not be approved until the Agency (k) Estimated long-term market- has completed the environmental re- ability of the project. view in accordance with 7 CFR part 1940, subpart G or successor regulation. § 3565.302 Allowable fees. (a) Lender fees. The lender is author- § 3565.256 Architectural services. ized to charge reasonable and nec- Architectural services must be pro- essary fees in connection with a bor- vided for the project in accordance rower’s application for a guaranteed with 7 CFR part 1924, subpart A or suc- loan. cessor regulation, including plan cer- (b) Agency fees. The Agency will tifications. charge one or more types of fees deemed appropriate as reimbursement § 3565.257 Procurement actions. for reasonable and necessary costs in- All construction procurement ac- curred in connection with applications tions, whether by sealed bid or by ne- received from lenders for monitoring or gotiation, must be conducted in a man- annual renewal fees. These fees will be ner that provides maximum open and published in NOFA. Agency fees may include, but are not limited to the fol- free competition. lowing:
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(1) Site assessment and market analysis covering contract work or acceptable or preliminary feasibility fee. A fee for re- credit enhancement as discussed in view of an application for a determina- § 3565.52(a). tion of preliminary feasibility. (3) The lender must verify amounts (2) Application fee. A fee submitted in expended prior to each payment for conjunction with the application for a completed work and certify that an loan guarantee. independent inspector has inspected (3) Inspection fee. A fee for inspection the property and found it to be in con- of the property in conjunction with a formance with Agency standards. The loan guarantee. lender must provide verification that (4) Transfer fee. A fee in connection all subcontractors have been paid and with a request for approval of a trans- no liens have been filed against the fer of physical assets or a change in the property. composition of the ownership entity. (5) Extension or reopening fees. A fee to (d) Permanent loan guarantee. The extend the guarantee commitment or guarantee on the permanent loan will to reopen an application when a com- be issued once the following items have mitment has expired. been submitted to and approved by the Agency. § 3565.303 Issuance of loan guarantee. (1) An updated appraisal of the (a) Preliminary feasibility review. Dur- project as built; ing the initial processing of a loan, the (2) A certificate of substantial com- lender may request a preliminary feasi- pletion; bility review by the Agency when re- (3) A certificate of occupancy or quired loan documentation is sub- similar evidence of local approval ; mitted. (4) A final inspection conducted by a (b) Conditional commitment to guar- qualified Agency representative; antee a loan. The Agency will issue a (5) A final cost certification in a form conditional commitment to guarantee acceptable to the Agency; a loan. This commitment will be good (6) A submission to the Agency of the for such time frame as the Agency complete closing docket; deems appropriate based on project re- (7) A certification by the lender that quirements. The commitment to guar- the project has reached an acceptable antee a loan, will specify any condi- minimum level occupancy; tions necessary to obtain a determina- tion by the Agency that all program (8) An executed regulatory agree- requirements have been met. A condi- ment. tional commitment can be issued, sub- (9) The Lender certifies that it has ject to the availability of funds, after: approved the borrower’s management (1) Completion by the Agency of an plan and assures that the borrower is environmental review in accordance in compliance with Agency standards with 7 CFR part 1940, subpart G or suc- regarding property management, con- cessor regulation, and the National En- tained in subparts E and F of this part; vironmental Policy Act; and (10) Necessary information to com- (2) Selection of the proposed project plete an updated necessary assistance for funding by the Agency in accord- review by the Agency; and ance with ranking and selection cri- (11) Compliance with all conditions teria. contained in the conditional commit- (c) Guarantee during construction. For ment for guarantee. combination construction and perma- (e) Modification of guarantee amount nent loans, the Agency will issue an after commitment. The Agency may initial guarantee to an approved con- modify the guarantee amount or de- struction lender. cline to issue a loan guarantee when a (1) This guarantee will be subject to lender fails to honor obligations or to the limits contained in subpart B of fulfill representations made under the this part and in the loan closing docu- guarantee commitment. mentation. (2) In all cases, the lender must ob- [63 FR 39458, July 22, 1998, as amended at 64 tain a payment and performance bond FR 32372, June 16, 1999]
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§ 3565.304 Lender loan processing re- time of loan closing and contain the sponsibilities. following covenants: (a) Application. The lender will be re- (1) That it is binding upon the bor- sponsible for submitting an application rower and any of its successors and as- for a loan guarantee in a format pre- signs, as well as upon the lender and scribed by the Agency. Lenders may any of its successors and assigns, for submit an application at the feasibility the duration of the guaranteed loan; stage or when they request a condi- (2) That the borrower makes all pay- tional commitment. ments due under the note and to the (b) Project servicing, management and required escrow and reserve accounts; disposition. Unless otherwise permitted (3) That the borrower maintains the by the Agency, the originating lender project as affordable housing in accord- must perform all loan functions during ance with the purposes and for the du- the period of the guarantee. These ration defined in the statute; functions include servicing, asset man- (4) That the borrower maintains the agement, and, if necessary, property project in good physical and financial disposition. The lender must maintain condition at all times; and service the loan in accordance with (5) That the borrower obtains and the provisions of subpart I of this part maintains property insurance and any and Agency servicing procedures. other insurance coverage required to protect the security; § 3565.305 Mortgage and closing re- (6) That the borrower maintains com- quirements. plete project books and financial records, and provides the Agency and It is the lender’s responsibility to en- the lender with an annual audited fi- sure that the loan closing statement nancial statement after the end of each and required loan documents are in a fiscal year; form acceptable to the Agency and in- (7) That the borrower makes project cluded in the closing docket. The lend- books and records available for review er is responsible for resolving any un- by the Office of Inspector General, derwriting and loan closing defi- Rural Development staff, General Ac- ciencies that are found. The Agency’s counting Office, and the Department of review of the lender’s loan closing doc- Justice, or their representatives or suc- umentation does not constitute a waiv- cessors upon appropriate notification; er of fraud, misrepresentation, or fail- (8) That the borrower prepares and ure of judgment by the lender. complies with the Affirmative Fair §§ 3565.306–3565.349 [Reserved] Housing Marketing Plan and all other Fair Housing requirements; § 3565.350 OMB control number. (9) That the borrower operates as a single asset ownership entity, unless According to the Paperwork Reduc- otherwise approved by the Agency; tion Act of 1995, no party is required to (10) That the borrower complies with respond to a collection of information applicable federal, state and local laws; unless it displays a valid OMB control and number. The valid OMB control num- (11) That the borrower provides man- ber for this information collection is agement satisfactory to the lender and 0575–0174. to the Agency and complies with an ap- proved management plan for the Subpart H—Project Management project. (b) Management plan. The lender must § 3565.351 Project management. approve the borrower’s management As a condition of the guarantee, the plan and assure that the borrower is in lender is to obtain borrower certifi- compliance with Agency standards re- cation that the project is in compli- garding property management, includ- ance with local, state, federal laws and ing the requirements contained in sub- program requirements. parts E and F of this part. (a) Regulatory agreement. A regu- (c) Tenant protection and grievance latory agreement between the borrower procedures. Tenants in properties sub- and lender must be executed at the ject to a guaranteed loan are entitled
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to the grievance and appeal rights con- able or unwilling to do so and charge tained in 7 CFR part 3560, subpart D or the cost as an advance. successor regulation. The borrower (5) Distribution of surplus cash. Prior must inform tenants in writing of to the distribution of surplus cash to these rights. the owner, the lender must certify that (d) Financial management—(1) Bor- the property is in good financial and rower reporting requirements. At a min- physical condition and in compliance imum, the lender must obtain, on an with the regulatory agreement. Such annual basis, an audited annual finan- compliance includes payment of out- cial statement conducted in accord- standing obligations, debt service, and ance with generally accepted govern- required funding of reserve and escrow ment auditing standards. accounts. (2) Lender reporting requirements. The (e) Physical maintenance. The lender lender must review the financial re- must annually inspect the property to ports to assure that the property is in ensure that it is in compliance with sound fiscal condition and the borrower state and local codes and program re- is in compliance with financial require- quirements. The lender must certify to ments. The lender must report findings the Agency that a property is in such to the Agency as follows: compliance, or report to the Agency on (i) Annual reports. The lender must any non-compliance items and pro- submit to the Agency a copy of the an- posed actions and timetable for resolu- nual financial audit of the project and tion. Failure to provide responsive cor- must report on the nature and status of rective action can result in reduction any findings. To the extent that out- or cancellation of the guarantee by the standing findings or issues remain, the Agency. lender must submit to the Agency a [63 FR 39458, July 22, 1998, as amended at 64 copy of a plan of action for any unre- FR 32372, June 16, 1999; 69 FR 69176, Nov. 26, solved findings. 2004] (ii) Monthly reports. The lender must submit monthly reports to the Agency § 3565.352 Preservation of affordable on all loans that are either in default, housing. delinquent, or not in compliance with (a) Original purpose. During the pe- program requirements. This report riod of the guarantee, owners are pro- must provide information on the finan- hibited from using the housing or re- cial condition of each loan, the phys- lated facilities for any purpose other ical condition of the property, the than an approved program purpose. amount of delinquency, any other non- (b) Use restriction. For the original compliance with program requirements term of the guaranteed loan, the hous- and the proposed actions and timetable ing must remain available for occu- to resolve the delinquency, default or pancy by low and moderate income non-compliance. households, in accordance with subpart (3) Reserve releases. The lender is re- E of this part. This requirement will be sponsible for approving or disapproving included in a deed restriction or other all borrower requests for release of instrument acceptable to the Agency. funds from the reserve and escrow ac- The restriction will apply unless the counts. Security deposit accounts will housing is acquired by foreclosure or not be considered a reserve or escrow an instrument in lieu of foreclosure, or account. the Agency waives the applicability of (4) Insurance requirements. At loan this requirement after determining closing, the borrower will provide the that each of the following three cir- lender with documentary evidence that cumstances exist. Agency insurance requirements have (1) There is no longer a need for low- been met. The borrower must maintain and moderate-income housing in the insurance in accordance with Agency market area in which the housing is lo- requirements until the loan is repaid cated; and the lender must be named as the (2) Housing opportunities for low-in- insurance policy’s beneficiary. The come households and minorities will lender must obtain insurance on the se- not be reduced as a result of the waiv- cured property if the borrower is un- er; and
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(3) Additional federal assistance will (b) To avoid a loss to the lender or not be necessary as a result of the the Agency and to limit exposure to waiver. potential loss; (c) To protect the interests of the § 3565.353 Affirmative fair housing tenants; and marketing. (d) To further program objectives. As a condition of the guarantee, the lender must ensure that the lender and § 3565.402 Servicing responsibilities. borrower are in compliance with the The lender must service the loan in approved Affirmative Fair Housing accordance with this subpart and per- Marketing Plan. This plan must be re- form the services contained in this sec- viewed annually by the lender to en- tion in a reasonable and prudent man- sure that the borrower remains in com- ner. The lender is responsible for the pliance and to recommend modifica- actions of its agents and representa- tions, as necessary. tives. § 3565.354 Fair housing accommoda- (a) Funds management. The lender tions. must have a funds management system The lender must ensure that the bor- to receive and process borrower pay- rower is in compliance with the appli- ments, including the following. cable fair housing laws in the develop- (1) All principal and interest (P&I) ment of the property, the selection of funds and guarantee fees collected and applicants for housing, and ongoing deposited into the appropriate custo- management. See subpart A of this dial accounts. part. (2) Payments to custodial escrow ac- counts for taxes and insurance pre- § 3565.355 Changes in ownership. miums, assessments that might impair Any change in ownership, in whole or the security (such as ground rent), and in part, must be approved by the lender reserve accounts for repair and capital and the Agency before such change improvement of the property. takes effect. (b) Asset management. The lender must ensure that the property securing §§ 3565.356–3565.399 [Reserved] the guaranteed loan remains in good physical and financial condition, in ac- § 3565.400 OMB control number. cordance with project management re- According to the Paperwork Reduc- quirements contained in subpart H of tion Act of 1995, no party is required to this part. respond to a collection of information (c) Management of delinquencies and unless it displays a valid OMB control defaults. Each month the lender must number. The valid OMB control num- report to the Agency any delinquencies ber for this information collection is and defaults in accordance with sub- 0575–0174. part H of this part.
Subpart I—Servicing Requirements § 3565.403 Special servicing. Special servicing must be initiated § 3565.401 Servicing objectives. when regular servicing actions are in- The participating lender is respon- sufficient to resolve borrower default sible for servicing the guaranteed loan or property deficiencies. throughout the term of the loan or (a) Repurchase from Holder. For guarantee, whichever is less. In all securitized loans, the Holder may re- cases, the lender remains responsible quire the lender or Government to re- for liquidation of the property in ac- purchase the security in accordance cordance with the Loan Note Agree- with the provisions of § 3565.405. ment, unless otherwise determined by (b) Responsibility of lender. It is the the Agency. A lender-servicing plan lender’s responsibility during special must be designed and implemented to servicing to make a special effort to achieve the following objectives. ensure that maintenance of the prop- (a) To preserve the value of the loan erty meets Agency requirements and and the real estate; the tenants’ rights are protected, until
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such time that the property is liq- applying the partial payment, the lend- uidated by the lender, the loan is paid er must assign the obligation covered in full, or the loan is assigned to the by the partial payment to the Agency, Agency. The lender must update the and, if required by the Agency, reamor- Agency monthly until the default is tize the obligation using the amount of cured or a claim is filed. The lender the remaining obligation over an must maintain adequate records of any agreed-upon term. and all efforts to cure the default or to (d) Claims processing. In the event of a foreclose. loss, the lender must submit claims (c) Initiating special servicing. When under the guarantee in accordance special servicing is initiated, the lend- with subpart J of this part. Prior to er must submit for Agency review a submitting a claim, the lender must special servicing plan that includes exhaust all possibilities of collection proposed actions to cure the defi- on the loan. ciencies and a timeframe for comple- (e) Displacement prevention. The ac- tion. The special servicing plan will tions of the lender must not harm the specify the proposed terms of any property’s tenants through displace- workout agreement recommended by ment. the lender. The lender must obtain [63 FR 39458, July 22, 1998, as amended at 67 Agency approval of the terms of any FR 16971, April 9, 2002; 70 FR 2931, Jan. 19, workout agreement with the borrower. 2005] The workout agreement may include a loan modification, transfer of physical § 3565.404 Transfer of loans or mort- assets, or partial payment of claim and gage servicing. reamortization of the loan. Failure to Transfer of servicing is prohibited comply with terms contained in the ex- unless the Agency determines that cir- ecuted workout agreement will be con- cumstances warrant such action, the sidered a default of the guaranteed proposed lender is an eligible lender ap- loan. proved by the Agency, and the transfer (1) Loan modification. The borrower of servicing is approved by the Agency and lender may agree to a loan modi- in advance. fication when such action will improve the financial viability of the project § 3565.405 Repurchase of guaranteed and its operations, and when a cir- loans. cumstance exists that is beyond the (a) Repurchase by lender. The Holder borrower’s control. The Agency must may make written demand on the lend- approve in advance any loan modifica- er to repurchase the unpaid guaranteed tion that extends the life of the loan or portion of the loan when the borrower requires an increase in the amount of is in default not less than 60 calendar the guarantee. All changes must be days on principal or interest due on the within the requirements of section 538 loan; or the lender has failed to remit of the Housing Act of 1949. to the Holder its pro rata share of any (2) Change in ownership and transfer of payment made by the borrower within physical assets. A default or delin- 30 calendar days of receipt by the lend- quency may be resolved by a change of er. The Holder must concurrently send the ownership entity in whole or in a copy of the demand letter to the part. The Agency must approve all Agency. The lender will notify the changes in ownership prior to the effec- Holder and the Agency of its decision tive date of the transfer, and may re- to repurchase within 10 business days quire additional resources from the from the date of the written demand lender or borrower to resolve project letter by the Holder. The lender may deficiencies. agree to repurchase the unpaid portion (3) Partial payment of claims. The lend- of the entire loan from the Holder, er may request a partial payment of even though the guarantee does not claim as a result of a loss experienced cover any unguaranteed portion of the by the lender as a means to work out a loan held by the Holder. If the lender troubled loan. The Agency will accept decides to repurchase, the lender has 30 such claim if it determines that it is in calendar days from the date of the the best interest of the government. In Holder’s written demand letter to do
