[Title 24 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2003 Edition]
[From the U.S. Government Printing Office]



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                    24


          Parts 700 to 1699

                         Revised as of April 1, 2003

Housing and Urban Development





          Containing a codification of documents of general 
          applicability and future effect
          As of April 1, 2003
          With Ancillaries
          Published by
          Office of the Federal Register
          National Archives and Records
          Administration

A Special Edition of the Federal Register



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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003



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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 24:
    Subtitle B--Regulations Relating to Housing and Urban 
      Development (Continued)
          Chapter VII--Office of the Secretary, Department of 
          Housing and Urban Development (Housing Assistance 
          Programs and Public and Indian Housing Programs)           3
          Chapter VIII--Office of the Assistant Secretary for 
          Housing-Federal Housing Commissioner, Department of 
          Housing and Urban Development (Section 8 Housing 
          Assistance Programs, Section 202 Direct Loan 
          Program, Section 202 Supportive Housing for the 
          Elderly Program and Section 811 Supportive Housing 
          for Persons With Disabilities Program)                    35
          Chapter IX--Office of Assistant Secretary for Public 
          and Indian Housing, Department of Housing and Urban 
          Development                                              223
  Finding Aids:
      Table of CFR Titles and Chapters........................     817
      Alphabetical List of Agencies Appearing in the CFR......     835
      List of CFR Sections Affected...........................     845



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

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  24 CFR 700.100 
                       refers to title 24, part 
                       700, section 100.

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

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                               EXPLANATION

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    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
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Many agencies have begun publishing numerous OMB control numbers as 
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                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

April 1, 2003.



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                               THIS TITLE

    Title 24--Housing and Urban Development is composed of five volumes. 
The first four volumes containing parts 0-199, parts 200-499, parts 500-
699, parts 700-1699, represent the regulations of the Department of 
Housing and Urban Development. The fifth volume, containing part 1700 to 
end continues with regulations of the Department of Housing and Urban 
Development and also includes regulations of the Neighborhood 
Reinvestment Corporation. The contents of these volumes represent all 
current regulations codified under this title of the CFR as of April 1, 
2003.

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                 TITLE 24--HOUSING AND URBAN DEVELOPMENT




                 (This book contains parts 700 to 1699)

  --------------------------------------------------------------------
                                                                    Part

   SUBTITLE B--Regulations Relating to Housing and Urban Development 
                                (Continued)

chapter vii--Office of the Secretary, Department of Housing 
  and Urban Development (Housing Assistance Programs and 
  Public and Indian Housing Programs).......................         700

chapter viii--Office of the Assistant Secretary for Housing-
  Federal Housing Commissioner, Department of Housing and 
  Urban Development (Section 8 Housing Assistance Programs, 
  Section 202 Direct Loan Program, Section 202 Supportive 
  Housing for the Elderly Program and Section 811 Supportive 
  Housing for Persons With Disabilities Program)............         811

chapter ix--Office of Assistant Secretary for Public and 
  Indian Housing, Department of Housing and Urban 
  Development...............................................         901

Cross References: Office of Thrift Supervision, Department of the 
  Treasury, 12 CFR chapter V.

  Department of Veterans Affairs regulations on assistance to certain 
veterans in acquiring specially adapted housing and guaranty of loans on 
homes: See Loan Guaranty, 38 CFR part 36.

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 CHAPTER VII--OFFICE OF THE SECRETARY, DEPARTMENT OF HOUSING AND URBAN 
 DEVELOPMENT (HOUSING ASSISTANCE PROGRAMS AND PUBLIC AND INDIAN HOUSING 
                                PROGRAMS)




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


  Editorial Note: For nomenclature changes to chapter VII, see 59 FR 
14090, Mar. 25, 1994.
Part                                                                Page
700             Congregate Housing Services Program.........           5
701-760         [Reserved]

761             Drug Elimination Programs...................          15
762-790         [Reserved]

791             Allocations of housing assistance funds.....          28
792             Public housing agency section 8 fraud 
                    recoveries..............................          32
793-798         [Reserved]

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PART 700--CONGREGATE HOUSING SERVICES PROGRAM--Table of Contents




Sec.
700.100  Purpose.
700.105  Definitions.
700.110  Announcement of fund availability, application process and 
          selection.
700.115  Program costs.
700.120  Eligible supportive services.
700.125  Eligibility for services.
700.130  Service coordinator.
700.135  Professional assessment committee.
700.140  Participatory agreement.
700.145  Cost distribution.
700.150  Program participant fees.
700.155  Grant agreement and administration.
700.160  Eligibility and priority for 1978 Act recipients.
700.165  Evaluation of Congregate Housing Services Programs.
700.170  Reserve for supplemental adjustment.
700.175  Other Federal requirements.

    Authority: 42 U.S.C. 3535(d) and 8011.

    Source: 61 FR 42943, 42949, Aug. 19, 1996.



Sec. 700.100  Purpose.

    The requirements of this part augment the requirements of section 
802 of the National Affordable Housing Act of 1990 (approved November 
28, 1990, Public Law 101-625) (42 U.S.C. 8011), (hereinafter, section 
802), as amended by the Housing and Community Development Act of 1992 
(Public Law 102-550, approved October 28, 1992), which authorizes the 
Congregate Housing Services Program (hereinafter, CHSP or Program).



Sec. 700.105  Definitions.

    In addition to the definitions in section 802(k), the following 
definitions apply to CHSP:
    Activity of Daily Living (ADL) means an activity regularly necessary 
for personal care.
    (1) The minimum requirements of ADLs include:
    (i) Eating (may need assistance with cooking, preparing or serving 
food, but must be able to feed self);
    (ii) Dressing (must be able to dress self, but may need occasional 
assistance);
    (iii) Bathing (may need assistance in getting in and out of the 
shower or tub, but must be able to wash self);
    (iv) Grooming (may need assistance in washing hair, but must be able 
to take care of personal appearance);
    (v) Getting in and out of bed and chairs, walking, going outdoors, 
using the toilet; and
    (vi) Household management activities (may need assistance in doing 
housework, grocery shopping or laundry, or getting to and from one 
location to another for activities such as going to the doctor and 
shopping, but must be mobile. The mobility requirement does not exclude 
persons in wheelchairs or those requiring mobility devices.)
    (2) Each of the Activities of Daily Living noted in paragraph (1) of 
this definition includes a requirement that a person must be able to 
perform at a specified minimal level (e.g., to satisfy the eating ADL, 
the person must be able to feed himself or herself). The determination 
of whether a person meets this minimal level of performance must include 
consideration of those services that will be performed by a person's 
spouse, relatives or other attendants to be provided by the individual. 
For example, if a person requires assistance with cooking, preparing or 
serving food plus assistance in feeding himself or herself, the 
individual would meet the minimal performance level and thus satisfy the 
eating ADL, if a spouse, relative or attendant provides assistance with 
feeding the person. Should such assistance become unavailable at any 
time, the owner is not obligated at any time to provide individualized 
services beyond those offered to the resident population in general. The 
Activities of Daily Living analysis is relevant only with regard to 
determination of a person's eligibility to receive supportive services 
paid for by CHSP and is not a determination of eligibility for 
occupancy;
    Adjusted income means adjusted income as defined in 24 CFR parts 813 
or 913.
    Applicant means a State, Indian tribe, unit of general local 
government, public housing authority (PHA), Indian housing authority 
(IHA) or local nonprofit housing sponsor. A State, Indian tribe, or unit 
of general local government may apply on behalf of a local

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nonprofit housing sponsor or a for-profit owner of eligible housing for 
the elderly.
    Area agency on aging means the single agency designated by the State 
Agency on Aging to administer the program described in Title III of the 
Older Americans Act of 1965 (45 CFR chapter 13).
    Assistant Secretary means the HUD Assistant Secretary for Housing-
Federal Housing Commissioner or the HUD Assistant Secretary for Public 
and Indian Housing.
    Case management means implementing the processes of: establishing 
linkages with appropriate agencies and service providers in the general 
community in order to tailor the needed services to the program 
participant; linking program participants to providers of services that 
the participant needs; making decisions about the way resources are 
allocated to an individual on the basis of needs; developing and 
monitoring of case plans in coordination with a formal assessment of 
services needed; and educating participants on issues, including, but 
not limited to, supportive service availability, application procedures 
and client rights.
    Eligible housing for the elderly means any eligible project 
including any building within a mixed-use project that was designated 
for occupancy by elderly persons, or persons with disabilities at its 
inception or, although not so designated, for which the eligible owner 
or grantee gives preference in tenant selection (with HUD approval) for 
all units in the eligible project (or for a building within an eligible 
mixed-use project) to eligible elderly persons, persons with 
disabilities, or temporarily disabled individuals. For purposes of this 
part, this term does not include projects assisted under the Low-Rent 
Housing Homeownership Opportunity program (Turnkey III (24 CFR part 905, 
subpart G)).
    Eligible owner means an owner of an eligible housing project.
    Excess residual receipts mean residual receipts of more than $500 
per unit in the project which are available and not committed to other 
uses at the time of application to HUD for CHSP. Such receipts may be 
used as matching funds and may be spent down to a minimum of $500/unit.
    For-profit owner of eligible housing for the elderly means an owner 
of an eligible housing project in which some part of the project's 
earnings lawfully inure to the benefit of any private shareholder or 
individual.
    Grantee or Grant recipient means the recipient of funding under 
CHSP. Grantees under this Program may be states, units of general local 
government, Indian tribes, PHAs, IHAs, and local nonprofit housing 
sponsors.
    Local nonprofit housing sponsor means an owner or borrower of 
eligible housing for the elderly; no part of the net earnings of the 
owning organization shall lawfully inure to the benefit of any 
shareholder or individual.
    Nonprofit includes a public housing agency as that term is defined 
in section 3(b)(6) of the United States Housing Act of 1937.
    Person with disabilities means a household composed of one or more 
persons, at least one of whom is an adult who has a disability.
    (1) A person shall be considered to have a disability if such person 
is determined under regulations issued by the Secretary to have a 
physical, mental, or emotional impairment which:
    (i) Is expected to be of long-continued and indefinite duration;
    (ii) Substantially impedes his or her ability to live independently; 
and
    (iii) Is of such a nature that the person's ability could be 
improved by more suitable housing conditions.
    (2) A person shall also be considered to have a disability if the 
person has a developmental disability as defined in section 102(5) of 
the Developmental Disabilities Assistance and Bill of Rights Act (42 
U.S.C. 6001-7). Notwithstanding the preceding provisions of this 
paragraph, the terms ``person with disabilities'' or ``temporarily 
disabled'' include two or more persons with disabilities living 
together, one or more such persons living with another person who is 
determined (under regulations prescribed by the Secretary of HUD) to be 
essential to their care or well-being, and the surviving member or 
members of any household where at least one or more persons was an adult 
with a disability who was living, in a

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unit assisted under this section, with the deceased member of the 
household at the time of his or her death.
    Program participant (participant) means any project resident as 
defined in section 802(e)(1) who is formally accepted into CHSP, 
receives CHSP services, and resides in the eligible housing project 
served by CHSP grant.
    Qualifying supportive services means those services described in 
section 802(k)(16). Under this Program, ``health-related services'' mean 
non-medical supervision, wellness programs, preventive health screening, 
monitoring of medication consistent with state law, and non-medical 
components of adult day care. The Secretary concerned may also approve 
other requested supportive services essential for achieving and 
maintaining independent living.
    Rural Housing Service (RHS) means a credit agency for rural housing 
and rural development in the U.S. Department of Agriculture (USDA).
    Secretary concerned means (1) The Secretary of Housing and Urban 
Development, with respect to eligible federally assisted housing 
administered by HUD; and
    (2) The Secretary of Agriculture with reference to programs 
administered by the Administrator of the Rural Housing Service.
    Service coordinator means CHSP staff person responsible for 
coordinating Program services as described in section 700.130.
    Service provider means a person or organization licensed or 
otherwise approved in writing by a State or local agency (e.g., 
Department of Health, Department of Human Services or Welfare) to 
provide supportive services.
    State agency means the State or an agency or instrumentality of the 
State.
    State agency on aging means the single agency designated by the 
Governor to administer the program described in Title III of the Older 
Americans Act of 1965 (See 45 CFR part 13).



Sec. 700.110  Announcement of fund availability, application process and selection.

    (a) Notice of funding availability. A Notice of Funding Availability 
(NOFA) will be published periodically in the Federal Register by the 
Secretary concerned containing the amounts of funds available, 
allocation or distribution of funds available among eligible applicant 
groups, where to obtain and submit applications, the deadline for 
submissions, and further explanation of the selection criteria, review 
and selection process. The Secretary concerned will designate the 
maximum allowable size for grants.
    (b) Selection criteria are set forth in section 802(h)(1) and shall 
include additional criteria specified by the Secretary concerned.



Sec. 700.115  Program costs.

    (a) Allowable costs. (1) Allowable costs for direct provision of 
supportive services includes the provision of supportive services and 
others approved by the Secretary concerned for:
    (i) Direct hiring of staff, including a service coordinator;
    (ii) Supportive service contracts with third parties;
    (iii) Equipment and supplies (including food) necessary to provide 
services;
    (iv) Operational costs of a transportation service (e.g., mileage, 
insurance, gasoline and maintenance, driver wages, taxi or bus 
vouchers);
    (v) Purchase or leasing of vehicles;
    (vi) Direct and indirect administrative expenses for administrative 
costs such as annual fiscal review and audit, telephones, postage, 
travel, professional education, furniture and equipment, and costs 
associated with self evaluation or assessment (not to exceed one percent 
of the total budget for the activities approved); and
    (vii) States, Indian tribes and units of general local government 
with more than one project included in the grant may receive up to 1% of 
the total cost of the grant for monitoring the projects.
    (2) Allowable costs shall be reasonable, necessary and recognized as 
expenditures in compliance with OMB Cost Policies, i.e., OMB Circular A-
87, 24 CFR 85.36, and OMB Circular A-128.
    (b) Nonallowable costs. (1) CHSP funds may not be used to cover 
expenses related to any grantee program, service, or activity existing 
at the time of application to CHSP.

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    (2) Examples of nonallowable costs under the program are:
    (i) Capital funding (such as purchase of buildings, related 
facilities or land and certain major kitchen items such as stoves, 
refrigerators, freezers, dishwashers, trash compactors or sinks);
    (ii) Administrative costs that represent a non-proportional share of 
costs charged to the Congregate Housing Services Program for rent or 
lease, utilities, staff time;
    (iii) Cost of supportive services other than those approved by the 
Secretary concerned;
    (iv) Modernization, renovation or new construction of a building or 
facility, including kitchens;
    (v) Any costs related to the development of the application and plan 
of operations before the effective date of CHSP grant award;
    (vi) Emergency medical services and ongoing and regular care from 
doctors and nurses, including but not limited to administering 
medication, purchase of medical supplies, equipment and medications, 
overnight nursing services, and other institutional forms of service, 
care or support;
    (vii) Occupational therapy and vocational rehabilitation services; 
or
    (viii) Other items defined as unallowable costs elsewhere in this 
part, in CHSP grant agreement, and OMB Circular A-87 or 122.
    (c) Administrative cost limitation. Grantees are subject to the 
limitation in section 802(j)(4).



Sec. 700.120  Eligible supportive services.

    (a) Supportive services or funding for such services may be provided 
by state, local, public or private providers and CHSP funds. A CHSP 
under this section shall provide meal and other qualifying services for 
program participants (and other residents and nonresidents, as described 
in Sec. 700.125(a)) that are coordinated on site.
    (b) Qualifying supportive services are those listed in section 
802(k)(16) and in section 700.105.
    (c) Meal services shall meet the following guidelines:
    (1) Type of service. At least one meal a day must be served in a 
group setting for some or all of the participants; if more than one meal 
a day is provided, a combination of a group setting and carry-out meals 
may be utilized.
    (2) Hot meals. At least one meal a day must be hot. A hot meal for 
the purpose of this program is one in which the principal food item is 
hot at the time of serving.
    (3) Special menus. Grantees shall provide special menus as necessary 
for meeting the dietary needs arising from the health requirements of 
conditions such as diabetes and hypertension. Grantees should attempt to 
meet the dietary needs of varying religious and ethnic backgrounds.
    (4) Meal service standards. Grantees shall plan for and provide 
meals which are wholesome, nutritious, and each of which meets a minimum 
of one-third of the minimum daily dietary allowances as established by 
the Food and Nutrition Board of the National Academy of Sciences-
National Research Council (or State or local standards, if these 
standards are higher). Grantees must have an annual certification, 
prepared and signed by a registered dietitian, which states that each 
meal provided under CHSP meets the minimum daily dietary allowances.
    (5) Food stamps and agricultural commodities. In providing meal 
services grantees must apply for and use food stamps and agricultural 
commodities as set forth in section 802(d)(2)(A).
    (6) Preference for nutrition providers: In contracting for or 
otherwise providing for meal services grantees must follow the 
requirements of section 802(d)(2)(B). These requirements do not preclude 
a grantee or owner from directly preparing and providing meals under its 
own auspices.



Sec. 700.125  Eligibility for services.

    (a) Participants, other residents, and nonresidents. Such 
individuals are eligible either to participate in CHSP or to receive 
CHSP services, if they qualify under section 802(e)(1), (4) and (5). 
Under this paragraph, temporarily disabled persons are also eligible.
    (b) Economic need. In providing services under CHSP, grantees shall 
give priority to very low income individuals, and shall consider their 
service needs in selecting program participants.

[[Page 9]]



Sec. 700.130  Service coordinator.

    (a) Each grantee must have at least one service coordinator who 
shall perform the responsibilities listed in section 802(d)(4).
    (b) The service coordinator shall comply with the qualifications and 
standards required by the Secretary concerned. The service coordinator 
shall be trained in the subject areas set forth in section 802(d)(4), 
and in any other areas required by the Secretary concerned.
    (c) The service coordinator may be employed directly by the grantee, 
or employed under a contract with a case management agency on a fee-for-
service basis, and may serve less than full-time. The service 
coordinator or the case management agency providing service coordination 
shall not provide supportive services under a CHSP grant or have a 
financial interest in a service provider agency which intends to provide 
services to the grantee for CHSP.
    (d) The service coordinator shall:
    (1) Provide general case management and referral services to all 
potential participants in CHSP. This involves intake screening, upon 
referral from the grantee of potential program participants, and 
preliminary assessment of frailty or disability, using a commonly 
accepted assessment tool. The service coordinator then will refer to the 
professional assessment committee (PAC) those individuals who appear 
eligible for CHSP;
    (2) Establish professional relationships with all agencies and 
service providers in the community, and develop a directory of providers 
for use by program staff and program participants;
    (3) Refer proposed participants to service providers in the 
community, or those of the grantee;
    (4) Serve as staff to the PAC;
    (5) Complete, for the PAC, all paperwork necessary for the 
assessment, referral, case monitoring and reassessment processes;
    (6) Implement any case plan developed by the PAC and agreed to by 
the program participant;
    (7) Maintain necessary case files on each program participant, 
containing such information and kept in such form as HUD and RHS shall 
require;
    (8) Provide the necessary case files to PAC members upon request, in 
connection with PAC duties;
    (9) Monitor the ongoing provision of services from community 
agencies and keep the PAC and the agency providing the supportive 
service informed of the progress of the participant;
    (10) Educate grant recipient's program participants on such issues 
as benefits application procedures (e.g. SSI, food stamps, Medicaid), 
service availability, and program participant options and 
responsibilities;
    (11) Establish volunteer support programs with service organizations 
in the community;
    (12) Assist the grant recipient in building informal support 
networks with neighbors, friends and family; and
    (13) Educate other project management staff on issues related to 
``aging-in-place'' and services coordination, to help them to work with 
and assist other persons receiving housing assistance through the 
grantee.
    (e) The service coordinator shall tailor each participant's case 
plan to the individual's particular needs. The service coordinator shall 
work with community agencies, the grantee and third party service 
providers to ensure that the services are provided on a regular, 
ongoing, and satisfactory basis, in accordance with the case plan 
approved by the PAC and the participant.
    (f) Service coordinators shall not serve as members of the PAC.



Sec. 700.135  Professional assessment committee.

    (a) General. (1) A professional assessment committee (PAC), as 
described in this section, shall recommend services appropriate to the 
functional abilities and needs of each eligible project resident. The 
PAC shall be either a voluntary committee appointed by the project 
management or an agency in the community which provides assessment 
services and conforms to section 802(e)(3)(A) and (B). PAC members are 
subject to the conflict of interest provisions in section 700.175(b).
    (2) The PAC shall utilize procedures that ensure that the process of 
determining eligibility of individuals for congregate services affords 
individuals fair treatment, due process, and a right

[[Page 10]]

of appeal of the determination of eligibility, and shall ensure the 
confidentiality of personal and medical records.
    (3) The dollar value of PAC members' time spent on regular 
assessments after initial approval of program participants may be 
counted as match. If a community agency discharges the duties of the 
PAC, staff time is counted as its imputed value, and if the members are 
volunteers, their time is counted as volunteer time, according to 
sections 700.145(c)(2) (ii) and (iv).
    (b) Duties of the PAC. The PAC is required to:
    (1) Perform a formal assessment of each potential elderly program 
participant to determine if the individual is frail. To qualify as 
frail, the PAC must determine if the elderly person is deficient in at 
least three ADLs, as defined in section 700.105. This assessment shall 
be based upon the screening done by the service coordinator, and shall 
include a review of the adequacy of the informal support network (i.e., 
family and friends available to the potential participant to assist in 
meeting the ADL needs of that individual), and may include a more in-
depth medical evaluation, if necessary;
    (2) Determine if non-elderly disabled individuals qualify under the 
definition of person with disabilities under section 700.105. If they do 
qualify, this is the acceptance criterion for them for CHSP. Persons 
with disabilities do not require an assessment by the PAC;
    (3) Perform a regular assessment and updating of the case plan of 
all participants;
    (4) Obtain and retain information in participant files, containing 
such information and maintained in such form, as HUD or RHS shall 
require;
    (5) Replace any members of the PAC within 30 days after a member 
resigns. A PAC shall not do formal assessments if its membership drops 
below three, or if the qualified medical professional leaves the PAC and 
has not been replaced.
    (6) Notify the grantee or eligible owner and the program 
participants of any proposed modifications to PAC procedures, and 
provide these parties with a process and reasonable time period in which 
to review and comment, before adoption of a modification;
    (7) Provide assurance of nondiscrimination in selection of CHSP 
participants, with respect to race, religion, color, sex, national 
origin, familial status or type of disability;
    (8) Provide complete confidentiality of information related to any 
individual examined, in accordance with the Privacy Act of 1974;
    (9) Provide all formal information and reports in writing.
    (c) Prohibitions relating to the PAC. (1) At least one PAC member 
shall not have any direct or indirect relationship to the grantee.
    (2) No PAC member may be affiliated with organizations providing 
services under the grant.
    (3) Individuals or staff of third party organizations that act as 
PAC members may not be paid with CHSP grant funds.
    (d) Eligibility and admissions. (1) Before selecting potential 
program participants, each grantee (with PAC assistance) shall develop a 
CHSP application form. The information in the individual's application 
is crucial to the PAC's ability to determine the need for further 
physical or psychological evaluation.
    (2) The PAC, upon completion of a potential program participant's 
initial assessment, must make a recommendation to the service 
coordinator for that individual's acceptance or denial into CHSP.
    (3) Once a program participant is accepted into CHSP, the PAC must 
provide a supportive services case plan for each participant. In 
developing this plan, the PAC must take into consideration the 
participant's needs and wants. The case plan must provide the minimum 
supportive services necessary to maintain independence.
    (e) Transition-out procedures. The grantee or PAC must develop 
procedures for providing for an individual's transition out of CHSP to 
another setting. Transition out is based upon the degree of supportive 
services needed by an individual to continue to live independently. If a 
program participant leaves the program, but wishes to retain supportive 
services, he or she may do so, as long as he or she continues to live in 
an eligible project, pays the full

[[Page 11]]

cost of services provided, and management agrees (section 802(e)(4) and 
(5)). A participant can be moved out of CHSP if he or she:
    (1) Gains physical and mental health and is able to function without 
supportive services, even if only for a short time (in which case 
readmission, based upon reassessment to determine the degree of frailty 
or the disability, is acceptable);
    (2) Requires a higher level of care than that which can be provided 
under CHSP; or
    (3) Fails to pay services fees.
    (f) Procedural rights of participants. (1) The PAC must provide an 
informal process that recognizes the right to due process of individuals 
receiving assistance. This process, at a minimum, must consist of:
    (i) Serving the participant with a written notice containing a clear 
statement of the reasons for termination;
    (ii) A review of the decision, in which the participant is given the 
opportunity to present written or oral objections before a person other 
than the person (or a subordinate of that person) who made or approved 
the termination decision; and
    (iii) Prompt written notification of the final decision to the 
participant.
    (2) Procedures must ensure that any potential or current program 
participant, at the time of initial or regular assessment, has the 
option of refusing offered services and requesting other supportive 
services as part of the case planning process.
    (3) In situations where an individual requests additional services, 
not initially recommended by the PAC, the PAC must make a determination 
of whether the request is legitimately a needs-based service that can be 
covered under CHSP subsidy. Individuals can pay for services other than 
those recommended by the PAC as long as the additional services do not 
interfere with the efficient operation of the program.



Sec. 700.140  Participatory agreement.

    (a) Before actual acceptance into CHSP, potential participants must 
work with the PAC and the service coordinator in developing supportive 
services case plans. A participant has the option of accepting any of 
the services under the case plan.
    (b) Once the plan is approved by the PAC and the program 
participant, the participant must sign a participatory agreement 
governing the utilization of the plan's supportive services and the 
payment of supportive services fees. The grantee annually must 
renegotiate the agreement with the participant.



Sec. 700.145  Cost distribution.

    (a) General. (1) Grantees, the Secretary concerned, and participants 
shall all contribute to the cost of providing supportive services 
according to section 802(i)(A)(i). Grantees must contribute at least 50 
percent of program cost, participants must contribute fees that in total 
are at least 10 percent of program cost, and the Secretary concerned 
will provide funds in an amount not to exceed 40 percent.
    (2) Section 802(i)(1)(B)(ii) creates a cost-sharing provision 
between grantee and the Secretary concerned if total participant fees 
collected over a year are less than 10 percent of total program cost. 
This provision is subject to availability of appropriated grant funds. 
If funds are not available, the grantee must assume the funding 
shortfall.
    (b) Prohibition on substitution of funds and maintenance of existing 
supportive services. Grantees shall maintain existing funding for and 
provision of supportive services prior to the application date, as set 
forth in section 802(i)(1)(D). The grantee shall ensure that the 
activities provided to the project under a CHSP grant will be in 
addition to, and not in substitution for, these previously existing 
services. The value of these services do not qualify as matching funds. 
Such services must be maintained either for the time the participant 
remains in CHSP, or for the duration of CHSP grant. The grantee shall 
certify compliance with this paragraph to the Secretary concerned.
    (c) Eligible matching funds. (1) All sources of matching funds must 
be directly related to the types of supportive services prescribed by 
the PAC or used for administration of CHSP.
    (2) Matching funds may include:

[[Page 12]]

    (i) Cash (which may include funds from Federal, State and local 
governments, third party contributions, available payments authorized 
under Medicaid for specific individuals in CHSP, Community Development 
Block Grants or Community Services Block Grants, Older American Act 
programs or excess residual funds with the approval of the Secretary 
concerned),
    (ii) The imputed dollar value of other agency or third party-
provided direct services or staff who will work with or provide services 
to program participants; these services must be justified in the 
application to assure that they are the new or expanded services of CHSP 
necessary to keep the program participants independent. If services are 
provided by the state, Indian tribe, unit of general local government, 
or local nonprofit housing sponsor, IHA, PHA, or for-profit or not-for-
profit owner, any salary paid to staff from governmental sources to 
carry out the program of the grantee and any funds paid to residents 
employed by the Program (other than from amounts under a contract under 
section 700.155) is allowable match.
    (iii) In-kind items (these are limited to 10 percent of the 50 
percent matching amount), such as the current market value of donated 
common or office space, utility costs, furniture, material, supplies, 
equipment and food used in direct provision of services. The applicant 
must provide an explanation for the estimated donated value of any item 
listed.
    (iv) The value of services performed by volunteers to CHSP, at the 
rate of $5.00 an hour.
    (d) Limitation. (1) The following are not eligible for use as 
matching funds:
    (i) PHA operating funds;
    (ii) CHSP funds;
    (iii) Section 8 funds other than excess residual receipts;
    (iv) Funds under section 14 of the U.S. Housing Act of 1937, unless 
used for service coordination or case management; and
    (v) Comprehensive grant funds unless used for service coordination 
or case management;
    (2) Local government contributions are limited by section 
802(i)(1)(E).
    (e) Annual review of match. The Secretary concerned will review the 
infusion of matching funds annually, as part of the program or budget 
review. If there are insufficient matching funds available to meet 
program requirements at any point after grant start-up, or at any time 
during the term of the grant (i.e., if matching funds from sources other 
than program participant fees drop below 50 percent of total supportive 
services cost), the Secretary concerned may decrease the federal grant 
share of supportive services funds accordingly.