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so. The guarantee does not cover any subsequent demand for repurchase unguaranteed portion of the loan or changing the preference stipulated in the note interest to the Holder on the the original demand for repurchase. guaranteed loan accruing after 90 cal- (2) The Holder’s demand to the Agen- endar days from the date of the Hold- cy must include a copy of the written er’s demand letter to the lender re- demand made to the lender. The Holder questing the repurchase. The lender must also include evidence of its right may deduct the lender’s servicing fee to require payment from the Agency. from the repurchase amount. The lend- Such evidence will consist of either the er will accept an assignment without original of the Loan Note Guarantee recourse from the Holder upon repur- properly endorsed to the Agency or the chase. The lender is encouraged to re- original of an Agency approved assign- purchase the loan to facilitate the ac- ment guarantee agreement, properly counting of funds, resolve problems, assigned to the Agency without re- and to prevent default where and when course including all rights, title, and reasonable. interest in the loan. The Holder must (b) Repurchase by Agency. (1) If the include in its demand the amount due lender does not repurchase the loan as including unpaid principal, unpaid in- provided in paragraph (a) of this sec- terest to date of demand, and interest tion, the Agency will purchase from subsequently accruing from date of de- the Holder the unpaid principal balance mand to proposed payment date. The of the guaranteed portion together Agency will be subrogated to all rights with accrued interest to date of repur- of the Holder. chase, less the lender’s servicing fee, (3) The Agency will notify the lender within 30 calendar days after written of its receipt of the Holder’s demand demand to the Agency from the Holder. for payment. The lender must provide The guarantee will not cover the note the Agency with the information nec- interest to the Holder on the guaran- essary for the Agency to determine the teed loan accruing after 90 calendar appropriate amount due the Holder days from the date of the original de- within 10 business days from the date mand letter of the Holder to the lender of the written demand letter to the requesting the repurchase. lender from the Holder requesting re- Holders of Loan Note Guarantees purchase of the guaranteed portion. that have been issued prior to the ef- The lender will furnish a current state- fective date of this final rule may opt ment certified by an appropriate au- to adhere to the terms and conditions thorized officer of the lender stating of the Loan Note Guarantee then in ef- the unpaid principal and interest then fect. In case of loan default, the Holder owed by the borrower on the loan and of a Loan Note Guarantee issued prior the amount then owed to any Holder. to the effective date of this final rule Any discrepancy between the amount will stipulate, in a written demand for claimed by the Holder and the informa- repurchase, its preference for repur- tion submitted by the lender must be chase in accordance with the Loan resolved between the lender and the Note Guarantee issued prior to the ef- Holder before payment will be ap- fective date of this final rule. If the de- proved. The Agency will coordinate the mand for repurchase does not stipulate resolution of the discrepancy. Such a preference for repurchase in accord- conflict will suspend the running of the ance with the Loan Note Guarantee 30 calendar day payment requirement. issued prior to the effective date of this (4) Purchase by the Agency does not final rule, the Agency will process the change, alter, or modify any of the demand for repurchase as stated in this lender’s obligations to the Agency aris- final rule. The Holder must stipulate a ing from the loan or guarantee nor preference for repurchase in accord- does it waive any of the Agency’s ance with the Loan Note Guarantee rights against the lender. As Holder, issued prior to the effective date of this the Agency will have the right to set- final rule in the first demand for repur- off any payments the Agency owes the chase. The Holder of the Loan Note lender. Guarantee issued prior to the effective date of this final rule cannot make a [70 FR 2931, Jan. 19, 2005]
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§§ 3565.406–3565.449 [Reserved] § 3565.452 Decision to liquidate. (a) A decision to liquidate shall be § 3565.450 OMB control number. made when it is determined that the According to the Paperwork Reduc- default cannot be cured through ac- tion Act of 1995, no party is required to tions contained in § 3565.403 or it has respond to a collection of information been determined that it is in the best unless it displays a valid OMB control interest of the Agency and the lender number. The valid OMB control num- to liquidate. For interest accrual pur- ber for this information collection is poses, interest will accrue for 90 cal- 0575–0174. endar days after the date the liquida- tion plan is approved by the Agency. If within 20 calendar days of the Agency’s Subpart J—Assignment, receipt of the liquidation plan, the Conveyance, and Claims Agency fails to respond to the lender’s proposal or advise the lender to make § 3565.451 Preclaim requirements. revisions to the plan that was sub- (a) Lender certifications. After bor- mitted, the liquidation plan will be ap- rower default and before filing a claim proved by default, and the 90 calendar or assignment of the loan to the Agen- day period for interest accrual will cy, the lender must make every reason- commence. able and prudent effort to resolve the (b) In the event of a default involving default. The lender must provide the a loan to an Indian tribe or tribal cor- Agency with an accounting of all pro- poration made under this section which posed and actual actions taken to cure is secured by an interest in land within the default. The lender must certify such tribe’s reservation (as determined that all reasonable efforts to cure the by the Secretary of the Interior), in- default have been exhausted. Where the cluding a community in Alaska incor- lender fails to comply with the terms porated by the Secretary of the Inte- rior pursuant to the Indian Reorganiza- of the loan guarantee agreement and tion Act (25 U.S.C. 461 et seq.), the lend- the corresponding regulations and er shall only pursue liquidation after guidance with regard to liquidating the offering to transfer the account to an property, the Agency, at its option, eligible tribal member, the tribe, or may take possession of the security the Indian housing authority serving collateral and dispose of the property. the tribe. If the lender subsequently (b) Due diligence by lender. For all proceeds to liquidate the account, the loan servicing actions where a market, lender shall not sell, transfer, or other- net recovery or liquidation value deter- wise dispose of or alienate the property mination is required, guaranteed lend- except to one of the entities described ers shall perform due diligence in con- in the preceding sentence. junction with the appraisal and submit it to the Agency for review. The Phase [67 FR 16971, April 9, 2002, as amended at 70 FR 2932, Jan. 19, 2005] I Environmental Site Assessment pub- lished by the American Society of § 3565.453 Disposition of the property. Testing and Materials is considered an (a) Submission of the liquidation acceptable format for due diligence. plan. The lender will, within 30 cal- (c) Environmental review. The Agency endar days after a decision to liq- is required to complete an environ- uidate, submit to the Agency in writ- mental review under the National En- ing, its proposed detailed plan of liq- vironmental Policy Act, in accordance uidation. The Agency will inform the with 7 CFR part 1940, subpart G or a lender, in writing, whether the Agency successor regulation, prior to disposi- concurs in the lender’s liquidation tion of inventory property, if title is plan. Should the Agency and the lender held by the Agency, and prior to any not agree on the liquidation plan, nego- authorization to the guaranteed lender tiations will take place between the to foreclose and dispose of property, Agency and the lender to resolve the and for any other servicing action re- disagreement. When the liquidation quiring Agency approval or consent. plan is approved by the Agency, the
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lender will proceed expeditiously with value, and an examination of the title liquidation. The liquidation plan sub- on the collateral. In order to formulate mitted to the Agency by the lender a liquidation plan, which maximizes re- shall include: covery, collateral must be evaluated (1) Satisfactory proof of the lender’s for hazardous substances, petroleum ownership of the guaranteed loan products, or other environmental haz- promissory note and related security ards, which may adversely impact the instruments. market value of the collateral. (2) A copy of the payment ledger or (b) A transfer and assumption of the equivalent which reflects the current borrower’s operation can be accom- loan balance and accrued interest to plished before or after the loan goes date and the method of computing the into liquidation. However, if the collat- interest. eral has been purchased through fore- (3) A full and complete list of all col- closure or the borrower has conveyed lateral including any personal and cor- title to the lender, no transfer and as- porate guarantees. sumption is permitted. (4) The recommended liquidation (c) A protective bid may be made by methods for making the maximum col- the lender, with prior Agency written lection possible on the indebtedness approval, at a foreclosure sale to pro- and the justification for such methods, tect the lender’s and the Agency’s in- including recommended actions for: terest. The protective bid will not ex- (i) Obtaining an appraisal of the col- ceed the amount of the loan, including lateral; expenses of foreclosure, and should be (ii) Acquiring and disposing of all based on the liquidation value consid- collateral; ering estimated expenses for holding (iii) Collecting from guarantors; and reselling the property. These ex- (iv) Setting the proposed date of fore- penses include, but are not limited to, closure; and expenses for resale, interest accrual, (v) Setting the proposed date of liq- length of weatherization, and prior uidation. liens. (5) Necessary steps for protection of the tenants and preservation of the col- (d) Filing an estimated loss claim. lateral. When the lender is conducting the liq- (6) Copies of the borrower’s latest uidation and owns any or all of the available financial statements. guaranteed portion of the loan, the (7) Copies of the guarantor’s latest lender will file an estimated loss claim available financial statements. with the liquidation plan if the lender (8) An itemized list of estimated liq- expects liquidation to exceed 90 cal- uidation expenses expected to be in- endar days. The estimated loss pay- curred along with justification for each ment will be based on the outstanding expense. loan amount minus the liquidation (9) A schedule to periodically report value of the collateral. For the purpose to the Agency on the progress of liq- of reporting and loss claim computa- uidation. tion, the loss claim will be promptly (10) Estimated protective advance processed in accordance with applica- amounts with justification. ble Agency regulations, as set forth in (11) Proposed protective bid amounts this section. The loss claim calculation on collateral to be sold at auction and will include 90 calendar days of interest a breakdown to show how the amounts accrual on the defaulted loan at the were determined. time the estimated loss claim is paid (12) If a voluntary conveyance is con- by the Agency. If the lender estimates sidered, the proposed amount to be that there will be no loss after consid- credited to the guaranteed debt. ering the costs of liquidation, the lend- (13) Any legal opinions supporting er submits an estimated loss claim of the decision to liquidate. zero. Interest accrual will cease 90 cal- (14) The lender will obtain a complete endar days after the date the liquida- appraisal report on all collateral secur- tion plan is approved by the Agency. ing the loan, which will reflect the fair (e) Property disposition. Once the liq- market value and potential liquidation uidation plan has Agency approval, the
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lender must make every effort to liq- ardous substances, petroleum products uidate the property in a manner that or other environmental hazards which will yield the highest market value may adversely impact the market consistent with the protections af- value of the property and the results of forded to tenants in 7 CFR part 1944, that evaluation. subpart L or successor regulation. (b) Conveyance of title. In the case of (f) Accounting and reports. When the a conveyance of title to the property, lender conducts liquidation, the lender the lender must inform the Agency in will account for funds during the pe- advance of how it plans to acquire title riod of liquidation and provide the and a timetable for doing so. The Agen- Agency with reports at least quarterly cy will accept the conveyance upon re- on the progress of liquidation, includ- ceipt of an assignment to the Agency ing disposition of collateral, resulting of all claims of the lender against the costs, and additional procedures nec- property and assignment of the lend- essary for successful completion of the er’s rights to any operating funds and liquidation. (g) Transmitting payments and pro- any reserves or escrows established for ceeds to the Agency. When the Agency the maintenance of the property or the is the Holder of a portion of the guar- payment of property taxes and insur- anteed loan, the lender will transmit to ance. the Agency its pro rata share of any payments received from the borrower, § 3565.456 Filing a claim. liquidation, or elsewhere. Once the lender has disposed of the property or the Agency has agreed to [70 FR 2932, Jan. 19, 2005] accept an assignment of the loan or § 3565.454 [Reserved] conveyance of title to the property, the lender may file a claim for the guaran- § 3565.455 Alternative disposition teed portion of allowable losses. All methods. claim amounts must be calculated in The Agency, in its sole discretion, accordance with this subpart and be may choose to obtain an assignment of approved by the Agency. the loan from the lender or conveyance of title obtained by the lender through § 3565.457 Determination of claim foreclosure or a deed-in-lieu of fore- amount. closure. In all liquidation cases, final settle- (a) Assignment. In the case of an as- ment will be made with the lender signment of the loan, the assignment after the collateral is liquidated, un- of the security instruments or the se- less otherwise designated as a future curity must be in written and record- recovery or after settlement and com- able form. Completion of the assign- promise of all parties has been com- ment will occur once the following pleted. transactions are completed to the (a) Report of loss form. An Agency ap- Agency’s satisfaction. proved form will be used for calcula- (1) Conveyance to the Agency of all tions of all estimated and final loss de- the lender’s rights and interests arising terminations. Estimated loss payments under the loan. (2) Assignment to the Agency of all will only be paid by the Agency after it claims against the borrower or others has approved a liquidation plan. arising out of the loan transactions, in- (b) Estimated loss. An estimated loss cluding: claim based on liquidation appraisal (i) All collateral agreements affect- value will be prepared and submitted ing financing, construction, use or op- by the lender. eration of the property; and (1) The estimated loss payment shall (ii) All insurance or surety bonds, or be applied as of the date of such pay- other guarantees, and all claims under ment. The total amount of the loss them. payment paid by the Agency will be ap- (3) Certification that the collateral plied by the lender on the loan debt. has been evaluated for the presence of Such application does not release the contamination from the release of haz- borrower from liability.
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(2) The Government’s written author- liquidation proceeds have been prop- ization is required for all protective ad- erly accounted for and applied cor- vances in excess of $5,000. Protective rectly to the loan. advances include, but are not limited (3) The lender will show a breakdown to, advances made for property taxes, of any protective advance amount as to annual assessments, ground rent, haz- the payee, purpose of the expenditure, ard or flood insurance premiums affect- date paid, and evidence that the ing the collateral, and other expenses amount expended was proper and that necessary to preserve or protect the se- payment was actually made. curity. Attorney fees are not a protec- (4) The lender will show a breakdown tive advance. A protective advance of liquidation expenses as to the payee, claim will be paid only at the time of purpose of the expenditure, date paid, the final report of loss payment except and evidence that the amount expended in certain transfer and assumption sit- was proper and that payment was actu- uations with Agency approval. ally made. Liquidation expenses are re- (c) Final loss. Within 30 calendar days coverable only from collateral pro- after liquidation of all collateral, ex- ceeds. cept for certain unsecured personal or (5) Accrued interest will be supported corporate guarantees (as provided for by documentation as to how the in this section) is completed, a final re- amount was accrued. port of loss on a form approved by the (6) Loss payments will be paid by the Agency must be prepared and sub- Agency within 60 calendar days after mitted by the lender to the Agency. the receipt of the final loss report and Before approval by the Agency of any accounting of the collateral. final loss report, the lender must ac- (7) Should there be a circumstance count for all funds during the period of where the lender cannot or will not liquidation, disposition of the collat- sign a final report of loss, the State Di- eral, all costs incurred, and any other rector may complete the final report of information necessary for the success- loss and submit it to the Finance Office ful completion of liquidation. Upon re- without the lender’s signature. Before ceipt of the final accounting and report this action can be taken, all collateral of loss, the Agency may audit all appli- must be disposed of or accounted for; cable documentation to determine the there must be no evidence of fraud, final loss. The lender will make its misrepresentation, or negligent serv- records available and otherwise assist icing by the lender; and all efforts to the Agency in making any investiga- obtain the cooperation of the lender tion. The documentation accom- must have been exhausted and docu- panying the report of loss must support mented. the amounts shown on the report of (d) Maximum guarantee payment. The loss form. maximum guarantee payment will not (1) A determination must be made re- exceed the amount of guarantee per- garding the collectibility of unsecured centage as contained in the guarantee personal and corporate guarantees. If agreement (but in no event more than reasonably possible, such guarantees 90%) times the allowable loss amount. should be promptly collected prior to (e) Rent. Any net rental or other in- completion of the final loss report. come that has been received by the However, in the event that collection lender from the collateral will be ap- from the guarantors appears unlikely plied on the guaranteed loan debt after or will require a prolonged period of paying operating expenses of the prop- time, the report of loss will be filed erty. when all other collateral has been liq- (f) Liquidation costs. Liquidation costs uidated, and unsecured personal or cor- will be deducted from the proceeds of porate guarantees will be treated as a the disposition of primary collateral. If future recovery with the net proceeds changed circumstances after submis- to be shared on a pro rata basis by the sion of the liquidation plan require a lender and the Agency. substantial revision of liquidation (2) The lender must document that costs, the lender will procure the Agen- all of the collateral has been accounted cy’s written concurrence prior to pro- for and properly liquidated and that ceeding with the proposed changes.
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(g) Payment. When the Agency finds Any loan amount not advanced will be the final report of loss to be proper in applied by the lender to reduce the out- all respects, it will approve the form standing principal on the loan. and proceed as follows: (j) Lender certification. The lender (1) If the loss is greater than any es- must certify that all possibilities of timated loss payment, the Agency will collection have been exhausted and pay the additional amount owed by the that all of the items specified in para- Agency to the lender. graph (c) of this section have been (2) If the loss is less than the esti- identified and reported to the Agency mated loss payment, the lender will re- as a condition for payment of claim. imburse the Agency for the overpay- ment. [70 FR 2933, Jan. 19, 2005] (3) If the Agency determines that it is in the Government’s best interest to § 3565.458 Withdrawal of claim. take assignment of the loan and con- If the lender provides timely written duct liquidation, as stipulated in 42 notice to the Agency of withdrawal of U.S.C. 1490(i)(3), Assignment by Sec- the claim, the guarantee will continue retary, the Agency will pay the lender as if the default had not occurred if the in accordance with the Loan Note borrower cures the default prior to Guarantee. foreclosure or prior to acceptance of a (h) Date of loss. The date of loss is the deed-in-lieu of foreclosure. date on which the collateral will be liq- uidated in the liquidation plan, unless §§ 3565.459–3565.499 [Reserved] an alternative date is approved by the Agency. Where the Agency chooses to § 3565.500 OMB control number. accept an assignment of the loan or According to the Paperwork Reduc- conveyance of title, the date of loss tion Act of 1995, no party is required to will be the date on which the Agency respond to a collection of information accepts assignment of the loan or con- unless it displays a valid OMB control veyance of title. number. The valid OMB control num- (i) Allowable claim amount. The allow- ber for this information collection is able claim amount must be calculated 0575–0174. by: (1) Adding to the unpaid principal and interest on the date of loss, an Subpart K—Agency Guaranteed amount approved by the Agency for Loans That Back Ginnie Mae payments made by the lender for Guaranteed Securities amounts due and owning on the prop- erty, including: SOURCE: 70 FR 2934, Jan. 19, 2005, unless (i) Property taxes and other protec- otherwise noted. tive advances as approved by the Agen- cy; § 3565.501 Applicability. (ii) Water and sewer charges and other special assessments that are The provisions of this subpart apply liens prior to the guaranteed loan; when Agency guaranteed loans are (iii) Insurance of the property; and used to back Ginnie Mae securities. In (iv) Reasonable liquidation expenses. instances where this subpart applies, (2) And by deducting the following the provisions of this subpart prevail items: over any other provisions of this part. (i) Any amount received by the lend- § 3565.502 Incontestability. er on the account of the guaranteed loan after the date of default; In the case of loans that back Ginnie (ii) Any net income received by the Mae securities or loans that are ac- lender from the secured property after quired by Ginnie Mae as a consequence the date of default; and of its guaranty, the Agency guarantee (iii) Any cash items retained by the under this part is incontestable except lender, except any amount rep- that the guarantee may not be en- resenting a balance of the guaranteed forced by a lender who commits fraud loan not advanced to the borrower. or misrepresentation or by a lender
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who had knowledge of the fraud or mis- 3570.61 Eligibility for grant assistance. representation at the time such a lend- 3570.62 Use of grant funds. er acquired the guarantee or was as- 3570.63 Grant limitations. 3570.64 Applications determined ineligible. signed the loan. 3570.65 Processing preapplications and ap- plications. § 3565.503 Repurchase. 3570.66 Determining the maximum grant as- Lenders and security Holders must sistance. comply with Ginnie Mae requirements 3570.67 Project selection priorities. regarding the repurchase of loans from 3570.68 Selection process. pools backing Ginnie Mae guaranteed 3570.69 Environmental review, intergovern- mental review, and public notification. securities. 3570.70 Other considerations. 3570.71–3570.74 [Reserved] § 3565.504 Transfers. 3570.75 Grantee contracts. (a) Loans and/or mortgage servicing 3570.76 Planning, bidding, contracting, and on loans backing Ginnie Mae guaran- construction. teed securities may only be transferred 3570.77–3570.79 [Reserved] 3570.80 Grant closing and delivery of funds. to a Ginnie Mae issuer and may only be 3570.81–3570.82 [Reserved] transferred with prior Ginnie Mae ap- 3570.83 Audits. proval. 3570.84 Grant servicing. (b) Agency approval shall not be re- 3570.85 Programmatic changes. quired for transfer of the servicing on 3570.86 [Reserved] the guaranteed mortgages to Ginnie 3570.87 Grant suspension, termination, and Mae. cancellation. 3570.88 Management assistance. § 3565.505 Liability. 3570.89 [Reserved] 3570.90 Exception authority. (a) Ginnie Mae shall not be liable for 3570.91 Regulations. the actions of the lender including, but 3570.92 [Reserved] not limited to, negligence, fraud, 3570.93 Regional Commission grants. abuse, misrepresentation or misuse of 3570.94–3570.99 [Reserved] funds, property condition, or violations 3570.100 OMB control number. of usury laws. AUTHORITY: 5 U.S.C. 301; 7 U.S.C. 1989. (b) Ginnie Mae’s rights under the SOURCE: 62 FR 16469, Apr. 7, 1997, unless guarantee shall be fully enforceable otherwise noted. notwithstanding the actions of the lender. Subpart A [Reserved] §§ 3565.506–3565.549 [Reserved] Subpart B—Community Facilities § 3565.550 OMB control number. Grant Program According to the Paperwork Reduc- tion Act of 1995, no party is required to SOURCE: 64 FR 32388, June 17, 1999, unless respond to a collection of information otherwise noted. unless it displays a valid OMB control number. The valid OMB control num- § 3570.51 General. ber for this information collection is (a) This subpart contains Rural Hous- 0575–0174. ing Service (RHS) policies and author- izations and establishes procedures for PART 3570—COMMUNITY making essential Community Facili- PROGRAMS ties Grants (CFG) authorized under section 306(a)(19) of the Consolidated Subpart A [Reserved] Farm and Rural Development Act (7 U.S.C. 1926(a)(19)). Subpart B—Community Facilities Grant (b) Funds allocated for use in accord- Program ance with this subpart are also to be considered for use by federally recog- Sec. 3570.51 General. nized Indian tribes within a State re- 3570.52 Purpose. gardless of whether State development 3570.53 Definitions. strategies include Indian reservations 3570.54–3570.60 [Reserved] within the State’s boundaries. Indian
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tribes must have equal opportunity served, this will be documented and the along with other rural residents to par- applicant may furnish, or the Agency ticipate in the benefits of this program. may obtain, additional information re- (c) Federal statutes provide for ex- garding such median household in- tending RHS financial assistance with- come. Information will consist of reli- out regard to race, color, religion, sex, able data from local, regional, State, national origin, age, disability, and or Federal sources or from a survey marital or familial status. To file a conducted by a reliable impartial complaint, write the Secretary of Agri- source. culture, U.S. Department of Agri- (i) CFG funds can be used for up to 75 culture, Washington DC 20250, or call 1– percent of the cost to develop the facil- 800–245–6340 (voice) or (202) 730–1127 ity, notwithstanding that other con- (TDD). Persons with disabilities who tributions may be from other Federal require alternative means for commu- sources. nication of program information (Braille, large print, audiotape, etc.) § 3570.52 Purpose. should contact USDA’s TARGET Cen- ter at (202) 720–2600 (voice and TDD). The purpose of CFG program is to as- (d) Any processing or servicing activ- sist in the development of essential ity conducted pursuant to this subpart community facilities in rural areas. involving authorized assistance to The Agency will authorize grant funds Agency employees, members of their on a graduated basis. Eligible appli- families, close relatives, or business or cants located in smaller communities close personal associates is subject to with lower populations and lower me- the provisions of 7 CFR part 1900, sub- dian household incomes may receive a part D. Applications for assistance are higher percentage of grant funds. The required to identify any relationship or amount of CFG funds provided for a fa- association with an RHS employee. cility shall not exceed 75 percent of the (e) Copies of all forms referenced in cost of developing the facility. this subpart are available in the Agen- cy’s National Office or any Rural De- § 3570.53 Definitions. velopment field office. Agency. The Rural Housing Service (f) An outstanding judgment obtained (RHS), an agency of the U.S. Depart- against an applicant by the United ment of Agriculture, or a successor States in a Federal Court (other than agency. in the United States Tax Court), shall Approval official. An official who has cause the applicant to be ineligible to been delegated loan or grant approval receive any grant or loan until the authorities within applicable pro- judgment is paid in full or otherwise grams, subject to certain dollar limita- satisfied. Grant funds may not be used tions. to satisfy the judgment. CF. Community Facilities. (g) Grants made under this subpart CFG. Community Facilities Grant. will be administered under, and are subject to, 7 CFR parts 3015, 3016, or Essential community facilities. Those 3019, as appropriate. public improvements requisite to the (h) The income data used to deter- beneficial and orderly development of a mine median household income must community that is operated on a non- be that which accurately reflects the profit basis. (See § 3570.62(a)(1)). An es- income of the population to be served sential community facility must: by the proposed facility. The median (1) Serve a function customarily pro- household income of the service area vided by a local unit of government; and the nonmetropolitan median (2) Be a public improvement needed household income for the State will be for the orderly development of a rural determined using income data from the community; most recent decennial Census of the (3) Not include private affairs or com- United States. If there is reason to be- mercial or business undertakings (ex- lieve that the census data is not an ac- cept for limited authority for indus- curate representation of the median trial parks) unless it is a minor part of household income within the area to be the total facility;
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(4) Be within the area of jurisdiction cording to the latest decennial census or operation for the public bodies eligi- of the United States. There is no limi- ble to receive assistance or a similar tation placed on population in open local rural service area of a not-for- rural areas. After fiscal year 1999, the profit corporation; and terms ‘‘rural’’ and ‘‘rural area’’ include a (5) Be located in a rural area. city, town, or unincorporated area that Facility. The physical structure fi- has a population of 50,000 inhabitants nanced by the Agency or the resulting or less, other than an urbanized area service provided to rural residents. immediately adjacent to a city, town, Grantee. An entity with whom the or unincorporated area that has a pop- Agency has entered into a grant agree- ulation in excess of 50,000 inhabitants. ment under this program. Rural Development. A mission area Instructions. Agency internal proce- within USDA which includes Rural dures available in any Rural Develop- Housing Service, Rural Utilities Serv- ment office and variously referred to as ice, and Rural Business-Cooperative Rural Development Instructions, RD Service. Instructions. RUS. The Rural Utilities Service, an Minor part. No more than 15 percent agency of USDA or a successor agency. of the total floor space of the proposed Service area. The area reasonably ex- facility. pected to be served by the facility. Nonprofit corporations. Any corpora- State. The term ‘‘State’’ means each of tion that is not organized or main- the 50 States, the Commonwealth of tained for the making of a profit and Puerto Rico, Guam, the Virgin Islands that meets the eligibility requirements of the United States, American Samoa, for RHS financial assistance in accord- the Commonwealth of the Northern ance with § 3570.61(a)(2). Mariana Islands, the Marshall Islands, Processing office. The office des- the Republic of Palau, and the Fed- ignated by the State program official erated States of Micronesia. to accept and process applications for State Director. The term ‘‘State Direc- CF projects. tor’’ means, with respect to a State, the Project cost. The cost of completing Director of the Rural Development the proposed facility. (Facilities pre- State Office. viously constructed will not be consid- State nonmetropolitan median house- ered in determining project costs.) hold income. The median household in- Total project cost will include only come of the State’s nonmetropolitan those costs eligible for CFG assistance. counties and portions of metropolitan Poverty line. The level of income for a counties outside of cities, towns or family of four as defined by section places of 50,000 or more population. 673(2) of the Community Services Block Grant Act (42 U.S.C. 9902(2)). State strategic plan. A plan developed Public body. Any State, county, city, by each State for Rural Development township, incorporated town or village, initiatives and the type of assistance borough, authority, district, economic required. Plans shall identify goals, development authority, or federally methods, and benchmarks for meas- recognized Indian tribe in rural areas. uring success. Reasonable rates and terms. The rates [64 FR 32388, June 17, 1999, as amended at 69 and terms customarily charged public FR 65519, Nov. 15, 2004] and nonprofit type borrowers in similar circumstances in the ordinary course §§ 3570.54–3570.60 [Reserved] of business and subject to Agency re- view. § 3570.61 Eligibility for grant assist- RHS. The Rural Housing Service, an ance agency of the United States Depart- The essential community facility ment of Agriculture, or a successor must primarily serve rural areas, be lo- agency. cated in a rural area, and the median Rural and rural area. For fiscal year household income of the population to 1999, the terms ‘‘rural’’ and ‘‘rural area’’ be served by the proposed facility must include a city or town with a popu- be below the higher of the poverty line lation of 20,000 or less inhabitants ac- or the eligible percentage (60, 70, 80, or
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90) of the State nonmetropolitan me- ation and maintenance, reasonable re- dian household income (see § 3570.63(b)). serves, and debt repayment. The appli- (a) Eligible applicant. An applicant cant’s available excess funds must be must be a: used to supplement eligible project (1) Public body, such as a munici- costs. pality, county, district, authority, or (e) Legal authority and responsibility. other political subdivision of a State; Each applicant must have, or will ob- (2) Nonprofit corporation or associa- tain, prior to the grant award, the tion. Applicants, other than nonprofit legal authority necessary to own, con- utility applicants, must have signifi- struct, operate, and maintain the pro- cant ties with the local rural commu- posed facility. The applicant shall be nity. Such ties are necessary to ensure responsible for operating, maintaining, to the greatest extent possible that a and managing the facility and pro- facility under private control will viding for its continued availability carry out a public purpose and con- and use at reasonable rates and terms. tinue to primarily serve rural areas. This responsibility shall be the appli- Ties may be evidenced by items such cant’s even though the facility may be as: operated, maintained, or managed by a (i) Association with, or controlled by, third party under contract or manage- a local public body or bodies, or broad- ment agreement. If an applicant does ly based ownership and control by not have the authority to borrow members of the community; or funds, but owns, operates, and main- (ii) Substantial public funding tains the facility, the applicant is eli- through taxes, revenue bonds, or other gible for CFG funds. local government sources or substan- (f) Facilities for public use. All facili- tial voluntary community funding, ties shall be for the benefit of the pub- such as would be obtained through a lic at large without discrimination as community-wide funding campaign. to race, color, religion, sex, national (3) Federally recognized Indian tribe origin, disability, and marital or famil- in a rural area. ial status. (b) Eligible facilities. Essential com- munity facilities must be: § 3570.62 Use of grant funds. (1) Located in rural areas, except for Grants of up to 75 percent of the cost utility-type services, such as tele- of developing essential community fa- communications or hydroelectric, serv- cilities may be used to supplement fi- ing both rural and non-rural areas. In nancial assistance authorized in ac- such cases, RHS funds may be used to cordance with 7 CFR parts 1942, sub- finance only that portion serving rural parts A and C, and 3575, subpart A. Eli- areas, regardless of facility location. gible CFG purposes are those listed in (2) Necessary for orderly community paragraphs (a), (b), (c), and (d) of this development and consistent with the section. Funding for the balance of the State Strategic Plan. project may consist of other CF finan- (c) Credit elsewhere. The approval offi- cial assistance, applicant contribu- cial must determine that the applicant tions, or loans and grants from other is unable to finance the proposed sources. CFGs may be used to: project from its own resources, or (a) Construct, enlarge, extend, or through commercial credit at reason- otherwise improve essential commu- able rates and terms, or other funding nity facilities providing essential serv- sources without grant assistance under ice primarily to rural residents and this subpart. The applicant must cer- rural businesses. Rural businesses in- tify to such status in writing. clude facilities such as educational and (d) Economic feasibility. All projects fi- other publicly owned facilities. nanced under the provisions of this sec- (1) ‘‘Essential community facilities’’ tion must be based on satisfactory are those public improvements req- sources of revenues as outlined in 7 uisite to the beneficial and orderly de- CFR 1942.17(h) and 1942.116. The amount velopment of a community operated on of CFG assistance must be the min- a nonprofit basis including, but not imum amount sufficient for feasibility limited to: which will provide for facility oper- (i) Fire, rescue, and public safety;
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(ii) Health services; cilities authorized in paragraphs (a), (iii) Community, social, or cultural (b), and (c) of this section: services; (1) Reasonable fees and costs such as (iv) Transportation facilities such as legal, engineering, architectural, fiscal streets, roads, and bridges; advisory, recording, environmental im- (v) Hydroelectric generating facili- pact analyses, archeological surveys ties and related connecting systems and possible salvage or other mitiga- and appurtenances, when not eligible tion measures, planning, establishing for RUS financing; or acquiring rights. (vi) Telecommunications equipment (2) Costs of acquiring interest in as it relates to medical and edu- land; rights, such as water rights, cational telecommunications links; leases, permits, and rights-of-way; and (vii) Supplemental and supporting other evidence of land or water control structures for other rural electrifica- necessary for development of the facil- tion or telephone systems (including ity. (3) Purchasing or renting equipment facilities such as headquarters and of- necessary to install, maintain, extend, fice buildings, storage facilities, and protect, operate, or utilize facilities. maintenance shops) when not eligible (4) Obligations for construction in- for RUS financing; curred before grant approval. Construc- (viii) Natural gas distribution sys- tion work should not be started and ob- tems; and ligations for such work or materials (ix) Industrial park sites, but only to should not be incurred before the grant the extent of land acquisition and nec- is approved. However, if there are com- essary site preparation, including ac- pelling reasons for proceeding with cess ways and utility extensions to and construction before grant approval, ap- throughout the site. Funds may not be plicants may request Agency approval used in connection with industrial to pay such obligations. Such requests parks to finance on-site utility sys- may be approved if the Agency deter- tems, or business and industrial build- mines that: ings. (i) Compelling reasons exist for in- (2) ‘‘Otherwise improve’’ includes, but curring obligations before grant ap- is not limited to, the following: proval; (i) The purchase of major equipment (ii) The obligations will be incurred (such as solid waste collection trucks, for authorized grant purposes; telecommunication equipment, nec- (iii) Contract documents have been essary maintenance equipment, fire approved by the Agency; service equipment, X-ray machines) (iv) All environmental requirements which will in themselves provide an es- applicable to the Agency and the appli- sential service to rural residents; and cant have been met; and (ii) The purchase of existing facilities (v) The applicant has the legal au- when it is necessary either to improve thority to incur the obligations at the or to prevent a loss of service. time proposed, and payment of the (b) Construct or relocate public debts will remove any basis for any me- buildings, roads, bridges, fences, or chanic’s, material, or other liens that utilities and to make other public im- may attach to the security property. provements necessary to the successful The Agency may authorize payment of operation or protection of facilities au- such obligations at the time of grant thorized in paragraph (a) of this sec- closing. The Agency’s authorization to tion. pay such obligations, however, is on (c) Relocate private buildings, roads, the condition that it is not committed bridges, fences, or utilities, and other to make the grant; it assumes no re- private improvements necessary to the sponsibility for any obligations in- successful operation or protection of curred by the applicant; and the appli- facilities authorized in paragraph (a) of cant must subsequently meet all grant this section. approval requirements. The applicant’s (d) Pay the following expenses, but request and the Agency’s authorization only when such expenses are a nec- for paying such obligations shall be in essary part of a project to finance fa- writing.