Sec. 700.150  Program participant fees.

    (a) Eligible program participants. The grantee shall establish fees 
consistent with section 700.145(a). Each program participant shall pay 
CHSP fees as stated in paragraphs (d) and (e) of this section, up to a 
maximum of 20 percent of the program participant's adjusted income. 
Consistent with section 802(d)(7)(A), the Secretary concerned shall 
provide for the waiver of fees for individuals who are without 
sufficient income to provide for any payment.
    (b) Fees shall include: (1) Cash contributions of the program 
participant;
    (2) Food Stamps; and
    (3) Contributions or donations to other eligible programs acceptable 
as matching funds under section 700.145(c).
    (c) Older Americans Act programs. No fee may be charged for any 
meals or supportive services under CHSP if that service is funded under 
an Older Americans Act Program.
    (d) Meals fees: (1) For full meal services, the fees for residents 
receiving more than one meal per day, seven days per week, shall be 
reasonable and shall equal between 10 and 20 percent of the adjusted 
income of the project resident, or the cost of providing the services, 
whichever is less.
    (2) The fees for residents receiving meal services less frequently 
than as described in paragraph (d)(1) of this section shall be in an 
amount equal to 10 percent of the adjusted income of the project 
resident, or the cost of providing the services, whichever is less.
    (e) Other service fees. The grantee may also establish fees for 
other supportive services so that the total fees collected

[[Page 13]]

from all participants for meals and other services is at least 10 
percent of the total cost of CHSP. However, no program participants may 
be required to pay more than 20 percent of their adjusted incomes for 
any combination of services.
    (f) Other residents and nonresidents. Fees shall be established for 
residents of eligible housing projects (other than eligible project 
residents) and for nonresidents who receive meals and other services 
from CHSP under section 700.125(a). These fees shall be in an amount 
equal to the cost of providing the services.



Sec. 700.155  Grant agreement and administration.

    (a) General. HUD will enter into grant agreements with grantees, to 
provide congregate services for program participants in eligible housing 
projects, in order to meet the purposes of CHSP.
    (b) Term of grant agreement and reservation of amount. A grant will 
be for a term of five years and the Secretary concerned shall reserve a 
sum equal to the total approved grant amount for each grantee. Grants 
will be renewable at the expiration of a term, subject to the 
availability of funds and conformance with the regulations in this part, 
except as otherwise provided in section 700.160.
    (c) Monitoring of project sites by governmental units. States, 
Indian tribes, and units of general local government with a grant 
covering multiple projects shall monitor, review, and evaluate Program 
performance at each project site for compliance with CHSP regulations 
and procedures, in such manner as prescribed by HUD or RHS.
    (d) Reports. Each grantee shall submit program and fiscal reports 
and program budgets to the Secretary concerned in such form and at such 
times, as the Secretary concerned requires.
    (e) Enforcement. The Secretary concerned will enforce the 
obligations of the grantee under the agreement through such action as 
may be necessary, including terminating grants, recapturing grant funds, 
and imposing sanctions.
    (1) These actions may be taken for:
    (i) A grantee's non-compliance with the grant agreement or HUD or 
RHS regulations;
    (ii) Failure of the grantee to provide supportive services within 12 
months of execution of the grant agreement.
    (2) Sanctions include but are not limited to the following:
    (i) Temporary withholding of reimbursements or extensions or 
renewals under the grant agreement, pending correction of deficiencies 
by the grantee;
    (ii) Setting conditions in the contract;
    (iii) Termination of the grant;
    (iv) Substitution of grantee; and
    (v) Any other action deemed necessary by the Secretary concerned.
    (f) Renewal of grants. Subject to the availability of funding, 
satisfactory performance, and compliance with the regulations in this 
part:
    (1) Grantees funded initially under this part shall be eligible to 
receive continued, non-competitive renewals after the initial five-year 
term of the grant.
    (2) Grantees will receive priority funding and grants will be 
renewed within time periods prescribed by the Secretary concerned.
    (g) Use of Grant Funds. If during any year, grantees use less than 
the annual amount of CHSP funds provided to them for that year, the 
excess amount can be carried forward for use in later years.



Sec. 700.160  Eligibility and priority for 1978 Act recipients.

    Grantees funded initially under 42 U.S.C. 8001 shall be eligible to 
receive continued, non-competitive funding subject to its availability. 
These grantees will be eligible to receive priority funding under this 
part if they comply with the regulations in this part and with the 
requirements of any NOFA issued in a particular fiscal year.



Sec. 700.165  Evaluation of Congregate Housing Services Programs.

    (a) Grantees shall submit annually to the Secretary concerned, a 
report evaluating the impact and effectiveness of CHSPs at the grant 
sites, in such form as the Secretary concerned shall require.

[[Page 14]]

    (b) The Secretaries concerned shall further review and evaluate the 
performance of CHSPs at these sites and shall evaluate the Program as a 
whole.
    (c) Each grantee shall submit a certification with its application, 
agreeing to cooperate with and to provide requested data to the entity 
responsible for the Program's evaluation, if requested to do so by the 
Secretary concerned.



Sec. 700.170  Reserve for supplemental adjustment.

    The Secretary concerned may reserve funds subject to section 802(o). 
Requests to utilize supplemental funds by the grantee shall be 
transmitted to the Secretary concerned in such form as may be required.



Sec. 700.175  Other Federal requirements.

    In addition to the Federal Requirements set forth in 24 CFR part 5, 
the following requirements apply to grant recipient organizations in 
this program:
    (a) Office of Management and Budget (OMB) Circulars and 
Administrative Requirements. The policies, guidelines, and requirements 
of OMB Circular No. A-87 and 24 CFR part 85 apply to the acceptance and 
use of assistance under this program by public body grantees. The 
policies, guidelines, and requirements of OMB Circular No. A-122 apply 
to the acceptance and use of assistance under this program by non-profit 
grantees. Grantees are also subject to the audit requirements described 
in 24 CFR part 44 (OMB Circular A-128).
    (b) Conflict of interest. In addition to the conflict of interest 
requirements in OMB Circular A-87 and 24 CFR part 85, no person who is 
an employee, agent, consultant, officer, or elected or appointed 
official of the applicant, and who exercises or has exercised any 
function or responsibilities with respect to activities assisted with 
CHSP grant funds, or who is in a position to participate in a decision-
making process or gain inside information with regard to such 
activities, may obtain a personal or financial interest or benefit from 
the activity, or have an interest in any contract, subcontract, or 
agreement with respect thereto, or any proceeds thereunder, either for 
himself or herself or for those with whom he or she has family or 
business ties during his or her tenure, or for one year thereafter. CHSP 
employees may receive reasonable salary and benefits.
    (c) Disclosures required by Reform Act. Section 102(c) of the HUD 
Reform Act of 1989 (42 U.S.C. 3545(c)) requires disclosure concerning 
other government assistance to be made available with respect to the 
Program and parties with a pecuniary interest in CHSP and submission of 
a report on expected sources and uses of funds to be made available for 
CHSP. Each applicant shall include information required by 24 CFR part 
12 on form HUD-2880 ``Applicant/Recipient Disclosure/Update Report,'' as 
required by the Federal Register Notice published on January 16, 1992, 
at 57 FR 1942.
    (d) Nondiscrimination and equal opportunity. (1) The fair housing 
poster regulations (24 CFR part 110) and advertising guidelines (24 CFR 
part 109);
    (2) The Affirmative Fair Housing Marketing Program requirements of 
24 CFR part 200, subpart M, and the implementing regulations at 24 CFR 
part 108; and
    (3) Racial and ethnic collection requirements--Recipients must 
maintain current data on the race, ethnicity and gender of program 
applicants and beneficiaries in accordance with section 562 of the 
Housing and Community Development Act of 1987 and section 808(e)(6) of 
the Fair Housing Act.
    (e) Environmental requirements. Support services, including the 
operating and administrative expenses described in section 700.115(a), 
are categorically excluded from the requirements of the National 
Environmental Policy Act (NEPA) of 1969. These actions, however, are not 
excluded from individual compliance requirements of other environmental 
statutes, Executive Orders, and agency regulations where appropriate. 
When the responsible official determines that any action under this part 
may have an environmental effect because of extraordinary circumstances, 
the requirements of NEPA shall apply.

                        PARTS 701-760 [RESERVED]

[[Page 15]]



PART 761--DRUG ELIMINATION PROGRAMS--Table of Contents




                           Subpart A--General

Sec.
761.1  Purpose and scope.
761.5  Public housing; encouragement of resident participation.
761.10  Definitions.

                        Subpart B--Grant Funding

761.13  Amount of funding.
761.15  Qualifying for funding.
761.17  Eligible and ineligible activities for funding.

                  Subpart C--Application and Selection

761.20  Selection requirements.
761.21  Plan requirement.
761.23  Grantee performance requirements.
761.25  Resident comments on grant application.

                     Subpart D--Grant Administration

761.30  Grant administration.
761.35  Periodic grantee reports.
761.40  Other Federal requirements.

    Authority: 42 U.S.C. 3535(d) and 11901 et seq.

    Editorial Note: Nomenclature changes to part 761 appear at 64 FR 
49917, Sept. 14, 1999.

    Source: 61 FR 13987, Mar. 28, 1996, unless otherwise noted.



                           Subpart A--General



Sec. 761.1  Purpose and scope.

    This part 761 contains the regulatory requirements for the Assisted 
Housing Drug Elimination Program (AHDEP) and the Public Housing Drug 
Elimination Program (PHDEP). The purposes of these programs are to:
    (a) Eliminate drug-related and violent crime and problems associated 
with it in and around the premises of Federally assisted low-income 
housing, and public and Indian housing developments;
    (b) Encourage owners of Federally assisted low-income housing, 
public housing agencies and Indian housing authorities (collectively 
referred to as HAs), and resident management corporations to develop a 
plan that includes initiatives that can be sustained over a period of 
several years for addressing drug-related and violent crime and problems 
associated with it in and around the premises of housing proposed for 
funding under this part; and
    (c) Make available Federal grants to help owners of Federally 
assisted low-income housing, HAs, and RMCs carry out their plans.

[61 FR 13987, Mar. 28, 1996, as amended at 64 FR 49917, Sept. 14, 1999]



Sec. 761.5  Public housing; encouragement of resident participation.

    For the purposes of the Public Housing Drug Elimination Program, the 
elimination of drug-related and violent crime within public housing 
developments requires the active involvement and commitment of public 
housing residents and their organizations. To enhance the ability of 
PHAs to combat drug-related and violent crime within their developments, 
Resident Councils (RCs), Resident Management Corporations (RMCs), and 
Resident Organizations (ROs) will be permitted to undertake management 
functions specified in this part, notwithstanding the otherwise 
applicable requirements of part 964 of this title.

[64 FR 49917, Sept. 14, 1999]



Sec. 761.10  Definitions.

    The definitions Department, HUD, and Public Housing Agency (PHA) are 
defined in part 5 of this title.
    Controlled substance shall have the meaning provided in section 102 
of the Controlled Substance Act (21 U.S.C. 802).
    Drug intervention means a process to identify assisted housing or 
public housing resident drug users, to assist them in modifying their 
behavior, and/or to refer them to drug treatment to reduce or eliminate 
drug abuse.
    Drug prevention means a process to provide goods and services 
designed to alter factors, including activities, environmental 
influences, risks, and expectations, that lead to drug abuse.
    Drug-related and violent crime shall have the meaning provided in 42 
U.S.C. 11905(2).
    Drug treatment means a program for the residents of an applicant's 
development that strives to end drug abuse and to eliminate its negative 
effects

[[Page 16]]

through rehabilitation and relapse prevention.
    Federally assisted low-income housing, or assisted housing, shall 
have the meaning provided in 42 U.S.C. 11905(4). However, sections 
221(d)(3) and 221(d)(4) market rate projects with tenant-based 
assistance contracts and section 8 projects with tenant-based assistance 
are not considered federally assisted low-income housing and are not 
eligible for funding under this part 761.
    Governmental jurisdiction means the unit of general local 
government, State, or area of operation of an Indian tribe in which the 
housing development administered by the applicant is located.
    In and around means within, or adjacent to, the physical boundaries 
of a housing development.
    Indian tribe means any tribe, band, pueblo, group, community, or 
nation of Indians, or Alaska Natives.
    Local law enforcement agency means a police department, sheriff's 
office, or other entity of the governmental jurisdiction that has law 
enforcement responsibilities for the community at large, including the 
housing developments owned or administered by the applicant. In Indian 
jurisdictions, this includes tribal prosecutors that assume law 
enforcement functions analogous to a police department or the Bureau of 
Indian Affairs (BIA). More than one law enforcement agency may have 
these responsibilities for the jurisdiction that includes the 
applicant's developments.
    Problems associated with drug-related and violent crime means the 
negative physical, social, educational, and economic impact of drug-
related and violent crime on assisted housing residents or public and 
Indian housing residents, and the deterioration of the assisted housing 
or public and Indian housing environment because of drug-related and 
violent crime.
    Program income means gross income received by a grantee and directly 
generated from the use of program funds. When program income is 
generated by an activity only partially assisted with program funds, the 
income shall be prorated to reflect the percentage of program funds 
used.
    Recipient of assistance under the Native American Housing Assistance 
and Self-Determination Act of 1996 (NAHASDA recipient) shall have the 
same meaning as recipient provided in section 4 of the Native American 
Housing Assistance and Self-Determination Act of 1996 (25 U.S.C. 4101 et 
seq.).
    Resident council (RC), for purposes of the Public Housing Program, 
means an incorporated or unincorporated nonprofit organization or 
association that meets each of the following requirements:
    (1) It must be representative of the residents it purports to 
represent;
    (2) It may represent residents in more than one development or in 
all of the developments of a HA, but it must fairly represent residents 
from each development that it represents;
    (3) It must adopt written procedures providing for the election of 
specific officers on a regular basis (but at least once every three 
years); and
    (4) It must have a democratically elected governing board. The 
voting membership of the board must consist of residents of the 
development or developments that the resident organization or resident 
council represents.
    Resident Management Corporation (RMC), for purposes of the Public 
Housing Program, means the entity that proposes to enter into, or that 
enters into, a management contract with a PHA under part 964 of this 
title in accordance with the requirements of that part.
    State means any of the several States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or any agency or instrumentality of a 
State exclusive of local governments. The term does not include any 
public or Indian housing agency under the United States Housing Act of 
1937 (42 U.S.C. 1437 note).
    Unit of general local government means any city, county, town, 
municipality, township, parish, village, local public authority 
(including any public or Indian housing agency under the United States 
Housing Act of 1937) or other general purpose political subdivision of a 
State.

[61 FR 13987, Mar. 28, 1996, as amended at 64 FR 49918, Sept. 14, 1999]

[[Page 17]]



                        Subpart B--Grant Funding



Sec. 761.13  Amount of funding.

    (a) PHDEP formula funding. (1) Funding share formula. (i) Per unit 
amount. Subject to the availability of funding, the amount of funding 
made available each FFY to an applicant that qualifies for funding in 
accordance with Sec. 761.15(a) is based upon the applicant's share of 
the total number of units of all applicants that qualify for funding, 
with a maximum award of $35 million and a minimum award of $25,000, 
except that qualified applicants with less than 50 units will not 
receive more than $500 per unit.
    (ii) Calculation of number of units. For purposes of determining the 
number of units counted for purposes of the PHDEP formula, HUD shall 
count as one unit each existing rental and Section 23 bond-financed unit 
under the ACC. Units that are added to a PHA's inventory will be added 
to the overall unit count so long as the units are under ACC amendment 
and have reached DOFA by the date HUD establishes for the Federal Fiscal 
Year in which the PHDEP formula is being run (hereafter called the 
``reporting date''). Any such increase in units shall result in an 
adjustment upwards in the number of units under the PHDEP formula. New 
units reaching DOFA after this date will be counted for PHDEP formula 
purposes as of the following Federal Fiscal Year. Federalized units that 
are eligible for operating subsidy will be counted for PHDEP formula 
purposes based on the unit count reflected on the PHA's most recently 
approved Operating Budget (Form HUD-52564) and/or subsidy calculation 
(Form HUD-52723), or successor form submitted for that program. Units 
approved for demolition/disposition continue to be counted for PHDEP 
formula funding purposes until actual demolition/disposition of the 
unit.
    (2) Consortium funding. The amount of funding made available to a 
consortium will be the total of the amounts that each individual member 
would otherwise qualify to receive under the PHDEP funding formula in 
accordance with paragraph (a)(1) of this section.
    (3) Adjustments to funding. The amount of funding made available 
each FFY to an applicant in accordance with paragraphs (a)(1) and (a)(2) 
of this section may be adjusted as follows:
    (i) An applicant must submit a PHDEP plan that meets the 
requirements of Sec. 761.21, as required by Sec. 761.15(a)(5), each FFY 
year to receive that FFY's funding. An applicant that does not submit a 
PHDEP plan for a FFY as required will not receive that FFY's funding.
    (ii) Ineligible activities, described at Sec. 761.17(b), are not 
eligible for funding. Activities proposed for funding in an applicant's 
PHDEP plan that are determined to be ineligible will not be funded, and 
the applicant's funding for that FFY may be reduced accordingly.
    (iii) In accordance with Sec. 761.15(a)(6), an applicant that does 
not meet the performance requirements of Sec. 761.23 will be subject to 
the sanctions listed in Sec. 761.30(f)(2).
    (iv) Both the amount of and continuing eligibility for funding is 
subject to the sanctions in Sec. 761.30(f).
    (v) Any amounts that become available because of adjustments to an 
applicant's funding will be distributed to every other applicant that 
qualifies for funding in accordance with paragraphs (a)(1) and (a)(2) of 
this section.
    (b) AHDEP funding. Information concerning funding made available 
under AHDEP for a given FFY will be contained in Notices of Funding 
Availability (NOFAs) published in the Federal Register.

[64 FR 49918, Sept. 14, 1999]



Sec. 761.15  Qualifying for funding.

    (a) Qualifications for PHDEP funding. (1) Eligible applicants. The 
following are eligible applicants for PHDEP funding:
    (i) A PHA;
    (ii) An RMC; and
    (iii) A consortium of PHAs.
    (2) Preference PHAs. A PHA that successfully competed for PHDEP 
funding under at least one of the PHDEP NOFAs for FFY 1996, FFY 1997 or 
FFY 1998 qualifies to receive PHDEP funding.
    (3) Needs qualification for funding. An eligible applicant that does 
not qualify to receive PHDEP funding under paragraph (a)(2) of this 
section must be in one of the following needs categories to qualify for 
funding:

[[Page 18]]

    (i) The eligible applicant must be in the top 50% of the unit-
weighted distribution of an index of a rolling average rate of violent 
crimes of the community, as computed for each Federal Fiscal Year (FFY). 
The crime rate used in this needs determination formula is the rate, 
from the most recent years feasible, of FBI violent crimes per 10,000 
residents of the community (or communities). If this information is not 
available for a particular applicant's community, HUD will use the 
average of data from recipients of a comparable State and size category 
of PHA (less than 500 units, 500 to 1249 units, and more than 1250 
units). If fewer than five PHAs have data for a given size category 
within a State, then the average of PHAs for a given size category 
within the census region will be used; or
    (ii) The eligible applicant must have qualified for PHDEP funding, 
by receiving an application score of 70 or more points under any one of 
the PHDEP NOFAs for FFY 1996, FFY 1997 or FFY 1998, but not have 
received an award because of the unavailability of funds.
    (4) Consortium of eligible applicants. Eligible applicants may join 
together and form a consortium to apply for funding, whether or not each 
member would individually qualify for PHDEP funding under paragraphs 
(a)(2) or (a)(3) of this section. The act of two or more eligible 
applicants joining together to form a consortium, and identifying 
related crime problems and eligible activities to address those problems 
pursuant to a consortium PHDEP plan, qualifies the consortium for PHDEP 
funding of an amount as determined under Sec. 761.13(a)(2).
    (5) PHDEP plan requirement. (i) PHAs. Except as provided in 
paragraph (a)(5)(ii), below, of this section, to receive PHDEP funding, 
a PHA that qualifies to receive PHDEP funding for Federal Fiscal Year 
2000 and beyond must include a PHDEP plan that meets the requirements of 
Sec. 761.21 with its PHA Plan submitted pursuant to part 903 of this 
title for each Federal Fiscal Year for which it qualifies for funding.
    (ii) To receive PHDEP funding, a PHA that qualifies to receive PHDEP 
funding and is operating under an executed Moving To Work (MTW) 
agreement with HUD must submit a PHDEP plan that meets the requirements 
of Sec. 761.21 with its required MTW plan for each Federal Fiscal Year 
for which it qualifies for funding.
    (iii) RMCs. To receive PHDEP funding, an RMC operating in an PHA 
that qualifies to receive PHDEP funding must submit a PHDEP plan for the 
units managed by the RMC that meets the requirements of Sec. 761.21 to 
its PHA. Upon agreement between the RMC and PHA, the PHA must submit to 
HUD, with its PHA Plan submitted pursuant to part 903 of this title, the 
RMC's PHDEP plan. The RMC will implement its plan as a subrecipient of 
the PHA.
    (iv) Consortia. To receive PHDEP funding, the consortium members 
must prepare and submit a consortium PHDEP plan that meets the 
requirements of Sec. 761.21, including the additional requirements that 
apply to consortia. Each member must submit the consortium plan with its 
PHA plan, submitted pursuant to part 903 of this title, or IHP, 
submitted pursuant to subpart C of part 1000 of this title, as 
appropriate.
    (6) An otherwise qualified recipient PHA, RMC or consortium may not 
be funded if HUD determines, on a case-by-case basis, that it does not 
meet the performance requirements of Sec. 761.23.
    (b) Qualifications for AHDEP funding. Under AHDEP, eligible 
applicants are owners of federally assisted low-income housing, as the 
term Federally assisted low-income housing is defined in Sec. 761.10. 
Notices of Funding Availability (NOFAs) published in the Federal 
Register will contain specific information concerning funding 
requirements and eligible and ineligible applicants and activities.

[64 FR 49918, Sept. 14, 1999]



Sec. 761.17  Eligible and ineligible activities for funding.

    (a) Eligible activities. One or more of the eligible activities 
described in 42 U.S.C. 11903 and in this Sec. 761.17(a) are eligible for 
funding under PHDEP or AHDEP, as further explained or limited in 
paragraph (b) of this section and, for AHDEP, in separate annual Notices 
of

[[Page 19]]

Funding Availability (NOFAs). All personnel funded by these programs in 
accordance with an eligible activity must meet, and demonstrate 
compliance with, all relevant Federal, State, tribal, or local 
government insurance, licensing, certification, training, bonding, or 
other similar law enforcement requirements.
    (1) Employment of security personnel, as provided in 42 U.S.C. 
11903(a)(1), with the following additional requirements:
    (i) Security guard personnel. (A) Contract security personnel funded 
by this program must perform services not usually performed by local law 
enforcement agencies on a routine basis. The applicant must identify the 
baseline services provided by the local law enforcement agency.
    (B) The applicant, the provider (contractor) of the security 
personnel and, only if the local law enforcement agency is receiving any 
PHDEP funds from the applicant, the local law enforcement agency, are 
required, as a part of the security personnel contract, to enter into 
and execute a written agreement that describes the following:
    (1) The activities to be performed by the security personnel, their 
scope of authority, and how they will coordinate their activities with 
the local law enforcement agency;
    (2) The types of activities that the security personnel are 
expressly prohibited from undertaking.
    (ii) Employment of HA police. (A) If additional HA police are to be 
employed for a service that is also provided by a local law enforcement 
agency, the applicant must undertake and retain a cost analysis that 
demonstrates the employment of HA police is more cost efficient than 
obtaining the service from the local law enforcement agency.
    (B) Additional HA police services to be funded under this program 
must be over and above those that the existing HA police, if any, 
provides, and the tribal, State or local government is contractually 
obligated to provide under its Cooperation Agreement with the applying 
HA (as required by the HA's Annual Contributions Contract). An applicant 
seeking funding for this activity must first establish a baseline by 
describing the current level of services provided by both the local law 
enforcement agency and the HA police, if any (in terms of the kinds of 
services provided, the number of officers and equipment and the actual 
percent of their time assigned to the developments proposed for 
funding), and then demonstrate that the funded activity will represent 
an increase over this baseline.
    (C) If the local law enforcement agency is receiving any PHDEP funds 
from the applicant, the applicant and the local law enforcement agency 
are required to enter into and execute a written agreement that 
describes the following:
    (1) The activities to be performed by the HA police, their scope of 
authority, and how they will coordinate their activities with the local 
law enforcement agency;
    (2) The types of activities that the HA police are expressly 
prohibited from undertaking.
    (2) Reimbursement of local law enforcement agencies for additional 
security and protective services, as provided in 42 U.S.C. 11903(a)(2), 
with the following additional requirements:
    (i) Additional security and protective services to be funded must be 
over and above those that the tribal, State, or local government is 
contractually obligated to provide under its Cooperation Agreement with 
the applying HA (as required by the HA's Annual Contributions Contract). 
An application seeking funding for this activity must first establish a 
baseline by describing the current level of services (in terms of the 
kinds of services provided, the number of officers and equipment, and 
the actual percent of their time assigned to the developments proposed 
for funding) and then demonstrate that the funded activity will 
represent an increase over this baseline.
    (ii) Communications and security equipment to improve the 
collection, analysis, and use of information about drug-related or 
violent criminal activities in a public housing community may be 
eligible items if used exclusively in connection with the establishment 
of a law enforcement substation on the funded premises or scattered site 
developments of the applicant. Funds for activities under this section 
may not be drawn until the grantee has

[[Page 20]]

executed a contract for the additional law enforcement services.
    (3) Physical improvements to enhance security, as provided in 42 
U.S.C. 11903(a)(3). For purposes of PHDEP, the following provisions in 
paragraphs (a)(3)(i) through (a)(3)(iv) of this section apply:
    (i) An activity that is funded under any other HUD program shall not 
also be funded by this program.
    (ii) Funding is not permitted for physical improvements that involve 
the demolition of any units in a development.
    (iii) Funding is not permitted for any physical improvements that 
would result in the displacement of persons.
    (iv) Funding is not permitted for the acquisition of real property.
    (4) Employment of investigating individuals, as provided in 42 
U.S.C. 11903(a)(4). For purposes of PHDEP, the following provisions in 
paragraphs (a)(4)(i) and (a)(4)(ii) of this section apply:
    (i) If one or more investigators are to be employed for a service 
that is also provided by a local law enforcement agency, the applicant 
must undertake and retain a cost analysis that demonstrates the 
employment of investigators is more cost efficient than obtaining the 
service from the local law enforcement agency.
    (ii) The applicant, the investigator(s) and, only if the local law 
enforcement agency is receiving any PHDEP funds from the applicant, the 
local law enforcement agency, are required, before any investigators are 
employed, to enter into and execute a written agreement that describes 
the following:
    (A) The nature of the activities to be performed by the 
investigators, their scope of authority, and how they will coordinate 
their activities with the local law enforcement agency;
    (B) The types of activities that the investigators are expressly 
prohibited from undertaking.
    (5) Voluntary tenant patrols, as provided in 42 U.S.C. 11903(a)(5). 
For purposes of PHDEP, the following provisions in paragraphs (a)(5)(i) 
through (a)(5)(iv) of this section apply:
    (i) The provision of training, communications equipment, and other 
related equipment (including uniforms), for use by voluntary tenant 
patrols acting in cooperation with officials of local law enforcement 
agencies is permitted. Grantees are required to obtain liability 
insurance to protect themselves and the members of the voluntary tenant 
patrol against potential liability for the activities of the patrol. The 
cost of this insurance will be considered an eligible program expense.
    (ii) The applicant, the members of the tenant patrol and, only if 
the local law enforcement agency is receiving any PHDEP funds from the 
applicant, the local law enforcement agency, are required, before 
putting the tenant patrol into effect, to enter into and execute a 
written agreement that describes the following:
    (A) The nature of the activities to be performed by the tenant 
patrol, the patrol's scope of authority, and how the patrol will 
coordinate its activities with the local law enforcement agency;
    (B) The types of activities that a tenant patrol is expressly 
prohibited from undertaking, to include but not limited to, the carrying 
or use of firearms or other weapons, nightsticks, clubs, handcuffs, or 
mace in the course of their duties under this program;
    (C) The type of initial tenant patrol training and continuing 
training the members receive from the local law enforcement agency 
(training by the local law enforcement agency is required before putting 
the tenant patrol into effect).
    (iii) Tenant patrol members must be advised that they may be subject 
to individual or collective liability for any actions undertaken outside 
the scope of their authority and that such acts are not covered under a 
HA's or RMC's liability insurance.
    (iv) Grant funds may not be used for any type of financial 
compensation for voluntary tenant patrol participants. However, the use 
of program funds for a grant coordinator for volunteer tenant foot 
patrols is permitted.
    (6) Drug prevention, intervention, and treatment programs, as 
provided in 42 U.S.C. 11903(a)(6).
    (7) Funding resident management corporations (RMCs), resident 
councils (RCs), and resident organizations (ROs). For purposes of the 
Public Housing Program, funding may be provided for PHAs that receive 
grants to contract

[[Page 21]]

with RMCs and incorporated RCs and ROs to develop security and drug 
abuse prevention programs involving site residents, as provided in 42 
U.S.C. 11903(a)(7).
    (8) Youth sports. Sports programs and sports activities that serve 
primarily youths from public or other federally assisted low-income 
housing projects and are operated in conjunction with, or in furtherance 
of, an organized program or plan designed to reduce or eliminate drugs 
and drug-related problems in and around such projects, as provided in 42 
U.S.C. 11903(a)(8).
    (9) Eliminating drug-related and violent crime in PHA-owned housing, 
under the Public Housing Program, as provided in 42 U.S.C. 11903(b).
    (b) Ineligible activities. For purposes of PHDEP, funding is not 
permitted:
    (1) For activities not included under paragraph (a) of this section;
    (2) For costs incurred before the effective date of the grant 
agreement;
    (3) For the costs related to screening or evicting residents for 
drug-related crime. However, investigators funded under this program may 
participate in judicial and administrative proceedings;
    (4) For previously funded activities determined by HUD on a case-by-
case basis to be unworthy of continuation.