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§ 3570.63 Grant limitations. (i) Located in a rural community (a) Grant funds may not be used to: having a population of 12,000 or less; (1) Pay initial operating expenses or and annual recurring costs, including pur- (ii) The median household income of chases or rentals that are generally the population to be served by the pro- considered to be operating and mainte- posed facility is below the higher of the nance expenses (unless a CF loan is poverty line or 70 percent of the State part of the funding package); nonmetropolitan median household in- (2) Construct or repair electric gener- come. ating plants, electric transmission (3) 35 percent when the proposed lines, or gas distribution lines to pro- project is: vide services for commercial sale; (i) Located in a rural community (3) Refinance existing indebtedness; having a population of 20,000 or less; (4) Pay interest; and (5) Pay for facilities located in (ii) The median household income of nonrural areas, except as noted in the population to be served by the pro- § 3570.61(b)(1). posed facility is below the higher of the (6) Pay any costs of a project when poverty line or 80 percent of the State the median household income of the nonmetropolitan median household in- population to be served by the proposed come. facility is above the higher of the pov- (4) 15 percent when the proposed erty line or eligible percent (60, 70, 80, project is: or 90) of the State nonmetropolitan (i) Located in a rural community median household income (see having a population of 50,000 or less; § 3570.63(b)); and (7) Pay project costs when other loan (ii) The median household income of funding for the project is not at reason- the population to be served by the pro- able rates and terms; posed facility is below the higher of the (8) Pay an amount greater than 75 poverty line or 90 percent of the State percent of the cost to develop the facil- nonmetropolitan median household in- ity; come. (9) Pay costs to construct facilities (5) 60 percent when the proposed to be used for commercial rental unless project is: it is a minor part of the total facility; (i) Located in a rural community (10) Construct facilities primarily for having a population of 20,000 or less; the purpose of housing State, Federal, and or quasi-Federal agencies; and (ii) The median household income of (11) Pay for any purposes restricted the population to be served by the pro- by 7 CFR 1942.17(d)(2). posed facility is below the higher of the (b) Grant assistance will be provided poverty line or 90 percent of the State on a graduated scale with smaller com- non-metropolitan median household in- munities with the lowest median come. The 60 percent grants are only household incomes being eligible for available to communities impacted by projects with a higher proportion of a disaster that has resulted in a loss of grant funds. Grant assistance is lim- 60 percent of the community’s popu- ited to the following percentages of eli- lation and is located in a rural commu- gible project costs: nity designated as a major disaster (1) 75 percent when the proposed area by the President. project is: (i) Located in a rural community (6) Grant assistance cannot exceed having a population of 5,000 or less; and the higher of the applicable percent- (ii) The median household income of ages contained in this section which the population to be served by the pro- the applicant is eligible to receive and posed facility is below the higher of the may be further limited due to avail- poverty line or 60 percent of the State ability of funds or by the maximum nonmetropolitan median household in- grant assistance allowable determined come. in accordance with § 3570.66. (2) 55 percent when the proposed [64 FR 32388, June 17, 1999, as amended at 73 project is: FR 14173, Mar. 17, 2008]
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§ 3570.64 Applications determined in- § 3570.66 Determining the maximum eligible. grant assistance. If, at any time, an application is de- (a) Responsibility. State Directors are termined ineligible, the processing of- responsible for determining the appli- fice will notify the applicant in writing cant’s eligibility for grant assistance. of the reasons. The applicant will be (b) Maximum grant assistance. Grant advised that it may appeal the deci- assistance cannot exceed the lower of: sion. (See 7 CFR part 11.) (1) Qualifying percentage of eligible project cost determined in accordance § 3570.65 Processing preapplications with § 3570.63(b); and applications. (2) Minimum amount sufficient to For combination proposals for loan provide for economic feasibility as de- termined in accordance with and grant funds, only one § 3570.61(d); or preapplication package and one appli- (3) Either 50 percent of the annual cation package should be prepared and State allocation or $50,000, whichever is submitted. Preapplications and appli- greater, unless an exception is made by cations for grants will be developed in the RHS Administrator in accordance accordance with applicable portions of with § 3570.90. 7 CFR 1942.2, 1942.104, and 3575.52. (a) Preapplications. Applicants will § 3570.67 Project selection priorities. file an original and one copy of ‘‘Appli- Applications are scored on a priority cation for Federal Assistance (For Con- basis. Points will be distributed as fol- struction),’’ with the appropriate Agen- lows: cy office. This form is available in all (a) Population priorities. The proposed Agency offices. The preapplication and project is located in a rural community supporting documentation are used to having a population of: determine applicant eligibility and pri- (1) 5,000 or less—30 points; ority for funding. (2) Between 5,001 and 12,000, inclu- (1) All preapplications shall be ac- sive—20 points; companied by: (3) Between 12,001 and 20,000, inclu- (i) Evidence of applicant’s legal exist- sive—10 points; or ence and authority; and (4) Between 20,001 and 50,000, inclu- (ii) Appropriate clearinghouse agency sive, when applicable—5 points. comments. (b) Income priorities. The median (b) Application processing. Upon notifi- household income of the population to cation on ‘‘Notice of Preapplication Re- be served by the proposed project is below the higher of the poverty line or: view Action’’ that the applicant is eli- gible for CFG funding, the applicant (1) 60 percent of the State nonmetro- politan median household income—30 will be provided forms and instructions points; for filing a complete application. The (2) 70 percent of the State nonmetro- forms required for a complete applica- politan median household income—20 tion, including the following, will be points; submitted to the processing office by (3) 80 percent of the State nonmetro- the applicant: politan median household income—10 (1) Updated ‘‘Application for Federal points; or Assistance (For Construction).’’ (4) 90 percent of the State nonmetro- (2) Financial feasibility report. politan median household income—5 (c) Discontinuing the processing of the points. application. If the applicant fails to (c) Other priorities. Points will be as- submit the application and related ma- signed for one or more of the following terial by the date shown on ‘‘Notice of initiatives: Preapplication Review Action’’ (nor- (1) Project is consistent with, and is mally 60 days from the date of this reflected in, the State Strategic Plan— form), the Agency will discontinue con- 10 points; sideration of the application. (2) Project is for health care—10 points; or
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(3) Project is for public safety—10 (3) If other Community Facilities fi- points. nancial assistance is needed for the (d) Discretionary. (1) The State Direc- project, the availability of other fund- tor may assign up to 15 points to a ing sources. project in addition to those that may (b) Lower scoring projects. (1) In cases be scored under paragraphs (a) through when preliminary cost estimates indi- (c) of this section. These points are to cate that an eligible, high-scoring ap- address unforeseen exigencies or emer- plication is not feasible, or would re- gencies, such as the loss of a commu- quire grant assistance exceeding 50 per- nity facility due to an accident or nat- cent of a State’s current annual alloca- ural disaster or the loss of joint financ- tion, or an amount greater than that ing if Agency funds are not committed remaining in the State’s allocation, in a timely fashion. In addition, the the approval official may instead select points will be awarded to projects bene- the next lower-scoring application for fiting from the leveraging of funds in further processing provided the high- order to improve compatibility and co- scoring applicant is notified of this ac- ordination between the Agency and tion and given an opportunity to re- other agencies’ selection systems and view the proposal and resubmit it prior for those projects that are the most to selection of the next application. cost effective. (2) If it is found that there is no effec- (2) In selecting projects for funding tive way to reduce costs, the approval at the National Office level, additional official, after consultation with the ap- points will be awarded based on the pri- plicant, may request an additional al- ority assigned to the project by the location of funds from the National of- State Office. These points will be fice. awarded in the manner shown below. Only the three highest priority § 3570.69 Environmental review, inter- projects for a State will be awarded governmental review, and public points. The Administrator may assign notification. up to 30 additional points to account All grants awarded under this sub- for geographic distribution of funds, part, including grant-only awards, are emergency conditions caused by eco- subject to the environmental require- nomic problems, natural disasters, or ments of 7 CFR part 1940, subpart G, to leveraging of funds. the intergovernmental review require- Priority Points ments of RD Instruction 1940–J (avail- able in any Rural Development office), 1 ...... 5 and the public information process in 7 2 ...... 3 CFR 1942.17(j)(9). 3 ...... 1 § 3570.70 Other considerations. § 3570.68 Selection process. Each application must contain the Each request for grant assistance comments, necessary certifications, will be carefully scored and prioritized and recommendations of appropriate to determine which projects should be Federal or State regulatory or other selected for further development and agency or institution having expertise funding. in the planning, operation, and man- (a) Selection of applications for further agement of similar facilities as re- processing. The approval official will, quired by 7 CFR parts 1942, subparts A subject to paragraph (b) of this section, and C, and 3575, subpart A. Proposals authorize grants for those eligible for facilities financed in whole or in preapplications with the highest pri- part with Agency funds will be coordi- ority score. When selecting projects, nated with appropriate Federal, State, the following circumstances must be and local agencies as required by the considered: following: (1) Scoring of project and scores of (a) Grants under this subpart are sub- other applications on hand; ject to the provisions of 7 CFR (2) Funds available in the State allo- 1942.17(k) which include title VI of the cation; and Civil Rights Act of 1964, section 504 of
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the Rehabilitation Act of 1973, Ameri- with 7 CFR 1942.17(p), 1942.123, and cans with Disability Act of 1990, and 1942.127. the regulations issued thereto. Certain (d) Grant funds will not be disbursed housing-related projects, such as nurs- until they are actually needed by the ing homes, group homes, or assisted- applicant and all borrower, Agency, or living facilities, must comply with the other funds are expended, except when: requirements of the Fair Housing Act. (1) Interim financing of the total es- (b) Governmentwide debarment and timated amount of loan funds needed suspension (nonprocurement) and re- during construction is arranged, quirements for drug-free workplace are (2) All interim funds have been dis- applicable to CFG and grantees. See 7 bursed, and CFR part 3017 and RD Instruction 1940– M (available in any Rural Development (3) Agency grant funds are needed be- office) for further guidance. fore RHS or other loans can be closed. (c) Restrictions on lobbying. Grant- (e) If grant funds are available from ees must comply with the lobbying re- other agencies and are transferred for strictions set forth in 7 CFR part 3018. disbursement by RHS, these grant (d) Civil Rights Impact Analysis, RD funds will be disbursed in accordance Instruction 2006–P (available in any with the agreement governing such Rural Development office), and ‘‘Civil other agencies’ participation in the Rights Impact Analysis Certification.’’ project.
§§ 3570.71–3570.74 [Reserved] §§ 3570.81–3570.82 [Reserved]
§ 3570.75 Grantee contracts. § 3570.83 Audits. The requirements of 7 CFR 1942.4, (a) Audits will be conducted in ac- 1942.17(e), 1942.17(l), 1942.118, and cordance with 7 CFR 1942.17(q)(4), ex- 1942.119 will be applicable when agree- cept as provided in this section. ments between grantees and third par- (b) Grantees who are not required to ties are involved. submit an audit report will, within 60 § 3570.76 Planning, bidding, con- days following the end of the fiscal tracting, and construction. year in which any grant funds were ex- pended, furnish RHS with annual finan- Planning, bidding, contracting, and cial statements, consisting of a construction will be handled in accord- verification of the organization’s bal- ance with 7 CFR 1942.9, 1942.18, and 1942.126. ance sheet and statement of income and expense report signed by an appro- §§ 3570.77–3570.79 [Reserved] priate official of the organization or other documentation as determined ap- § 3570.80 Grant closing and delivery of propriate by the approval official. funds. (a) ‘‘Community Facilities Grant § 3570.84 Grant servicing. Agreement’’ will be used as the grant Grants will be serviced in accordance agreement between the Agency and the with 7 CFR part 1951, subparts E and O. grantee and will be signed by the grantee before grant funds are ad- § 3570.85 Programmatic changes. vanced. The grantee shall obtain prior Agen- (b) Approval officials may require ap- plicants to record liens or other appro- cy approval for any change to the ob- priate notices of record to indicate jectives of the approved project. (For that personal or real property has been construction projects, a material acquired or improved with Federal change in approved space utilization or grant funds and that use and disposi- functional layout shall be considered tion conditions apply to the property such a change.) Failure to obtain prior as provided by 7 CFR parts 3015, 3016, or approval of changes to the approved 3019, as subsequently modified. project or budget may result in suspen- (c) Agency grant funds will be dis- sion, refund, or termination of grant bursed and monitored in accordance funds.
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§ 3570.86 [Reserved] (c) The Appalachian Regional Com- mission (ARC) is authorized under the § 3570.87 Grant suspension, termi- Appalachian Regional Development nation, and cancellation. Act of 1965 to serve the Appalachian re- Grants may be suspended or termi- gion. ARC grants are handled in ac- nated for cause or convenience in ac- cordance with the ARC Agreement cordance with 7 CFR parts 3015, 3016, or which applies to all ARC grants admin- 3019, as applicable. istered by Rural Development. There- fore, a separate Project Management § 3570.88 Management assistance. Agreement between RHS and ARC is not needed for each ARC grant. Grant recipients will be supervised to (d) Grants by other Federal Regional the extent necessary to ensure that fa- Commissions are handled in accord- cilities are constructed in accordance ance with a separate Project Manage- with approved plans and specifications ment Agreement between the respec- and to ensure that funds are expended tive Federal Regional Commission and for approved purposes. RHS for each Commission grant or § 3570.89 [Reserved] class of grants administered by RHS. (e) When the Agency has funds in the § 3570.90 Exception authority. project, no charge will be made for ad- ministering Federal Regional Commis- An RHS official may request, and the sion grant funds. Administrator or designee may make, (f) When RHS has no loan or grant in individual cases, an exception to any funds in the project, an administrative requirement or provision of this sub- charge will be made pursuant to the part or address any omission of this Economy Act (31 U.S.C. 1535). subpart if the Administrator deter- mines that application of the require- §§ 3570.94–3570.99 [Reserved] ment or provision, or failure to take action in the case of an omission, § 3570.100 OMB control number. would adversely affect the Govern- The information collection require- ment’s interest. ments contained in this regulation have been approved by the Office of § 3570.91 Regulations. Management and Budget (OMB) and Grants under this part will be in ac- have been assigned OMB control num- cordance with 7 CFR parts 3015, 3016, or ber 0575–0173. You are not required to 3019, as applicable, and any conflicts respond to this collection of informa- between those parts and this part will tion unless it displays a valid OMB be resolved in favor of applicable 7 CFR control number. parts 3015, 3016, or 3019. PART 3575—GENERAL § 3570.92 [Reserved]
§ 3570.93 Regional Commission grants. Subpart A—Community Programs Guaranteed Loans (a) Grants are sometimes made by Federal Regional Commissions (des- Sec. ignated under Title V of the Public 3575.1 General. 3575.2 Definitions. Works and Economic Development Act 3575.3 Full faith and credit. of 1965) for projects eligible for RHS as- 3575.4 Conditions of guarantee. sistance. RHS has agreed to administer 3575.5–3575.7 [Reserved] such funds in a manner similar to ad- 3575.8 Access to lender’s records. ministering RHS assistance. 3575.9 Environmental requirements. (b) The transfer of funds from a Fed- 3575.10–3575.11 [Reserved] eral Regional Commission to RHS will 3575.12 Inspections. be based on specific applications deter- 3575.13 Appeals. 3575.14–3575.16 [Reserved] mined to be eligible for an authorized 3575.17 Exception authority. purpose in accordance with the require- 3575.18–3575.19 [Reserved] ments of RHS and the Federal Regional 3575.20 Eligibility. Commission. 3575.21–3575.23 [Reserved]
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3575.24 Eligible loan purposes. 3575.100 OMB control number. 3575.25 Ineligible loan purposes. 3575.26 [Reserved] Subpart B [Reserved] 3575.27 Eligible lenders. 3575.28 Transfer of lenders or borrowers AUTHORITY: 5 U.S.C. 301, 7 U.S.C. 1989. (prior to issuance of Loan Note Guar- antee). SOURCE: 64 FR 28337, May 26, 1999, unless 3575.29 Fees and charges by lender. otherwise noted. 3575.30 Loan guarantee limitations. 3575.31–3575.32 [Reserved] 3575.33 Interest rates. Subpart A—Community Programs 3575.34 Terms of loan repayment. Guaranteed Loans 3575.35–3575.36 [Reserved] 3575.37 Insurance and fidelity bonds. § 3575.1 General. 3575.38–3575.39 [Reserved] (a) This subpart contains the regula- 3575.40 Equal opportunity and Fair Housing Act requirements. tions for Community Programs loans 3575.41 [Reserved] guaranteed by the Agency and applies 3575.42 Design and construction require- to lenders, holders, borrowers, and ments. other parties involved in making, guar- 3575.43 Other Federal, State, and local re- anteeing, holding, servicing, or liqui- quirements. dating such loans. 3575.44–3575.46 [Reserved] (b) The purpose of the Community 3575.47 Economic feasibility requirements. 3575.48 Security. Programs guaranteed loan program is 3575.49–3575.51 [Reserved] to improve, develop, or finance essen- 3575.52 Processing. tial community facilities in rural 3575.53 Evaluation of application. areas. This purpose is achieved through 3575.54–3575.58 [Reserved] bolstering the existing private credit 3575.59 Review of requirements. structure through the guarantee of 3575.60–3575.62 [Reserved] quality loans which will provide last- 3575.63 Conditions precedent to issuance of the Loan Note Guarantee. ing community benefits. 3575.64 Issuance of Lender’s Agreement, Loan Note Guarantee, and Assignment § 3575.2 Definitions. Guarantee Agreement. The following general definitions are 3575.65 Lender’s sale or assignment of the applicable to the terms used in this guaranteed portion of loan. subpart: 3575.66–3575.68 [Reserved] 3575.69 Loan servicing. Agency. The Rural Housing Service 3575.70–3575.72 [Reserved] which is within the Rural Development 3575.73 Replacement of loss, theft, destruc- mission area of the United States De- tion, mutilation, or defacement of Loan partment of Agriculture or its suc- Note Guarantee or Assignment Guar- cessor agencies with authority dele- antee Agreement. gated by the Secretary of Agriculture 3575.74 [Reserved] to administer the Community Facili- 3575.75 Defaults by borrower. 3575.76–3575.77 [Reserved] ties programs. 3575.78 Repurchase of loan. Application. An Agency prescribed 3575.79 [Reserved] form to request an Agency guarantee 3575.80 Interest rate changes after loan clos- (available in any Agency office). ing. Arm’s length transaction. The sale, re- 3575.81 Liquidation. lease, or disposition of assets in which 3575.82 [Reserved] the title to the property passes to a 3575.83 Protective advances. 3575.84 Additional loans or advances. ready, willing, and able third party 3575.85 Bankruptcy. who is not affiliated with, or related 3575.86–3575.87 [Reserved] to, and has no security, monetary, or 3575.88 Transfer and assumptions. stockholder interest in the borrower or 3575.89 Mergers. transferor at the time of the trans- 3575.90 Disposition of acquired property. action. 3575.91–3575.93 [Reserved] Assignment Guarantee Agreement. The 3575.94 Determination and payment of loss. 3575.95 Future recovery. signed agreement among the Agency, 3575.96 Termination of Loan Note Guar- the lender, and the holder setting forth antee. the terms and conditions of an assign- 3575.97–3575.99 [Reserved] ment of the guaranteed portion of a
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loan or any part thereof (available in Insurance. Fire, windstorm, light- any Agency office). ning, hail, explosion, riot, civil commo- Borrower. The entity that borrows tion, aircraft, vehicles, smoke, build- money from the lender. er’s risk, liability, property damage, Collateral. Property pledged to secure flood or mudslide, worker’s compensa- the guaranteed loan. tion, fidelity bond, malpractice, or any Community facility (essential). The similar insurance that is available and term ‘‘facility’’ as used in this subpart needed to protect the security or that refers to both the physical structure fi- is required by law. nanced and the resulting service pro- Joint financing. Two or more lenders vided to rural residents. An essential (or any combination of lenders and community facility must: other financial sources) making sepa- (1) Be a function customarily pro- rate relatively contemporaneous loans vided by a local unit of government; to supply the funds required by one (2) Be a public improvement needed borrower. For example, such joint fi- for the orderly development of a rural nancing may consist of the Agency’s fi- community; nancial assistance with the Economic (3) Not include private affairs or com- Development Administration, Depart- mercial or business undertakings (ex- ment of Housing and Urban Develop- cept for limited authority for indus- ment (HUD), or other Federal and trial parks); State agencies, and private and quasi- (4) Be within the area of jurisdiction public financial institutions. or operation for eligible public bodies Lender. The person or organization or a similar local rural service area of making and responsible for servicing a not-for-profit corporation; and the loan. The lender is also referred to (5) Be located in a rural area. in this subpart as the applicant who is Conditional Commitment for Guarantee. requesting a guarantee during the The Agency’s written statement to the preapplication and application stage of lender that the material submitted is processing. approved subject to the completion of Lender’s Agreement. The signed agree- all conditions and requirements con- ment between the Agency and the lend- tained in the commitment (available in er containing the lender’s responsibil- any Agency office). ities when the Loan Note Guarantee is Guaranteed loan. A loan made and issued (available in any Agency office). serviced by a lender for which the Loan classification system. The process Agency and lender have entered into a by which loans are examined and cat- Lender’s Agreement and for which the egorized by degree of potential loss in Agency has issued a Loan Note Guar- the event of default. antee. Loan Note Guarantee. The signed com- Holder. The person or entity (other than the lender) who holds all or a part mitment issued by the Agency con- of the guaranteed portion of the loan taining the terms and conditions of the with no servicing responsibilities. guarantee of an identified loan (avail- When the lender assigns part or all of able in any Agency office). the guaranteed portion of the loan to Market value. The amount for which an assignee, the assignee becomes a property would sell for its highest and holder when the Assignment Guarantee best use at a voluntary sale in an arm’s Agreement is signed by all parties. length transaction. Immediate family. Individuals who are Note. An evidence of debt. In those in- closely related by blood or by mar- stances where the Agency guarantees a riage, or within the same household, bond issue, ‘‘note’’ shall also be con- such as a spouse, parent, child, brother, strued to include a bond or other evi- sister, aunt, uncle, grandparent, grand- dence of indebtedness, as appropriate. child, niece, or nephew. Participation. Sale of an interest in a In-house expenses. In-house expenses loan in which the lender retains the include, but are not limited to, em- note, collateral securing the note, and ployees’ salaries, staff lawyers, travel, all responsibility for loan servicing and and overhead. liquidation.
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Principals of borrowers. The owners, to perform action on behalf of the officers, directors, entities, and super- State Director. visors directly involved in the oper- Substantive change. Any change in the ation and management of the borrower. purpose of the loan or any change in Problem loan. A loan which is not the financial condition of the borrower complying with its terms and condi- or the collateral which would jeop- tions. ardize the performance of the loan. Protective advances. Advances made Transfer and assumption. The convey- by the lender for the purpose of pre- ance by a debtor to an assuming party serving and protecting the collateral of the assets, collateral, and liabilities where the debtor has failed to, and will of the loan in return for the assuming not or cannot, meet obligations to pro- party’s binding promise to pay the out- tect or preserve collateral. standing debt. Public body. A municipality, county, § 3575.3 Full faith and credit. or other political subdivision of a State, special purpose district, an In- The Loan Note Guarantee con- dian tribe on a Federal or State res- stitutes an obligation supported by the ervation, or another federally recog- full faith and credit of the United nized Indian tribe. States and is not contestable except for fraud or misrepresentation (including Report of loss. A form used by lenders negligent misrepresentation) of which when reporting a loss under an Agency the lender or holder has actual knowl- guarantee (available in any Agency of- edge, participates in, or condones. A fice). note which provides for the payment of (1) For fiscal Rural and rural area. interest on interest shall not be guar- year 1999, the terms rural and rural ‘‘ ’’ ‘‘ anteed and any Loan Note Guarantee area mean a city, town, or unincor- ’’ or Assignment Guarantee Agreement porated area with 20,000 inhabitants or attached to, or relating to, a note less according to the latest decennnial which provides for payment of interest census. on interest is void. The Loan Note (2) For later fiscal years, the terms Guarantee will not be enforceable by ‘‘rural’’ and ‘‘rural area’’ mean a city, the lender to the extent any loss is oc- town, or unincorporated area that has casioned by violation of usury laws, a population of 50,000 inhabitants or negligent servicing, or failure to obtain less according to the latest decennial the required security regardless of the census of the United States, other than time at which the Agency acquires an urbanized area immediately adja- knowledge of the foregoing. Any losses cent to a city, town, or unincorporated occasioned will not be enforceable by area that has a population in excess of the lender to the extent that loan 50,000 inhabitants. funds are used for purposes other than Service area. The area reasonably ex- those specifically approved by the pected to be served by the facility Agency in its Conditional Commitment being financed by the guaranteed loan. for Guarantee. Negligent servicing is State. Any of the 50 States, the Com- defined as the failure to perform those monwealth of Puerto Rico, the Virgin services which a reasonably prudent Islands of the United States, Guam, lender would perform in servicing its American Samoa, Commonwealth of own portfolio of loans that are not the Northern Mariana Islands, Repub- guaranteed. The term includes not only lic of the Marshall Islands, Republic of the concept of a failure to act, but also Palau, and the Federated States of Mi- not acting in a timely manner, acting cronesia. in a manner contrary to the manner in State Bond Banks and State Bond which a reasonably prudent lender Pools. An entity authorized by the would act up to the time of loan matu- State to issue State debt instruments rity, or until a final loss is paid. The and utilize the funds received to fi- Loan Note Guarantee or Assignment nance essential community facilities. Guarantee Agreement in the hands of a State Director. The Rural Develop- holder shall not cover interest accruing ment State Director or the staff mem- 90 days after the holder has demanded ber who has been delegated authority repurchase by the lender, nor shall the
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Loan Note Guarantee or Assignment thorized by that Department or the Guarantee Agreement in the hands of a U.S. Government) to inspect and make holder cover interest accruing 90 days copies of any of the records of the lend- after the lender or Agency has re- er pertaining to the guaranteed loans. quested the holder to surrender the evi- Such inspection and copying may be dence of debt for repurchase. made during regular office hours of the lender or at any other time the lender § 3575.4 Conditions of guarantee. and the Agency agree upon. A loan guarantee under this part will be evidenced by a Loan Note Guarantee § 3575.9 Environmental requirements. issued by the Agency. Each lender will Requirements for an environmental also execute a Lender’s Agreement. review or mitigation actions are con- (a) The entire loan will be secured by tained in part 1940, subpart G, of this the same security with equal lien pri- title. The lender must assist the Agen- ority for the guaranteed and non-guar- cy to ensure that the lender’s applicant anteed portions of the loan. The non- complies with any mitigation measures guaranteed portion of the loan will not required by the Agency’s environ- be paid first nor given any preference mental review for the purpose of avoid- or priority over the guaranteed por- ing or reducing adverse environmental tion. impacts of construction or operation of (b) The lender will be responsible for the facility financed with the guaran- servicing the entire loan and will re- teed loan. This assistance includes en- main mortgagee or secured party of suring that the lender’s applicant is to record notwithstanding the fact that take no actions (for example, initiation another party may hold a portion of of construction) or incur any obliga- the loan. tions with respect to their proposed un- (c) When a guaranteed portion of a dertaking that would either limit the loan is sold to a holder, the holder range of alternatives to be considered shall have all rights of the lender under during the Agency’s environmental re- the Loan Note Guarantee to the extent view process or which would have an of the portion purchased. The lender adverse effect on the environment. If will remain bound by all the obliga- construction is started prior to comple- tions under the Loan Note Guarantee, tion of the environmental review and Lender’s Agreement, and Agency pro- the Agency is deprived of its oppor- gram regulations. If the Agency makes tunity to fulfill its obligation to com- a payment to a holder, then the lender ply with applicable environmental re- must reimburse the Agency. (d) A lender will receive all payments quirements, the application for finan- of principal and interest on the ac- cial assistance may be denied. Satisfac- count of the entire loan and will tory completion of the environmental promptly remit to each holder a pro review process must occur prior to rata share, less any lender servicing Agency approval of the applicant’s re- fee. quest or any commitment of Agency (e) The lender may retain all of the resources. unguaranteed portion of the loan or §§ 3575.10–3575.11 [Reserved] may sell part of the unguaranteed por- tion of the loan through participation. § 3575.12 Inspections. However, the lender is required to re- tain 5 percent of the loan amount from The lender will notify the Agency of the unguaranteed portion in their port- any scheduled field inspections during folio. construction and after issuance of the Loan Note Guarantee. The Agency may §§ 3575.5–3575.7 [Reserved] attend such field inspections. Any in- spections or review conducted by the § 3575.8 Access to lender’s records. Agency, including those with the lend- Upon request by the Agency, the er, are for the benefit of the Agency lender will permit representatives of only and not for the benefit of other the Agency (or other agencies of the parties of interest. Agency inspections U.S. Department of Agriculture au- do not relieve any parties of interest of
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their responsibilities to conduct nec- full or otherwise satisfied or the delin- essary inspections. quency is cured. (b) Legal authority and responsibility. § 3575.13 Appeals. (1) Each borrower must have, or will Only the borrower, lender, or holder obtain, the legal authority necessary can appeal an Agency decision. In cases to construct, operate, and maintain the where the Agency has denied or re- proposed facility and services. They duced the amount of final loss payment must also have legal authority for ob- to the lender, the adverse decision may taining security and repaying the pro- be appealed only by the lender. A deci- posed loan. sion by a lender adverse to the interest (2) The borrower shall be responsible of the borrower is not a decision by the for operating, maintaining, and man- Agency, whether or not concurred in aging the facility and services, and pro- by the Agency. Appeals will be handled viding for the continued availability in accordance with the regulations of and use of the facility and services at the National Appeals Division, U.S. De- reasonable rates and terms. partment of Agriculture, published at 7 (i) These responsibilities must be ex- CFR part 11. ercised by the borrower even though the facility may be operated, main- §§ 3575.14–3575.16 [Reserved] tained, or managed by a third party under contract, management agree- § 3575.17 Exception authority. ment, or written lease. (ii) Leases may only be used when The Administrator may, in indi- this is the only feasible way to provide vidual cases, make an exception to any the service, is the customary practice requirement or provision of this sub- to provide such service in the State, part or address any omission of this and must provide for the borrower’s subpart provided the Administrator de- management control of the facility. termines that application of the re- (iii) Contracts, management agree- quirement or provision, or failure to ments, or leases must not contain op- take action in the case of an omission, tions or other provisions for transfer of would adversely affect the Govern- ownership. ment’s financial interest. Requests for (3) The lender is responsible for re- exceptions must be in writing by the viewing any contracts, management State Director. agreements, or leases to determine that they will not adversely impact the §§ 3575.18–3575.19 [Reserved] borrower’s repayment ability or the se- curity value of the guaranteed loan. § 3575.20 Eligibility. (c) Borrower. (1) A public body such as (a) Availability of credit from other a municipality, county, district, au- sources. The Agency must determine thority, or other political subdivision that the borrower is unable to obtain of a State located in a rural area. the required credit without the loan (2) An organization operated on a guarantee from private, commercial, or not-for-profit basis such as an associa- cooperative sources at reasonable rates tion, cooperative, or private corpora- and terms for loans for similar pur- tion. For-profit corporations operated poses and periods of time. This deter- as not-for-profit corporations are eligi- mination shall become a part of the ble borrowers as long as they operate Agency casefile. The Agency must also as a not-for-profit corporation for the determine if an outstanding judgment duration of their guaranteed loans. obtained by the United States in a Fed- Single member corporations or cor- eral Court (other than the U.S. Tax porations owned or substantially con- Court) has been entered against the trolled by other corporations or asso- borrower or if the borrower has an out- ciations are not eligible organizations. standing delinquent debt with any Fed- Before a loan is made to a borrower eral agency. Such judgment or delin- other than a public body, the articles quency shall cause the potential bor- of incorporation or the loan agreement rower to be ineligible to receive a loan will include a condition similar to the guarantee until the judgment is paid in following:
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If the corporation dissolves or ceases to cluded because of race, color, religion, perform the community facility objectives sex, marital status, age, disability, or and functions, the board of directors shall national origin. This does not preclude: distribute all business property and assets to (i) Financing or constructing projects one or more nonprofit corporations or public bodies. This distribution must be approved in phases when it is not practical to fi- by 75 percent of the users or members and nance or construct the entire project must serve the public welfare of the commu- at one time, and nity. The assets may not be distributed to (ii) Financing or constructing facili- any members, directors, stockholders, or ties where it is not economically fea- others having financial or managerial inter- sible to serve the entire area, provided est in the corporation. Nothing herein shall economic feasibility is determined on prohibit the corporation from paying its the basis of the entire system or facil- debts. ity and not by considering the cost of (3) A private nonprofit essential com- separate extensions to, or parts there- munity facility (other than utilities) of. Additionally, the borrower must must have significant ties with the publicly announce a plan for extending local rural community. Such ties are service to areas not initially receiving necessary to ensure to the greatest ex- service. Also, the borrower must pro- tent possible that a facility under pri- vide written notice to potential users vate control will carry out a public located in the areas not to be initially purpose and continue to primarily served. serve rural areas. Ties may be evi- (3) The lender will determine that, denced by items such as: when feasible and legally possible, in- (i) Association with, or controlled by, equities within the proposed project’s a local public body or bodies or broadly service area for the same type service based ownership and controlled by proposed (i.e., gas distribution system) members of the community. will be remedied by the owner on, or (ii) Substantial public funding before, completion of the project. In- through taxes, revenue bonds, or other equities are defined as unjustified vari- local government sources, or substan- ations in availability, adequacy, or tial voluntary community funding such quality of service. User rate schedules as would be obtained through a com- for portions of existing systems or fa- munity-wide funding campaign. cilities that were developed under dif- (4) Indian tribes on Federal and State ferent financing, rates, terms, or condi- reservations and other federally recog- tions do not necessarily constitute in- nized Indian tribes. equities. (d) Facility location. Facilities must be located in rural areas, except: §§ 3575.21–3575.23 [Reserved] (1) For utility services such as nat- ural gas or hydroelectric serving both § 3575.24 Eligible loan purposes. rural and non-rural areas. In such (a) Funds may be used to construct, cases, Agency funds may be used to fi- enlarge, extend, or otherwise improve nance only that portion serving rural other essential community facilities areas, regardless of facility location. providing essential service primarily to (2) Telecommunication projects. The rural residents and rural businesses. part of the facility located in a non- (1) Essential community facilities in- rural area must be necessary to provide clude, but are not limited to: the essential services to rural areas. (i) Fire, rescue, and public safety, (e) Facilities for public use. All facili- (ii) Health services, ties financed under the provisions of (iii) Community, social, or cultural this subpart shall be for public pur- services, poses. (iv) Transportation facilities such as (1) Facilities will be installed to streets, roads, and bridges, serve any user within the service area (v) Telecommunication equipment, who desires service and can be feasibly (vi) Hydroelectric generating facili- and legally served. ties and related connecting systems (2) In no case will boundaries for the and appurtenances only when not eligi- proposed service area be chosen in such ble for financing under the authorities a way that any user or area will be ex- of the Rural Utilities Service. Funds
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may not be used to finance other types pact analyses, archaeological surveys, of electrical generating or transmit- possible salvage or other mitigation ting facilities, measures, planning and establishing or (vii) Supplemental and supporting acquiring rights. structures for other rural electrifica- (ii) Interest on loans until the facil- tion or telephone systems (including ity is self-supporting, but not for more facilities such as headquarters and of- than 2 years unless a longer period is fice buildings, storage facilities, and approved by the Agency; interest on maintenance shops) only when not eli- loans secured by general obligation gible for financing under the authori- bonds until tax revenues are available ties of the Rural Utilities Service, for payment, but not for more than 2 (viii) Natural gas distribution sys- years unless a longer period is ap- tems, proved by the Agency’s National Office; (ix) Industrial park sites (but only to and interest on interim financing. the extent of land acquisition and nec- (iii) Costs of acquiring interest in essary site preparation) including ac- land; rights such as water rights, cess ways and utility extensions to and leases, permits, rights-of-way, and throughout the site. Funds may not be other evidence of land or water control used in connection with industrial necessary for development of the facil- parks to finance on-site utility systems ity. or business and industrial buildings, (iv) Purchasing or renting equipment and necessary to install, maintain, extend, (x) Recreational facilities. protect, operate, or utilize facilities. (2) Otherwise improve includes, but is (v) Initial operating expenses for a not limited to, the following: period ordinarily not exceeding 1 year (i) The purchase of major equipment when the borrower is unable to pay (such as telecommunication equipment such expenses. and X-ray machines) which will in (vi) Refinancing debts incurred by, or themselves provide an essential service on behalf of, a community when all of to rural residents, the following conditions exist: (ii) The purchase of existing facili- (A) The debts being refinanced are ties, when necessary, either to improve less than 50 percent of the total loan, or to prevent a loss of service, and (B) The debts were incurred for the (iii) Payment of tap fees and other facility or service being financed or utility connection charges as provided any part thereof (such as interim fi- in utility purchase contracts. nancing, construction expenses, etc.), (b) Funds also may be used: and (1) To construct or relocate public (C) Arrangements cannot be made buildings, roads, bridges, fences, or with the creditors to extend or modify utilities and to make other public im- the terms of the debts so that a sound provements necessary to the successful basis will exist for making a loan. operation or protection of facilities au- (4) To pay obligations for construc- thorized by paragraph (a) of this sec- tion incurred prior to filing a tion. preapplication and application with (2) To relocate private buildings, the Agency. Construction work must roads, bridges, fences, or utilities, and not be started (and obligations for such other private improvements necessary work or materials must not be in- to the successful operation or protec- curred) before the Conditional Commit- tion of facilities authorized in para- ment for Guarantee is issued. If there graph (a) of this section. are compelling reasons for proceeding (3) To pay the following expenses (but with construction before the Condi- only when such expenses are a nec- tional Commitment for Guarantee is essary part of a loan to finance facili- issued, lenders may request Agency ap- ties authorized in paragraph (a) of this proval to pay such obligations and not section): jeopardize a guarantee from the Agen- (i) Reasonable fees and costs such as cy. Such request must comply with the origination fee, loan guarantee fee, following: legal, engineering, architectural, fiscal (i) Provide conclusive evidence that advisory, recording, environmental im- the contract was entered into without
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intent to circumvent the Agency regu- that is not participating in the Na- lations. However, the Agency is not re- tional Flood Insurance Program. quired or obligated to pay a loss unless a written guarantee is issued, § 3575.26 [Reserved] (ii) Modify the outstanding contract to conform with the provisions of this § 3575.27 Eligible lenders. subpart. Where this is not possible, (a) Eligible lenders. Eligible lenders modifications will be made to the ex- (as defined in this section) may partici- tent practicable and, as a minimum, pate in the loan guarantee program. the contract must comply with all These lenders must be subject to credit State and local laws and regulations as examination and supervision by an ap- well as statutory requirements and ex- propriate agency of the United States ecutive orders related to the Agency fi- or a State that supervises and regu- nancing. When construction is com- lates credit institutions. A lender must plete and it is impracticable to modify have the capability to adequately serv- the contract, the borrower and lender ice loans for which a guarantee is re- must provide the certification required quested. Eligible lenders are: by paragraph (b)(4)(iii) of this section, (1) Any Federal or State chartered (iii) Provide a certification by an en- bank or savings and loan association; gineer or architect that any construc- (2) Any mortgage company that is a tion performed complies fully with the part of a bank holding company; plans and specifications, and (iv) The borrower and the contractor (3) Bank for Cooperatives, National must have complied with all statutory Rural Utilities Cooperative Finance and executive order requirements re- Corporation, Farm Credit Bank of the lated to Agency financing for construc- Federal Land Bank, or other Farm tion already performed even though Credit System institution with direct the requirements may not have been lending authority authorized to make included in the contract documents. loans of the type guaranteed by this subpart; § 3575.25 Ineligible loan purposes. (4) An insurance company regulated Loan funds may not be used to fi- by a State or National insurance regu- nance: latory agency; (a) Properties to be used for commer- (5) State Bond Banks or State Bond cial rental when the borrower has no Pools; and control over tenants and services of- (6) Other lenders that possess the fered except for industrial-site infra- legal powers necessary and incidental structure development, to making and servicing guaranteed (b) Facilities primarily for the pur- loans involving community develop- pose of housing Federal or State agen- ment-type projects. These lenders must cies, also be subject to credit examination (c) Community antenna television and supervision by either an appro- services or facilities, priate agency of the United States or a (d) Telephone systems, State that supervises and regulates (e) Facilities which are not modest in credit institutions and provide docu- size, design, and cost, mentation acceptable to the Agency (f) Finder’s and packager’s fees, that they have the ability to service (g) Projects located within the Coast- the loan. Lenders under this category al Barriers Resource System that do must be approved by the National Of- not qualify for an exception as defined fice prior to the issuance of the loan in section 6 of the Coastal Barriers Re- guarantee. source Act, 16 U.S.C. 3501 et seq. (avail- (b) Conflict of interest. When the lend- able in any Agency office), er’s officers, stockholders, directors, or (h) New combined sanitary and storm partners (including their immediate water sewer facilities, or families) or the borrower, its officers, (i) Projects that are located in a spe- stockholders, directors, or partners (in- cial flood or mudslide hazard area as cluding their immediate families) own, designated by the Federal Emergency or have management responsibilities in Management Agency in a community each other, the lender must disclose