[64 FR 49919, Sept. 14, 1999]



                  Subpart C--Application and Selection



Sec. 761.20  Selection requirements.

    (a) PHDEP selection. Every PHA, RMC and consortium that meets the 
requirements of Sec. 761.15 in a FFY will be selected for funding in 
that FFY and, subject to meeting the performance requirements of 
Sec. 761.23, for four additional FFYs.
    (b) AHDEP selection. HUD will publish specific Notices of Funding 
Availability (NOFAs) in the Federal Register to inform the public of the 
availability of AHDEP grant amounts under this part 761. The NOFAs will 
provide specific guidance with respect to the grant process, including 
identifying the eligible applicants; deadlines for the submission of 
grant applications; the limits (if any) on maximum grant amounts; the 
information that must be submitted to permit HUD to score each of the 
selection criteria; the maximum number of points to be awarded for each 
selection criterion; the contents of the plan for addressing drug-
related and violent crime that must be included with the application; 
the listing of any certifications and assurances that must be submitted 
with the application; and the process for ranking and selecting 
applicants. NOFAs will also include any additional information, factors, 
and requirements that HUD has determined to be necessary and appropriate 
to provide for the implementation and administration of AHDEP under this 
part 761.

[64 FR 49920, Sept. 14, 1999]



Sec. 761.21  Plan requirement.

    (a) General requirement. To receive funding under this part, each 
PHDEP qualified recipient or AHDEP applicant must submit to HUD, for 
Federal Fiscal Year (FFY) 2000 and each following FFY, a plan for 
addressing the problem of drug-related and violent crime in and around 
the housing covered by the plan. If the plan covers more than one 
development, it does not have to address each development separately if 
the same activities will apply to each development. The plan must 
address each development separately only where program activities will 
differ from one development to another. The plan must include a 
description of the planned activity or activities, a description of the 
role of plan partners and their contributions to carrying out the plan, 
a budget and timetable for implementation of the activities, and the 
funding source for each activity, identifying in particular all 
activities to be funded under this part. In addition, the plan must set 
measurable performance goals and interim milestones for the PHDEP-
supported activities and describe the system for monitoring and 
evaluating these activities. Measurable goals must be established for 
each category of funded activities, including drug prevention, drug 
intervention, drug treatment, tenant patrols, and physical improvements. 
The plan under this section serves as the application for PHDEP funding, 
and an otherwise qualified recipient that does not

[[Page 22]]

submit a PHDEP plan as required will not be funded. For AHDEP funding, 
NOFAs published in the Federal Register may provide additional 
information on plan requirements for purposes of this section. Plans 
must meet the requirements of this section before grant funds are 
distributed. HUD will review the submitted plans for a determination of 
whether they meet the requirements of this section.
    (b) Additional requirements for consortia. In addition to meeting 
the requirements of paragraph (a) of this section, to receive funding 
under this part, a consortium's plan must include a copy of the 
consortium agreement between the PHAs which are participating in the 
consortium, and a copy of the payment agreement between the consortium 
and HUD.

[64 FR 49920, Sept. 14, 1999]



Sec. 761.23  Grantee performance requirements.

    (a) Basic grantee requirements. (1) Compliance with civil rights 
requirements. Grantees must be in compliance with all fair housing and 
civil rights laws, statutes, regulations, and executive orders as 
enumerated in 24 CFR 5.105(a). Federally recognized Indian tribes must 
comply with the Age Discrimination Act of 1975 and the Indian Civil 
Rights Act.
    (2) Adherence to the grant agreement. The grant agreement between 
HUD and the grantee incorporates the grantee's application and plan for 
the implementation of grant-funded activities.
    (3) Compliance with ``baseline'' funding requirement. Grantees may 
not use grant funds to reimburse law enforcement agencies for 
``baseline'' community safety services. Grantees must adhere to 
Sec. 761.17(a)(2)(i), reimbursement of local law enforcement agencies 
for additional security and protective services. In addition, grantees 
must provide to HUD a description of the baseline of services for the 
unit of general local government in which the jurisdiction of the agency 
is located.
    (4) Partnerships. Grantees must provide HUD with evidence of 
partnerships--in particular, firm commitments by organizations providing 
funding, services, or other in-kind resources for PHDEP-funded 
activities (e.g., memorandum of agreement, letter of firm commitment). 
The partnership agreement must cover the applicable funding period.
    (5) MTCS reporting. Grantees must maintain a level of compliance 
with MTCS reporting requirements that is satisfactory to HUD.
    (b) Planning and reporting requirements. (1) Planning consistency. 
PHDEP funded activities must be consistent with the most recent HUD-
approved PHA Plan or Indian Housing Plan, as appropriate. AHDEP funded 
activities must be consistent with the most recent Consolidated Plan 
under part 91 of this title for the community.
    (2) Demonstration of coordination with other law enforcement 
efforts. Each grantee must consult with local law enforcement 
authorities and other local entities in the preparation of its plan for 
addressing the problem of drug-related and violent crime under 
Sec. 761.21 and must maintain documentation of such consultation. 
Furthermore, a grantee must coordinate its grant-funded activities with 
other anti-crime and anti-drug programs, such as Operation Safe Home, 
Operation Weed and Seed, and the Safe Neighborhoods Action Program 
operating in the community, if applicable and maintain documentation of 
such coordination.
    (3) Compliance with reporting requirements. Grantees must provide 
periodic reports consistent with this part at such times and in such 
form as is required by HUD.
    (4) Reporting on drug-related and violent crime. Grantees must 
report any change or lack of change in crime statistics--especially 
drug-related crime and violent crime--or other relevant indicators drawn 
from the applicant's or grantee's evaluation and monitoring plan, IHP or 
PHA Plan. The grantee must also indicate, if applicable, how it is 
adequately addressing any recommendations emanating from other anti-
crime and anti-drug programs, such as Operation Safe Home, Operation 
Weed and Seed, and the Safe Neighborhoods Action Program, operating in 
the community and is taking appropriate actions, in view of available 
resources, such as post-enforcement measures, to take full advantage of 
these programs.

[[Page 23]]

    (c) Funding and evaluation requirements. (1) Timely obligation and 
expenditure of grant funds. The HA must obligate and expend funds in 
compliance with all funding notifications, regulations, notices, and 
grant agreements. In addition, the HA must obligate at least 50 percent 
of funds under a particular grant within 12 months of the execution of 
the grant agreement, and must expend at least 25 percent of funds under 
a particular grant within 12 months of the execution of the grant 
agreement.
    (2) Operational monitoring and evaluation system. The grantee must 
demonstrate that it has a fully operational system for monitoring and 
evaluating its grant-funded activities. A monitoring and evaluation 
system must collect quantitative evidence of the number of persons and 
units served, including youth served as a separate category, types of 
services provided, and the impact of such services on the persons 
served. Also, the monitoring and evaluation system must collect 
quantitative and qualitative evidence of the impact of grant-funded 
activities on the public housing or other housing, the community and the 
surrounding neighborhood.
    (3) Reduction of violent crime and drug use. The grantee must 
demonstrate that it has established, and is attaining, measurable goals 
including the overall reduction of violent crime and drug use.
    (d) Other requirements. HUD reserves the right to add additional 
performance factors consistent with this rule and other related statutes 
and regulations on a case-by-case basis.
    (e) Sanctions. A grantee that fails to satisfy the performance 
requirements of this section will be subject to the sanctions listed in 
Sec. 761.30(f)(2).

[64 FR 49921, Sept. 14, 1999]



Sec. 761.25  Resident comments on grant application.

    The applicant must provide the residents of developments proposed 
for funding under this part 761, as well as any RMCs, RCs, or ROs that 
represent those residents (including any HA-wide RMC, RC, or RO), if 
applicable, with a reasonable opportunity to comment on its application 
for funding under these programs. The applicant must give these comments 
careful consideration in developing its plan and application, as well as 
in the implementation of funded programs. Grantees must maintain copies 
of all written comments submitted for three years.



                     Subpart D--Grant Administration



Sec. 761.30  Grant administration.

    (a) General. Each grantee is responsible for ensuring that grant 
funds are administered in accordance with the requirements of this part 
761, any specific Notices of Funding Availability (NOFAs) issued for 
these programs, 24 CFR part 85 (as applicable), applicable laws and 
regulations, applicable OMB circulars, HUD fiscal and audit controls, 
grant agreements, grant special conditions, the grantee's approved 
budget (SF-424A), budget narrative, plan, and activity timetable.
    (b) Grant term extensions. (1) Grant term. Terms of the grant 
agreement may not exceed 12 months for the Assisted Housing Program, and 
24 months for the Public Housing Program, unless an extension is 
approved by the local HUD Office or local HUD Office of Native American 
Programs. Any funds not expended at the end of the grant term shall be 
remitted to HUD.
    (2) Extension. HUD may grant an extension of the grant term in 
response to a written request for an extension stating the need for the 
extension and indicating the additional time required. HUD will not 
consider requests for retroactive extension of program periods. HUD will 
permit only one extension. HUD will only consider extensions if the 
grantee meets the extension criteria of paragraph (b)(5) of this section 
at the time the grantee submits for approval the request for the 
extension.
    (3) Receipt. The request must be received by the local HUD Office or 
local HUD Office of Native American Programs prior to the termination of 
the grant, and requires approval by the local HUD Office or local HUD 
Office of Native American Programs with jurisdiction over the grantee.
    (4) Term. The maximum extension allowable for any program period is 
6 months.

[[Page 24]]

    (5) Extension criteria. The following criteria must be met by the 
grantee when submitting a request to extend the expenditure deadline for 
a program or set of programs.
    (i) Financial status reports. There must be on file with the local 
HUD Office or local HUD Office of Native American Programs current and 
acceptable Financial Status Reports, SF-269As.
    (ii) Grant agreement special conditions. The grantee must have 
satisfied all grant agreement special conditions except those conditions 
that the grantee must fulfill in the remaining period of the grant. This 
also includes the performance and resolution of audit findings in a 
timely manner.
    (iii) Justification. The grantee must submit a narrative 
justification with the program extension request. The justification must 
provide complete details, including the circumstances that require the 
proposed extension, and an explanation of the impact of denying the 
request.
    (6) HUD action. The local HUD Office or local HUD Office of Native 
American Programs will attempt to take action on any proposed extension 
request within 15 days after receipt of the request.
    (c) Duplication of funds. To prevent duplicate funding of any 
activity, the grantee must establish controls to assure that an activity 
or program that is funded by other HUD programs, or programs of other 
Federal agencies, shall not also be funded by the Drug Elimination 
Program. The grantee must establish an auditable system to provide 
adequate accountability for funds that it has been awarded. The grantee 
is responsible for ensuring that there is no duplication of funds.
    (d) Insurance. Each grantee shall obtain adequate insurance coverage 
to protect itself against any potential liability arising out of the 
eligible activities under this part. In particular, applicants shall 
assess their potential liability arising out of the employment or 
contracting of security personnel, law enforcement personnel, 
investigators, and drug treatment providers, and the establishment of 
voluntary tenant patrols; evaluate the qualifications and training of 
the individuals or firms undertaking these functions; and consider any 
limitations on liability under tribal, State, or local law. Grantees 
shall obtain liability insurance to protect the members of the voluntary 
tenant patrol against potential liability as a result of the patrol's 
activities under Sec. 761.15(b)(5). Voluntary tenant patrol liability 
insurance costs are eligible program expenses. Subgrantees shall obtain 
their own liability insurance.
    (e) Failure to implement program. If the grant plan, approved 
budget, and timetable, as described in the approved application, are not 
operational within 60 days of the grant agreement date, the grantee must 
report by letter to the local HUD Office or the local HUD Office of 
Native American Programs the steps being taken to initiate the plan and 
timetable, the reason for the delay, and the expected starting date. Any 
timetable revisions that resulted from the delay must be included. The 
local HUD Office or local HUD Office of Native American Programs will 
determine if the delay is acceptable, approve/disapprove the revised 
plan and timetable, and take any additional appropriate action.
    (f) Sanctions. (1) HUD may impose sanctions if the grantee:
    (i) Is not complying with the requirements of this part 761, or of 
other applicable Federal law;
    (ii) Fails to make satisfactory progress toward its drug elimination 
goals, as specified in its plan and as reflected in its performance and 
financial status reports;
    (iii) Does not establish procedures that will minimize the time 
elapsing between drawdowns and disbursements;
    (iv) Does not adhere to grant agreement requirements or special 
conditions;
    (v) Proposes substantial plan changes to the extent that, if 
originally submitted, the applications would not have been selected for 
funding;
    (vi) Engages in the improper award or administration of grant 
subcontracts;
    (vii) Does not submit reports; or
    (viii) Files a false certification.
    (2) HUD may impose the following sanctions:

[[Page 25]]

    (i) Temporarily withhold cash payments pending correction of the 
deficiency by the grantee or subgrantee;
    (ii) Disallow all or part of the cost of the activity or action not 
in compliance;
    (iii) Wholly or partly suspend or terminate the current award for 
the grantee's or subgrantee's program;
    (iv) Require that some or all of the grant amounts be remitted to 
HUD;
    (v) Condition a future grant and elect not to provide future grant 
funds to the grantee until appropriate actions are taken to ensure 
compliance;
    (vi) Withhold further awards for the program; or
    (vii) Take other remedies that may be legally available.



Sec. 761.35  Periodic grantee reports.

    Grantees are responsible for managing the day-to-day operations of 
grant and subgrant supported activities. Grantees must monitor grant and 
subgrant supported activities to assure compliance with applicable 
Federal requirements and that performance goals are being achieved. 
Grantee monitoring must cover each program, function or activity of the 
grant.
    (a) Semi-annual (nonconstruction) performance reports. For purposes 
of the Public Housing Program only, the following provisions in 
paragraph (a) of this section apply:
    (1) In accordance with 24 CFR 85.40(b)(1)(2) and 85.50(b), grantees 
are required to provide the local HUD Office or the local HUD Office of 
Native American Programs with a semi-annual performance report that 
evaluates the grantee's performance against its plan. These reports 
shall include (but are not limited to) the following in summary form:
    (i) Any change or lack of change in crime statistics or other 
indicators drawn from the applicant's plan assessment and an explanation 
of any difference;
    (ii) Successful completion of any of the strategy components 
identified in the applicant's plan;
    (iii) A discussion of any problems encountered in implementing the 
plan and how they were addressed;
    (iv) An evaluation of whether the rate of progress meets 
expectations;
    (v) A discussion of the grantee's efforts in encouraging resident 
participation; and
    (vi) A description of any other programs that may have been 
initiated, expanded, or deleted as a result of the plan, with an 
identification of the resources and the number of people involved in the 
programs and their relation to the plan.
    (2) Reporting period. Semi-annual performance reports (for periods 
ending June 30 and December 31) are due to the local HUD Office or the 
local HUD Office of Native American Programs on July 30 and January 31 
of each year. If the reports are not received by the local HUD Office or 
the local HUD Office of Native American Programs on or before the due 
date, grant funds will not be advanced until the reports are received.
    (b) Final performance report. For purposes of both the Assisted 
Housing Program and the Public Housing Program, the following provisions 
in paragraph (b) of this section apply:
    (1) Evaluation. Grantees are required to provide the local HUD 
Office or the local HUD Office of Native American Programs, as 
applicable, with a final cumulative performance report that evaluates 
the grantee's overall performance against its plan. This report shall 
include (but is not limited to) the information listed in paragraphs 
(a)(1)(i) through (a)(1)(vi) of this section, in summary form.
    (2) Reporting period. The final performance report shall cover the 
period from the date of the grant agreement to the termination date of 
the grant agreement. The report is due to the local HUD Office or the 
local HUD Office of Native American Programs, as applicable, within 90 
days after termination of the grant agreement.
    (c) Semi-annual financial status reporting requirements. For 
purposes of both the Assisted Housing Program and the Public Housing 
Program, the following provisions in paragraph (c) of this section 
apply, as specified below:
    (1) Forms. The grantee shall provide a semi-annual financial status 
report. For purposes of the Public Housing Program, this report shall be 
in accordance with 24 CFR 85.41 (b) and (c). For both the Assisted 
Housing and Public

[[Page 26]]

Housing Programs, the grantee shall use the form SF-269A, Financial 
Status Report-Long Form, to report the status of funds for 
nonconstruction programs. The grantee shall use SF-269A, block 12, 
``Remarks,'' to report on the status of programs, functions, or 
activities within the program.
    (2) Reporting period. Semi-annual financial status reports (SF-269A) 
must be submitted as follows:
    (i) For purposes of the Assisted Housing Program, semi-annual 
financial status reports covering the first 180 days of funded 
activities must be submitted to the local HUD Office between 190 and 210 
days after the date of the grant agreement. If the SF-269A is not 
received on or before the due date (210 days after the date of the grant 
agreement) by the local HUD Office, grant funds will not be advanced 
until the reports are received.
    (ii) For purposes of the Public Housing Program, semi-annual 
financial status reports (for periods ending June 30 and December 31) 
must be submitted to the local HUD Office or the local Office of Indian 
Programs, as applicable, by July 30 and January 31 of each year. If the 
local HUD Office or the local HUD Office of Native American Programs, as 
applicable, does not receive the SF-269A on or before the due date, the 
grant funds will not be advanced until the reports are received.
    (d) Final financial status report (SF-269A). For purposes of both 
the Assisted Housing Program and the Public Housing Program, the 
following provisions in paragraph (d) of this section apply:
    (1) Cumulative summary. The final report will be a cumulative 
summary of expenditures to date and must indicate the exact balance of 
unexpended funds. The grantee shall remit all Drug Elimination Program 
funds owed to HUD, including any unexpended funds, as follows:
    (i) For purposes of the Assisted Housing Program, the grantee must 
remit such funds to HUD within 90 days after the termination of the 
grant agreement.
    (ii) For purposes of the Public Housing Program, the local HUD 
Office or the local HUD Office of Native American Programs shall notify 
the grantee, in writing, of the requirement to remit such funds to HUD. 
The grantee shall remit such funds prior to or upon receipt of the 
notice.
    (2) Reporting period. The final financial status report shall cover 
the period from the date of the grant agreement to the termination date 
of the grant agreement. The report is due to the local HUD Office or the 
local HUD Office of Native American Programs, as applicable, within 90 
days after the termination of the grant agreement.



Sec. 761.40  Other Federal requirements.

    In addition to the nondiscrimination and equal opportunity 
requirements set forth in 24 CFR part 5, subpart A, use of grant funds 
requires compliance with the following Federal requirements:
    (a) Labor standards. (1) When grant funds are used to undertake 
physical improvements to increase security under Sec. 761.15(b)(3), the 
following labor standards apply:
    (i) The grantee and its contractors and subcontractors must pay the 
following prevailing wage rates, and must comply with all related rules, 
regulations and requirements:
    (A) For laborers and mechanics employed in the program, the wage 
rate determined by the Secretary of Labor pursuant to the Davis-Bacon 
Act (40 U.S.C. 276a et seq.) to be prevailing in the locality with 
respect to such trades;
    (B) For laborers and mechanics employed in carrying out nonroutine 
maintenance in the program, the HUD-determined prevailing wage rate. As 
used in paragraph (a) of this section, nonroutine maintenance means work 
items that ordinarily would be performed on a regular basis in the 
course of upkeep of a property, but have become substantial in scope 
because they have been put off, and that involve expenditures that would 
otherwise materially distort the level trend of maintenance expenses. 
Nonroutine maintenance may include replacement of equipment and 
materials rendered unsatisfactory because of normal wear and tear by 
items of substantially the same kind. Work that constitutes 
reconstruction, a substantial improvement in the quality or kind of 
original

[[Page 27]]

equipment and materials, or remodeling that alters the nature or type of 
housing units is not nonroutine maintenance.
    (ii) The employment of laborers and mechanics is subject to the 
provisions of the Contract Work Hours and Safety Standards Act (40 
U.S.C. 327-333).
    (2) The provisions of paragraph (a)(1) of this section shall not 
apply to labor contributed under the following circumstances:
    (i) Upon the request of any resident management corporation, HUD 
may, subject to applicable collective bargaining agreements, permit 
residents (for purposes of the Public Housing Program, residents of a 
program managed by the resident management corporation) to volunteer a 
portion of their labor.
    (ii) An individual may volunteer to perform services if:
    (A) The individual does not receive compensation for the voluntary 
services, or is paid expenses, reasonable benefits, or a nominal fee for 
voluntary services; and
    (B) Is not otherwise employed at any time in the work subject to 
paragraphs (a)(1)(i)(A) or (a)(1)(i)(B) of this section.
    (b) Flood insurance. Grants will not be awarded for proposed 
activities that involve acquisition, construction, reconstruction, 
repair or improvement of a building or mobile home located in an area 
that has been identified by the Federal Emergency Management Agency 
(FEMA) as having special flood hazards unless:
    (1) The community in which the area is situated is participating in 
the National Flood Insurance Program in accordance with 44 CFR parts 59 
through 79; or
    (2) Less than a year has passed since FEMA notification to the 
community regarding such hazards; and
    (3) Flood insurance on the structure is obtained in accordance with 
section 102(a) of the Flood Disaster Protection Act of 1973 (42 U.S.C. 
4001).
    (c) Lead-based paint. The Lead-Based Paint Poisoning Prevention Act 
(42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C. 4851-4856), and implementing regulations at part 
35, subparts A, B, H, and R of this title.
    (d) Conflicts of interest. In addition to the conflict of interest 
requirements in 24 CFR part 85 for the Public Housing Program, no 
person, as described in paragraphs (d)(1) and (d)(2) of this section, 
may obtain a personal or financial interest or benefit from an activity 
funded under these drug elimination programs, or have an interest in any 
contract, subcontract, or agreement with respect thereto, or the 
proceeds thereunder, either for him or herself or for those with whom he 
or she has family or business ties, during his or her tenure, or for one 
year thereafter:
    (1) Who is an employee, agent, consultant, officer, or elected or 
appointed official of the grantee, that receives assistance under the 
program and who exercises or has exercised any functions or 
responsibilities with respect to assisted activities; or
    (2) Who is in a position to participate in a decisionmaking process 
or gain inside information with regard to such activities.
    (e) For IHAs, Sec. 950.115 of this title, ``Applicability of civil 
rights requirements,'' and Sec. 950.120 of this title, ``Compliance with 
other Federal requirements,'' apply and control to the extent they may 
differ from other requirements of this section;
    (f) Intergovernmental Review. The requirements of Executive Order 
12372 (3 CFR, 1982 Comp., p. 197) and the regulations issued under the 
Order in part 52 of this title, to the extent provided by Federal 
Register notice in accordance with 24 CFR 52.3, apply to these programs.
    (g) Environmental review. Certain eligible activities under this 
part 761 are categorically excluded from review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321) and are not subject to 
review under related laws, in accordance with 24 CFR 50.19(b)(4), 
(b)(12), or (b)(13). If the PHDEP plan proposes the use of grant funds 
to assist any non-exempt activities, HUD will perform an environmental 
review to the extent required by 24 CFR part 50, prior to grant award.

[61 FR 13987, Mar. 28, 1996, as amended at 64 FR 49921, Sept. 14, 1999; 
64 FR 50227, Sept. 15, 1999]

[[Page 28]]

                        PARTS 762-790 [RESERVED]



PART 791--ALLOCATIONS OF HOUSING ASSISTANCE FUNDS--Table of Contents




                      Subpart A--General Provisions

Sec.
791.101  Applicability and scope.
791.102  Definitions.

Subparts B-C [Reserved]

    Subpart D--Allocation of Budget Authority for Housing Assistance

791.401  General.
791.402  Determination of low-income housing needs.
791.403  Allocation of housing assistance.
791.404  Field Office allocation planning.
791.405  Reallocations of budget authority.
791.406  Competition.
791.407  Headquarters Reserve.

    Authority: 42 U.S.C. 1439 and 3535(d).

    Source: 61 FR 10849, Mar. 15, 1996, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 791.101  Applicability and scope.

    This part describes the role and responsibility of HUD in allocation 
of budget authority (pursuant to section 213 of the Housing and 
Community Development Act of 1974 (42 U.S.C. 1439)) for housing 
assistance under the United States Housing Act of 1937 (Section 8 and 
public housing) and under section 101 of the Housing and Urban 
Development Act of 1965 (12 U.S.C. 1701s), and of budget authority for 
housing assistance under section 202 of the Housing Act of 1959 (12 
U.S.C. 1710q). This part does not apply to budget authority for the 
public housing operating fund or capital fund.

[64 FR 26639, May 14, 1999]



Sec. 791.102  Definitions.

    Act. The Housing and Community Development Act of 1974 (42 U.S.D. 
1437), as amended.
    Allocation area. A municipality, county, or group of municipalities 
or counties identified by the HUD field office for the purpose of 
allocating housing assistance.
    Assistant Secretary. The Assistant Secretary for Housing or the 
Assistant Secretary for Public and Indian Housing, as appropriate to the 
housing assistance under consideration.
    Budget authority. The maximum amount authorized by the Congress for 
payments over the term of assistance contracts.
    Fiscal year. The official operating period of the Federal 
government, beginning on October 1 and ending on September 30.
    Metropolitan area. See MSA.
    MSA. A metropolitan statistical area established by the Office of 
Management and Budget. The term also includes primary metropolitan 
statistical areas (PMSAs), which are the component parts of larger 
urbanized areas designated as consolidated metropolitan statistical 
areas (CMSAs). Where an MSA is divided among two or more field offices, 
references to an MSA mean the portion of the MSA within the State/Area 
Office jurisdiction.
    Public housing agency (PHA). (1) Any State, county, municipality, or 
other governmental entity or public body which is authorized to 
administer a program under the 1937 Act (or an agency or instrumentality 
of such an entity).
    (2) In addition, for purposes of the program of Section 8 tenant-
based assistance under part 982 of this title, the term PHA also 
includes any of the following:
    (i) A consortia of housing agencies, each of which meets the 
qualifications in paragraph (1) of this definition, that HUD determines 
has the capacity and capability to efficiently administer the program 
(in which case, HUD may enter into a consolidated ACC with any legal 
entity authorized to act as the legal representative of the consortia 
members);
    (ii) Any other public or private non-profit entity that was 
administering a Section 8 tenant-based assistance program pursuant to a 
contract with the contract administrator of such program (HUD or a PHA) 
in effect on October 21, 1998; or
    (iii) For any area outside the jurisdiction of a PHA that is 
administering a tenant-based program, or where HUD determines that such 
PHA is not administering the program effectively, a

[[Page 29]]

private non-profit entity or a governmental entity or public body that 
would otherwise lack jurisdiction to administer the program in such 
area.

[61 FR 10849, Mar. 15, 1996, as amended at 64 FR 26639, May 14, 1999]

Subparts B-C [Reserved]



    Subpart D--Allocation of Budget Authority for Housing Assistance



Sec. 791.401  General.

    This subpart D establishes the procedures for allocating budget 
authority under section 213(d) of the Act for the programs identified in 
Sec. 791.101. It describes the allocation of budget authority by the 
appropriate Assistant Secretary to the applicable Program Office 
Director in the HUD field office, and by the Program Office Director to 
allocation areas within their jurisdiction.

[61 FR 10849, Mar. 15, 1996, as amended at 64 FR 26639, May 14, 1999]



Sec. 791.402  Determination of low-income housing needs.

    (a) Before budget authority is allocated, the Assistant Secretary 
for Policy Development and Research shall determine the relative need 
for low-income housing assistance in each HUD field office jurisdiction. 
This determination shall be based upon data from the most recent, 
available decennial census and, where appropriate, upon more recent data 
from the Bureau of the Census or other Federal agencies, or from the 
American Housing Survey.
    (b) Except for paragraph (c) of this section, the factors used to 
determine the relative need for assistance shall be based upon the 
following criteria:
    (1) Population. The renter population;
    (2) Poverty. The number of renter households with annual incomes at 
or below the poverty level, as defined by the Bureau of the Census;
    (3) Housing overcrowding. The number of renter-occupied housing 
units with an occupancy ratio of 1.01 or more persons per room;
    (4) Housing vacancies. The number of renter housing units that would 
be required to maintain vacancies at levels typical of balanced market 
conditions;
    (5) Substandard housing. The number of housing units built before 
1940 and occupied by renter households with annual incomes at or below 
the poverty level, as defined by the Bureau of the Census; and
    (6) Other objectively measurable conditions. Data indicating 
potential need for rental housing assistance, such as the number of 
renter households with incomes below specified levels and paying a gross 
rent of more than 30 percent of household income.
    (c) For the section 202 elderly program, the data used shall reflect 
relevant characteristics of the elderly population. The data shall use 
the criteria specified in paragraph (b)(1) and (6) of this section, as 
modified to apply specifically to the needs of the elderly population.
    (d) Based on the criteria in paragraphs (b) and (c) of this section, 
the Assistant Secretary for Policy Development and Research shall 
establish housing needs factors for each county and independent city in 
the field office jurisdiction, and shall aggregate the factors for such 
jurisdiction. The field office total for each factor is then divided by 
the respective national total for that factor. The resulting housing 
needs ratios under paragraph (b) of this section are then weighted to 
provide housing needs percentages for each field office, using the 
following weights: population--20 percent; poverty--20 percent; housing 
overcrowding--10 percent; housing vacancies--10 percent; substandard 
housing--20 percent; other objectively measurable conditions--20 
percent. For the section 202 elderly program, the two criteria described 
in paragraph (c) of this section are weighted equally.
    (e) The Assistant Secretary for Policy Development and Research 
shall adjust the housing needs percentages derived in paragraph (d) of 
this section to reflect the relative cost of providing housing among the 
field office jurisdictions.

[61 FR 10849, Mar. 15, 1996, as amended at 64 FR 26639, May 14, 1999]

[[Page 30]]



Sec. 791.403  Allocation of housing assistance.

    (a) The total budget authority available for any fiscal year shall 
be determined by adding any available unreserved budget authority from 
prior fiscal years to any newly appropriated budget authority for each 
housing program.
    (b) Budget authority available for the fiscal year, except for that 
retained pursuant to Sec. 791.407, shall be allocated to the field 
offices as follows:
    (1) Budget authority shall be allocated as needed for uses that the 
Secretary determines are incapable of geographic allocation by formula, 
including--
    (i) Amendments of existing contracts, renewal of assistance 
contracts, assistance to families that would otherwise lose assistance 
due to the decision of the project owner to prepay the project mortgage 
or not to renew the assistance contract, assistance to prevent 
displacement or to provide replacement housing in connection with the 
demolition or disposition of public housing, assistance in support of 
the property disposition and loan management functions of the Secretary;
    (ii) Assistance which is--
    (A) The subject of a line item identification in the HUD 
appropriations law, or in the table customarily included in the 
Conference Report on the appropriation for the Fiscal Year in which the 
funds are to be allocated;
    (B) Reported in the Operating Plan submitted by HUD to the 
Committees on Appropriations; or
    (C) Included in an authorization statute where the nature of the 
assistance, such as a prescribed set-aside, is, in the determination of 
the Secretary, incapable of geographic allocation by formula,
    (iii) Assistance determined by the Secretary to be necessary in 
carrying out the following programs authorized by the Cranston-Gonzalez 
National Affordable Housing Act: the Homeownership and Opportunity 
Through HOPE Act under title IV and HOPE for Elderly Independence under 
section 803.
    (2) Budget authority remaining after carrying out allocation steps 
outlined in paragraph (b)(1) of this section shall be allocated in 
accordance with the housing needs percentages calculated under 
paragraphs (b), (c), (d), and (e) of Sec. 791.402. HUD may allocate 
assistance under this paragraph in such a manner that each State shall 
receive not less than one-half of one percent of the amount of funds 
available for each program referred to in Sec. 791.101(a) in each fiscal 
year. If the budget authority for a particular program is insufficient 
to fund feasible projects, or to promote meaningful competition, at the 
field office level, budget authority may be allocated among the ten 
geographic areas of the country. The funds so allocated will be assigned 
by Headquarters to the field office(s) with the highest ranked 
applications within the ten geographic areas.
    (c) At least annually HUD will publish a notice in the Federal 
Register informing the public of all allocations under 
Sec. 791.403(b)(2).

[61 FR 10849, Mar. 15, 1996, as amended at 64 FR 26640, May 14, 1999]



Sec. 791.404  Field Office allocation planning.

    (a) General objective. The allocation planning process should 
provide for the equitable distribution of available budget authority, 
consistent with the relative housing needs of each allocation area 
within the field office jurisdiction.
    (b) Establishing allocation areas. Allocation areas, consisting of 
one or more counties or independent cities, shall be established by the 
field office in accordance with the following criteria:
    (1) Each allocation shall be to the smallest practicable area, but 
of sufficient size so that at least three eligible entities are viable 
competitors for funds in the allocation area, and so that all applicable 
statutory requirements can be met. (It is expected that in many 
instances individual MSAs will be established as metropolitan allocation 
areas.) For the section 202 program for the elderly, the allocation area 
must include sufficient units to promote a meaningful competition among 
disparate types of providers of such housing (e.g., local as well as 
national sponsors, minority as well as non-minority sponsors). The 
preceding

[[Page 31]]

sentence shall not apply to projects acquired from the Resolution Trust 
Corporation under section 21A(c) of the Federal Home Loan Bank Act.
    (2) Each allocation area shall also be of sufficient size, in terms 
of population and housing need, that the amount of budget authority 
being allocated to the area will support at least one feasible program 
or project.
    (3) In establishing allocation areas, counties and independent 
cities within MSAs should not be combined with counties that are not in 
MSAs.
    (c) Determining the amount of budget authority. Where the field 
office establishes more than one allocation area, it shall determine the 
amount of budget authority to be allocated to each allocation area, 
based upon a housing needs percentage which represents the needs of that 
area relative to the field office jurisdiction. For each program, a 
composite housing needs percentage developed under Sec. 791.402 for 
those counties and independent cities comprising the allocation area 
shall be aggregated into allocation area totals.
    (d) Planning for the allocation. The field office should develop an 
allocation plan which reflects the amount of budget authority determined 
for each allocation area in paragraph (c). The plan should include a map 
or maps clearly showing the allocation areas within the field office 
jurisdiction. The relative share of budget authority by individual 
program type need not be the same for each allocation area, so long as 
the total amount of budget authority made available to the allocation 
area is not significantly reduced.

[61 FR 10849, Mar. 15, 1996, as amended at 64 FR 26640, May 14, 1999]



Sec. 791.405  Reallocations of budget authority.

    (a) The field office shall make every reasonable effort to use the 
budget authority made available for each allocation area within such 
area. If the Program Office Director determines that not all of the 
budget authority allocated for a particular allocation area is likely to 
be used during the fiscal year, the remaining authority may be allocated 
to other allocation areas where it is likely to be used during that 
fiscal year.
    (b) If the Assistant Secretary determines that not all of the budget 
authority allocated to a field office is likely to be used during the 
fiscal year, the remaining authority may be reallocated to another field 
office where it is likely to be used during that fiscal year.
    (c) Any reallocations of budget authority among allocation areas or 
field offices shall be consistent with the assignment of budget 
authority for the specific program type and established set-asides.
    (d) Notwithstanding the requirements of paragraphs (a) through (c) 
of this section, budget authority shall not be reallocated for use in 
another State unless the Program Office Director or the Assistant 
Secretary has determined that other allocation areas within the same 
State cannot use the available authority during the fiscal year.



Sec. 791.406  Competition.

    (a) All budget authority allocated pursuant to Sec. 791.403(b)(2) 
shall be reserved and obligated pursuant to a competition. Any such 
competition shall be conducted pursuant to specific criteria for the 
selection of recipients of assistance. These criteria shall be contained 
in a regulation promulgated after notice and public comment or, to the 
extent authorized by law, a notice published in the Federal Register.
    (b) This section shall not apply to assistance referred to in 
Secs. 791.403(b)(1) and 791.407.



Sec. 791.407  Headquarters Reserve.

    (a) A portion of the budget authority available for the housing 
programs listed in Sec. 791.101(a), not to exceed an amount equal to 
five percent of the total amount of budget authority available for the 
fiscal year for programs under the United States Housing Act of 1937 
listed in Sec. 791.101(a), may be retained by the Assistant Secretary 
for subsequent allocation to specific areas and communities, and may 
only be used for:
    (1) Unforeseen housing needs resulting from natural and other 
disasters, including hurricanes, tornadoes, storms, high water, wind 
driven water, tidal waves, tsunamis, earthquakes, volcanic eruptions, 
landslides,

[[Page 32]]

mudslides, snowstorms, drought, fires, floods, or explosions, which in 
the determination of the Secretary cause damage of sufficient severity 
and magnitude to warrant Federal housing assistance;
    (2) Housing needs resulting from emergencies, as certified by the 
Secretary, other than disasters described in paragraph (a)(1) of this 
section. Emergency housing needs that can be certified are only those 
that result from unpredictable and sudden circumstances causing housing 
deprivation (such as physical displacement, loss of Federal rental 
assistance, or substandard housing conditions) or causing an unforeseen 
and significant increase in low-income housing demand in a housing 
market (such as influx of refugees or plant closings);
    (3) Housing needs resulting from the settlement of litigation; and
    (4) Housing in support of desegregation efforts.
    (b) Applications for funds retained under paragraph (a) of this 
section shall be made to the field office, which will make 
recommendations to Headquarters for approval or rejection of the 
application. Applications generally will be considered for funding on a 
first-come, first-served basis. Specific instructions governing access 
to the Headquarters Reserve shall be published by notice in the Federal 
Register, as necessary.
    (c) Any amounts retained in any fiscal year under paragraph (a) of 
this section that are not reserved by the end of such fiscal year shall 
remain available for the following fiscal year in the program under 
Sec. 791.101(a) from which the amount was retained. Such amounts shall 
be allocated pursuant to Sec. 791.403(b)(2).



PART 792--PUBLIC HOUSING AGENCY SECTION 8 FRAUD RECOVERIES--Table of Contents




                      Subpart A--General Provisions

Sec.
792.101  Purpose.
792.102  Applicability.
792.103  Definitions.

                 Subpart B--Recovery of Section 8 Funds

792.201  Conduct of litigation.
792.202  PHA retention of proceeds.
792.203  Application of amounts recovered.
792.204  Recordkeeping and reporting.

    Authority: 42 U.S.C. 1437f note and 3535(d).

    Source: 59 FR 9409, Feb. 28, 1994, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 792 appear at 64 FR 
26640, May 14, 1999.



                      Subpart A--General Provisions



Sec. 792.101  Purpose.

    The purpose of this part is to encourage public housing agencies 
(PHAs) to investigate and pursue instances of tenant and owner fraud and 
abuse in the operation of the Section 8 housing assistance payments 
programs.

[64 FR 26640, May 14, 1999]



Sec. 792.102  Applicability.

    (a) This part applies to a PHA acting as a contract administrator 
under an annual contributions contract with HUD in any section 8 housing 
assistance payments program. To be eligible to retain section 8 tenant 
or owner fraud recoveries, the PHA must be the principal party 
initiating or sustaining an action to recover amounts from families.
    (b) This part applies only to those instances when a tenant or owner 
committed fraud, and the fraud recoveries are obtained through 
litigation brought by the PHA (including settlement of the lawsuit), a 
court-ordered restitution pursuant to a criminal proceeding, or an 
administrative repayment agreement with the family or owner as a result 
of a PHA administrative grievance procedure pursuant to, or 
incorporating the requirements of, Sec. 982.555 of this title. This part 
does not apply to cases of owner fraud in PHA-owned or controlled units, 
or where incorrect payments were made or benefits received because of 
calculation errors instead of willful fraudulent activities.
    (c) This part applies to all tenant and owner fraud recoveries 
resulting from litigation brought by the PHA (including settlement of 
the lawsuit), or a court-ordered restitution pursuant to a

[[Page 33]]

criminal proceeding obtained on or after October 8, 1986, and to all 
tenant and owner fraud recoveries obtained through administrative 
repayment agreements signed on or after October 28, 1992.

[59 FR 9409, Feb. 28, 1994, as amended at 64 FR 26640, May 14, 1999]



Sec. 792.103  Definitions.

    Fraud and abuse. Fraud and abuse means a single act or pattern of 
actions:
    (1) That constitutes false statement, omission, or concealment of a 
substantive fact, made with intent to deceive or mislead; and
    (2) That results in payment of section 8 program funds in violation 
of section 8 program requirements.
    The terms Public Housing Agency (PHA) and Indian Housing Authority 
(IHA) are defined in 24 CFR part 5.
    Judgment. Judgment means a provision for recovery of section 8 
program funds obtained through fraud and abuse, by order of a court in 
litigation or by a settlement of a claim in litigation, whether or not 
stated in a court order.
    Litigation. A lawsuit brought by a PHA to recover section 8 program 
funds obtained as a result of fraud and abuse.
    Principal party in initiating or sustaining an action to recover. 
Principal party in initiating or sustaining an action to recover means 
the party that incurs more than half the costs incurred in:
    (1) Recertifying tenants who fraudulently obtained section 8 rental 
assistance;
    (2) Recomputing the correct amounts owed by tenants; and
    (3) Taking needed actions to recoup the excess benefits received, 
such as initiating litigation.
    Costs incurred to detect potential excessive benefits in the routine 
day-to-day operations of the program are excluded in determining the 
principal party in initiating or sustaining an action to recover. For 
example, the cost of income verification during an annual 
recertification would not be counted in determining the principal party 
in initiating or sustaining an action to recover.
    Public housing agency (PHA). A public housing agency as defined in 
Sec. 791.102.
    Repayment agreement. Repayment agreement means a formal document 
signed by a tenant or owner and provided to a PHA in which a tenant or 
owner acknowledges a debt, in a specific amount, and agrees to repay the 
amount due at specific time period(s).

[59 FR 9409, Feb. 28, 1994, as amended at 61 FR 5212, Feb. 9, 1996; 64 
FR 26640, May 14, 1999]



                 Subpart B--Recovery of Section 8 Funds



Sec. 792.201  Conduct of litigation.

    The PHA must obtain HUD approval before initiating litigation in 
which the PHA is requesting HUD assistance or participation.



Sec. 792.202  PHA retention of proceeds.

    (a) Where the PHA is the principal party initiating or sustaining an 
action to recover amounts from tenants that are due as a result of fraud 
and abuse, the PHA may retain, the greater of:
    (1) Fifty percent of the amount it actually collects from a 
judgment, litigation (including settlement of lawsuit) or an 
administrative repayment agreement pursuant to, or incorporating the 
requirements of, Sec. 982.555 of this title; or
    (2) Reasonable and necessary costs that the PHA incurs related to 
the collection from a judgment, litigation (including settlement of 
lawsuit) or an administrative repayment agreement pursuant to, or 
incorporating the requirements of, Sec. 982.555 of this title. 
Reasonable and necessary costs include the costs of the investigation, 
legal fees and collection agency fees.
    (b) If HUD incurs costs on behalf of the PHA in obtaining the 
judgment, these costs must be deducted from the amount to be retained by 
the PHA.

[59 FR 9409, Feb. 28, 1994, as amended at 64 FR 26640, May 14, 1999]



Sec. 792.203  Application of amounts recovered.

    (a) The PHA may only use the amount of the recovery it is authorized 
to retain in support of the section 8 program in which the fraud 
occurred.

[[Page 34]]

    (b) The remaining balance of the recovery proceeds (i.e., the 
portion of recovery the PHA is not authorized to retain) must be applied 
as directed by HUD.



Sec. 792.204  Recordkeeping and reporting.

    To permit HUD to audit amounts retained under this part, an PHA must 
maintain all records required by HUD, including:
    (a) Amounts recovered on any judgment or repayment agreement;
    (b) The nature of the judgment or repayment agreement; and
    (c) The amount of the legal fees and expenses incurred in obtaining 
the judgment or repayment agreement and recovery.

(Approved by the Office of Management and Budget under Control Number 
2577-0053)

                        PARTS 793-798 [RESERVED]

[[Page 35]]



  CHAPTER VIII--OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL 

   HOUSING COMMISSIONER, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

(SECTION 8 HOUSING ASSISTANCE PROGRAMS, SECTION 202 DIRECT LOAN PROGRAM, 

 SECTION 202 SUPPORTIVE HOUSING FOR THE ELDERLY PROGRAM AND SECTION 811 

        SUPPORTIVE HOUSING FOR PERSONS WITH DISABILITIES PROGRAM)




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


  Editorial Note: For nomenclature changes to chapter VIII, see 59 FR 
14090, Mar. 25, 1994.
Part                                                                Page
800-810

[Reserved]

811             Tax exemption of obligations of public 
                    housing agencies and related amendments.          37
850             Housing development grants..................          43
880             Section 8 housing assistance payments 
                    program for new construction............          46
881             Section 8 housing assistance payments 
                    program for substantial rehabilitation..          67
882             Section 8 moderate rehabilitation programs..          73
883             Section 8 housing assistance payments 
                    program--State housing agencies.........         100
884             Section 8 housing assistance payments 
                    program, new construction set-aside for 
                    Section 515 rural rental housing 
                    projects................................         111
886             Section 8 housing assistance payments 
                    program--special allocations............         131

[[Page 36]]

887

[Reserved]

888             Section 8 housing assistance payments 
                    program--fair market rents and contract 
                    rent annual adjustment factors..........         167
891             Supportive housing for the elderly and 
                    persons with disabilities...............         176

[[Page 37]]

                        PARTS 800--810 [RESERVED]



PART 811--TAX EXEMPTION OF OBLIGATIONS OF PUBLIC HOUSING AGENCIES AND RELATED AMENDMENTS--Table of Contents




Sec.
811.101  Purpose and scope.
811.102  Definitions.
811.103  General.
811.104  Approval of Public Housing Agencies (other than agency or 
          instrumentality PHAS).
811.105  Approval of agency or instrumentality PHA.
811.106  Default under the contract.
811.107  Financing documents and data.
811.108  Debt service reserve.
811.109  Trust indenture provisions.
811.110  Refunding of obligations issued to finance Section 8 projects.

    Authority: Sec. 7(d), Dept. of HUD Act (42 U.S.C. 3535(d)); secs. 
3(6), 5(b), 8, 11(b) of the U.S. Housing Act of 1937 (42 U.S.C. 1437a, 
1437c, 1437f, and 1437).

    Source: 44 FR 12360, Mar. 6, 1979, unless otherwise noted.



Sec. 811.101  Purpose and scope.

    (a) The purpose of this part is to provide a basis for determining 
tax exemption of obligations issued by public housing agencies pursuant 
to Section 11(b) of the United States Housing Act of 1937 (42 U.S.C. 
1437i) to refund bonds for Section 8 new construction or substantial 
rehabilitation projects.
    (b) This part does not apply to tax exemption pursuant to Section 
11(b) for low-income housing projects developed pursuant to 24 CFR parts 
950 and 941.

[61 FR 14460, Apr. 1, 1996]



Sec. 811.102  Definitions.

    The terms HUD and Public Housing Agency (PHA) are defined in 24 CFR 
part 5.
    Act. The United States Housing Act of 1937 (42 U.S.C. 1437, et 
seq.).
    Agency or Instrumentality PHA. A not-for-profit private or public 
organization that is authorized to engage in or assist in the 
development or operation of low-income housing and that has the 
relationship to a parent entity PHA required by this subpart.
    Agreement. An Agreement to Enter Into Housing Assistance Payments 
Contract as defined in the applicable Section 8 regulations. The form of 
agreement for projects financed with tax-exempt obligations shall be 
amended in accordance with this subpart.
    Annual Contributions Contract (ACC). An Annual Contributions 
Contract as defined in the applicable Section 8 regulations. The form of 
ACC for projects financed with tax-exempt obligations shall be amended 
in accordance with this subpart.
    Applicable Section 8 Regulations. The provisions of 24 CFR parts 
880, 881, or 883 that apply to the project.
    Contract. A Housing Assistance Payments Contract as defined in the 
applicable Section 8 regulations. The form of contract for projects 
financed with tax-exempt obligations shall be amended in accordance with 
this subpart.
    Cost of issuance. Ordinary, necessary, and reasonable costs in 
connection with the issuance of obligations. These costs shall include 
attorney fees, rating agency fees, trustee fees, printing costs, bond 
counsel fees, feasibility studies (for non-FHA-insured projects only), 
consultant fees and other fees or expenses approved by HUD.
    Debt service reserve. A fund maintained by the trustee as a 
supplemental source of money for the payment of debt service on the 
obligations.
    Financing Agency. The PHA (parent entity PHA or agency or 
instrumentality PHA) that issues the tax-exempt obligations for 
financing of the project.
    Low-income Housing Project. Housing for families and persons of low-
income developed, acquired or assisted by a PHA under Section 8 of the 
Act and the improvement of any such housing.
    Obligations. Bonds or other evidence of indebtedness that are issued 
to provide permanent financing of a low-income housing project. Pursuant 
to Section 319(b) of the Housing and Community Development Act of 1974, 
the term obligation shall not include any obligation secured by a 
mortgage insured under Section 221(d)(3) of the National Housing Act (12 
U.S.C. 1715l) and issued by a public agency as mortgagor in connection 
with the financing of a project assisted under Section 8 of the Act. 
This exclusion does not apply to a public agency as mortgagee.

[[Page 38]]

    Owner. An owner as defined in the applicable Section 8 regulations.
    Parent Entity PHA. Any state, county, municipality or other 
governmental entity or public body that is authorized to engage in or 
assist in the development or operation of low-income housing and that 
has the relationship to an agency or instrumentality PHA required by 
this subpart.
    Servicing fees. The annual costs of servicing the obligations 
0including any debt service reserve), including trustee fees, mortgage 
servicing fees, PHA expenses in connection with annual reviews, 
maintenance of books and accounts, audit expenses, agent fees and other 
costs of servicing the obligations.
    Trust indenture. A contract setting forth the rights and obligations 
of the issuer, bondholders, owner and trustee in connection with the 
tax-exempt obligations. The trust indenture may also include provisions 
regarding the loan to the owner or these may be set forth in a separate 
mortgage.
    Trustee. The entity that has legal responsibility under the trust 
indenture for disposition of the proceeds of a bond issuance and 
servicing of the debt represented by the obligations. The trustee must 
be a bank or other financial institution that is legally qualified and 
experienced in performing fiduciary responsibilities with respect to the 
care and investment of funds of a magnitude comparable to those involved 
in the financing.
    Yield. That percentage rate at which the present worth of all 
payments of principal and interest to be paid on the obligations is 
equal to the purchase price.

[44 FR 12360, Mar. 6, 1979, as amended at 61 FR 5212, Feb. 9, 1996; 61 
FR 14460, Apr. 1, 1996]



Sec. 811.103  General.

    (a) In order for obligations to be tax-exempt under this subpart the 
obligations must be issued by a PHA in connection with a low-income 
housing project approved by HUD under the Act and the applicable Section 
8 regulations.
    (1) Except as needed for a resident manager or similar requirement, 
all dwelling units in a low-income housing project that is to be 
financed with obligations issued pursuant to this subpart must be 
Section 8 contract units.
    (2) A low-income housing project that is to be financed with 
obligations issued pursuant to this subpart may include necessary 
appurtenances. Such appurtenances may include commerical space not to 
exceed 10% of the total net rentable area.
    (b) Where the parent entity PHA is not the owner of the project, the 
parent entity PHA or other PHA approvable under Sec. 811.104 must agree 
to administer the contract pursuant to an ACC with HUD, and such a PHA 
must agree that in the event there is a default under the contract it 
will pursue all available remedies to achieve correction of the default, 
including operation and possession of the project, if called upon by HUD 
to do so. If the field office finds that the PHA does not have the 
capacity to perform these functions, the Assistant Secretary may approve 
alternative contractual arrangements for performing these functions.



Sec. 811.104  Approval of Public Housing Agencies (other than agency or instrumentality PHAS).

    (a)(1) An application to the field office for approval as a Public 
Housing Agency, other than an agency or instrumentality PHA, for 
purposes of this subpart shall be supported by evidence satisfactory to 
HUD to establish that:
    (i) The applicant is a PHA as defined in this subpart, and has the 
legal authority to meet the requirements of this subpart and applicable 
Section 8 regulations, as described in its application. This evidence 
shall be supported by the opinion of counsel for the applicant.
    (ii) The applicant has or will have the administrative capability to 
carry out the responsibilities described in its application.
    (2) The evidence shall include any facts or documents relevant to 
the determinations required by paragraph (a)(1) of this section, 
including identification of any pending application the applicant has 
submitted under the Act. In the absence of evidence indicating the 
applicant may not be qualified, the

[[Page 39]]

field office may accept as satisfactory evidence:
    (i) Identification of any previous HUD approval of the applicant as 
a PHA pursuant to this section;
    (ii) Identification of any prior ACC with the applicant under the 
Act; or
    (iii) A statement, where applicable, that the applicant is an 
approved participating agency under 24 CFR Part 883 (State Housing 
Finance and Development Agencies).
    (b) The applicant shall receive no compensation in connection with 
the financing of a project, except for its expenses. Such expenses shall 
be subject to approval by HUD in determining the development cost, cost 
of issuance and servicing fee, as appropriate. Should the applicant 
receive any compensation in excess of such expenses, the excess is to be 
placed in the debt service reserve.
    (c) Where the applicant acts as the financing agency, the applicant 
shall be required to furnish to HUD an audit by an independent public 
accountant of its books and records in connection with the financing of 
the project within 90 days after the execution of the contract or final 
endorsement and at least biennially thereafter.
    (d) Any subsequent amendments to the documents submitted to HUD 
pursuant to this section must be approved by HUD.



Sec. 811.105  Approval of agency or instrumentality PHA.

    (a) An application to the field office for approval as an agency or 
instrumentality PHA for purposes of this subpart shall:
    (1) Identify the parent entity PHA.
    (2) Establish by evidence satisfactory to HUD that:
    (i) The parent entity PHA meets the requirements of Sec. 811.104.
    (ii) The applicant was properly created pursuant to state law as a 
not-for-profit entity; is an agency or instrumentality PHA, as defined 
in this subpart; has the legal authority to meet the requirements of 
this subpart and applicable Section 8 regulations, as described in its 
application; and the actions required to establish the legal 
relationship with the parent entity PHA prescribed by paragraph (c) of 
this section have been taken and are not prohibited by State law. This 
evidence shall be supported by the opinion of counsel for the applicant 
and counsel for the parent entity PHA.
    (iii) The applicant has, or will have, the administrative capability 
to carry out the responsibilities described in its application.
    (b) The charter or other organic document establishing the applicant 
shall limit the activities to be performed by the applicant, and funds 
and assets connected therewith, to carrying out or assisting in carrying 
out Section 8 projects and other low-income housing projects approved by 
the Secretary. Such organic documents shall provide that the applicant 
shall receive no compensation in connection with the financing of a 
project, except for its expenses. Such expenses shall be subject to 
approval by HUD in determining the development cost, cost of issuance 
and servicing fee, as appropriate. Should the applicant receive any 
compensation in excess of such expenses, the excess is to be placed in 
the debt service reserve.
    (c) The documents submitted by the applicant shall include the 
following with respect to the relationship between the parent entity PHA 
and the agency or instrumentality PHA:
    (1) Provisions requiring approval by the parent entity PHA of the 
charter or other organic instrument and of the bylaws of the applicant, 
which organic instrument and bylaws shall specify that any amendments 
are subject to approval by the parent entity PHA and by HUD.
    (2) Provisions requiring approval by the parent entity PHA of each 
project and of the program and expenditures of the applicant.
    (3) Provisions requiring approval by the parent entity PHA of each 
issue of obligations by the applicant not more than 60 days prior to the 
date of issue and approval of any substantive changes to the terms and 
conditions of the issuance prior to date of issue.
    (4) Provisions requiring the applicant to furnish an audit of all 
its books and records by an independent public accountant to the parent 
entity PHA within 90 days after execution of the contract or final 
endorsement and at

[[Page 40]]

least bennially thereafter; and provisions requiring the parent entity 
PHA to perform an annual review of the applicant's performance and to 
provide HUD with a copy of such review together with any audits 
performed during the reporting period.
    (5) Provisions giving the parent entity PHA right of access at any 
time to all books and records of the applicant.
    (6) Provisions that upon dissolution of the applicant, title to or 
other interest in any real or personal property that is owned by such 
applicant at the time of dissolution shall be transferred to the parent 
entity PHA or to another PHA or to another not-for-profit entity as 
determined by the parent entity PHA and approved by HUD, to be used only 
for purposes approved by HUD.
    (7) Evidence of agreement by the parent entity PHA, or other entity 
as may be provided for in alternative contractual arrangements pursuant 
to Sec. 811.103(b), to accept title to any real or personal property 
pursuant to paragraph (c)(6) of this section.
    (d) Any subsequent amendments to the documents submitted to HUD 
pursuant to this section must be approved by HUD.
    (e) Members, officers, or employees of the parent entity PHA may be 
directors or officers of the applicant unless this is contrary to state 
law.

[44 FR 12360, Mar. 6, 1979, as amended at 61 FR 14461, Apr. 1, 1996]



Sec. 811.106  Default under the contract.