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such business or ownership relation- of loan for which a non-guaranteed ships. The Agency will determine if loan borrower would be assessed such relationships are likely to result charges and fees. in a conflict of interest. This does not (b) Late payment fees. Late payment preclude lender officials from being on charges will not be covered by the the borrower’s board of directors. Loan Note Guarantee. Such charges may not be added to the principal and § 3575.28 Transfer of lenders or bor- interest due under any guaranteed rowers (prior to issuance of Loan note. Late payment charges may be Note Guarantee). made only if: (a) Prior to issuance of the loan guar- (1) They are routinely made by the antee, the Agency may approve the lender in all types of loan transactions; transfer of an outstanding Conditional (2) Payment has not been received Commitment for Guarantee from the within the customary timeframe al- present lender to a new eligible lender, lowed by the lender; or provided: (3) The lender agrees with the bor- (1) The former lender states in writ- rower, in writing, that the rate or ing why it does not wish to continue to method of calculating the late pay- be the lender for this project; ment charges will not be changed to in- (2) No substantive changes in owner- crease charges while the Loan Note ship or control of the borrower has oc- Guarantee is in effect. curred; (c) Guarantee fees. The guaranteed (3) No substantive changes in the bor- loan fee will be the applicable guar- rower’s written plan, scope of work, or antee fee rate multiplied by the prin- changes in the purpose or intent of the cipal loan amount multiplied by the project has occurred; and percent of guarantee. The one-time (4) No substantive changes in the guarantee fee is paid when the Loan loan agreement or Conditional Com- Note Guarantee is issued. mitment for Guarantee are required. (1) The fee will be paid to the Agency (b) The substitute lender must exe- by the lender and is nonreturnable. The cute a new application for loan and lender may pass the fee to the bor- guarantee (available in any Agency of- rower. fice). (c) If approved, the Agency will issue (2) The guarantee fee rates are avail- a letter of amendment to the original able in any Agency office. Conditional Commitment for Guar- § 3575.30 Loan guarantee limitations. antee reflecting the new lender who will acknowledge acceptance of the The percentage of guarantee, up to offer in writing. the maximum allowed by this section, (d) Once the Conditional Commit- is a matter for negotiation between the ment for Guarantee is issued, the lender and the Agency. Agency will not approve any substi- (a) The maximum guarantee is 90 per- tution of borrowers, including changes cent of eligible loss. in the form of the legal entity. Excep- (b) The lender will retain a minimum tions to a change in the legal entity of 5 percent of the total loan amount. may be requested when the original The retained amount must be from the borrower is replaced with substantially unguaranteed portion of the loan and the same individuals or officers with cannot be participated to another lend- the same interest as originally ap- er. proved. §§ 3575.31–3575.32 [Reserved] § 3575.29 Fees and charges by lender. (a) Routine charges and fees. The lend- § 3575.33 Interest rates. er may establish the charges and fees (a) General. Rates will be negotiated for the loan, provided they do not ex- between the lender and the borrower. ceed those charged other borrowers for They may be either fixed or variable similar types of transactions. ‘‘Similar rates. Interest rates will be those rates types of transactions’’ mean those customarily charged borrowers in simi- transactions involving the same type lar circumstances in the ordinary
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course of business and are subject to unguaranteed rate is variable and the Agency review and approval. guaranteed portion is fixed. (b) Variable rate publication. A vari- (e) Multi-rates. When multi-rates are able interest rate must be tied to a used, the lender will provide the Agen- base rate published periodically in a cy with the overall effective interest recognized national or regional finan- rate for the entire loan. Multi-rate cial publication specifically agreed to loans may be either fixed, variable, or by the lender and borrower. Such an a combination of fixed and variable. agreement must be documented in the When a combination of fixed and vari- borrower or lender loan agreement. (1) Interest rate caps and incremental able interest rates are used, the inter- adjustment limitations will also be ne- est rate for the unguaranteed portion gotiated between the lender and the will not be lower than the guaranteed borrower. Notice of any interest rate portion of the loan. change proposed by the lender should allow a sufficient time period for the § 3575.34 Terms of loan repayment. borrower to obtain any required State (a) General. Principal and interest on or other regulatory approval and to im- the loan will be due and payable as pro- plement any user rate adjustments vided in the note except, any interest necessary as a result of the interest accrued as the result of the borrower’s rate change. The intervals between in- default on the guaranteed loan over terest rate adjustments will be speci- and above that which would have ac- fied in the loan agreement (but not crued at the note rate on the guaran- more often than quarterly). teed loan will not be guaranteed by the (2) The lender must incorporate with- Agency. The lender will structure re- in the variable rate note, the provision for adjustment of payments coincident payments as established in the loan with an interest rate adjustment. This agreement between the lender and bor- will ensure the outstanding principal rower. Ordinarily, such installments balance is properly amortized within will be scheduled for payment as the prescribed loan maturity and agreed upon by the lender and borrower eliminate the possibility of a balloon on terms that reasonably ensure repay- payment at the end of the loan. ment of the loan. However, the first in- (c) Changes. Any change in the inter- stallment to include a repayment of est rate between the date of issuance of principal may be scheduled for pay- the Conditional Commitment for Guar- ment after the project is operable and antee and before the issuance of the has begun to generate income. Such in- Loan Note Guarantee must be approved stallment must be due and payable by the Agency. Approval of such within 3 years from the date of the change will be shown as an amendment note and at least annually thereafter. to the Conditional Commitment for Interest will be due at least annually Guarantee. from the date of the note. Monthly (d) Different rates on guaranteed and payments will be required except for unguaranteed portion of the loan. It is borrowers with income limited to less permissible to have one interest rate on the guaranteed portion of the loan frequent intervals. and another interest rate on the (b) Term length. The maximum time unguaranteed portion of the loan, pro- allowable for final maturity for a guar- vided the lender and borrower agree, anteed CP loan will be limited to the and: useful life of the facility, not to exceed (1) The rate on the unguaranteed por- 40 years. tion does not exceed that currently (c) Balloon payments. The principal being charged on loans for similar pur- balance should be properly amortized poses to borrowers under similar cir- within the prescribed loan maturity. cumstances; and, Balloon payments at the end of the (2) The rate on the guaranteed por- loan are prohibited. tion of the loan will not exceed the rate on the unguaranteed portion. This requirement does not apply when the
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§§ 3575.35–3575.36 [Reserved] conform to applicable Federal, State, and local codes and requirements. The § 3575.37 Insurance and fidelity bonds. lender must ensure that the planned The lender must provide evidence project will be completed within the that the borrower has adequate insur- available funds and, once completed, ance and fidelity bond coverage by loan will be suitable for the borrower’s closing or start of construction, which- needs. ever occurs first. Adequate coverage (b) Construction monitoring. The lend- must be maintained for the life of the er will monitor the progress of con- loan and is subject to Agency review struction and undertake the reviews and approval. and inspections necessary to ensure that construction proceeds in accord- §§ 3575.38–3575.39 [Reserved] ance with the approved plans, speci- fications, and contract documents and § 3575.40 Equal opportunity and Fair that funds are used for eligible project Housing Act requirements. costs. The lender must expeditiously (a) Equal Credit Opportunity Act. The report any problems in project develop- lender will comply with the require- ment to the Agency. ments of title V of the Equal Credit Op- (c) Equal employment opportunities. portunity Act (15 U.S.C. 1691 et seq.). For all construction contracts in ex- (See the Federal Reserve Board Regu- cess of $10,000, the contractor must lation, 12 CFR part 202.) comply with Executive Order 11246 en- (b) Fair Housing Act. Certain housing- titled ‘‘Equal Employment Oppor- related projects such as nursing homes, tunity’’ as amended and as supple- group homes, or assisted-living facili- mented by applicable Department of ties must comply with the require- Labor regulations (41 CFR part 60–1). ments of the Fair Housing Act (42 The borrower and lender are respon- U.S.C. 3601 et seq.). This includes com- sible for ensuring that the contractor pletion of an Affirmative Fair Housing complies with these requirements. Marketing Plan and compliance with (d) Americans with Disabilities Act. the Housing and Urban Development Community Facilities loans which in- accessibility guidelines except for volve the construction of, or addition areas open to the public which are cov- to, facilities that accommodate the ered by the Americans with Disabil- public and commercial facilities as de- ities Act (42 U.S.C. 12181 et seq.). The fined by the Americans with Disabil- lender will determine that the bor- ities Act (42 U.S.C. 12181—et seq.) must rower has a valid plan in effect at all comply with that Act. The lender and times. borrower are responsible for compli- § 3575.41 [Reserved] ance.
§ 3575.42 Design and construction re- § 3575.43 Other Federal, State, and quirements. local requirements. The lender will provide the Agency In addition to the specific require- with a written certification at the end ments of this subpart and beginning on of construction that all funds were uti- the date of issuance of the Loan Note lized for authorized purposes. The bor- Guarantee, proposals for facilities fi- rower and the lender will authorize de- nanced in whole or in part with a loan signs and plans based upon the prelimi- guaranteed by the Agency will be co- nary architectural and engineering re- ordinated with all appropriate Federal, ports or plans approved by the lender State, and local agencies. Borrowers and concurred in by the Agency. The and lenders will be required to comply borrower will take into consideration with any Federal, State, or local laws any lender or Agency comments when or regulatory commission rules which the facility is being designed. are in existence and which affect the (a) Architectural and engineering prac- project including, but not limited to: tices. All project facilities must be de- (a) Organization and authority to de- signed utilizing accepted architectural sign, construct, develop, operate, and and engineering practices and must maintain the proposed facilities;
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(b) Borrowing money, giving secu- cilities must be prepared by a qualified rity, and raising revenues for repay- entity not having a direct interest in ment; the management of the facility. The (c) Land use zoning; lender may prepare the feasibility (d) Health, safety, and sanitation study if qualified staff is available. standards; and (d) Exceptions. The Agency loan ap- (e) Protection of the environment proval official may exempt the lender and consumer affairs. from the requirement for an inde- §§ 3575.44–3575.46 [Reserved] pendent financial feasibility report (when requested by the borrower and § 3575.47 Economic feasibility require- the lender) provided the approval offi- ments. cial determines that the financial fea- All projects financed under the provi- sibility analysis prepared by the bor- sions of this section must be based on rower fairly represents the financial taxes, assessments, revenues, fees, or feasibility of the facility and the finan- other sources of revenues in an amount cial feasibility analysis contains an ac- sufficient to provide for facility oper- curate projection of the usage, reve- ation and maintenance, a reasonable nues, and expenses of the facility. reserve, and debt payment. Other (e) Insufficient information. When the sources of revenue or guarantors are lender or Agency has insufficient infor- particularly important in considering mation to determine the borrower’s re- the feasibility of recreation-type loans. payment ability, an independent feasi- The lender is responsible for deter- mining the credit quality and eco- bility analysis is required. nomic feasibility of the proposed loan § 3575.48 Security. and must address all elements of the credit quality in a written financial (a) Lender responsibility. The lender is feasibility analysis which includes ade- responsible for obtaining and maintain- quacy of equity, cash flow, security, ing proper and adequate security to history, and management capabilities. protect the interest of the lender, the Financial feasibility reports must take holder, and the Government. into consideration any interest rate ad- (b) Type of security. Security must be justment which may be instituted of such a nature that repayment of the under the terms of the note. The lend- loan is reasonably ensured when con- er’s financial credit analysis may also sidered with the integrity and ability serve as the feasibility analysis when of project management, soundness of sufficient evidence is included to deter- the project, and the borrower’s pro- mine economic feasibility as well as fi- nancial viability. spective earnings. The security may in- (a) Financial feasibility. The borrower, clude, but is not limited to, the fol- lender, or other qualified entity must lowing: General obligation bonds, rev- prepare the financial feasibility anal- enue bonds, pledge of taxes or assess- ysis (suggested financial feasibility ments, assignment of facility revenue, guidelines are available in any Agency land, easements, rights-of-way, water office) in the following instances: rights, buildings, machinery, equip- (1) Facilities primarily used for fire ment, accounts receivable, contracts, and rescue services; cash, or other accounts or assignments (2) Facilities that are not dependent of leases or leasehold interest. on facility revenues for debt payment; (c) Separate security. All security (3) Loans of less than $500,000; or must secure the entire loan. The lender (4) Projects in which the borrower will not take separate security to se- has operated similar facilities on a fi- cure only the unguaranteed portion of nancially successful basis. the loan. The lender will not require (b) Utility projects. The borrower’s compensating balances or certificates consulting engineer may complete the financial feasibility analysis for utility of deposit as a means of eliminating systems. the lender’s exposure on the (c) Other community facilities. Finan- unguaranteed portion of the loan. cial feasibility reports for all other fa-
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§§ 3575.49–3575.51 [Reserved] ists, the proposed loan complies with all applicable statutes and regulations, § 3575.52 Processing. the environmental review is complete (a) Preapplications. (1) The and considered in determining compli- preapplication package must be sub- ance, and adequate funds are available, mitted either alone or the necessary the Agency will provide the lender and information may be submitted simul- the borrower with the Conditional taneously with the application. The Commitment for Guarantee, listing all preapplication package will contain: conditions for the guarantee. Applica- (i) An Application for Federal Assist- ble requirements will include the fol- ance on a form provided by the Agency lowing: (available in any Agency office); (a) Approved use of guaranteed loan (ii) State intergovernmental or other funds (source and use of funds); type review comments and rec- (b) Rates and terms of the loan; ommendations for the borrower’s project (clearinghouse comments, if ap- (c) Scheduling of payments; plicable); (d) Number of customers; (iii) Supporting documentation nec- (e) Security and lien priority; essary to make an eligibility deter- (f) Appraisals; mination such as financial statements, (g) Insurance and bonding; audits, copies of organizational docu- (h) Financial reporting; ments, existing debt instruments, etc.; (i) Equal opportunity and non- and discrimination; (iv) Documentation of lender eligi- (j) Environment or mitigation; bility in accordance with § 3575.27. (k) Americans with Disabilities Act; (2) If the Agency determines that the (l) By-laws and articles of incorpora- project may meet requirements and is likely to be funded, the lender must tion changes; and submit a complete application if it has (m) Other requirements necessary to not previously submitted one. The protect the Government. Agency must do an environmental re- view before further processing will be §§ 3575.54–3575.58 [Reserved] completed. § 3575.59 Review of requirements. (b) Applications. Contents of applica- tion package: (a) Lender and borrower. The lender (1) Application for Loan and Guar- and borrower must complete and sign antee on a form prescribed by the the Acceptance of Conditions and re- Agency (available in any Agency of- turn a copy to the Agency as soon as fice); possible. Notwithstanding the pre- (2) Proposed loan agreement; ceding sentence, if certain conditions (3) Request for Environmental Infor- cannot be met, the lender and borrower mation (available in any Agency of- may propose alternate conditions for fice); Agency consideration. (4) Preliminary architectural or engi- (b) Cancellation. If the lender decides neering report; at any time after receiving a Condi- (5) Cost estimates; tional Commitment for Guarantee that (6) Appraisal reports (as appropriate); (7) Credit reports; it no longer wants a guarantee, the (8) Financial feasibility analysis and lender must immediately advise the report; and Agency of the cancellation. (9) Any additional information re- (c) Modifications. The lender agrees quired. that once the Conditional Commitment for Guarantee is issued and accepted by § 3575.53 Evaluation of application. the lender and borrower, it will not be If the Agency determines that the modified as to the scope of the project, borrower is eligible, the proposed loan overall facility concept, project pur- is for an eligible purpose, there is rea- pose, use of proceeds, or other terms sonable assurance of repayment abil- and conditions. ity, sufficient collateral and equity ex-
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§§ 3575.60–3575.62 [Reserved] cial condition nor any other adverse change in the borrower during the pe- § 3575.63 Conditions precedent to riod of time from the Agency’s issuance of the Loan Note Guar- issuance of the Conditional Commit- antee. ment for Guarantee to issuance of the The Loan Note Guarantee will not be Loan Note Guarantee. The lender’s cer- issued until: tification must address all adverse (a) The lender certifies that: changes of the borrower and the guar- (1) No changes have been made in the antors. For purposes of this paragraph, lender’s loan conditions and require- the term borrower includes any parent, ments since the issuance of the Condi- affiliate, or subsidiary of the borrower. tional Commitment for Guarantee ex- (12) All Federal, State, and local de- cept those approved in the interim by sign and construction requirements the Agency in writing. have been met. (2) All planned property acquisition (13) The lender understands and will has been completed and all develop- meet the requirements of the Debt Col- ment has been substantially completed lection Act (chapter 37 of title 31 of the in accordance with plans, specifica- United States Code). tions, and applicable building codes. No (14) The lender would not make the costs have exceeded the amounts ap- loan without an Agency guarantee. proved by the lender and the Agency. (b) The lender has executed and deliv- (3) Required insurance is in effect. ered the Lender’s Agreement and clos- (4) All equal opportunity and Fair Housing Plan requirements have been ing report for the guaranteed loan met. along with the appropriate guarantee (5) The loan has been properly closed fee. and the required security instruments (c) The lender has advised the Agency have been obtained on any after-ac- of plans to sell or assign any part of quired property that cannot be covered the loan as provided in the Lender’s initially under State statutory provi- Agreement. sions. (d) Where applicable, the lender must (6) The borrower has marketable title certify that the borrower has obtained: to the collateral then owned by the (1) A legal opinion relative to the borrower, subject to the instrument se- title to rights-of-way and easements. curing the loan to be guaranteed and Lenders are responsible for ensuring subject to any other exceptions ap- that borrowers have obtained valid, proved, in writing, by the Agency. continuous, and adequate rights-of-way (7) When required, the entire amount and easements needed for the construc- of the loan for working capital has tion, operation, and maintenance of a been disbursed except in cases where facility. the Agency has approved disbursement (2) A title opinion or title insurance over an extended time. showing ownership of the land and all (8) All other requirements of the Con- mortgages or other lien defects, re- ditional Commitment for Guarantee strictions, or encumbrances, if any. It have been met. is the responsibility of the lender to (9) Lien priorities are consistent with ensure that the borrower has obtained requirements of the Conditional Com- and recorded such releases, consents, mitment for Guarantee. or subordinations to such property (10) The loan proceeds have been dis- rights from holders of outstanding bursed for purposes and in amounts liens or other instruments as may be consistent with the Conditional Com- necessary for the construction, oper- mitment for Guarantee and as specified ation, and maintenance of the facility on the application for the guaranteed and to provide the required security. loan. A copy of a detailed statement by For example, when a site is for major the lender detailing the use of loan structures for utility-type facilities funds will be attached to support this (such as a gas distribution system) and certification. the lender and borrower are able to ob- (11) There has been no substantive tain only a right-of-way or easement adverse change in the borrower’s finan- on such a site rather than a fee simple