    If HUD finds there is a default under the Contract, the field office 
shall so notify the trustee and give the trustee a specified reasonable 
time to take action to require the owner to correct such default prior 
to any suspension or termination of payments under the contract. In the 
event of a default under the contract, HUD may terminate or suspend 
payments under the contract, may seek specific performance of the 
contract and may pursue other remedies.

[44 FR 12360, Mar. 6, 1979, as amended at 61 FR 14461, Apr. 1, 1996]



Sec. 811.107  Financing documents and data.

    (a) The financing agency shall assure that any official statement or 
prospectus or other disclosure statement prepared in connection with the 
financing shall state on the first page that:
    (1) In addition to any security cited in the statement, the bonds 
may be secured by a pledge of an Annual Contributions Contract and a 
Housing Assistance Payments Contract, executed by HUD;
    (2) The faith of the United States is solemnly pledged to the 
payment of annual contributions pursuant to the Annual Contributions 
Contact or to the payment of housing assistance payments pursuant to the 
Housing Assistance Payments Contract, and funds have been obligated by 
HUD for such payments;
    (3) Except as provided in any contract of mortgage insurance, the 
bonds are not insured by HUD;
    (4) The bonds are not to be construed as a debt or indebtedness of 
HUD or the United States, and payment of the bonds is not guaranteed by 
the United States;
    (5) Nothing in the text of a disclosure statement is to be 
interpreted to conflict with the above; and
    (6) HUD has not reviewed or approved and bears no responsibility for 
the content of disclosure statements.
    (b) The financing agency shall retain in its files the documentation 
relating to the financing. A copy of this documentation shall be 
furnished to HUD upon request.

[61 FR 14461, Apr. 1, 1996]



Sec. 811.108  Debt service reserve.

    (a) FHA-Insured projects. (1) The debt service reserve shall be 
invested and the income used to pay principal and interest on that 
portion of the obligations which is attributable to the funding of the 
debt service reserve. Any excess investment income shall be added to the 
debt service reserve. In the event such investment income is 
insufficient, surplus cash or residual receipts, to the extent approved 
by the field office, may be used to pay such principal and interest 
costs.

[[Page 41]]

    (2) The debt service reserve and its investment income shall be 
available only for the purpose of paying principal or interest on the 
obligations. The use of the debt service reserve for this purpose shall 
not be a cure for any failure by the owner to make required payments.
    (3) Upon full payment of the principal and interest on the 
obligations (including that portion of the obligations attributable to 
the funding of the debt service reserve), any funds remaining in the 
debt service reserve shall be remitted to HUD.
    (b) Non-FHA-insured projects. (1) Investment income from the debt 
service reserve, up to the amount required for debt service on the bonds 
attributable to the debt service reserve, shall be credited toward the 
owner's debt service payment. Any excess investment income shall be 
added to and become part of the debt service reserve.
    (2) The debt service reserve and investment income thereon shall be 
available only for the purpose of paying principal or interest on the 
obligations. The use of the debt service reserve for this purpose shall 
not be a cure for any failure by the owner to make required payments.
    (3) Upon full payment of the principal and interest on the 
obligations (including that portion of the obligations attributable to 
the funding of the debt service reserve), any funds remaining in the 
debt service reserve shall be remitted to HUD.

[61 FR 14461, Apr. 1, 1996]



Sec. 811.109  Trust indenture provisions.

    Obligations shall be prepaid only under such conditions as HUD shall 
require, including reduction of contract rents and continued operation 
of the project for the housing of low-income families.

[44 FR 12360, Mar. 6, 1979. Redesignated at 61 FR 14461, Apr. 1, 1996]



Sec. 811.110  Refunding of obligations issued to finance Section 8 projects.

    (a) This section states the terms and conditions under which HUD 
will approve refunding or defeasance of certain outstanding debt 
obligations which financed new construction or substantial 
rehabilitation of Section 8 projects, including fully and partially 
assisted projects.
    (b) In the case of bonds issued by State Agencies qualified under 24 
CFR part 883 to refund bonds which financed projects assisted pursuant 
to 24 CFR part 883, HUD requires compliance with the prohibition on 
duplicative fees contained in 24 CFR part 883 and with paragraphs (f) 
and (h) of this section, as applicable to the projects to be refunded.
    (c) No agency shall issue obligations to refund outstanding 11(b) 
obligations until the Office of the Assistant Secretary for Housing 
sends the financing agency a Notification of Tax Exemption based on 
approval of the proposed refunding's terms and conditions as conforming 
to this part's requirements, including continued operation of the 
project as housing for low-income families, and where possible, 
reduction of Section 8 assistance payments through lower contract rents 
or an equivalent cash rebate to the U.S. Treasury (i.e. Trustee Sweep). 
The agency shall submit such documentation as HUD determines is 
necessary for review and approval of the refunding transaction. Upon 
conclusion of the closing of refunding bonds, written confirmation must 
be sent to the Office of Multifamily Housing by bond counsel, or other 
acceptable closing participant, including a schedule of the specific 
amount of savings in Section 8 assistance where applicable, CUSIP number 
information, and a final statement of Sources and Uses.
    (d)(1) HUD approval of the terms and conditions of a Section 8 
refunding proposal requires evaluation by HUD's Office of Multifamily 
Housing of the reasonableness of the terms of the Agency's proposed 
financing plan, including projected reductions in project debt service 
where warranted by market conditions and bond yields. This evaluation 
shall determine that the proposed amount of refunding obligations is the 
amount needed to: pay off outstanding bonds; fund a debt service reserve 
to the extent required by credit enhancers or bond rating agencies, or 
bond underwriters in the case of unrated refunding bonds; pay credit 
enhancement fees acceptable to HUD; and

[[Page 42]]

pay transaction costs as approved by HUD according to a sliding scale 
ceiling based on par amount of refunding bond principal. Exceptions may 
be approved by HUD, if consistent with applicable statutes, in the event 
that an additional issue amount is required for project purposes.
    (2) The stated maturity of the refunding bonds may not exceed by 
more than one year the remaining term of the project mortgage, or in the 
case of an uninsured loan, the later of expiration date of the Housing 
Assistance Payments Contract (the ``HAPC'') or final maturity of the 
refunded bonds.
    (3) The bond yield may not exceed by more than 75 basis points the 
20 Bond General Obligation Index published by the Daily Bond Buyer for 
the week immediately preceding the sale of the bonds, except as 
otherwise approved by HUD. An amount not to exceed one-fourth of one 
percent annually of the bonds' outstanding principal balance may be 
allowed for servicing and trustee fees.
    (e) For projects for which the Agreement to enter into the HAPC was 
executed between January 1, 1979, and December 31, 1984 (otherwise known 
as ``McKinney Act Projects''), for which a State or local agency 
initiates a refunding, the Secretary shall make available to an eligible 
issuing agency 50 percent of the Section 8 savings of a refunding, as 
determined by HUD on a project-by-project basis, to be used by the 
agency in accordance with the terms of a Refunding Agreement executed by 
the Agency and HUD which incorporates the Agency's Housing Plan for use 
of savings to provide decent, safe, and sanitary housing for very low-
income households. In determining the amount of savings recaptured on a 
project-by-project basis, as authorized by section 1012(b) of the 
McKinney Act, HUD will take into account the physical condition of the 
projects participating in the refunding which generate the McKinney Act 
savings and, if necessary, HUD will finance in refunding bond debt 
service correction of existing deficiencies which cannot be funded 
completely by existing project replacement reserves or by a portion of 
reserves released from the refunded bond's indenture. For McKinney Act 
refundings of projects which did not receive a Financing Adjustment 
Factor (``FAF''), HUD will allow up to 50 percent of debt service 
savings to be allocated to the project account; in which case, the 
remainder will be shared equally by the Agency and the U.S. Treasury.
    (f) For refundings of Section 8 projects other than McKinney Act 
Projects, and for all transactions which substitute collateral for, but 
do not redeem, outstanding obligations, and for which a HUD approval is 
needed (such as assignment of a HAPC or insured mortgage note), the 
Office of Multifamily Housing in consultation with HUD Field Office 
Counsel will review the HAPC, the Trust Indenture for the outstanding 
obligations, applicable HUD regulations, and reasonableness of proposed 
financing terms. In particular, HUD review should be obtained for the 
release of reserves from the trust indenture of the outstanding 11(b) 
bonds that are being refunded, defeased, or pre-paid. A proposal to 
distribute to a non-Federal entity the benefits of a refinancing, such 
as debt service savings and/or balances in reserves held under the 
original Trust Indenture, should be referred to the Office of 
Multifamily Housing for further review. In proposals submitted for HUD 
approval, HUD will consent to release reserves, as provided by the Trust 
Indenture, in an amount remaining after correction of project physical 
deficiencies and/or replenishment of replacement reserves, where needed. 
In the case of a refunding of 11(b) bonds by a public agency issuer 
which is the owner of the project and is entitled to reserves held under 
the Trust Indenture, HUD requires execution by the project owner of a 
use agreement, and amendment of a regulatory agreement, if applicable, 
to extend low-income tenant occupancy for ten years after expiration of 
the original HAPC term. In the case of HAP contracts with renewable 5-
year terms, the Use Agreement shall extend for 10 years after the 
project owners first opt-out date. The Use Agreement may also be 
required of private entity owners, unless the refunding is incidental to 
a transfer of project ownership or a transaction which provides a 
substantial public

[[Page 43]]

benefit, as determined by the Office of Multifamily Housing. Proposed 
use of benefits shall be consistent with applicable appropriations law, 
the HAPC, and other requirements applicable to the original project 
financing, and the proposed financing terms must be reasonable in 
relation to bond market yields and transaction fees, as approved by the 
HUD Office of Multifamily Housing.
    (g) Agencies shall have wide latitude in the design of specific 
delivery vehicles for use of McKinney Act savings, subject to HUD audit 
of each Agency's performance in serving the targeted income eligible 
population. Savings may be used for shelter costs of providing housing, 
rental, or owner-occupied, to very low-income households through new 
construction, rehabilitation, repairs, and acquisition with or without 
rehab, including assistance to very low-income units in mixed-income 
developments. These include programs designed to assist in obtaining 
shelter, such as rent or homeownership subsidies. Self-sufficiency 
services in support of very low-income housing are also eligible, and 
may include, but are not limited to, homeownership counseling, 
additional security measures in high-crime areas, construction job 
training for residents' repair of housing units occupied by very low-
income families, and empowerment activities designed to support 
formation and growth of resident entities. Except for the cost of 
providing third-party program audit reports to HUD, eligible costs 
exclude consultant fees or reimbursement of Agency staff expenses, but 
may include fees for professional services required in the Agency's 
McKinney Act programs of assistance to very low-income families. Unless 
otherwise specified by HUD in a McKinney Agreement, savings shall be 
subject to the above use requirements for 10 years from the date of 
receipt of the savings.
    (h) Refunding bonds, including interest thereon, approved under this 
Section shall be exempt from all taxation now or hereafter imposed by 
the United States, and the notification of approval of tax exemption 
shall not be subject to revocation by HUD. Whether refunding bonds 
approved under this section meet the requirements of Section 103 or any 
other provisions of the Internal Revenue Code is not within the 
responsibilities of HUD to determine. Such bonds shall be prepaid during 
the HAPC term only under such conditions as HUD shall require.

[61 FR 14461, Apr. 1, 1996]



PART 850--HOUSING DEVELOPMENT GRANTS--Table of Contents




                      Subpart A--General Provisions

Sec.
850.1  Applicability and savings clause.

Subparts B-E [Reserved]

                      Subpart F--Project Management

850.151  Project restrictions.
850.153  Rent control.
850.155  Securing owner's responsibilities.

    Authority: 42 U.S.C. 1437o, 3535(d).

    Source: 49 FR 24641, June 14, 1984, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 850.1  Applicability and savings clause.

    (a) Applicability. This part implements the Housing Development 
Grant Program contained in section 17 of the United States Housing Act 
of 1937 (42 U.S.C. 1437o). The Program authorized the Secretary to make 
housing development grants to support the new construction or 
substantial rehabilitation of real property to be used primarily for 
residential rental purposes. Section 289(b)(1) of the Cranston-Gonzalez 
National Affordable Housing Act (42 U.S.C. 12839) repealed section 17 
effective October 1, 1991. Section 289(a) prohibited new grants under 
the Housing Development Grant Program except for projects for which 
binding commitments had been entered into prior to October 1, 1991.
    (b) Savings clause. Any grant made pursuant to a binding commitment 
entered into before October 1, 1991 will continue to be governed by 
subparts A

[[Page 44]]

through E of this part in effect immediately before April 1, 1996, and 
by subpart F of this part as currently in effect.

[61 FR 7944, Feb. 29, 1996]

Subparts B-E [Reserved]



                      Subpart F--Project Management



Sec. 850.151  Project restrictions.

    (a) Owner-grantee agreement. The grantee and the owner must enter 
into an agreement that requires the owner (including its successors in 
interest) to carry out the requirements of this section and of the grant 
agreement, as appropriate. The grantee-owner agreement must require the 
grantee to monitor (where required) and to take appropriate legal action 
to enforce compliance with the owner's responsibilities thereunder. The 
owner's compliance with its obligations under this section must be 
secured by a mortgage or other security instrument meeting the 
requirements of Sec. 850.155. Nothing in this section shall preclude 
enforcement by the Federal government of grant agreement provisions, 
civil rights statutes, or other provisions of law that apply to the 
Housing Development Grant Program.
    (b) Restriction on conversion. The owner shall not convert the units 
in the project to condominium ownership or to a form of cooperative 
ownership that is not eligible to receive a housing development grant, 
during the 20-year period from the date on which the units in the 
project are available for occupancy.
    (c) Tenant selection. The owner shall determine the eligibility of 
applicants for lower income units in accordance with the requirements of 
24 CFR parts 812 and 813, including the provisions of these parts 
concerning citizenship or eligible immigration status and income limits, 
and certain assistance to mixed families (families whose members include 
those with eligible immigration status, and those without eligible 
immigration status.). The owner shall not, during the 20-year period 
from the date on which the units in the project are available for 
occupancy, discriminate against prospective tenants on the basis of 
their receipt of, or eligibility for, housing assistance under any 
Federal, State, or local housing assistance program or, except for an 
elderly housing project, on the basis that they have a minor child or 
children who will be living with them.
    (d) Restriction on leasing assisted units. The owner shall assure 
that the percentage of low-income units specified in the grant agreement 
is occupied, or is available for occupancy, by low-income households 
during the period beginning on the date on which the units in the 
project are available for occupancy through 20 years from the date on 
which 50 percent of the units are occupied. The owner may lease a low-
income unit only to a tenant that is a low-income household at the time 
of its initial occupancy. An owner may continue to lease a low-income 
unit to a tenant that ceases to qualify as a low-income household only 
as provided in paragraph (f) of this section.
    (e) Low-income unit rent. (1) Section 17(d)(8)(A) of the U.S. 
Housing Act of 1937 prohibits the rents for low-income units from 
exceeding ``30 per centum of the adjusted income of a family whose 
income equals 50 per centum of the median income for the area, as 
determined by the Secretary with adjustments for smaller and larger 
families.'' This paragraph describes how these maximum rent 
determinations are made.
    (2) The maximum rents that may be charged for low-income units are 
based on the size of the unit by number of bedrooms, and are calculated 
in accordance with the following procedure. For each unit size, HUD will 
provide the Section 8 very low-income limits. HUD will also provide 
income adjustments for each unit size, consistent with 24 CFR part 813. 
An adjusted income amount for each unit size is calculated by the owner 
or grantee by subtracting the income adjustment from the Section 8 
limit. The adjusted income amount is multiplied by 30 percent and 
divided by 12 to obtain the maximum monthly gross rent for each low-
income unit. A monthly allowance for the utilities and services 
(excluding telephone) to be paid by the tenant is subtracted from the 
maximum monthly gross rent to obtain the maximum

[[Page 45]]

monthly rent that may be charged for low-income units. Information to be 
provided by HUD will be available from the responsible HUD Field Office.
    (3) The initial monthly allowance for utilities and services to be 
paid by the tenant must be approved by HUD. Subsequent calculations of 
this allowance must be approved by the grantee in connection with its 
review and approval of rent schedules under paragraph (e)(4) of this 
section. The maximum monthly rent must be recalculated annually, and may 
change as changes in the Section 8 very low-income limit, the income 
adjustments, or the monthly allowance for utilities and services 
warrant.
    (4) The grantee must review and approve any schedule of rents 
proposed by the owner for low-income units. Any schedule submitted by an 
owner within the permissible maximum will be deemed approved, unless the 
grantee informs the owner, within 60 days after receiving the schedule, 
that it is disapproved.
    (5) Any increase in rents for low-income units is subject to the 
provisions of outstanding leases, in any event, the owner must provide 
tenants of those units not less than 30 days prior written notice before 
implementing any increase in rents.
    (f) Reexamination of tenant income and composition. (1) The owner 
shall reexamine the income of each tenant household living in low-income 
units at least once a year. At the first regular reexamination after 
June 19, 1995 the owner shall follow the requirements of 24 CFR part 812 
concerning obtaining and processing evidence of citizenship or eligible 
immigration status of all family members. Thereafter, at each regular 
reexamination, the owner shall follow the requirements of 24 CFR part 
812 concerning verification of the immigration status of any new family 
member.
    (2) If this reexamination indicates that the tenant no longer 
qualifies as a low-income household, the owner must take one of the 
following actions, as appropriate: (i) If the unit occupied by the 
tenant must be leased to a low- income household to maintain the 
percentage of low-income units specified in the grant agreement, the 
owner must notify the tenant that it must move when the current lease 
expires or six months after the date of the notification, whichever is 
later; (ii) If the owner can meet this percentage without the unit 
occupied by the tenant (for example, by designating another comparable 
unit as a low-income unit), the owner may continue to lease to that 
tenant, but is free to renegotiate the rent at the expiration of the 
current lease.
    (3) For provisions related to termination of assistance for failure 
to establish citizenship or eligible immigration status, see 24 CFR 
812.9, and also 24 CFR 812.10 for provisions related to certain 
assistance to mixed families (families whose members include those with 
eligible immigration status, and those without eligible immigration 
status) in lieu of termination of assistance, and for provisions related 
to deferral of termination of assistance.
    (g) Affirmative fair housing marketing. Marketing must be done in 
accordance with the HUD-approved Affirmative Fair Housing Marketing 
Plan, Form HUD-935.2, and all fair housing and equal opportunity 
requirements. The purpose of the Plan and the requirements is to provide 
for affirmative marketing through the provision of information regarding 
the availability of units in projects assisted. Affirmative marketing 
steps consist of good faith efforts to provide information and otherwise 
attract eligible persons from all racial, ethnic and gender groups in 
the housing market area to the available housing.
    (h) Management and maintenance functions. The owner must perform all 
management and maintenance functions in compliance with equal 
opportunity requirements. These functions include selection of tenants, 
reexamination of family income, evictions and other terminations of 
tenancy, and all ordinary and extraordinary maintenance and repairs, 
including replacement of capital items.
    (i) Residency preferences. Local residency requirements are 
prohibited. Local residency preferences may be applied in selecting 
tenants only to the extent that they are not inconsistent with 
affirmative fair housing marketing objectives and the owner's HUD-

[[Page 46]]

approved AFHM Plan. With respect to any residency preference, persons 
expected to reside in the community as a result of current or planned 
employment will be treated as residents.

[49 FR 24641, June 14, 1984, as amended at 60 FR 14841, Mar. 20, 1995]



Sec. 850.153  Rent control.

    A project constructed or substantially rehabilitated with a housing 
development grant is not subject to State or local rent control unless 
the rent control requirements or agreements (a) (1) were entered into 
under a State law or local ordinance of general applicability that was 
enacted and in effect in the jurisdiction before November 30, 1983 and 
(2) apply generally to rental housing projects not assisted under the 
Housing Development Grant Program, or (b) are imposed under this 
subpart. State and local rent controls expressly preempted by this 
section include, but are not limited to, rent laws or ordinances, rent 
regulating agreements, rent regulations, occupancy agreements, or 
financial penalties for failure to achieve certain occupancy or rent 
projections.



Sec. 850.155  Securing owner's responsibilities.

    Assistance provided under this part shall constitute a debt of the 
owner (including its successors in interest) to the grantee, and shall 
be secured by a mortgage or other security instrument. The debt shall be 
repayable in the event of a substantive, uncorrected violation by an 
owner of the obligations contained in paragraphs (b), (c), (d) and (e) 
of Sec. 850.151. The instruments securing this debt shall provide for 
repayment to the grantee in an amount equal to the total amount of 
housing development grant assistance outstanding, plus interest which is 
determined by the Secretary by adding two percent to the average yield 
on outstanding marketable long-term obligations of the United States 
during the month preceding the date on which assistance was made 
available. The amount to be repaid shall be reduced by 10 percent for 
each full year in excess of 10 years that intervened between the 
beginning of the term of the owner-grantee agreement and the violation.



PART 880--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM FOR NEW CONSTRUCTION--Table of Contents




                  Subpart A--Summary and Applicability

Sec.
880.101  General.
880.104  Applicability of part 880.
880.105  Applicability to proposals and projects under 24 CFR part 811.

              Subpart B--Definitions and Other Requirements

880.201  Definitions.
880.205  Limitation on distributions.
880.207  Property standards.
880.208  Financing.
880.211  Audit.

Subparts C-D [Reserved]

             Subpart E--Housing Assistance Payments Contract

880.501  The contract.
880.502  Term of contract.
880.503  Maximum annual commitment and project account.
880.504  Leasing to eligible families.
880.505  Contract administration and conversions.
880.506  Default by owner (private-owner/HUD and PHA-owner/HUD 
          projects).
880.507  Default by PHA and/or owner (private-owner/PHA projects).
880.508  Notice upon contract expiration.

                          Subpart F--Management

880.601  Responsibilities of owner.
880.602  Replacement reserve.
880.603  Selection and admission of assisted tenants.
880.604  Tenant rent.
880.605  Overcrowded and underoccupied units.
880.606  Lease requirements.
880.607  Termination of tenancy and modification of lease.
880.608  Security deposits.
880.609  Adjustment of contract rents.
880.610  Adjustment of utility allowances.
880.611  Conditions for receipt of vacancy payments.
880.612  Reviews during management period.
880.612a  Preference for occupancy by elderly families.

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), 12701, and 13611-
13619.

[[Page 47]]


    Source: 44 FR 59410, Oct. 15, 1979, unless otherwise noted.



                  Subpart A--Summary and Applicability



Sec. 880.101  General.

    (a) The purpose of the Section 8 program is to provide low-income 
families with decent, safe and sanitary rental housing through the use 
of a system of housing assistance payments. This part contains the 
policies and procedures applicable to the Section 8 new construction 
program. The assistance may be provided to public housing agency owners 
or to private owners either directly from HUD or through public housing 
agencies.
    (b) This part does not apply to projects developed under other 
Section 8 program regulations, including 24 CFR parts 881, 882, 883, 
884, and 885, except to the extent specifically stated in those parts. 
Portions of subparts E and F of this part 880 have been cross-referenced 
in 24 CFR parts 881 and 883.

[61 FR 13587, Mar. 27, 1996]



Sec. 880.104  Applicability of part 880.

    (a) Part 880, in effect as of November 5, 1979, applies to all 
proposals for which a notification of selection was not issued before 
the November 5, 1979 effective date of part 880. (See 24 CFR part 880, 
revised as of April 1, 1980.) Where a notification of selection was 
issued for a proposal before the November 5, 1979 effective date, part 
880, in effect as of November 5, 1979, applies if the owner notified HUD 
within 60 calendar days that the owner wished the provisions of part 
880, effective November 5, 1979, to apply and promptly brought the 
proposal into conformance.
    (b) Subparts E (Housing Assistance Payments Contract) and F 
(Management) of this part apply to all projects for which an Agreement 
was not executed before the November 5, 1979, effective date of part 
880. Where an Agreement was so executed:
    (1) The owner and HUD may agree to make the revised subpart E of 
this part applicable and to execute appropriate amendments to the 
Agreement and/or Contract.
    (2) The owner and HUD may agree to make the revised subpart F of 
this part applicable (with or without the limitation on distributions) 
and to execute appropriate amendments to the Agreement and/or Contract.
    (c) Section 880.607 (Termination of tenancy and modification of 
leases) applies to all families.
    (d) Notwithstanding the provisions of paragraph (b) of this section, 
the provisions of 24 CFR part 5 apply to all projects, regardless of 
when an Agreement was executed.

[61 FR 13587, Mar. 27, 1996, as amended at 65 FR 16722, Mar. 29, 2000]



Sec. 880.105  Applicability to proposals and projects under 24 CFR part 811.

    Where proposals and projects are financed with tax-exempt 
obligations under 24 CFR part 811, the provisions of part 811 will be 
complied with in addition to all requirements of this part. In the event 
of any conflict between this part and part 811, part 811 will control.



              Subpart B--Definitions and Other Requirements



Sec. 880.201  Definitions.

    Annual Contributions Contract (ACC). As defined in part 5 of this 
title.
    Agency. As defined in 24 CFR part 883.
    Agreement. (Agreement to Enter into Housing Assistance Payments 
Contract) The Agreement between the owner and the contract administrator 
which provides that, upon satisfactory completion of the project in 
accordance with the HUD-approved final proposal, the administrator will 
enter into the Contract with the owner.
    Annual income. As defined in part 5 of this title.
    Contract. (Housing Assistance Payments Contract) The Contract 
entered into by the owner and the contract administrator upon 
satisfactory completion of the project, which sets forth the rights and 
duties of the parties with respect to the project and the payments under 
the Contract.
    Contract Administrator. The entity which enters into the Contract 
with the owner and is responsible for monitoring performance by the 
owner. The contract administrator is a PHA in the

[[Page 48]]

case of private-owner/PHA projects, and HUD in private-owner/HUD and 
PHA-owner/HUD projects.
    Contract rent. The total amount of rent specified in the contract as 
payable to the owner for a unit.
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary if 
it meets the physical condition requirements in 24 CFR part 5, subpart 
G.
    Drug-related criminal activity. The illegal manufacture, sale, 
distribution, use or possession with the intent to manufacture, sell, 
distribute, or use, of a controlled substance as defined in section 102 
of the Controlled Substances Act, 21 U.S.C. 802.
    Elderly family. As defined in part 5 of this title.
    Fair Market Rent (FMR). As defined in part 5 of this title.
    Family. As defined in part 5 of this title.
    Final proposal. The detailed description of a proposed project to be 
assisted under this part, which an owner submits after selection of the 
preliminary proposal, except where a preliminary proposal is not 
required under Sec. 880.303(c). (The final proposal becomes an exhibit 
to the Agreement and is the standard by which HUD judges acceptable 
construction of the project.)
    Housing assistance payment. The payment made by the contract 
administrator to the owner of an assisted unit as provided in the 
contract. Where the unit is leased to an eligible family, the payment is 
the difference between the contract rent and the tenant rent. An 
additional payment is made to the family when the utility allowance is 
greater than the total tenant payment. A housing assistance payment, 
known as a ``vacancy payment''. may be made to the owner when an 
assisted unit is vacant, in accordance with the terms of the contract.
    HUD. Department of Housing and Urban Development.
    Independent Public Accountant. A Certified Public Accountant or a 
licensed or registered public accountant, having no business 
relationship with the owner except for the performance of audit, systems 
work and tax preparation. If not certified, the Independent Public 
Accountant must have been licensed or registered by a regulatory 
authority of a State or other political subdivision of the United States 
on or before December 31, 1970. In States that do not regulate the use 
of the title ``public accountant,'' only Certified Public Accountants 
may be used.
    Low income family. As defined in part 5 of this title.
    NOFA. As defined in part 5 of this title.
    Owner. Any private person or entity (including a cooperative) or a 
public entity which qualifies as a PHA, having the legal right to lease 
or sublease newly constructed dwelling units assisted under this part. 
The term owner also includes the person or entity submitting a proposal 
under this part.
    Partially-assisted Project. A project for non-elderly families under 
this part which includes more than 50 units of which 20 percent or fewer 
are assisted.
    PHA-Owner/HUD Project. A project under this part which is owned by a 
PHA. For this type of project, the Agreement and the Contract are 
entered into by the PHA, as owner, and HUD, as contract administrator.
    Private-Owner/HUD Project. A project under this part which is owned 
by a private owner. For this type of project, the Agreement and Contract 
are entered into by the private owner, as owner, and HUD, as contract 
administrator.
    Private-Owner/PHA Project. A project under this part which is owned 
by a private owner. For this type of project, the Agreement and Contract 
are entered into by the private owner, as owner, and the PHA, as 
contract administrator, pursuant to an ACC between the PHA and HUD. The 
term also covers the situation where the ACC is with one PHA and the 
owner is another PHA.
    Project Account. A specifically identified and segregated account 
for each project which is established in accordance with Sec. 880.503(b) 
out of the amounts by which the maximum annual commitment exceeds the 
amount actually paid out under the Contract or ACC, as applicable, each 
year.
    Public Housing Agency (PHA). As defined in part 5 of this title.
    Rent. In the case of an assisted unit in a cooperative project, rent 
means

[[Page 49]]

the carrying charges payable to the cooperative with respect to 
occupancy of the unit.
    Replacement cost. The estimated construction cost of the project 
when the proposed improvements are completed. The replacement cost may 
include the land, the physical improvements, utilities within the 
boundaries of the land, architect's fees, and miscellaneous charges 
incident to construction as approved by the Assistant Secretary.
    Secretary. The Secretary of Housing and Urban Development (or 
designee).
    Small Project. A project for non-elderly families under this part 
which includes a total of 50 or fewer (assisted and unassisted) units.
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.
    Vacancy payment. The housing assistance payment made to the owner by 
the contract administrator for a vacant assisted unit if certain 
conditions are fulfilled as provided in the Contract. The amount of the 
vacancy payment varies with the length of the vacancy period and is less 
after the first 60 days of any vacancy.
    Very low income family. As defined in part 5 of this title.

[44 FR 59410, Oct. 15, 1979, as amended at 45 FR 18923, Mar. 24, 1980; 
48 FR 12703, Mar. 28, 1983; 49 FR 6714, Feb. 23, 1984; 49 FR 17449, Apr. 
24, 1984; 49 FR 19943, May 10, 1984; 61 FR 5212, Feb. 9, 1996; 61 FR 
13587, Mar. 27, 1996; 61 FR 47382, Sept. 6, 1996; 63 FR 46578, Sept. 1, 
1998; 65 FR 16722, Mar. 29, 2000]



Sec. 880.205  Limitation on distributions.

    (a) Non-profit owners are not entitled to distributions of project 
funds.
    (b) For the life of the Contract, project funds may only be 
distributed to profit-motivated owners at the end of each fiscal year of 
project operation following the effective date of the Contract after all 
project expenses have been paid, or funds have been set aside for 
payment, and all reserve requirements have been met. The first year's 
distribution may not be made until cost certification, where applicable, 
is completed. Distributions may not exceed the following maximum 
returns:
    (1) For projects for elderly families, the first year's distribution 
will be limited to 6 percent on equity. The Assistant Secretary may 
provide for increases in subsequent years' distributions on an annual or 
other basis so that the permitted return reflects a 6 percent return on 
the value in subsequent years, as determined by HUD, of the approved 
initial equity. Any such adjustment will be made by Notice in the 
Federal Register.
    (2) For projects for non-elderly families, the first year's 
distribution will be limited to 10 percent on equity. The Assistant 
Secretary may provide for increases in subsequent years' distributions 
on an annual or other basis so that the permitted return reflects a 10 
percent return on the value in subsequent years, as determined by HUD, 
of the approved initial equity. Any such adjustment will be made by 
Notice in the Federal Register.
    (c) For the purpose of determining the allowable distribution, an 
owner's equity investment in a project is deemed to be 10 percent of the 
replacement cost of the part of the project attributable to dwelling use 
accepted by HUD at cost certification (see Sec. 880.405) unless the 
owner justifies a higher equity contribution by cost certification 
documentation in accordance with HUD mortgage insurance procedures.
    (d) Any short-fall in return may be made up from surplus project 
funds in future years.
    (e) If HUD determines at any time that project funds are more than 
the amount needed for project operations, reserve requirements and 
permitted distribution, HUD may require the excess to be placed in an 
account to be used to reduce housing assistance payments or for other 
project purposes. Upon termination of the Contract, any excess funds 
must be remitted to HUD.
    (f) Owners of small projects or partially-assisted projects are 
exempt from the limitation on distributions contained in paragraphs (b) 
through (d) of this section.
    (g) In the case of HUD-insured projects, the provisions of this 
section

[[Page 50]]

will apply instead of the otherwise applicable mortgage insurance 
program provisions.
    (h) HUD may permit increased distributions of surplus cash, in 
excess of the amounts otherwise permitted, to profit-motivated owners 
who participate in a HUD-approved initiative or program to preserve 
below-market housing stock. The increased distributions will be limited 
to a maximum amount based on market rents and calculated according to 
HUD instructions. Funds that the owner is authorized to retain under 
section 236(g)(2) of the National Housing Act are not considered 
distributions to the owner.
    (i) Any State or local law or regulation that restricts 
distributions to an amount lower than permitted by this section or 
permitted by the Commissioner under this paragraph (i) is preempted to 
the extent provided by section 524(f) of the Multifamily Assisted 
Housing Reform and Affordability Act of 1997.

[44 FR 59410, Oct. 15, 1979, as amended at 45 FR 18923, Mar. 24, 1980; 
49 FR 6714, Feb. 23, 1984; 61 FR 5212, Feb. 9, 1996; 65 FR 61074, Oct. 
13, 2000]



Sec. 880.207  Property standards.

    Projects must comply with:
    (a) [Reserved]
    (b) In the case of manufactured homes, the Federal Manufactured Home 
Construction and Safety Standards, pursuant to Title VI of the Housing 
and Community Development Act of 1974, and 24 CFR part 3280;
    (c) In the case of congregate or single room occupant housing, the 
appropriate HUD guidelines and standards;
    (d) HUD requirements pursuant to section 209 of the Housing and 
Community Development Act of 1974 for projects for the elderly or 
handicapped;
    (e) HUD requirements pertaining to noise abatement and control; and
    (f) Applicable State and local laws, codes, ordinances and 
regulations.
    (g) Smoke detectors. (1) Performance requirement. After October 30, 
1992, each dwelling unit must include at least one battery-operated or 
hard-wired smoke detector, in proper working condition, on each level of 
the unit. If the unit is occupied by hearing-impaired persons, smoke 
detectors must have an alarm system, designed for hearing-impaired 
persons, in each bedroom occupied by a hearing-impaired person.
    (2) Acceptability criteria. The smoke detector must be located, to 
the extent practicable, in a hallway adjacent to a bedroom, unless the 
unit is occupied by a hearing-impaired person, in which case each 
bedroom occupied by a hearing-impaired person must have an alarm system 
connected to the smoke detector installed in the hallway.

[44 FR 59410, Oct. 15, 1979, as amended at 50 FR 9269, Mar. 7, 1985; 57 
FR 33851, July 30, 1992; 63 FR 46578, Sept. 1, 1998]



Sec. 880.208  Financing.

    (a) Types of financing. Any type of construction financing and long-
term financing may be used, including:
    (1) Conventional loans from commercial banks, savings banks, savings 
and loan associations, pension funds, insurance companies or other 
financial institutions;
    (2) Mortgage insurance programs under the National Housing Act;
    (3) Mortgage and loan programs of the Farmers' Home Administration 
of the Department of Agriculture compatible with the Section 8 program; 
and
    (4) Financing by tax-exempt bonds or other obligations.
    (b) HUD approval. HUD must approve the terms and conditions of the 
financing to determine consistency with these regulations and to assure 
they do not purport to pledge or give greater rights or funds to any 
party than are provided under the Agreement, Contract, and/or ACC. Where 
the project is financed with tax-exempt obligations, the terms and 
conditions will be approved in accordance with the following:
    (1) An issuer of obligations that are tax-exempt under any provision 
of Federal law or regulation, the proceeds of the sale of which are to 
be used to purchase GNMA mortgage-backed securities issued by the 
mortgagee of the Section 8 project, will be subject to 24 CFR part 811, 
subpart B.
    (2) Issuers of obligations that are tax-exempt under Section 11(b) 
of the U.S. Housing Act of 1937 will be subject to 24 CFR part 811, 
subpart A if paragraph (b)(1) of this section is not applicable.

[[Page 51]]

    (3) Issuers of obligations that are tax-exempt under any provision 
of Federal law or regulation other than section 11(b) of the U.S. 
Housing Act of 1937 will be subject to 24 CFR part 811, subpart A if 
paragraph (b)(1) of this section is not applicable, except that such 
issuers that are State Agencies qualified under 24 CFR part 883 are not 
subject to 24 CFR part 811 subpart A and are subject solely to the 
requirements of 24 CFR part 883 with regard to the approval of tax-
exempt financing.
    (c) Pledge of Contracts. An owner may pledge, or offer as security 
for any loan or obligation, an Agreement, Contract or ACC entered into 
pursuant to this part: Provided, however, That such financing is in 
connection with a project constructed pursuant to this part and approved 
by HUD. Any pledge of the Agreement, Contract, or ACC, or payments 
thereunder, will be limited to the amounts payable under the Contract or 
ACC in accordance with its terms. If the pledge or other document 
provides that all payments will be paid directly to the mortgagee or the 
trustee for bondholders, the mortgagee or trustee will make all payments 
or deposits required under the mortgage or trust indenture or HUD 
regulations and remit any excess to the owner.
    (d) Foreclosure and other transfers. In the event of foreclosure, 
assignment or sale approved by HUD in lieu of foreclosure, or other 
assignment or sale approved by HUD:
    (1) The Agreement, the Contract and the ACC, if applicable, will 
continue in effect, and
    (2) Housing assistance payments will continue in accordance with the 
terms of the Contract.
    (e) Financing of manufactured home parks. In the case of a newly 
constructed manufactured home park, the principal amount of any mortgage 
attributable to the rental spaces in the park may not exceed an amount 
per space determined in accordance with Sec. 207.33(b) of this title.

[44 FR 59410, Oct. 15, 1979, as amended at 45 FR 62797, Sept. 22, 1980; 
48 FR 12704, Mar. 28, 1983; 49 FR 17449, Apr. 24, 1984]



Sec. 880.211  Audit.

    (a) Where a State or local government is the eligible owner of a 
project or a contract administrator under Sec. 880.505 receiving 
financial assistance under this part, the audit requirements in 24 CFR 
part 44 shall apply.
    (b) Where a nonprofit organization is the eligible owner of a 
project, receiving financial assistance under this part, the audit 
requirements in 24 CFR part 45 shall apply.

[50 FR 39091, Sept. 27, 1985; 51 FR 30480, Aug. 27, 1986; 57 FR 33256, 
July 27, 1992]

Subparts C-D [Reserved]



             Subpart E--Housing Assistance Payments Contract



Sec. 880.501  The contract.

    (a) Contract. The Housing Assistance Payments Contract sets forth 
rights and duties of the owner and the contract administrator with 
respect to the project and the housing assistance payments. The owner 
and contract administrator execute the Contract in the form prescribed 
by HUD upon satisfactory completion of the project.
    (b) [Reserved]
    (c) Housing Assistance Payments to Owners under the Contract. The 
housing assistance payments made under the Contract are:
    (1) Payments to the owner to assist eligible families leasing 
assisted units, and
    (2) Payments to the owner for vacant assisted units (``vacancy 
payments'') if the conditions specified in Sec. 880.610 are satisfied.

The housing assistance payments are made monthly by the contract 
administrator upon proper requisition by the owner, except payments for 
vacancies of more than 60 days, which are made semi-annually by the 
contract administrator upon requisition by the owner.
    (d) Amount of Housing Assistance Payments to Owner. (1) The amount 
of the housing assistance payment made to the owner of a unit being 
leased by an eligible family is the difference between the contract rent 
for the unit and the tenant rent payable by the family.
    (2) A housing assistance payment will be made to the owner for a 
vacant assisted unit in an amount equal to 80 percent of the contract 
rent for the

[[Page 52]]

first 60 days of vacancy, subject to the conditions in Sec. 880.611. If 
the owner collects any tenant rent or other amount for this period 
which, when added to this vacancy payment, exceeds the contract rent, 
the excess must be repaid as HUD directs.
    (3) For a vacancy that exceeds 60 days, a housing assistance payment 
for the vacant unit will be made, subject to the conditions in 
Sec. 880.611, in an amount equal to the principal and interest payments 
required to amortize that portion of the debt attributable to the vacant 
unit for up to 12 additional months.
    (e) Payment of utility reimbursement. Where applicable, the owner 
will pay a utility reimbursement in accordance with Sec. 5.632 of this 
title. HUD will provide funds for the utility reimbursement to the owner 
in trust solely for the purpose of paying the utility reimbursement.

[44 FR 59410, Oct. 15, 1979, as amended at 49 FR 19943, May 10, 1984; 61 
FR 13587, Mar. 27, 1996; 65 FR 16722, Mar. 29, 2000]



Sec. 880.502  Term of contract.

    (a) Term (except for Manufactured Home Parks). The term of the 
contract will be as follows:
    (1) For assisted units in a project financed with the aid of a loan 
insured or co-insured by the Federal government or a loan made, 
guaranteed or intended for purchase by the Federal government, the term 
will be 20 years.
    (2) For assisted units in a project financed other than as described 
in paragraph (a)(1) of this section, the term will be the lesser of (i) 
the term of the project's financing (but not less than 20 years), or 
(ii) 30 years, or 40 years if (A) the project is owned or financed by a 
loan or loan guarantee from a state or local agency, (B) the project is 
intended for occupancy by non-elderly families and (C) the project is 
located in an area designated by HUD as one requiring special financing 
assistance.
    (b) Term for Manufactured Home Parks. For manufactured home units or 
spaces in newly constructed manufactured home parks, the term of the 
Contract will be 20 years.
    (c) Staged Projects. If the project is completed in stages, the term 
of the Contract must relate separately to the units in each stage. The 
total Contract term for the units in all stages, beginning with the 
effective date of the Contract for the first stage, may not exceed the 
overall maximum term allowable for any one unit under this section, plus 
two years.

[44 FR 59410, Oct. 15, 1979, as amended at 45 FR 18924, Mar. 24, 1980; 
48 FR 12705, Mar. 28, 1983; 49 FR 17449, Apr. 24, 1984]



Sec. 880.503  Maximum annual commitment and project account.

    (a) Maximum Annual Commitment. Where HUD is the contract 
administrator, the maximum annual amount that may be committed under the 
Contract is the total of the contract rents and utility allowances for 
all assisted units in the project. Where the PHA is the contract 
administrator, the maximum annual contribution that may be contracted 
for in the ACC is the total of the contract rents and utility allowances 
for all assisted units plus an administrative fee for the PHA as 
approved by HUD.
    (b) Project Account. (1) A project account will be established and 
maintained by HUD as a specifically identified and segregated account 
for each project. The account will be established out of the amounts by 
which the maximum annual commitment exceeds the amount actually paid out 
under the Contract or ACC each year. Payments will be made from this 
account for housing assistance payments (and fees for PHA 
administration, if appropriate) when needed to cover increases in 
contract rents or decreases in tenant rents and for other cost 
specifically approved by the Secretary.
    (2) Whenever a HUD-approved estimate of required annual payments 
under the Contract or ACC for a fiscal year exceeds the maximum annual 
commitment and would cause the amount in the project account to be less 
than 40 percent of the maximum, HUD will, within a reasonable period of 
time, take such additional steps authorized by Section 8(c)(6) of the 
U.S. Housing Act of 1937, as may be necessary, to assure that payments 
under the Contract or ACC will be adequate to cover increases in 
Contract rents and decreases in tenant rents.

[[Page 53]]



Sec. 880.504  Leasing to eligible families.

    (a) Availability of units for occupancy by Eligible Families. During 
the term of the Contract, an owner shall make available for occupancy by 
eligible families the total number of units for which assistance is 
committed under the Contract. For purposes of this section, making units 
available for occupancy by eligible families means that the owner: (1) 
Is conducting marketing in accordance with Sec. 880.601(a); (2) has 
leased or is making good faith efforts to lease the units to eligible 
and otherwise acceptable families, including taking all feasible actions 
to fill vacancies by renting to such families; and (3) has not rejected 
any such applicant family except for reasons acceptable to the contract 
administrator. If the owner is temporarily unable to lease all units for 
which assistance is committed under the Contract to eligible families, 
one or more units may be leased to ineligible families with the prior 
approval of the contract administrator in accordance with HUD 
guidelines. Failure on the part of the owner to comply with these 
requirements is a violation of the Contract and grounds for all 
available legal remedies, including specific performance of the 
Contract, suspension or debarment from HUD programs, and reduction of 
the number of units under the Contract as set forth in paragraph (b) of 
this section.
    (b) Reduction of number of units covered by Contract. (1) Part 880 
and 24 CFR part 881 projects. HUD (or the PHA at the direction of HUD, 
as appropriate) may reduce the number of units covered by the Contract 
to the number of units available for occupancy by eligible families if:
    (i) The owner fails to comply with the requirements of paragraph (a) 
of this section; or
    (ii) Notwithstanding any prior approval by the contract 
administrator to lease such units to ineligible families, HUD (or the 
PHA at the direction of HUD, as appropriate) determines that the 
inability to lease units to eligible families is not a temporary 
problem.
    (2) For 24 CFR part 883 projects. HUD and the Agency may reduce the 
number of units covered by the Contract to the number of units available 
for occupancy by eligible families if:
    (i) The owner fails to comply with the requirements of paragraph (a) 
of this section; or
    (ii) Notwithstanding any prior approval by the Agency to lease such 
units to ineligible families, HUD and the Agency determine that the 
inability to lease units to eligible families is not a temporary 
problem.
    (c) Restoration. For this part 880 and 24 CFR part 881 projects, HUD 
will agree to an amendment of the ACC or the Contract, as appropriate, 
to provide for subsequent restoration of any reduction made pursuant to 
paragraph (b) of this section, and for 24 CFR part 883 projects, HUD 
will agree to an amendment of the ACC and the Agency may agree to an 
amendment to the Contract to provide for subsequent restoration of any 
reduction made pursuant to paragraph (b) of this section, if:
    (1) HUD determines (for 24 CFR part 883 projects, HUD and the Agency 
determine) that the restoration is justified by demand,
    (2) The owner otherwise has a record of compliance with his 
obligations under the Contract, and
    (3) Contract and budget authority is available.
    (d) Applicability. In accordance with section 555 of the Cranston-
Gonzalez National Affordable Housing Act of 1990, paragraphs (a) and (b) 
of this section apply to all Contracts. An owner who had leased an 
assisted unit to an ineligible family consistent with the regulations in 
effect at the time will continue to lease the unit to that family. 
However, the owner must make the unit available for occupancy by an 
eligible family when the ineligible family vacates the unit.
    (e) Termination of assistance for failure to submit evidence of 
citizenship or eligible immigration status. If an owner who is subject 
to paragraphs (a) and (b) of this section is required to terminate 
housing assistance payments for the family in accordance with 24 CFR 
part 5 because the owner determines that the entire family does not have 
U.S. citizenship or eligible immigration status, the owner may allow 
continued occupancy of the unit by the family without Section 8 
assistance following the

[[Page 54]]

termination of assistance, or if the family constitutes a mixed family, 
as defined in 24 CFR part 5, the owner shall comply with the provisions 
of 24 CFR part 5 concerning assistance to mixed families, and deferral 
of termination of assistance.

[44 FR 59410, Oct. 15, 1979, as amended at 49 FR 31397, Aug. 7, 1984; 51 
FR 11224, Apr. 1, 1986; 53 FR 846, Jan. 13, 1988; 53 FR 6601, Mar. 2, 
1988; 59 FR 13652, Mar. 23, 1994; 60 FR 14841, Mar. 20, 1995; 61 FR 
13587, Mar. 27, 1996]



Sec. 880.505  Contract administration and conversions.

    (a) Contract administration. For private-owner/PHA projects, the PHA 
is primarily responsible for administration of the Contract, subject to 
review and audit by HUD. For private-owner/HUD and PHA-owner/HUD 
projects, HUD is responsible for administration of the Contract.The PHA 
or HUD may contract with another entity for the performance of some or 
all of its contract administration functions.
    (b) PHA fee for Contract administration. A PHA will be entitled to a 
reasonable fee, determined by HUD, for administering a Contract except 
under certain circumstances (see 24 CFR part 883) where a state housing 
finance agency is the PHA and finances the project.
    (c) Conversion of Projects from one Ownership/Contractual 
arrangement to another. Any project may be converted from one ownership/
contractual arrangement to another (for example, from a private-owner/
HUD to a private-owner/PHA project) if:
    (1) The owner, the PHA and HUD agree,
    (2) HUD determines that conversion would be in the best interest of 
the project, and
    (3) In the case of conversion from a private-owner/HUD to a private-
owner/PHA project, contract authority is available to cover the PHA fee 
for administering the Contract.



Sec. 880.506  Default by owner (private-owner/HUD and PHA-owner/HUD projects).

    The Contract will provide:
    (a) That if HUD determines that the owner is in default under the 
Contract, HUD will notify the owner and the lender of the actions 
required to be taken to cure the default and of the remedies to be 
applied by HUD including specific performance under the Contract, 
reduction or suspension of housing assistance payments and recovery of 
overpayments, where appropriate; and
    (b) That if the owner fails to cure the default, HUD has the right 
to terminate the Contract or to take other corrective action.



Sec. 880.507  Default by PHA and/or owner (private-owner/PHA projects).

    (a) Rights of Owner if PHA defaults under Agreement or Contract. The 
ACC, the Agreement and the Contract will provide that, in the event of 
failure of the PHA to comply with the Agreement or Contract with the 
owner, the owner will have the right, if he is not in default, to demand 
that HUD investigate. HUD will first give the PHA a reasonable 
opportunity to take corrective action. If HUD determines that a 
substantial default exists, HUD will assume the PHA's rights and 
obligations under the Agreement or Contract and meet the obligations of 
the PHA under the Agreement or Contract including the obligations to 
enter into the Contract.
    (b) Rights of HUD if PHA defaults under ACC. The ACC will provide 
that, if the PHA fails to comply with any of its obligations, HUD may 
determine that there is a substantial default and require the PHA to 
assign to HUD all of its rights and interests under the Contract; 
however, HUD will continue to pay annual contributions in accordance 
with the terms of the ACC and the Contract. Before determining that a 
PHA is in substantial default, HUD will give the PHA a reasonable 
opportunity to take corrective action.
    (c) Rights of PHA and HUD if Owner defaults under Contract. (1) The 
Contract will provide that if the PHA determines that the owner is in 
default under the Contract, the PHA will notify the owner and lender, 
with a copy to HUD, (i) of the actions required to be taken to cure the 
default, (ii) of the remedies to be applied by the PHA including 
specific performance under the

[[Page 55]]

Contract, abatement of housing assistance payments and recovery of 
overpayments, where appropriate, and (iii) that if he fails to cure the 
default, the PHA has the right to terminate the Contract or to take 
other corrective action, in its discretion or as directed by HUD.
    (2) If the PHA is the lender, the Contract will also provide that 
HUD has an independent right to determine whether the owner is in 
default and to take corrective action and apply appropriate remedies, 
except that HUD will not have the right to terminate the Contract 
without proceeding in accordance with paragraph (b) of this section.



Sec. 880.508  Notice upon contract expiration.

    (a) The Contract will provide that the owner will notify each 
assisted family, at least 90 days before the end of the Contract term, 
of any increase in the amount the family will be required to pay as rent 
which may occur as a result of its expiration. If the Contract is to be 
renewed but with a reduction in the number of units covered by it, this 
notice shall be given to each family who will no longer be assisted 
under the Contract.
    (b) The notice provided for in paragraph (a) of this section shall 
be accomplished by: (1) Sending a letter by first class mail, properly 
stamped and addressed, to the family at its address at the project, with 
a proper return address; and (2) serving a copy of the notice on any 
adult person answering the door at the leased dwelling unit, or if no 
adult responds, by placing the notice under or through the door, if 
possible, or else by affixing the notice to the door. Service shall not 
considered to be effective until both required notices have been 
accomplished. The date on which the notice shall be considered to be 
received by the family shall be the date on which the owner mails the 
first class letter provided for in this paragraph, or the date on which 
the notice provided for in this paragraph is properly given, whichever 
is later.
    (c) The notice shall advise each affected family that, after the 
expiration date of the Contract, the family will be required to bear the 
entire cost of the rent and that the owner will be free (to the extent 
the project is not otherwise regulated by HUD) to alter the rent without 
HUD approval, but subject to any applicable requirements or restrictions 
under the lease or under State or local law. The notice shall also 
state: (1) The actual (if known) or the estimated rent which will be 
charged following the expiration of the Contract; (2) the difference 
between the rent and the Total Tenant Payment toward rent under the 
Contract; and (3) the date the Contract will expire.
    (d) The owner shall give HUD a certification that families have been 
notified in accordance with this section with an example of the text of 
the notice attached.
    (e) This section applies to all Contracts entered into pursuant to 
an Agreement executed on or after October 1, 1981, or entered into 
pursuant to an Agreement executed before October 1, 1981, but renewed or 
amended on or after October 1, 1984.

[49 FR 31283, Aug. 6, 1984]



                          Subpart F--Management



Sec. 880.601  Responsibilities of owner.

    (a) Marketing. (1) The owner must commence diligent marketing 
activities in accordance with the Agreement not later than 90 days prior 
to the anticipated date of availability for occupancy of the first unit 
of the project.
    (2) Marketing must be done in accordance with the HUD-approved 
Affirmative Fair Housing Marketing Plan and all Fair Housing and Equal 
Opportunity requirements. The purpose of the Plan and requirements is to 
assure that eligible families of similar income in the same housing 
market area have an equal opportunity to apply and be selected for a 
unit in projects assisted under this part regardless of their race, 
color, creed, religion, sex or national origin.
    (3) With respect to non-elderly family units, the owner must 
undertake marketing activities in advance of marketing to other 
prospective tenants in order to provide opportunities to reside in the 
project to non-elderly families who are least likely to apply, as 
determined in the Affirmative Fair Housing Marketing Plan, and to non-

[[Page 56]]

elderly families expected to reside in the community by reason of 
current or planned employment.
    (4) At the time of Contract execution, the owner must submit a list 
of leased and unleased units, with justification for the unleased units, 
in order to qualify for vacancy payments for the unleased units.
    (b) Management and maintenance. The owner is responsible for all 
management functions, including determining eligibility of applicants, 
selection of tenants, reexamination and verification of family income 
and composition, determination of family rent (total tenant payment, 
tenant rent and utility reimbursement), collection of rent, termination 
of tenancy and eviction, and performance of all repair and maintenance 
functions (including ordinary and extraordinary maintenance), and 
replacement of capital items. (See part 5 of this title.) All functions 
must be performed in accordance with applicable equal opportunity 
requirements.
    (c) Contracting for services. (1) For this part 880 and 24 CFR part 
881 projects, with HUD approval, the owner may contract with a private 
or public entity (except the contract administrator) for performance of 
the services or duties required in paragraphs (a) and (b) of this 
section.
    (2) For 24 CFR part 883 projects, with approval of the Agency, the 
owner may contract with a private or public entity (but not with the 
Agency unless temporarily necessary for the Agency to protect its 
financial interest and to uphold its program responsibilities where no 
alternative management agent is immediately available) for performance 
of the services or duties required in paragraphs (a) and (b) of this 
section.
    (3) However, such an arrangement does not relieve the owner of 
responsibility for these services and duties.
    (d) Submission of financial and operating statements. After 
execution of the Contract, the owner must submit to the contract 
adminstrator:
    (1) Financial information in accordance with 24 CFR part 5, subpart 
H; and
    (2) Other statements as to project operation, financial conditions 
and occupancy as HUD may require pertinent to administration of the 
Contract and monitoring of project operations.
    (e) Use of project funds. (1) Project funds must be used for the 
benefit of the project, to make required deposits to the replacement 
reserve in accordance with Sec. 880.602 and to provide distributions to 
the owner as provided in Sec. 880.205, Sec. 881.205 of this chapter, or 
Sec. 883.306 of this chapter, as appropriate.
    (2) For this part 880 and 24 CFR part 881 projects:
    (i) Any remaining project funds must be deposited with the mortgagee 
or other HUD-approved depository in an interest-bearing residual 
receipts account. Withdrawals from this account will be made only for 
project purposes and with the approval of HUD.
    (ii) Partially-assisted projects are exempt from the provisions of 
this section.
    (iii) In the case of HUD-insured projects, the provisions of this 
paragraph (e) will apply instead of the otherwise applicable mortgage 
insurance provisions.
    (3) For 24 CFR part 883 projects:
    (i) Any remaining project funds must be deposited with the Agency, 
other mortgagee or other Agency-approved depository in an interest-
bearing account. Withdrawals from this account may be made only for 
project purposes and with the approval of the Agency.
    (ii) In the case of HUD-insured projects, the provisions of this 
paragraph will apply instead of the otherwise applicable mortgage 
insurance provisions, except in the case of partially-assisted projects 
which are subject to the applicable mortgage insurance provisions.

(Approved by the Office of Management and Budget under control number 
2502-0204)

[44 FR 59410, Oct 15, 1979, as amended at 45 FR 18924, Mar. 24, 1980; 51 
FR 11224, Apr. 1, 1986; 53 FR 846, Jan. 13, 1988; 53 FR 1145, Jan. 15, 
1988; 53 FR 6601, Mar. 2, 1988; 54 FR 39702, Sept. 27, 1989; 56 FR 7536, 
Feb. 22, 1991; 60 FR 14841, Mar. 20, 1995; 61 FR 13588, Mar. 27, 1996; 
63 FR 46593, Sept. 1, 1998; 65 FR 16722, Mar. 29, 2000]



Sec. 880.602  Replacement reserve.

    (a) A replacement reserve must be established and maintained in an 
interest-bearing account to aid in funding extraordinary maintenance and 
repair and replacement of capital items.