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title, such a title opinion must be re- vided to the lender and attached to the quested. note. (e) For loans exceeding $150,000, the (2) If the lender has selected the lender has certified its compliance multi-note system, a Loan Note Guar- with the Anti-Lobby Act (18 U.S.C. antee will be prepared and attached to 1913). Also, if any funds have been, or each note the borrower issues. All the will be, paid to any person for influ- notes will be listed on the Loan Note encing or attempting to influence an Guarantee. Not more than ten notes officer or employee of any agency, a will be issued for the guaranteed por- Member of Congress, an officer or em- tion (unless the Agency and borrower ployee of Congress, or an employee of a agree otherwise) and one note issued Member of Congress in connection with for the unguaranteed portion. this commitment providing for the (c) Assignment of guarantee. In the United States to guarantee a loan, the event the lender assigns the guaran- lender shall completely disclose such lobbying activities in accordance with teed portion of the loan to a holder, the 31 U.S.C. 1352. lender, holder, and Agency will execute (f) If the Loan Note Guarantee can- an Agency prescribed Assignment not be issued before the Conditional Guarantee Agreement. Commitment expires, the lender must (d) Failure to meet conditions. If the submit a written request for an exten- Agency determines that it cannot exe- sion of the expiration date. The lender cute the Loan Note Guarantee because must document and certify to para- all requirements have not been met, graph (a)(1) and (a)(11) of this section the lender will have a reasonable pe- specifically identifying any modifica- riod within which to satisfy the objec- tions. tions. If the lender satisfies the objec- (g) Coincident with, or immediately tions within the time allowed, the after, loan closing, the lender will con- guarantee will be issued. tact the Agency and provide those doc- (e) Loan closing report. The lender will uments and certifications required in prepare and deliver a guaranteed loan this section. For loans to public bodies, closing report for each loan to be guar- lenders may require an opinion from anteed and a guarantee fee to the recognized bond counsel regarding the Agency in return for the Loan Note adequacy of the preparation and Guarantee. issuance of the debt instruments. Only when the Agency is satisfied that all § 3575.65 Lender’s sale or assignment conditions for the guarantee have been of the guaranteed portion of loan. met will the Loan Note Guarantee be The lender may retain all of the executed. guaranteed loan. The lender must not § 3575.64 Issuance of Lender’s Agree- sell or participate any amount of the ment, Loan Note Guarantee, and As- guaranteed or non-guaranteed portion signment Guarantee Agreement. of the loan to the borrower or to mem- (a) Lender’s Agreement. If the Agency bers of the borrower’s immediate fami- finds that all requirements have been lies, the borrower’s officers, directors, met, the lender and the Agency will stockholders, other owners, or a sub- execute the Lender’s Agreement. The sidiary or affiliate. Disposition of the original will be retained by the Agency guaranteed portion of a loan may not and a signed duplicate original will be be made prior to full disbursement, retained by the lender. A separate completion of construction, and acqui- Lender’s Agreement must be executed sition of real estate and equipment for each loan to be guaranteed by the without the prior written approval of Agency. the Agency. If the lender desires to (b) Loan Note Guarantee. (1) Upon re- market all or part of the guaranteed ceipt of the executed Lender’s Agree- portion of the loan at, or subsequent ment and after all requirements have to, loan closing, the loan must not be been met, the Agency will execute the in default. Loan Note Guarantee. All originals of (a) Assignment. Any sale or assign- the Loan Note Guarantee will be pro- ment by the lender of the guaranteed
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portion of the loan must be accom- Additionally, when applicable, the plished in accordance with the condi- lender will require an audit in accord- tions in the Lender’s Agreement. ance with Office of Management and (b) Participation. The lender may ob- Budget (OMB) circulars (available in tain participation in the loan under its any Agency office). normal operating procedures. (c) Delinquent loans. The lender will (c) Minimum retention. The lender is service delinquent loans in accordance required to hold in its own portfolio or with the Lender’s Agreement and rea- retain a minimum of 5 percent of the sonable and prudent lending standards. total loan amount. This amount must (d) Loan balances. The lender must re- be of the non-guaranteed portion of the port to the Agency the outstanding loan and cannot be participated to an- principal and interest balance on each other. The lender may sell the remain- guaranteed loan semiannually. ing amount of the non-guaranteed por- (e) Collateral inspections. The lender tion of the loan only through participa- will inspect the collateral as often as tion. necessary to properly service the loan.
§§ 3575.66–3575.68 [Reserved] §§ 3575.70–3575.72 [Reserved]
§ 3575.69 Loan servicing. § 3575.73 Replacement of loss, theft, (a) Lender responsibilities. The lender destruction, mutilation, or deface- is responsible for servicing the entire ment of Loan Note Guarantee or As- signment Guarantee Agreement. loan in accordance with the lender’s loan agreement. The unguaranteed por- (a) Replacement of Loan Note Guar- tion of the loan will not be paid first antee. The Agency may issue a replace- nor given any preference or priority ment Loan Note Guarantee or Assign- over the guaranteed portion of the ment Guarantee Agreement which may loan. The lender is responsible for tak- have been lost, stolen, destroyed, muti- ing all servicing actions that a prudent lated, or defaced to the lender or holder lender would perform in servicing a upon receipt of a certificate of loss and portfolio of loans that are not guaran- an indemnity bond in accordance with teed. This responsibility includes, but this section. is not limited to, the collection of pay- (b) Lender responsibilities. When a ments; obtaining compliance with the Loan Note Guarantee or Assignment covenants and provisions in the note, Guarantee Agreement is lost, stolen, loan agreement, security instrument, destroyed, mutilated, or defaced while or any supplemental agreements; ob- in the custody of the lender or holder, taining and analyzing financial state- the lender will coordinate the activi- ments; verifying the payment of taxes ties of the party who seeks the replace- and insurance premiums; and main- ment documents and will submit the taining liens on collateral. The lender required documents to the Agency for must notify the Agency of any viola- processing. The requirements for re- tion of the loan agreement with the placement are as follows: borrower within 30 days of such viola- (1) A certificate of loss properly nota- tion. rized which includes: (b) Financial reports. The lender must (i) Legal name and present address of obtain the financial statements re- either the lender or the holder who is quired by the Loan Agreement. The requesting the replacement forms; lender must submit the borrower’s an- (ii) Legal name and address of the nual financial statements to the Agen- lender of record; cy within 120 days of the end of the (iii) Capacity of person certifying; borrower’s fiscal year. The lender must (iv) Full identification of the Loan analyze the financial statements and Note Guarantee or Assignment Guar- provide the Agency with a written antee Agreement, including the name summary of the lender’s analysis and of the borrower, Agency case number, conclusions, including trends, date of the Loan Note Guarantee, As- strengths, weaknesses, extraordinary signment Guarantee Agreement, face transactions, and other indications of amount of the evidence of debt pur- the financial condition of the borrower. chased, date of evidence of debt,
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present balance of the loan, percent- meeting with the borrower to resolve ages of guarantee and, if Assignment the default. The lender will provide a Guarantee Agreement, the original summary of the meeting and any deci- named holder and the percentage of the sions or actions agreed upon. guaranteed portion of the loan assigned (b) Servicing options. In considering to that holder. Any existing parts of servicing options, the prospects for the document to be replaced must be providing a permanent cure without attached to the certificate; adversely affecting the risks to the (v) A full statement of circumstances Agency and the lender must be the of the loss, theft, or destruction of the paramount objective. Temporary cura- Loan Note Guarantee or Assignment tive actions (such as payment Guarantee Agreement; and deferments or collateral subordination) (vi) The holder shall present evidence must strengthen the loan and be in the demonstrating current ownership of best financial interest of the lender and the Loan Note Guarantee and Note or the Agency. Some of these actions may Assignment Guarantee Agreement. If require concurrence of the holder. the present holder is not the same as (c) Multi-note. If the loan was closed the original holder, a copy of the en- with the multi-note option, the lender dorsement of each successive holder in may need to possess all notes to take the chain of transfer from the initial some servicing actions. In those situa- holder to present holder must be in- tions when the Agency is holder of cluded. If copies of the endorsement some of the notes, the Agency may en- cannot be obtained, best available dorse the notes back to the lender, pro- records of transfer must be presented vided a proper receipt is received from to the Agency (e.g., order confirma- the lender which defines the reason for tion, canceled checks, etc.). the transfer. Under no circumstances (2) An indemnity bond acceptable to will the Agency endorse the original the Agency shall accompany the re- Loan Note Guarantee to the lender. quest for replacement except when the holder is the United States, a Federal §§ 3575.76–3575.77 [Reserved] Reserve Bank, a Federal Government corporation, a State or Territory, or § 3575.78 Repurchase of loan. the District of Columbia. (3) All indemnity bonds must be (a) Repurchase by lender. The lender issued and payable to the United has the option to repurchase the loan States of America. The bond shall be in from a holder within 30 days of written an amount not less than the unpaid demand from the holder when the bor- principal and interest. The bond shall rower is in default not less than 60 days hold the Government harmless against on payment. The repurchase will be for any claim or demand which might arise an amount equal to the unpaid guaran- or against any damage, loss, costs, or teed portion of principal and accrued expenses which might be sustained or interest less the lender’s servicing fee. incurred by reasons of the loss or re- The guarantee does not cover the note placement of the instruments. interest to the holder on the guaran- teed loan accruing after 90 days from § 3575.74 [Reserved] the date of the demand letter to the lender. The holder will concurrently § 3575.75 Defaults by borrower. send a copy of the demand to the Agen- (a) Lender notification to Agency. The cy. The lender will accept an assign- lender must notify the Agency when a ment without recourse from the holder borrower is 30 days past due on a pay- upon repurchase. The lender is encour- ment, has not met its responsibilities aged to repurchase the loan to facili- of providing the required financial tate the accounting of funds, resolve statements, or is otherwise in default. the problem, and permit the borrower The lender will continue to keep the to cure the default, where reasonable. Agency informed on a bimonthly basis The lender will notify the holder and until such time as the loan is no longer the Agency of its decision within 30 in default. If a monetary default ex- days of receipt of demand from the ceeds 60 days, the lender will arrange a holder.
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(b) Agency repurchase. (1) If the lender ing from the loan or guarantee nor does not repurchase as provided in does it waive any of the Agency’s paragraph (a) of this section, the Agen- rights against the lender. The Agency cy will purchase from the holder the may set off against the lender all unpaid principal balance of the guaran- rights inuring to the Agency as the teed portion together with accrued in- holder of the instrument against the terest to date of repurchase (less the Agency’s obligation to the lender under lender’s servicing fee) within 30 days the Loan Note Guarantee. after written demand to the Agency. (c) Repurchase for servicing. When the The guarantee will not cover the note lender determines that repurchase of interest to the holder on the guaran- the guaranteed portion of the loan is teed loan accruing after 90 days from necessary to service the loan, the hold- the date of the original demand letter. The lender shall not charge the Agency er must sell the guaranteed portion to any servicing fees nor are any such fees the lender for the unpaid principal and collectible from the Agency. interest balance (less the lender’s serv- (2) The holder’s demand to the Agen- icing fee). The guarantee does not cy must include a copy of the written cover interest accruing after 90 days demand made upon the lender. The from the date the lender’s or Agency’s holder or duly authorized agent must letter requesting the holder to tender also include evidence of the right to re- its guaranteed portion. The lender quire payment from the Agency. Such must not repurchase from the holder evidence will consist of either the for arbitrage purposes to further its original of the Loan Note Guarantee own financial gain. Any repurchase properly endorsed to the Agency or the must be made only after the lender ob- original of the Assignment Guarantee tains the Agency written approval. If Agreement properly assigned to the the lender does not repurchase the por- Agency without recourse including all tion from the holder, the Agency may, rights, title, and interest in the loan. at its option, purchase such guaranteed The Agency will be subrogated to all portion for servicing purposes. rights of the holder. The holder must include in the demand the amount due § 3575.79 [Reserved] including unpaid principal, unpaid in- terest to date of demand, and interest § 3575.80 Interest rate changes after subsequently accruing from the date of loan closing. demand to the proposed payment date. (a) General. Subject to the restric- Unless otherwise agreed to by the tions below, the borrower, lender, and Agency, such proposed payment will holder (if any) may collectively effect a not be later than 30 days from the date permanent reduction in the interest of demand. rate on the guaranteed loan at any (3) The lender must promptly provide the Agency with the information nec- time during the life of the loan on writ- essary for the Agency’s determination ten agreement by all of the applicable of the appropriate amount due the parties. After such a permanent reduc- holder upon the Agency’s notification tion, the Loan Note Guarantee will to the lender of the holder’s demand for only cover losses of interest at the re- payment. This information must be duced interest rate. The Agency must certified by an authorized officer of the be notified by the lender, in writing, lender. Any discrepancy between the within 10 calendar days of the change. amount claimed by the holder and the When the Agency is a holder, it will information submitted by the lender concur only when it is demonstrated must be resolved before payment will that the change is more viable than be approved. The Agency will notify liquidation and that the Government’s both parties and such conflict will sus- financial interests are not adversely af- pend the running of the 30-day pay- fected. Factors which will be consid- ment requirement. ered in making such determination are (4) Any purchase by the Agency does the Government’s cost of borrowing not change, alter, or modify any of the money and the project’s enhancement lender’s obligations to the Agency aris-
706
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of rural development. The monetary re- (b) Acquiring property titles. If a lender covery must be greater than the liq- acquires title to property, the Agency uidation recovery, and a financial fea- may elect to permit the lender the op- sibility analysis must show the tion of calculating the final loss settle- project’s continued viability. ment using the net proceeds received (1) Fixed rates cannot be changed to at the time of the ultimate disposition variable rates to reduce the interest of the property. The lender must sub- rate to the borrower unless the vari- mit to the Agency a written request to able rate has a ceiling which is less use this option within 15 days of ac- than the original fixed rate. quiring title and the Agency must (2) Variable rates can be changed to a agree, in writing, prior to the lender lower fixed rate. In a final loss settle- submitting any request for estimated ment when qualifying rate changes are loss payment. made with the required written agree- (c) Liquidation plan. The lender will ments and notification, the interest (within 30 days after a decision to liq- will be calculated for the periods the uidate) submit to the Agency, in writ- given rates were in effect. The lender ing, a proposed, detailed liquidation must maintain records which ade- plan. Upon approval by the Agency of quately document the accrued interest the liquidation plan, the lender will claimed. commence liquidation. The lender’s liquidation plan must include, but is (3) The lender is responsible for the not limited to, the following: legal documentation of interest rate (1) Such proof as the Agency requires changes. However, the lender may not to establish the lender’s ownership of issue a new note. the guaranteed loan notes and related (b) Increases. No increases in interest security instruments, a copy of the rates will be permitted under the loan payment ledger or other documenta- guarantee except the normal fluctua- tion which reflects the outstanding tions in approved variable interest rate loan balance and accrued interest to loans. date, and the method of computing the interest; § 3575.81 Liquidation. (2) A complete list of collateral; Liquidation will occur when the lend- (3) The recommended liquidation er concludes that liquidation of the methods for making the maximum col- guaranteed loan is necessary because of lection possible on the indebtedness default or third party actions that the and the justification for such methods, borrower cannot, or will not, cure or including the recommended action for eliminate within a reasonable period of acquiring and disposing of all collat- time and the Agency concurs with the eral; lender; or the Agency, at any time, (4) Necessary steps for preservation independently concludes that liquida- of the collateral; tion is necessary. The lender will pro- (5) Copies of the borrower’s latest ceed as expeditiously as possible, in- available financial statements; cluding giving any notices or taking (6) An itemized list of estimated liq- any legal actions required by the secu- uidation expenses expected to be in- rity instruments. curred and justification for each ex- (a) General. If a lender has made a pense; loan guaranteed by the Agency under (7) A schedule to periodically report previous regulations, the lender has to the Agency on the progress of the the option to liquidate the loan under liquidation; the provisions of this subpart or under (8) Estimated protective advance the provisions of previous regulations. amounts with justification; The lender will notify the Agency in (9) Proposed protective bid amounts writing within 10 days after its deci- on collateral to be sold at auction and sion to liquidate, which regulatory pro- a discussion of how the amounts were visions it chooses to use. The lender determined; may not choose some provisions of one (10) If a voluntary conveyance is con- regulation and other provisions of the sidered, the proposed amount to be other regulation. credited to the guaranteed debt;