[[Page 57]]

    (1) Part 880 and 24 CFR part 881 projects. (i) For this part 880 and 
24 CFR part 811 projects, an amount equivalent to .006 of the cost of 
total structures, including main buildings, accessory buildings, garages 
and other buildings, or any higher rate as required by HUD from time to 
time, will be deposited in the replacement reserve annually. This amount 
will be adjusted each year by the amount of the automatic annual 
adjustment factor.
    (ii) The reserve must be built up to and maintained at a level 
determined by HUD to be sufficient to meet projected requirements. 
Should the reserve achieve that level, the rate of deposit to the 
reserve may be reduced with the approval of HUD.
    (iii) All earnings including interest on the reserve must be added 
to the reserve.
    (iv) Funds will be held by the mortgagee or trustee for bondholders, 
and may be drawn from the reserve and used only in accordance with HUD 
guidelines and with the approval of, or as directed by, HUD.
    (v) Partially-assisted part 880 and 24 CFR part 881 projects are 
exempt from the provisions of this section.
    (2) Part 883 of this chapter projects. (i) For 24 CFR part 883 
projects, an amount equivalent to at least .006 of the cost of total 
structures, including main buildings, accessory buildings, garages and 
other buildings, or any higher rate as required from time to time by:
    (A) The Agency, in the case of projects approved under 24 CFR part 
883, subpart D; or
    (B) HUD, in the case of all other projects, will be deposited in the 
replacement reserve annually. For projects approved under 24 CFR part 
883, subpart D, this amount may be adjusted each year by up to the 
amount of the automatic annual adjustment factor. For all projects not 
approved under 24 CFR part 883, subpart D, this amount must be adjusted 
each year by the amount of the automatic annual adjustment factor.
    (ii) The reserve must be built up to and maintained at a level 
determined to be sufficient by the Agency to meet projected 
requirements. Should the reserve achieve that level, the rate of deposit 
to the reserve may be reduced with the approval of the Agency.
    (iii) All earnings, including interest on the reserve, must be added 
to the reserve.
    (iv) Funds will be held by the Agency, other mortgagee or trustee 
for bondholders, as determined by the Agency, and may be drawn from the 
reserve and used only in accordance with Agency guidelines and with the 
approval of, or as directed by, the Agency.
    (v) The Agency may exempt partially-assisted projects approved under 
24 CFR part 883, subpart D, from the provisions of this section. All 
partially-assisted projects not approved under the Fast Track Procedures 
formerly in 24 CFR part 883, subpart D, are exempt from the provisions 
of this section.
    (b) In the case of HUD-insured projects, the provisions of this 
section will apply instead of the otherwise applicable mortgage 
insurance provisions, except in the case of partially-assisted insured 
projects which are subject to the applicable mortgage insurance 
provisions.

[61 FR 13588, Mar. 27, 1996]



Sec. 880.603  Selection and admission of assisted tenants.

    (a) Application. The owner must accept applications for admission to 
the project in the form prescribed by HUD. Both the owner (or designee) 
and the applicant must complete and sign the application. For this part 
880 and 24 CFR part 881 projects, on request, the owner must furnish 
copies of all applications to HUD and the PHA, if applicable. For 24 CFR 
part 883 projects, on request, the owner must furnish to the Agency or 
HUD copies of all applications received.
    (b) Determination of eligibility and selection of tenants. The owner 
is responsible for obtaining and verifying information related to 
income, and evidence related to citizenship and eligible immigration 
status in accordance with 24 CFR part 5, to determine whether the 
applicant is eligible for assistance in accordance with the requirements 
of 24 CFR part 5, and to select families for admission to the program, 
which includes giving selection preferences in

[[Page 58]]

accordance with 24 CFR part 5, subpart D.
    (1) If the owner determines that the family is eligible and is 
otherwise acceptable and units are available, the owner will assign the 
family a unit of the appropriate size in accordance with HUD standards. 
If no suitable unit is available, the owner will place the family on a 
waiting list for the project and notify the family of when a suitable 
unit may become available. If the waiting list is so long that the 
applicant would not be likely to be admitted for the next 12 months, the 
owner may advise the applicant that no additional applications are being 
accepted for that reason, provided the owner complies with the 
procedures for informing applicants about admission preferences as 
provided in 24 CFR part 5, subpart D.
    (2) If the owner determines that an applicant is ineligible on the 
basis of income or family composition, or because of failure to meet the 
disclosure and verification requirements for Social Security Numbers (as 
provided by 24 CFR part 5), or because of failure by an applicant to 
sign and submit consent forms for the obtaining of wage and claim 
information from State Wage Information Collection Agencies (as provided 
by 24 CFR parts 5 and 813), or that the owner is not selecting the 
applicant for other reasons, the owner will promptly notify the 
applicant in writing of the determination and its reasons, and that the 
applicant has the right to meet with the owner or managing agent in 
accordance with HUD requirements. Where the owner is a PHA, the 
applicant may request an informal hearing. If the PHA determines that 
the applicant is not eligible, the PHA will notify the applicant and 
inform the applicant that he or she has the right to request HUD review 
of the PHA's determination. The applicant may also exercise other rights 
if the applicant believes that he or she is being discriminated against 
on the basis of race, color, creed, religion, sex, or national origin. 
See 24 CFR part 5 for the informal review provisions for the denial of a 
Federal preference or the failure to establish citizenship or eligible 
immigration status and for notice requirements where assistance is 
terminated, denied, suspended, or reduced based on wage and claim 
information obtained by HUD from a State Wage Information Collection 
Agency.
    (3) Records on applicants and approved eligible families, which 
provide racial, ethnic, gender and place of previous residency data 
required by HUD, must be maintained and retained for three years.
    (c) Reexamination of family income and composition--(1) Regular 
reexaminations. The owner must reexamine the income and composition of 
all families at least every 12 months. After consultation with the 
family and upon verification of the information, the owner must make 
appropriate adjustments in the Total Tenant Payment in accordance with 
part 5 of this title and determine whether the family's unit size is 
still appropriate. The owner must adjust Tenant Rent and the Housing 
Assistance Payment to reflect any change in Total Tenant Payment and 
must carry out any unit transfer required by HUD. At the time of the 
annual reexamination of family income and composition, the owner must 
require the family to disclose the verify Social Security Numbers, as 
provided by 24 CFR part 5. For requirements regarding the signing and 
submitting of consent forms by families for the obtaining of wage and 
claim information from State Wage Information Collection Agencies, see 
24 CFR part 5. At the first regular reexamination after June 19, 1995, 
the owner shall follow the requirements of 24 CFR part 5 concerning 
obtaining and processing evidence of citizenship or eligible immigration 
status of all family members. Thereafter, at each regular reexamination, 
the owner shall follow the requirements of 24 CFR part 5 and verify the 
immigration status of any new family member.
    (2) Interim reexaminations. The family must comply with provisions 
in its lease regarding interim reporting of changes in income. If the 
owner receives information concerning a change in the family's income or 
other circumstances between regularly scheduled reexaminations, the 
owner must consult with the family and make any adjustments determined 
to be appropriate. Any change in the family's income or other 
circumstances that results in an adjustment in the Total

[[Page 59]]

Tenant Payment, Tenant Rent and Housing Assistance Payment must be 
verified. See 24 CFR part 5 for the requirements for the disclosure and 
verification of Social Security Numbers at interim reexaminations 
involving new family members. For requirements regarding the signing and 
submitting of consent forms for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, see 24 CFR 
part 5. At any interim reexamination after June 19, 1995, when a new 
family member has been added, the owner shall follow the requirements of 
24 CFR part 5 concerning obtaining and processing evidence of the 
citizenship or eligible immigration status of any new family member.
    (3) Continuation of housing assistance payments. A family's 
eligibility for Housing Assistance Payments continues until the Total 
Tenant Payment equals the contract rent plus any utility allowance. The 
termination of eligibility at such point will not affect the family's 
other rights under its lease, nor will such termination preclude the 
resumption of payments as a result of later changes in income, rents, or 
other relevant circumstances during the term of the Contract. However, 
eligibility also may be terminated in accordance with HUD requirements, 
for such reasons as failure to submit requested verification 
information, including failure to meet the disclosure and verification 
requirements for Social Security Numbers, as provided by 24 CFR part 5, 
or failure to sign and submit consent forms for the obtaining wage and 
claim information from State Wage Information Collection Agencies, as 
provided by 24 CFR part 5. See 24 CFR part 5 for provisions requiring 
termination of assistance for failure to establish citizenship or 
eligible immigration status and also for provisions concerning certain 
assistance for mixed families (families whose members include those with 
eligible immigration status, and those without eligible immigration 
status) in lieu of termination of assistance, and for provisions 
concerning deferral of termination of assistance.

(Approved by the Office of Management and Budget under control number 
2502-0204)

[61 FR 13589, Mar. 27, 1996, as amended at 65 FR 16722, Mar. 29, 2000]



Sec. 880.604  Tenant rent.

    The eligible Family pays the Tenant Rent directly to the Owner.

[49 FR 19943, May 10, 1984]



Sec. 880.605  Overcrowded and underoccupied units.

    If the contract administrator determines that because of change in 
family size an assisted unit is smaller than appropriate for the 
eligible family to which it is leased, or that the unit is larger than 
appropriate, housing assistance payments with respect to the unit will 
not be reduced or terminated until the eligible family has been 
relocated to an appropriate alternative unit. If possible, the owner 
will, as promptly as possible, offer the family an appropriate unit. The 
owner may receive vacancy payments for the vacated unit if he complies 
with the requirements of Sec. 880.611.



Sec. 880.606  Lease requirements.

    (a) Term of Lease. The term of the lease will be for not less than 
one year. The lease may, or in the case of a lease for a term of more 
than one year must, contain a provision permitting termination on 30 
days advance written notice by the family.
    (b) Form. (1) Part 880 and 24 CFR part 881 projects. For this part 
880 and 24 CFR part 881 projects, the form of lease must contain all 
required provisions, and none of the prohibited provisions specified in 
the developer's packet, and must conform to the form of lease included 
in the approved final proposal.
    (2) 24 CFR part 883 projects. For 24 CFR part 883 projects, the form 
of lease must contain all required provisions, and none of the 
prohibited provisions specified below.
    (i) Required provisions (Addendum to lease).

[[Page 60]]

                            Addendum to Lease

    The following additional Lease provisions are incorporated in full 
in the Lease between ---- (Landlord) and ---- (Tenant) for the following 
dwelling unit: ----. In case of any conflict between these and any other 
provisions of the Lease, these provisions will prevail.
    a. The total rent will be $---- per month.
    b. Of the total rent, $---- will be payable by the State Agency 
(Agency) as housing assistance payments on behalf of the Tenant and $--
-- will be payable by the Tenant. These amounts will be subject to 
change by reason of changes in the Tenant's family income, family 
composition, or extent of exceptional medical or other unusual expenses, 
in accordance with HUD-established schedules and criteria; or by reason 
of adjustment by the Agency of any applicable Utility Allowance; or by 
reasons of changes in program rules. Any such change will be effective 
as of the date stated in a notification to the Tenant.
    c. The Landlord will not discriminate against the Tenant in the 
provision of services, or in any other manner, on the grounds of race, 
color, creed, religion, sex, or national origin.
    d. The Landlord will provide the following services and maintenance: 
------------
    e. A violation of the Tenant's responsibilities under the Section 8 
Program, as determined by the Agency, is also a violation of the lease.

Landlord________________________________________________________________

By______________________________________________________________________

Date____________________________________________________________________

Tenant__________________________________________________________________

Date____________________________________________________________________

[End of addendum]

    (ii) Prohibited provisions. Lease clauses which fall within the 
classifications listed below must not be included in any Lease.

                              Lease Clauses

    a. Confession of Judgment. Consent by the tenant to be sued, to 
admit guilt, or to accept without question any judgment favoring the 
landlord in a lawsuit brought in connection with the lease.
    b. Seize or Hold Property for Rent or Other Charges. Authorization 
to the landlord to take property of the tenant and/or hold it until the 
tenant meets any obligation which the landlord has determined the tenant 
has failed to perform.
    c. Exculpatory Clause. Prior agreement by the tenant not to hold the 
landlord or landlord's agents legally responsible for acts done 
improperly or for failure to act when the landlord or landlord's agent 
was required to do so.
    d. Waiver of Legal Notice. Agreement by the tenant that the landlord 
need not give any notices in connection with (1) a lawsuit against the 
tenant for eviction, money damages, or other purposes, or (2) any other 
action affecting the tenant's rights under the lease.
    e. Waiver of Legal Proceeding. Agreement by the tenant to allow 
eviction without a court determination.
    f. Waiver of Jury Trial. Authorization to the landlord's lawyer to 
give up the tenant's right to trial by jury.
    g. Waiver of Right to Appeal Court Decision. Authorization to the 
landlord's lawyer to give up the tenant's right to appeal a decision on 
the ground of judicial error or to give up the tenant's right to sue to 
prevent a judgment being put into effect.
    h. Tenant Chargeable with Cost of Legal Actions Regardless of 
Outcome of Lawsuit. Agreement by the tenant to pay lawyer's fees or 
other legal costs whenever the landlord decides to sue the tenant 
whether or not the tenant wins. (Omission of such a clause does not mean 
that the tenant, as a party to a lawsuit, may not have to pay lawyer's 
fees or other costs if the court so orders.)

[End of clauses]

[44 FR 59410, Oct. 15, 1979, as amended at 61 FR 13590, Mar. 27, 1996]



Sec. 880.607  Termination of tenancy and modification of lease.

    (a) Applicability. The provisions of this section apply to all 
decisions by an owner to terminate the tenancy of a family residing in a 
unit under Contract during or at the end of the family's lease term.
    (b) Entitlement of Families to occupancy--(1) Grounds. The owner may 
not terminate any tenancy except upon the following grounds:
    (i) Material noncompliance with the lease;
    (ii) Material failure to carry out obligations under any State 
landlord and tenant act;
    (iii) Criminal activity by a covered person in accordance with 
sections 5.858 and 5.859, or alcohol abuse by a covered person in 
accordance with section 5.860. If necessary, criminal records can be 
obtained for lease enforcement purposes under section 5.903(d)(3).
    (iv) Other good cause, which may include the refusal of a family to 
accept an approved modified lease form (see paragraph (d) of this 
section). No termination by an owner will be valid to

[[Page 61]]

the extent it is based upon a lease or a provisions of State law 
permitting termination of a tenancy solely because of expiration of an 
initial or subsequent renewal term. All terminations must also be in 
accordance with the provisions of any State and local landlord tenant 
law and paragraph (c) of this section.
    (2) Notice of good cause. The conduct of a tenant cannot be deemed 
``other good cause'' under paragraph (b)(1)(iv) of this section unless 
the owner has given the family prior notice that the grounds constitute 
a basis for termination of tenancy. The notice must be served on the 
family in the same manner as that provided for termination notices under 
paragraph (c) of this section and State and local law.
    (3) Material noncompliance. (i) Material noncompliance with the 
lease includes:
    (A) One or more substantial violations of the lease; or
    (B) Repeated minor violations of the lease that disrupt the 
livability of the building; adversely affect the health or safety of any 
person or the right of any tenant to the quiet enjoyment of the leased 
premises and related facilities; interfere with the management of the 
building or have an adverse financial effect on the building.
    (ii) Failure of the family to timely submit all required information 
on family income and composition, including failure to submit required 
evidence of citizenship or eligible immigration status (as provided by 
24 CFR part 5), failure to disclose and verify Social Security Numbers 
(as provided by 24 CFR part 5), failure to sign and submit consent forms 
(as provided by 24 CFR part 5), or knowingly providing incomplete or 
inaccurate information, shall constitute a substantial violation of the 
lease.
    (c) Termination notice. (1) The owner must give the family a written 
notice of any proposed termination of tenancy, stating the grounds and 
that the tenancy is terminated on a specified date and advising the 
family that it has an opportunity to respond to the owner.
    (2) When a termination notice is issued for other good cause 
(paragraph (b)(1)(iv) of this section), the notice will be effective, 
and it will so state, at the end of a term and in accordance with the 
termination provisions of the lease, but in no case earlier than 30 days 
after receipt by the family of the notice. Where the termination notice 
is based on material noncompliance with the lease or material failure to 
carry out obligations under a State landlord and tenant act pursuant to 
paragraph (b)(1)(i) or (b)(1)(ii) of this section, the time of service 
must be in accord with the lease and State law.
    (3) In any judicial action instituted to evict the family, the owner 
may not rely on any grounds which are different from the reasons set 
forth in the notice.
    (4) See 24 CFR part 5 for provisions related to termination of 
assistance because of failure to establish citizenship or eligible 
immigration status, including informal hearing procedures and also for 
provisions concerning certain assistance for mixed families (families 
whose members include those with eligible immigration status, and those 
without eligible immigration status) in lieu of termination of 
assistance, and for provisions concerning deferral of termination of 
assistance.
    (d) Modification of Lease form. The owner, with the prior approval 
of HUD or, for a 24 CFR part 883 project, the Agency, may modify the 
terms and conditions of the lease form effective at the end of the 
initial term or a successive term, by serving an appropriate notice on 
the family, together with the offer of a revised lease or an addendum 
revising the existing lease. This notice and offer must be received by 
the family at least 30 days prior to the last date on which the family 
has the right to terminate the tenancy without being bound by the 
modified terms and conditions. The family may accept the modified terms 
and conditions by executing the offered revised lease or addendum, or 
may reject the modified terms and conditions by giving the owner written 
notice in accordance with the lease that the family intends to terminate 
the tenancy. Any increase in rent must in all cases be governed

[[Page 62]]

by Sec. 880.609 and other applicable HUD regulations.

(Approved by the Office of Management and Budget under control number 
2502-0204)

[44 FR 59410, Oct. 15, 1979, as amended at 51 FR 11225, Apr. 1, 1986; 53 
FR 846, Jan. 13, 1988; 53 FR 6601, Mar. 2, 1988; 54 FR 39703, Sept. 27, 
1989; 56 FR 7537, Feb. 22, 1991; 60 FR 14842, Mar. 20, 1995; 61 FR 
13590, Mar. 27, 1996; 61 FR 47382, Sept. 6, 1996; 66 FR 28797, May 24, 
2001]



Sec. 880.608  Security deposits.

    (a) At the time of the initial execution of the lease, the owner 
will require each family to pay a security deposit in an amount equal to 
one month's Total Tenant Payment or $50, whichever is greater. The 
family is expected to pay the security deposit from its own resources 
and/or other public sources. The owner may collect the security deposit 
on an installment basis.
    (b) The owner must place the security deposits in a segregated, 
interest-bearing account. The balance of this account must at all times 
be equal to the total amount collected from the families then in 
occupancy, plus any accrued interest. The owner must comply with any 
applicable State and local laws concerning interest payments on security 
deposits.
    (c) In order to be considered for the return of the security 
deposit, a family which vacates its unit will provide the owner with its 
forwarding address or arrange to pick up the refund.
    (d) The owner, subject to State and local law and the requirements 
of this paragraph, may use the security deposit, plus any accrued 
interest, as reimbursement for any unpaid family contribution or other 
amount which the family owes under the lease. Within 30 days (or shorter 
time if required by State, or local law) after receiving notification of 
the family's forwarding address, the owner must:
    (1) Refund to a family owing no rent or other amount under the lease 
the full amount of the security deposit, plus accrued interest;
    (2) Provide to a family owing rent or other amount under the lease a 
list itemizing any unpaid rent, damages to the unit, and estimated costs 
for repair, along with a statement of the family's rights under State 
and local law. If the amount which the owner claims is owed by the 
family is less than the amount of the security deposit, plus accrued 
interest, the owner must refund the unused balance to the family. If the 
owner fails to provide the list, the family will be entitled to the 
refund of the full amount of the security deposit plus accrued interest.
    (e) In the event a disagreement arises concerning reimbursement of 
the security deposit, the family will have the right to present 
objections to the owner in an informal meeting. The owner must keep a 
record of any disagreements and meetings in a tenant file for inspection 
by the contract administrator. The procedures of this paragraph do not 
preclude the family from exercising its rights under State and local 
law.
    (f) If the security deposit, including any accrued interest, is 
insufficient to reimburse the owner for any unpaid tenant rent or other 
amount which the family owes under the lease, and the owner has provided 
the family with the list required by paragraph (d)(2) of this section, 
the owner may claim reimbursement from the contract administrator, as 
appropriate, for an amount not to exceed the lesser of:
    (1) The amount owed the owner, or
    (2) One month's contract rent, minus the amount of the security 
deposit plus accrued interest. Any reimbursement under this section will 
be applied first toward any unpaid tenant rent due under the lease. No 
reimbursement may be claimed for unpaid rent for the period after 
termination of the tenancy.

[44 FR 59410, Oct. 15, 1979, as amended at 49 FR 19943, May 10, 1984; 61 
FR 13591, Mar. 27, 1996]



Sec. 880.609  Adjustment of contract rents.

    (a) Automatic annual adjustment of Contract Rents. Upon request from 
the owner to the contract administrator, contract rents will be adjusted 
on the anniversary date of the contract in accordance with 24 CFR part 
888.
    (b) Special additional adjustments. For all projects, special 
additional adjustments will be granted, to the extent determined 
necessary by HUD (for 24 CFR part 883 projects, by the Agency and HUD), 
to reflect increases in the actual and necessary expenses of owning and

[[Page 63]]

maintaining the assisted units which have resulted from substantial 
general increases in real property taxes, assessments, utility rates, 
and utilities not covered by regulated rates, and which are not 
adequately compensated for by annual adjustments under paragraph (a) of 
this section. The owner must submit to the contract administrator 
required supporting data, financial statements and certifications.
    (c) Overall limitation. Any adjustments of contract rents for a unit 
after Contract execution or cost certification, where applicable, must 
not result in material differences between the rents charged for 
assisted units and comparable unassisted units except to the extent that 
the differences existed with respect to the contract rents set at 
Contract execution or cost certification, where applicable.

[44 FR 59410, Oct. 15, 1979, as amended at 59 FR 22755, May 3, 1994; 61 
FR 13591, Mar. 27, 1996]



Sec. 880.610  Adjustment of utility allowances.

    In connection with annual and special adjustments of contract rents, 
the owner must submit an analysis of the project's Utility Allowances. 
Such data as changes in utility rates and other facts affecting utility 
consumption should be provided as part of this analysis to permit 
appropriate adjustments in the Utility Allowances. In addition, when 
approval of a utility rate change would result in a cumulative increase 
of 10 percent or more in the most recently approved Utility Allowances, 
the project owner must advise the contract administrator and request 
approval of new Utility Allowances. Whenever a Utility Allowance for a 
unit is adjusted, the owner will promptly notify affected families and 
make a corresponding adjustment of the tenant rent and the amount of the 
housing assistance payment for the unit.

(Approved by the Office of Management and Budget under control number 
2502-0161)

[50 FR 39097, Sept. 27, 1985]



Sec. 880.611  Conditions for receipt of vacancy payments.

    (a) General. Vacancy payments under the Contract will not be made 
unless the conditions for receipt of these housing assistance payments 
set forth in this section are fulfilled.
    (b) Vacancies during Rent-up. For each assisted unit that is not 
leased as of the effective date of the Contract, the owner is entitled 
to vacancy payments in the amount of 80 percent of the contract rent for 
the first 60 days of vacancy if the owner:
    (1) Conducted marketing in accordance with Sec. 880.601(a) and 
otherwise complied with Sec. 880.601;
    (2) Has taken and continues to take all feasible actions to fill the 
vacancy; and
    (3) Has not rejected any eligible applicant except for good cause 
acceptable to the contract administrator.
    (c) Vacancies after Rent-Up. If an eligible family vacates a unit, 
the owner is entitled to vacancy payments in the amount of 80 percent of 
the contract rent for the first 60 days of vacancy if the owner:
    (1) Certifies that he did not cause the vacancy by violating the 
lease, the Contract or any applicable law;
    (2) Notified the contract administrator of the vacancy or 
prospective vacancy and the reasons for the vacancy immediately upon 
learning of the vacancy or prospective vacancy;
    (3) Has fulfilled and continues to fulfill the requirements 
specified in Sec. 880.601(a) (2) and (3) and paragraph (b) (2) and (3) 
of this section; and
    (4) For any vacancy resulting from the owner's eviction of an 
eligible family, certifies that he has complied with Sec. 880.607.
    (d) Vacancies for longer than 60 days. If an assisted unit continues 
to be vacant after the 60-day period specified in paragraph (b) or (c) 
of this section, the owner may apply to receive additional vacancy 
payments in an amount equal to the principal and interest payments 
required to amortize that portion of the debt service attributable to 
the vacant unit for up to 12 additional months for the unit if:

[[Page 64]]

    (1) The unit was in decent, safe and sanitary condition during the 
vacancy period for which payments are claimed;
    (2) The owner has fulfilled and continues to fulfill the 
requirements specified in paragraph (b) or (c) of this section, as 
appropriate; and
    (3) The owner has (for 24 CFR part 883 projects, the owner and the 
Agency have) demonstrated to the satisfaction of HUD that:
    (i) For the period of vacancy, the project is not providing the 
owner with revenues at least equal to project expenses (exclusive of 
depreciation), and the amount of payments requested is not more than the 
portion of the deficiency attributable to the vacant unit, and
    (ii) The project can achieve financial soundness within a reasonable 
time.
    (e) Prohibition of double compensation for vacancies. The owner is 
not entitled to vacancy payments for vacant units to the extent he can 
collect for the vacancy from other sources (such as security deposits, 
payments under Sec. 880.608(f), and governmental payments under other 
programs).

[44 FR 59410, Oct. 15, 1979, as amended at 61 FR 13591, Mar. 27, 1996]



Sec. 880.612  Reviews during management period.

    (a) After the effective date of the Contract, the contract 
administrator will inspect the project and review its operation at least 
annually to determine whether the owner is in compliance with the 
Contract and the assisted units are in decent, safe and sanitary 
condition.
    (b) In addition:
    (1)(i) For this part 880 and 24 CFR part 881 private-owner/PHA 
projects, HUD will review the PHA's administration of the Contract at 
least annually to determine whether the PHA is in compliance with the 
ACC; and
    (ii) For 24 CFR part 883 projects, HUD will periodically review the 
Agency's administration of the Contract to determine whether it is in 
compliance with the Contract.
    (2) HUD may independently inspect project operations and units at 
any time.
    (c) Equal Opportunity reviews may be conducted by HUD at any time.

[44 FR 59410, Oct. 15, 1979, as amended at 61 FR 13591, Mar. 27, 1996]



Sec. 880.612a  Preference for occupancy by elderly families.

    (a) Election of preference for occupancy by elderly families--(1) 
Election by owners of eligible projects. (i) An owner of a project 
assisted under this part (including a partially assisted project) that 
was originally designed primarily for occupancy by elderly families (an 
``eligible project'') may, at any time, elect to give preference to 
elderly families in selecting tenants for assisted, vacant units in the 
project, subject to the requirements of this section.
    (ii) For purposes of this section, a project eligible for the 
preference provided by this section, and for which the owner makes an 
election to give preference in occupancy to elderly families is referred 
to as an ``elderly project.'' ``Elderly families'' refers to families 
whose heads of household, their spouses or sole members are 62 years or 
older.
    (iii) An owner who elects to provide a preference to elderly 
families in accordance with this section is required to notify families 
on the waiting list who are not elderly that the election has been made 
and how the election may affect them if:
    (A) The percentage of disabled families currently residing in the 
project who are neither elderly nor near-elderly (hereafter, 
collectively referred to as ``non-elderly disabled families'') is equal 
to or exceeds the minimum required percentage of units established for 
the elderly project in accordance with paragraph (c)(1) of this section, 
and therefore non-elderly families on the waiting list (including non-
elderly disabled families) may be passed over for covered section 8 
units; or
    (B) The project, after making the calculation set forth in paragraph 
(c)(1) of this section, will have no units set aside for non-elderly 
disabled families.
    (iv) An owner who elects to give a preference for elderly families 
in accordance with this section shall not remove an applicant from the 
project's waiting list on the basis of having made the election.