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(11) Legal opinions, as needed; and § 3575.82 [Reserved] (12) If the outstanding balance of principal and interest is less than § 3575.83 Protective advances. $250,000, the lender will obtain an esti- Protective advances can only be mate of fair market and potential liq- added to the loan account for purposes uidation value of the collateral. If the of requirements to preserve the value outstanding balance of principal and of the security. Protective advances interest is $250,000 or more, the lender constitute an indebtedness of the bor- will obtain an independent appraisal rower to the lender and must be se- report on all collateral securing the cured by collateral to the same extent loan which will reflect the fair market as principal and interest. Protective value and potential liquidation value. advances include, but are not limited The independent appraiser’s fee will be to, advances made for taxes, annual as- shared equally by the Agency and the sessments, ground rent, hazard and lender. flood insurance premiums affecting the (d) Partial liquidation plan. If actions collateral (including any other ex- are necessary to immediately preserve penses necessary to protect the collat- and protect the collateral, a partial eral). Attorney fees are not a protec- liquidation plan may be submitted and, tive advance. when approved, must be followed by a (a) Agency approval. The Agency must complete liquidation plan prepared by approve, in writing, all protective ad- the lender. vances on loans within its loan ap- proval authority which exceed a total (e) Disposition of collateral. Disposi- cumulative advance amount of $5,000 to tion of collateral acquired by the lend- the same borrower. Protective ad- er must be approved, in writing, by the vances must be reasonable when associ- Agency when: ated with the value of the collateral (1) The lender’s cost to acquire the being preserved. collateral of a borrower exceeds the po- (b) Preserving collateral. When consid- tential recovery value of the security ering protective advances, sound judg- and the lender proposes abandoning the ment must be exercised in determining collateral in lieu of liquidation; or that the additional funds advanced will (2) The acquired collateral is to be actually preserve collateral and recov- sold to the borrower, borrower’s stock- ery is actually enhanced by making the holders or officers, or the lender or advance. lender’s stockholders or officers. (f) Agency liquidation. The Agency § 3575.84 Additional loans or advances. will liquidate at its option only when it The lender will not make additional is a holder and there is reason to be- expenditures or new loans to the bor- lieve the lender is not likely to initiate rower without first obtaining the writ- liquidation efforts that will result in ten approval of the Agency even maximum recovery. When the Agency though such expenditures or loans will liquidates, reasonable liquidation ex- not be guaranteed. penses will be assessed against the pro- ceeds derived from the sale of the col- § 3575.85 Bankruptcy. lateral. (a) Calculating losses. Report of Loss (g) Final loss payment. Final loss pay- form (available in any Agency office) ments will be made only after all col- will be used for calculating estimated lateral has been properly accounted for and final loss determinations. and liquidation expenses are deter- (b) Lender responsibility. The lender is mined to be reasonable and within ap- responsible for protecting the guaran- proved limits. Any estimated loss pay- teed loan debt and all the collateral se- ments made to the lender will be cred- curing it in bankruptcy proceedings. ited against the final loss on the guar- These responsibilities include, but are anteed loan. The amount of an esti- not limited to, the following: mated loss payment must be credited (1) Filing a proof of claim, where nec- as a deduction from the principal bal- essary, and all necessary papers and ance of the loan. pleadings;
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(2) Attending and, where necessary, flect any actual discharge of principal participating in meetings of the credi- and interest and to reimburse the lend- tors and all court proceedings; er for any court ordered interest-rate (3) Immediately seeking adequate reduction under the terms of the reor- protection of the collateral if it is sub- ganization plan. ject to being used by the trustee in (g) Agency approval of estimated liq- bankruptcy or the debtor in possession; uidation expenses. The Agency must ap- (4) Where appropriate, seeking invol- prove, in advance and in writing, the untary conversion of a pending chapter lender’s estimated liquidation expenses 11 case to a liquidation proceeding or of collateral in a liquidation if the liq- seeking dismissal of the proceedings; uidation is performed by the lender. and These expenses must be reasonable and (5) Keeping the Agency adequately customary and not include in-house ex- and regularly informed, in writing, of penses of the lender. all aspects of the proceedings. (h) Reconciliation. In the event that (c) Appraisals. In a chapter 9 or chap- the estimated loss payment exceeds the ter 11 reorganization, the lender must actual loss, the lender will reimburse obtain an independent appraisal of the the Agency the amount in excess of the collateral if the Agency believes an actual loss plus interest at the note independent appraisal is necessary. The rate from the date of the estimated Agency and the lender will share the loss payment. appraisal fee equally. (d) Liquidation expenses. Only ex- §§ 3575.86–3575.87 [Reserved] penses authorized by the court of chap- ter 11 reorganizations, or chapters 11 or § 3575.88 Transfers and assumptions. 7 liquidation (unless the liquidation is (a) General. For all transfers and as- by the lender), may be deducted from sumptions, the lender must concur in the collateral proceeds. the plans for disposition of funds in the (e) Repurchase from the holder. The Agency or the lender, with the ap- transferor’s debt service, reserve, and proval of the Agency, may initiate the operation and maintenance account. repurchase of the unpaid guaranteed The Agency will approve, in writing, portion of the loan from the holder. If transfers and assumptions of loans to the lender is the holder, an estimated transferees who will continue the origi- loss payment may be filed at the initi- nal purpose of the guaranteed loan sub- ation of a chapter 7 proceeding or after ject to the following applicable provi- a chapter 11 proceeding becomes a liq- sions: uidation proceeding. Any loss payment (1) When the transaction is to a mem- on loans in bankruptcy must be ap- ber of the borrower’s organization, it proved by the Agency. will be at an amount which will not re- (f) Chapter 11 bankruptcy. If a bor- sult in a loss to the lender. rower has filed for protection under (2) Transfers to eligible borrowers chapter 11 of the United States Code will receive preference if recovery to for a reorganization (but not chapter the lender from the sale price is not 13) and all or a portion of the debt has less than it would be if the transfer was been discharged, the lender may re- to an ineligible borrower. quest an estimated loss payment of the (3) The present borrower is unable or guaranteed portion of the accrued in- unwilling to accomplish the objectives terest and principal discharged by the of the guaranteed loan, and the trans- court. If the court approves revisions fer will be to the lender’s and Agency’s to the chapter 11 reorganization plan, advantage. subsequent estimated loss payments (4) The transferee will assume an may be requested in accordance with amount at least equal to either the the court approved changes. Once the present market value or the debt, reorganization plan has been satisfac- whichever is less. torily completed, the lender is respon- (b) Transfers to an eligible borrower. (1) sible for submitting the documentation The total indebtedness may be trans- necessary for the Agency to review and ferred to an eligible borrower on the adjust the estimated loss claim to re- same terms.
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(2) The total indebtedness may be (i) Transferees must have the ability transferred to another eligible bor- to repay as determined by the lender rower on different terms not to exceed the debt according to the Assumption those terms for which an initial guar- Agreement and must have the legal au- anteed loan can be made. thority to enter into the contract. The (3) Less than the total indebtedness transferee will submit a current bal- may be transferred to another eligible ance sheet to the lender. The lender borrower on the same or different will obtain and analyze the credit his- terms and the pro rata share of any eli- tory of the transferee. gible loss paid to the lender. (ii) The transferor may receive eq- (4) A guaranteed loan for which the uity payments only when the full transferee is eligible may be made in amount of the debt is assumed. How- connection with a transfer subject to ever, equity payments will not be made the policies and procedures governing on more favorable terms than those on the type of loan being made. which the balance of the debt will be (5) If the transferor is to receive a paid. payment for the equity, the total debt (d) Transfer fees. Transfer fees are a must be assumed. one-time nonrefundable cost to be col- (c) Ineligible borrower. Transfers to in- lected by the lender at the time of ap- eligible borrowers are considered only plication or proposal. when needed as a method for servicing (1) The transfer fees will be a stand- problem cases when an eligible trans- ard fee plus the cost of the appraisal. feree is not available. Transfers should not be considered as a means by which (2) The lender will collect and submit members can obtain equity or as a the fee to the Agency. method of providing a source of easy (3) The Agency may waive the trans- credit for purchasers. Transfers must fer fee if it determines that such waiv- meet the following requirements: er is in the best interest of the Agency. (1) All transfers to ineligible bor- (e) Processing transfers and assump- rowers will include a one-time non- tions. (1) In any transfer and assump- refundable transfer fee to the Agency tion case, the transferor (including any of no more than one percent. Transfer guarantor) may be released from liabil- fees will be collected, and payments ap- ity by the lender only with prior Agen- plied, in accordance with paragraph (d) cy written concurrence and only when of this section. the value of the collateral being trans- (2) For all loans covered by this sub- ferred is at least equal to the amount part, the Agency may approve a trans- of the loan, or part of the loan, being fer of indebtedness to, and assumption assumed. If the transfer is for less than of, a loan by a transferee who does not the entire debt: meet the eligibility requirements for (i) The Agency must determine that the kind of loan being assumed when the transferor and any guarantor have the ineligible borrower will: no reasonable debt-paying ability con- (i) Make a significant down payment, sidering their assets and income at the and time of transfer, and (ii) Agree to pay the remaining bal- (ii) The lender must certify that the ance within not more than 15 years. In- transferor has cooperated in good faith, stallments will be at least equal to the used due diligence to maintain the col- amount amortized over a period not lateral against loss, and has otherwise greater than the remaining life of the fulfilled all of the regulations of this debt being transferred, and the balance subpart to the best of the borrower’s will be due the fifteenth year. ability. (3) Interest rates to ineligible trans- (2) The lender will make, in all cases, ferees will be the rate specified in the a complete credit analysis to deter- note of the transferor or the rates cus- mine viability of the project (subject tomarily charged borrowers in similar to the Agency review and approval) in- circumstances in the ordinary course cluding any requirement for deposit in of business and are subject to Agency an escrow account as security to meet review and approval. The rates may be the determined equity requirements for either fixed or variable. the project.
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(3) The lender will confirm that the all the liabilities and acquires all the transaction can be properly transferred assets of the merged borrower. Mergers and the conveyance instruments will may be approved when: be filed, registered, or recorded as ap- (1) The merger is in the best interest propriate and legally permissible. of the Government and the merging (4) The assumption will be made on borrower; the lender’s form of Assumption Agree- (2) The resulting borrower can meet ment and will contain the Agency case all required conditions as contained in number of the transferor and trans- specific loan note agreements; and feree. (3) All property can be legally trans- (5) Loan terms cannot be changed by ferred to the resulting borrower. the Assumption Agreement unless pre- (b) Distinguishing mergers from trans- viously approved in writing by the fers and assumptions. Mergers occur Agency with the concurrence of holder when one entity combines with another and the transferor (including guarantor entity in such a way that the first enti- if it has not been released from per- ty ceases to exist as a separate entity sonal liability). Any new loan terms while the other continues. In a consoli- cannot exceed those authorized in this dation, two or more entities combine subpart. The lender’s request will be to form a new, consolidated entity with supported by: the original entity ceasing to exist. (i) An explanation of the reasons for Such transactions must be distin- the proposed change in the loan terms, guished from transfers and assump- and tions in which a transferor will not (ii) Certification that the lien posi- necessarily go out of existence, and the tion securing the guaranteed loan will transferee will not always take all the be maintained or improved, and proper transferor’s assets nor assume all the hazard insurance will be continued in transferor’s liabilities. effect. (6) In the case of a transfer and as- § 3575.90 Disposition of acquired prop- sumption, it is the lender’s responsi- erty. bility to see that all such transfers and (a) General. When the lender acquires assumptions will be noted on all origi- title to the collateral and the final loss nals of the Loan Note Guarantee. The claim is not paid until final disposi- lender will provide the Agency a copy tion, the lender must proceed as quick- of the Transfer and Assumption Agree- ly as possible to develop a plan to fully ment. protect the collateral, and the lender (7) If a loss should occur upon a com- must dispose of the collateral without plete transfer of assets and assumption delay. for less than the full amount of the (b) Re-title collateral. Any collateral debt and the transferor-debtor (includ- accepted by the lender must not be ti- ing personal guarantor) is released tled in the Agency’s name in whole or from personal liability (as provided in in part. The Agency’s position is that paragraph (e) of this section), the lend- of a guarantor relating to losses, not a er (if holding the guaranteed portion) lender. may file an estimated Report of Loss (c) Collateral preservation. After ac- to recover their pro rata share of the quiring the collateral, the lender must actual loss at that time. Approved pro- protect the collateral from deteriora- tective advances and accrued interest tion (weather, vandalism, etc.). Hazard made during the arrangement of a insurance in an amount necessary to transfer and assumption, if not as- cover the fair market value of the col- sumed by the transferee, will be en- lateral must be maintained. tered on the estimated Report of Loss. (d) Collateral sale. (1) The lender will prepare and submit to the Agency a § 3575.89 Mergers. plan on the best method of sale, keep- (a) General. The Agency may approve ing in mind any prospective pur- mergers or consolidations (herein re- chasers. The Agency must approve the ferred to as ‘‘mergers’’) when the result- plan in writing. If an existing approved ing organization will be eligible for an liquidation plan addresses the disposi- Agency guaranteed loan and assumes tion of acquired property, no further
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review is required unless modification (3) After liquidation has been com- of the plan is needed. pleted, a final Report of Loss will be (2) Anytime there is a case when the submitted by the lender to the Agency. conversion of collateral to cash can (d) Final report of loss. In all cases, a reasonably be expected to result in a final Report of Loss must be submitted negative net recovery amount, aban- to the Agency. Before Agency approval donment of the collateral should be of any final loss report, the lender considered. The Agency must approve must account for all funds obtained, abandonment in writing. disposition of the collateral, all costs incurred, and any other information §§ 3575.91–3575.93 [Reserved] necessary for the successful completion of liquidation. Upon receipt of the final § 3575.94 Determination and payment accounting and Report of Loss, the of loss. Agency may conduct an may audit and In all liquidation cases, final settle- will determine the final loss. The lend- ment will be made with the lender er will make its records available to, after the collateral is liquidated. The and otherwise assist, the Agency in Agency will have the right to recover making any audit it requires of the Re- losses paid under the guarantee from port of Loss. The documentation ac- any liable party. companying the Report of Loss must (a) General. If the lender takes title support the loss claimed. to collateral, any loss will be based on (1) The lender must document and the collateral value at the time the show that all of the collateral has been lender obtains title. accounted for and properly liquidated (b) Loss calculations. The Report of and that liquidation proceeds have Loss form (available in any Agency of- been properly accounted for and ap- plied correctly on the loan. The Agency fice) will be used for calculations of all must be satisfied that the lender has estimated and final loss determina- accomplished this in the manner con- tions. Estimated loss payments may tained herein and that the lender has only be approved after the lender has maximized the collections in con- submitted a liquidation plan approved ducting the liquidation. by the Agency. (2) The lender must show a break- (c) Estimated loss payments. When the down on any protective advance lender is conducting the liquidation amount as to the payee, purpose of the and owns any of the guaranteed por- expenditure, date paid, evidence that tion of the loan, it may request an esti- the amount expended was proper, and mated loss payment by submitting an that the amount was actually paid. estimate of loss that will occur in con- (3) The lender must show a break- nection with liquidation of the loan. down of liquidation expenses as to the An estimated loss payment may be ap- payee, purpose of the expenditure, date proved after the Agency has approved paid, evidence that the amount ex- the liquidation plan. pended was proper, and that the (1) The lender will prepare and sub- amount was actually paid. mit a Report of Loss using the ap- (4) Accrued interest should be sup- praised value in lieu of amount re- ported by attachments showing how ceived from sale of collateral. the amount was accrued by the lender. (2) The estimated loss payment shall A copy of the promissory note and be calculated as of the date of such ledger will be attached. If the interest payment. The total amount of the loss rate was a variable rate, the lender payment remitted by the Agency will must include documentation of be applied by the lender on the guaran- changes in the selected base rate and teed portion of the loan debt. Such ap- when the changes in the loan rate be- plication does not release the borrower came effective. from liability. At the time of final loss (e) Liquidation income. Any net rental settlement, the lender may notify the or other income that has been received borrower that the loss payment has by the lender from the collateral will been so applied. be applied on the guaranteed loan debt.
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(f) Liquidation costs. Certain reason- guarantee only to the date the Agency able liquidation costs will be allowed accepts this responsibility. When the during the liquidation process. The liq- liquidation is conducted by the lender, uidation costs must be submitted as a loss occasioned by accruing interest part of the liquidation plan. Such costs will be covered to the extent of the will be deducted from gross proceeds guarantee to the date of final settle- received from the disposition of collat- ment provided the lender proceeds ex- eral unless the costs have been pre- peditiously with the liquidation plan viously determined by the lender (with approved by the Agency. Agency concurrence) to be protective advances. If changed circumstances § 3575.95 Future recovery. after submission of the liquidation plan After a loan has been liquidated and require a revision of liquidation costs, a final loss has been paid by the Agen- the lender will obtain the Agency’s cy, any future funds which may be re- written concurrence prior to pro- covered by the lender will be pro-rated ceeding with the proposed changes. No between the Agency and the lender in in-house expenses of the lender will be accordance with the guaranteed per- allowed. centage even if the Loan Note Guar- (g) Protective advance losses. In those antee has been terminated. instances where the lender made au- thorized protective advances, the lend- § 3575.96 Termination of Loan Note er may claim recovery for the guaran- Guarantee. teed portion of any loss of monies ad- The Loan Note Guarantee under this vanced as well as interest resulting subpart will terminate automatically: from such protective advances. These (a) Upon full payment of the guaran- claims shall be included in the final teed loan; or Report of Loss. (b) Upon full payment of any loss ob- (h) Final loss approval. After the final ligation or negotiated loss settlement Report of Loss has been tentatively ap- except for future recovery provisions; proved: or (1) If the actual loss is greater than (c) Upon written request from the any estimated loss payment, such loss lender to the Agency, provided that the will be paid by the Agency; lender holds all of the guaranteed por- (2) If the actual loss is less than any tion and the original Loan Note Guar- estimated loss payment, the lender will antee is returned to the Agency. reimburse the Agency; (3) If the Agency conducted the liq- §§ 3575.97–3575.99 [Reserved] uidation, it will provide an accounting § 3575.100 OMB control number. to the lender and will pay the lender in accordance with the Loan Note Guar- The report and recordkeeping re- antee. quirements contained in this regula- (i) Loss limits. The amount payable by tion have been approved by the Office the Agency to the lender cannot exceed of Management and Budget and have the limits contained in the Loan Note been assigned OMB control number Guarantee. If the Agency conducts the 0575–0137. liquidation, loss occasioned by accru- ing interest will be covered by the Subpart B [Reserved]
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