[[Page 65]]

    (2) HUD approval of election not required. (i) An owner is not 
required to solicit or obtain the approval of HUD before exercising the 
election of preference for occupancy provided in paragraph (a)(1) of 
this section. The owner, however, if challenged on the issue of 
eligibility of the project for the election provided in paragraph (a)(1) 
of this section must be able to support the project's eligibility 
through the production of all relevant documentation in the possession 
of the owner that pertains to the original design of the project.
    (ii) The Department reserves the right at any time to review and 
make determinations regarding the accuracy of the identification of the 
project as an elderly project. The Department can make such 
determinations as a result of ongoing monitoring activities, or the 
conduct of complaint investigations under the Fair Housing Act (42 
U.S.C. 3601 through 3619), or compliance reviews and complaint 
investigations under section 504 of the Rehabilitation Act of 1973 (29 
U.S.C. 794) and other applicable statutes.
    (b) Determining projects eligible for preference for occupancy by 
elderly families--(1) Evidence supporting project eligibility. Evidence 
that a project assisted under this part (or portion of a project) was 
originally designed primarily for occupancy by elderly families, and is 
therefore eligible for the election of occupancy preference provided by 
this section, shall consist of at least one item from the sources 
(``primary'' sources) listed in paragraph (b)(1)(i) of this section, or 
at least two items from the sources (``secondary'' sources) listed in 
paragraph (b)(1)(ii) of this section:
    (i) Primary sources. Identification of the project (or portion of a 
project) as serving elderly (seniors) families in at least one primary 
source such as: The application in response to the notice of funding 
availability; the terms of the notice of funding availability under 
which the application was solicited; the regulatory agreement; the loan 
commitment; the bid invitation; the owner's management plan, or any 
underwriting or financial document collected at or before loan closing; 
or
    (ii) Secondary sources. Two or more sources of evidence such as: 
lease records from the earliest two years of occupancy for which records 
are available showing that occupancy has been restricted primarily to 
households where the head, spouse or sole member is 62 years of age or 
older; evidence that services for elderly persons have been provided, 
such as services funded by the Older Americans Act, transportation to 
senior citizen centers, or programs coordinated with the Area Agency on 
Aging; project unit mix with more than fifty percent of efficiency and 
one-bedroom units [a secondary source particularly relevant to 
distinguishing elderly projects under the previous section 3(b) 
definition (in which disabled families were included in the definition 
of ``elderly families'') from non-elderly projects and which in 
combination with other factors (such as the number of accessible units) 
may be useful in distinguishing projects for seniors from those serving 
the broader definition of ``elderly families'' which includes disabled 
families]; or any other relevant type of historical data, unless clearly 
contradicted by other comparable evidence.
    (2) Sources in conflict. If a primary source establishes a design 
contrary to that established by the primary source upon which the owner 
would base support that the project is an eligible project (as defined 
in this section), the owner cannot make the election of preferences for 
elderly families as provided by this section based upon primary sources 
alone. In any case where primary sources do not provide clear evidence 
of original design of the project for occupancy primarily by elderly 
families, including those cases where primary sources conflict, 
secondary sources may be used to establish the use for which the project 
was originally designed.
    (c) Reservation of units in elderly projects for non-elderly 
disabled families. The owner of an elderly project is required to 
reserve, at a minimum, the number of units specified in paragraph (c)(1) 
of this section for occupancy by non-elderly disabled families.
    (1) Minimum number of units to be reserved for non-elderly disabled 
families. The number of units in an elderly

[[Page 66]]

project required to be reserved for occupancy by non-elderly disabled 
families, shall be, at a minimum, the lesser of:
    (i) The number of units equivalent to the higher of--
    (A) The percentage of units assisted under this part in the elderly 
project that were occupied by non-elderly disabled families on October 
28, 1992; and
    (B) The percentage of units assisted under this part in the elderly 
project that were occupied by non-elderly disabled families upon January 
1, 1992; or
    (ii) 10 percent of the number of units assisted under this part in 
the eligible project.
    (2) Option to reserve greater number of units for non-elderly 
disabled families. The owner, at the owner's option, and at any time, 
may reserve a greater number of units for non-elderly disabled families 
than that provided for in paragraph (c)(1) of this section. The option 
to provide a greater number of units to non-elderly disabled families 
will not obligate the owner to always provide that greater number to 
non-elderly disabled families. The number of units required to be 
provided to non-elderly disabled families at any time in an elderly 
project is that number determined under paragraph (c)(1) of this 
section.
    (d) Secondary preferences. An owner of an elderly project also may 
elect to establish secondary preferences in accordance with the 
provisions of paragraph (d) of this section.
    (1) Preference for near-elderly disabled families in units reserved 
for elderly families. If the owner of an elderly project determines, in 
accordance with paragraph (f) of this section, that there are an 
insufficient number of elderly families who have applied for occupancy 
to fill all the vacant units in the elderly project reserved for elderly 
families (that is, all units except those reserved for the non-elderly 
disabled families as provided in paragraph (c) of this section), the 
owner may give preference for occupancy of such units to disabled 
families who are near-elderly families.
    (2) Preference for near-elderly disabled families in units reserved 
for non-elderly disabled families. If the owner of an elderly project 
determines, in accordance with paragraph (f) of this section, that there 
are an insufficient number of non-elderly disabled families to fill all 
the vacant units in the elderly project reserved for non-elderly 
disabled families as provided in paragraph (c) of this section, the 
owner may give preference for occupancy of these units to disabled 
families who are near-elderly families.
    (e) Availability of units to families without regard to preference. 
An owner shall make vacant units in an elderly project generally 
available to otherwise eligible families who apply for housing, without 
regard to the preferences and reservation of units provided in this 
section if either:
    (1) The owner has adopted the secondary preferences and there are an 
insufficient number of families for whom elderly preference, reserve 
preference, and secondary preference has been given, to fill all the 
vacant units; or
    (2) The owner has not adopted the secondary preferences and there 
are an insufficient number of families for whom elderly preference, and 
reserve preference has been given to fill all the vacant units.
    (f) Determination of insufficient number of applicants qualifying 
for preference. To make a determination that there are an insufficient 
number of applicants who qualify for the preferences, including 
secondary preferences, provided by this section, the owner must:
    (1) Conduct marketing in accordance with Sec. 880.601(a) to attract 
applicants qualifying for the preferences and reservation of units set 
forth in this section; and
    (2) Make a good faith effort to lease to applicants who qualify for 
the preferences provided in this section, including taking all feasible 
actions to fill vacancies by renting to such families.
    (g) Prohibition of evictions. An owner may not evict a tenant 
without good cause, or require that a tenant vacate a unit, in whole or 
in part because of any reservation or preference provided in this 
section, or because of any action taken by the Secretary pursuant to 
subtitle D (sections 651 through 661)

[[Page 67]]

of title VI of the Housing and Community Development Act of 1992 (42 
U.S.C. 13611 through 13620).

[59 FR 65850, Dec. 21, 1994, as amended at 61 FR 9046, Mar. 6, 1996; 65 
FR 16722, Mar. 29, 2000]



PART 881--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM FOR SUBSTANTIAL REHABILITATION--Table of Contents




                  Subpart A--Summary and Applicability

Sec.
881.101  General.
881.104  Applicability of part 881.
881.105  Applicability to proposals and projects under 24 CFR part 811.

              Subpart B--Definitions and Other Requirements

881.201  Definitions.
881.205  Limitation on distributions.
881.207  Property standards.
881.208  Financing.
881.211  Audit.

Subparts C-D [Reserved]

             Subpart E--Housing Assistance Payments Contract

881.501  The contract.
881.502  Term of contract.
881.503  Cross-reference.

                          Subpart F--Management

881.601  Cross-reference.

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), 12701, and 13611-
13619.

    Source: 45 FR 7085, Jan. 31, 1980, unless otherwise noted.



                  Subpart A--Summary and Applicability



Sec. 881.101  General.

    (a) The purpose of the Section 8 program is to provide low-income 
families with decent, safe and sanitary rental housing through the use 
of a system of housing assistance payments. This part contains the 
policies and procedures applicable to the Section 8 substantial 
rehabilitation program. The assistance may be provided to public housing 
agency owners or to private owners either directly from HUD or through 
public housing agencies.
    (b) This part does not apply to projects developed under other 
Section 8 program regulations, including 24 CFR parts 880, 882, 883, 
884, and 885, except to the extent specifically stated in those parts.

[61 FR 13591, Mar. 27, 1996]



Sec. 881.104  Applicability of part 881.

    (a) Part 881, in effect as of February 20, 1980, applies to all 
proposals for which a notification of selection was not issued before 
the February 20, 1980 effective date of part 881. (See 24 CFR part 881, 
revised as of April 1, 1980). Where a notification of selection was 
issued for a proposal before the February 20, 1980, effective date, part 
881 in effect as of February 20, 1980 applies if the owner notified HUD 
within 60 calendar days that the owner wished the provisions of part 
881, effective February 20, 1980, to apply and promptly brought the 
proposal into conformance.
    (b) Subparts E (Housing Assistance Payments Contract) and F 
(Management) of this part apply to all projects for which an Agreement 
was not executed before the February 20, 1980, effective date of part 
881. Where an Agreement was so executed:
    (1) The owner and HUD may agree to make the revised subpart E of 
this part applicable and to execute appropriate amendments to the 
Agreement and/or Contract.
    (2) The owner and HUD may agree to make the revised subpart F of 
this part applicable (with or without the limitation on distributions) 
and to execute appropriate amendments to the Agreement and/or Contract.
    (c) Section 881.607 (Termination of tenancy and modification of 
leases) applies to all families.
    (d) Notwithstanding the provisions of paragraph (b) of this section, 
the provisions of 24 CFR part 5 apply to all projects, regardless of 
when an Agreement was executed.

[61 FR 13591, Mar. 27, 1996, as amended at 65 FR 16722, Mar. 29, 2000]

[[Page 68]]



Sec. 881.105  Applicability to proposals and projects under 24 CFR part 811.

    Where proposals and projects are financed with tax-exempt 
obligations under 24 CFR part 811, the provisions of part 811 will be 
complied with in addition to all requirements of this part. In the event 
of any conflict between this part and part 811, part 811 will control.



              Subpart B--Definitions and Other Requirements



Sec. 881.201  Definitions.

    Agreement. (Agreement to Enter into Housing Assistance Payments 
Contract) The Agreement between the owner and the contract administrator 
which provides that, upon satisfactory completion of the project in 
accordance with the HUD-approved final proposal, the administrator will 
enter into the Contract with the owner.
    Annual Contributions Contract (ACC). As defined in part 5 of this 
title.
    Annual income. As defined in part 5 of this title.
    Assisted unit. A dwelling unit eligible for assistance under a 
Contract.
    Contract. (Housing Assistance Payments Contract) The Contract 
entered into by the owner and the contract administrator upon 
satisfactory completion of the project, which sets forth the rights and 
duties of the parties with respect to the project and the payments under 
the Contract.
    Contract Administrator. The entity which enters into the Contract 
with the owner and is responsible for monitoring performance by the 
owner. The contract administrator is a PHA in the case of private-owner/
PHA projects, and HUD is private-owner/HUD and PHA-owner/HUD projects.
    Contract rent. The total amount of rent specified in the contract as 
payable to the owner for a unit.
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary if 
it meets the physical condition requirements in 24 CFR part 5, subpart 
G.
    Elderly family. As defined in part 5 of this title.
    Fair Market Rent (FMR). As defined in part 5 of this title.
    Family. As defined in part 5 of this title.
    Final proposal. The detailed description of a proposed project to be 
assisted under this part, which an owner submits after selection of the 
preliminary proposal, except where a preliminary proposal is not 
required under Sec. 881.303(c). The final proposal becomes an exhibit to 
the Agreement and is the standard by which HUD judges acceptable 
construction of the project.
    Housing assistance payment. The payment made by the contract 
administrator to the owner of an assisted unit as provided in the 
contract. Where the unit is leased to an eligible family, the payment is 
the difference between the contract rent and the tenant rent. An 
additional payment is made to the family when the utility allowance is 
greater than the total tenant payment. A housing assistance payment, 
known as a ``vacancy payment''. may be made to the owner when an 
assisted unit is vacant, in accordance with the terms of the contract.
    HUD. Department of Housing and Urban Development.
    Independent Public Accountant. A Certified Public Accountant or a 
licensed or registered public accountant, having no business 
relationship with the owner except for the performance of audit, systems 
work and tax preparation. If not certified, the Independent Public 
Accountant must have been licensed or registered by a regulatory 
authority of a State or other political subdivision of the United States 
on or before December 31, 1970. In States that do not regulate the use 
of the title ``public accountant,'' only Certified Public Accountants 
may be used.
    Low income family. As defined in part 5 of this title.
    NOFA. As defined in part 5 of this title.
    Owner. Any private person or entity (including a cooperative) or a 
public entity which qualifies as a PHA, having the legal right to lease 
or sublease substantially rehabilitated dwelling units assisted under 
this part. The term owner also includes the person or entity submitting 
a proposal under this part.
    Partially-assisted Project. A project for non-elderly families under 
this part which includes more than 50 units of which 20 percent or fewer 
are assisted.

[[Page 69]]

    PHA-Owner/HUD Project. A project under this part which is owned by a 
PHA. For this type of project, the Agreement and the Contract are 
entered into by the PHA, as owner, and HUD, as contract administrator.
    Private-Owner/HUD Project. A project under this part which is owned 
by a private owner. For this type of project, the Agreement and Contract 
are entered into by the private owner, as owner, and HUD, as contract 
administrator.
    Private-Owner/PHA Project. A project under this part which is owned 
by a private owner. For this type of project, the Agreement and Contract 
are entered into by the private owner, as owner, and the PHA, as 
contract administrator, pursuant to an ACC between the PHA and HUD. The 
term also covers the situation where the ACC is with one PHA and the 
owner is another PHA.
    Project Account. A specifically identified and segregated account 
for each project which is established in accordance with Sec. 881.503(b) 
out of the amounts by which the maximum annual commitment exceeds the 
amount actually paid out under the Contract or ACC, as applicable, each 
year.
    Public Housing Agency (PHA). As defined in part 5 of this title.
    Rent. In the case of an assisted unit in a cooperative project, rent 
means the carrying charges payable to the cooperative with respect to 
occupancy of the unit.
    Replacement cost. The sum of the ``as is'' value before 
rehabilitation of the property as determined by HUD and the estimated 
cost of rehabilitation, including carrying and finance charges.
    Secretary. The Secretary of Housing and Urban Development (or 
designee).
    Single Room Occupancy (SRO) Housing. A unit for occupancy by a 
single eligible individual capable of independent living, which does not 
contain food preparation and/or sanitary facilities and is located 
within a multifamily structure consisting of more than 12 units.
    Small project. A project for non-elderly families under this part 
which includes a total of 50 or fewer (assisted and unassisted) units.
    Substantial rehabilitation. (a) The improvement of a property to 
decent, safe and sanitary condition in accordance with the standards of 
this part from a condition below those standards. Substantial 
rehabilitation may vary in degree from gutting and extensive 
reconstruction to the cure of substantial accumulation of deferred 
maintenance. Cosmetic improvements alone do not qualify as substantial 
rehabilitation under this definition.
    (b) Substantial rehabilitation may also include renovation, 
alteration or remodeling for the conversion or adaptation of 
structurally sound property to the design and condition required for use 
under this part or the repair or replacement of major building systems 
or components in danger of failure.
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.
    Vacancy payment. The housing assistance payment made to the owner by 
the contract administrator for a vacant assisted unit if certain 
conditions are fulfilled as provided in the Contract. The amount of the 
vacancy payment varies with the length of the vacancy period and is less 
after the first 60 days of any vacancy.
    Very low income family. As defined in part 5 of this title.

[45 FR 7085, Jan. 31, 1980, as amended at 48 FR 12705, Mar. 28, 1983; 49 
FR 17449, Apr. 24, 1984; 49 FR 19944, May 10, 1984; 61 FR 5212, Feb. 9, 
1996; 61 FR 13591, Mar. 27, 1996; 63 FR 46578, Sept. 1, 1998; 65 FR 
16722, Mar. 29, 2000]



Sec. 881.205  Limitation on distributions.

    (a) Non-profit owners are not entitled to distributions of project 
funds.
    (b) For the life of the Contract, project funds may only be 
distributed to profit-motivated owners at the end of each fiscal year of 
project operation following the effective date of the Contract after all 
project expenses have been paid, or funds have been set aside for 
payment, and all reserve requirements have been met. The first year's 
distribution may not be made until cost certification, where applicable, 
is

[[Page 70]]

completed. Distributions may not exceed the following maximum returns:
    (1) For projects for elderly families, the first year's distribution 
will be limited to 6 percent on equity. The Assistant Secretary may 
provide for increases in subsequent years' distributions on an annual or 
other basis so that the permitted return reflects a 6 percent return on 
the value in subsequent years, as determined by HUD, of the approved 
initial equity. Any such adjustment will be made by Notice in the 
Federal Register.
    (2) For projects for non-elderly families, the first year's 
distribution will be limited to 10 percent on equity. The Assistant 
Secretary may provide for increases in subsequent years' distributions 
on an annual or other basis so that the permitted return reflects a 10 
percent return on the value in subsequent years, as determined by HUD, 
of the approved initial equity. Any such adjustment will be made by 
Notice in the Federal Register.
    (c) For the purpose of determining the allowable distribution, an 
owner's equity investment in a project is deemed to be 10 percent of the 
replacement cost of the part of the project attributable to dwelling use 
accepted by HUD at cost certification (see Sec. 881.405), unless the 
owner justifies a higher equity contribution by cost certification 
documentation in accordance with HUD mortgage insurance procedures.
    (d) Any short-fall in return may be made up from surplus project 
funds in future years.
    (e) If HUD determines at any time that project funds are more than 
the amount needed for project operations, reserve requirements and 
permitted distribution, HUD may require the excess to be placed in an 
account to be used to reduce housing assistance payments or for other 
project purposes. Upon termination of the Contract, any excess funds 
must be remitted to HUD.
    (f) Owners of small projects or partially-assisted projects are 
exempt from the limitation on distributions contained in paragraphs (b) 
through (d) of this section.
    (g) In the case of HUD-insured projects, the provisions of this 
section will apply instead of the otherwise applicable mortgage 
insurance program provisions.
    (h) HUD may permit increased distributions of surplus cash, in 
excess of the amounts otherwise permitted, to profit-motivated owners 
who participate in a HUD-approved initiative or program to preserve 
below-market housing stock. The increased distributions will be limited 
to a maximum amount based on market rents and calculated according to 
HUD instructions. Funds that the owner is authorized to retain under 
section 236(g)(2) of the National Housing Act are not considered 
distributions to the owner.
    (i) Any State or local law or regulation that restricts 
distributions to an amount lower than permitted by this section or 
permitted by the Commissioner under this paragraph (i) is preempted to 
the extent provided by section 524(f) of the Multifamily Assisted 
Housing Reform and Affordability Act of 1997.

[45 FR 7085, Jan. 31, 1980, as amended at 65 FR 61074, Oct. 13, 2000]



Sec. 881.207  Property standards.

    Projects must comply with:
    (a) [Reserved]
    (b) In the case of congregate or single room occupant housing, the 
appropriate HUD guidelines and standards;
    (c) HUD requirements pursuant to section 209 of the Housing and 
Community Development Act of 1974 for projects for the elderly or 
handicapped;
    (d) HUD requirements pertaining to noise abatement and control;
    (e) The Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4821-
4846), the Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 
U.S.C. 4851-4856), and implementing regulations at part 35, subparts A, 
B, H, and R of this title; and
    (f) Applicable State and local laws, codes, ordinances and 
regulations.
    (g) Smoke detectors. (1) Performance requirement. After October 30, 
1992, each dwelling unit must include at least one battery-operated or 
hard-wired smoke detector, in proper working condition, on each level of 
the unit. If the unit is occupied by hearing-impaired persons, smoke 
detectors must have an alarm system, designed for hearing-impaired

[[Page 71]]

persons, in each bedroom occupied by a hearing-impaired person.
    (2) Acceptability criteria. The smoke detector must be located, to 
the extent practicable, in a hallway adjacent to a bedroom, unless the 
unit is occupied by a hearing-impaired person, in which case each 
bedroom occupied by a hearing-impaired person must have an alarm system 
connected to the smoke detector installed in the hallway.

[45 FR 7085, Jan. 31, 1980, as amended at 52 FR 1893, Jan. 15, 1987; 57 
FR 33851, July 30, 1992; 63 FR 46578, Sept. 1, 1998; 64 FR 50227, Sept. 
15, 1999]



Sec. 881.208  Financing.

    (a) Types of financing. Any type of construction financing and long-
term financing may be used, including:
    (1) Conventional loans from commercial banks, savings banks, savings 
and loan associations, pension funds, insurance companies or other 
financial institutions;
    (2) Mortgage insurance programs under the National Housing Act; and
    (3) Financing by tax-exmpt bonds or other obligations.
    (b) HUD approval. HUD must approve the terms and conditions of the 
financing to determine consistency with these regulations and to assure 
they do not purport to pledge or give greater rights or funds to any 
party than are provided under the Agreement, Contract, and/or ACC. Where 
the project is financed with tax-exempt obligations, the terms and 
conditions will be approved in accordance with the following:
    (1) An issuer of obligations that are tax-exempt under any provision 
of Federal law or regulation, the proceeds of the sale of which are to 
be used to purchase GNMA mortgage-backed securities issued by the 
mortgagee of the Section 8 project, will be subject to 24 CFR part 811, 
subpart B.
    (2) Issuers of obligations that are tax-exempt under Section 11(b) 
of the U.S. Housing Act of 1937 will be subject to 24 CFR part 811, 
subpart A if paragraph (b)(1) of this section is not applicable.
    (3) Issuers of obligations that are tax-exempt under any provision 
of Federal law or regulation other than Section 11(b) of the U.S. 
Housing Act of 1937 will be subject to 24 CFR 811, subpart A if 
paragraph (b)(1) of this section is not applicable, except that such 
issuers that are State Agencies qualified under 24 CFR part 883 are not 
subject to 24 CFR part 811, subpart A and are subject solely to the 
requirements of 24 CFR part 883 with regard to the approval of tax-
exempt financing.
    (c) Pledge of contracts. An owner may pledge, or offer as security 
for any loan or obligation, an Agreement, Contract or ACC entered into 
pursuant to this part: Provided, however, That such financing is in 
connection with a project constructed pursuant to this part and approved 
by HUD. Any pledge of the Agreement, Contract, or ACC, or payments 
thereunder, will be limited to the amounts payable under the Contract or 
ACC in accordance with its terms. If the pledge or other document 
provides that all payments will be paid directly to the mortgagee or the 
trustee for bondholders, the mortgagee or trustee will make all payments 
or deposits required under the mortgage, trust indenture of HUD 
regulations and remit any excess to the owner.
    (d) Foreclosure and other transfers. In the event of foreclosure, 
assignment or sale approved by HUD in lieu of foreclosure, or other 
assignment or sale approved by HUD:
    (1) The Agreement, the Contract and the ACC, if applicable, will 
continue in effect, and
    (2) Housing assistance payments will continue in accordance with the 
terms of the Contract.
    (e) Financing of manufactured home parks. In the case of a 
substantially rehabilitated manufactured home park, the principal amount 
of any mortgage attributable to the rental spaces in the park may not 
exceed an amount per space determined in accordance with Sec. 207.33(b) 
of this Title.

[45 FR 7085, Jan. 31, 1980, as amended at 45 FR 62797, Sept. 22, 1980; 
48 FR 12706, Mar. 28, 1983; 49 FR 17449, Apr. 24, 1984]



Sec. 881.211  Audit.

    (a) Where a State or local government is the eligible owner of a 
project or a contract administrator under Sec. 881.505 receiving 
financial assistance under this part, the audit requirements in 24 CFR 
part 44 shall apply.

[[Page 72]]

    (b) Where a nonprofit organization is the eligible owner of a 
project, receiving financial assistance under this part, the audit 
requirements in 24 CFR part 45 shall apply.

[50 FR 39091, Sept. 27, 1985; 51 FR 30480, Aug. 27, 1986, as amended at 
57 FR 33257, July 27, 1992; 59 FR 2738, Jan. 19, 1994]

Subparts C-D [Reserved]



             Subpart E--Housing Assistance Payments Contract



Sec. 881.501  The contract.

    (a) Contract. The Housing Assistance Payments Contract sets forth 
rights and duties of the owner and the contract administrator with 
respect to the project and the housing assistance payments. The owner 
and contract administrator execute the Contract in the form prescribed 
by HUD upon satisfactory completion of the project.
    (b) [Reserved]
    (c) Housing assistance payments to owners under the contract. The 
housing assistance payments made under the Contract are:
    (1) Payments to the owner to assist eligible families leasing 
assisted units, and
    (2) Payments to the owner for vacant assisted units (``vacancy 
payments'') if the conditions specified in Sec. 881.611 are satisfied.

The housing assistance payments are made monthly by the contract 
administrator upon proper requisition by the owner, except payments for 
vacancies of more than 60 days, which are made semi-annually by the 
contract administrator upon requisition by the owner.
    (d) Amount of housing assistance payments to owner. (1) The amount 
of the housing assistance payment made to the owner of a unit being 
leased by an eligible family is the difference between the contract rent 
for the unit and the tenant rent payable by the family.
    (2) A housing assistance payment will be made to the owner for a 
vacant assisted unit in an amount equal to 80 percent of the contract 
rent for the first 60 days of vacancy, subject to the conditions in 
Sec. 881.611. If the owner collects any tenant rent or other amount for 
this period which, when added to this vacancy payment, exceeds the 
contract rent, the excess must be repaid as HUD directs.
    (3) For a vacancy that exceeds 60 days, a housing assistance payment 
for the vacant unit will be made, subject to the conditions in 
Sec. 881.611, in an amount equal to the principal and interest payments 
required to amortize that portion of the debt attributable to the vacant 
unit for up to 12 additional months.
    (e) Payment of utility reimbursement. Where applicable, the Utility 
Reimbursement will be paid to the Family as an additional Housing 
Assistance Payment. The Contract will provide that the Owner will make 
this payment on behalf of the contract administrator. Funds for this 
purpose will be paid to the Owner in trust solely for the purpose of 
making the additional payment. If the Family and the utility company 
consent, the Owner may pay the Utility Reimbursement jointly to the 
Family and the utility company or directly to the utility company.

[45 FR 7085, Jan. 31, 1980, as amended at 49 FR 19944, May 10, 1984; 61 
FR 13591, Mar. 27, 1996]



Sec. 881.502  Term of contract.

    (a) Term (except for Manufactured Home Parks). The term of the 
Contract will be as follows:
    (1) Where the estimated cost of the rehabilitation is less than 25 
percent of the estimated value of the project after completion of the 
rehabilitation, the contract will be for a term of 20 years for any 
dwelling unit.
    (2) Where the estimated cost of rehabilitation is 25 percent or more 
of the estimated value of the project after completion of 
rehabilitation, the contract may be for a term which:
    (i) Will cover the longest term, but not less than 20 years, of a 
single credit instrument covering:
    (A) The cost of rehabilitation, or
    (B) The existing indebtedness, or
    (C) The cost of rehabilitation and the refinancing of the existing 
indebtedness, or
    (D) The cost of rehabilitation and the acquisition of the property; 
and
    (ii) For assisted units in a project financed with the aid of a loan 
insured

[[Page 73]]

or co-insured by the Federal government or a loan made, guaranteed or 
intended for purchase by the Federal government, will be 20 years for 
any dwelling unit; or
    (iii) For units in a project financed other than as described in 
paragraph (a)(2)(ii) of this section will not exceed 30 years for any 
dwelling unit except that this limit will be 40 years if (A) the project 
is owned or financed by a loan or loan guarantee from a state or local 
agency, (B) the project is intended for occupancy by non-elderly 
families and (C) the project is located in an area designated by HUD as 
one requiring special financing assistance.
    (b) Term for manufactured home parks. For manufactured home units or 
spaces in substantially rehabilitated manufactured home parks, the term 
of the Contract will be 20 years.
    (c) Staged projects. If the project is completed in stages, the term 
of the Contract must relate separately to the units in each stage. The 
total Contract term for the units in all stages, beginning with the 
effective date of the Contract for the first stage, may not exceed the 
overall maximum term allowable for any one unit under this section, plus 
two years.

[48 FR 12707, Mar. 28, 1983, and 49 FR 17449, Apr. 24, 1984]



Sec. 881.503  Cross-reference.

    All of the provisions of Secs. 880.503, 880.504, 880.505, 880.506, 
880.507, and 880.508 of this chapter apply to projects assisted under 
this part, subject to the requirements of Sec. 881.104.

[61 FR 13592, Mar. 27, 1996]



                          Subpart F--Management



Sec. 881.601  Cross-reference.

    All of the provisions of part 880, subpart F, of this chapter apply 
to projects assisted under this part, subject to the requirements of 
Sec. 881.104.

[61 FR 13592, Mar. 27, 1996]



PART 882--SECTION 8 MODERATE REHABILITATION PROGRAMS--Table of Contents




           Subpart A--Applicability, Scope and Basic Policies

Sec.
882.101  Applicability.
882.102  Definitions.
882.103-882.122  [Reserved]
882.123  Conversion of Section 23 Units to Section 8 and Section 23 
          monitoring.
882.124  Audit.

Subpart B-C [Reserved]

    Subpart D--Special Procedures for Moderate Rehabilitation--Basic 
                                Policies

882.401  Eligible properties.
882.402  [Reserved]
882.403  ACC, housing assistance payments contract, and lease.
882.404  Physical condition standards; physical inspection requirements.
882.405  Financing.
882.406  [Reserved]
882.407  Other Federal requirements.
882.408  Initial contract rents.
882.409  Contract rents at end of rehabilitation loan term.
882.410  Rent adjustments.
882.411  Payments for vacancies.
882.412  Subcontracting of owner services.
882.413  Responsibility of the Family.
882.414  Security and utility deposits.

   Subpart E--Special Procedures for Moderate Rehabilitation--Program 
                        Development and Operation

882.501-882.506  [Reserved]
882.507  Completion of rehabilitation.
882.508  [Reserved]
882.509  Overcrowded and under occupied units.
882.510  Adjustment of utility allowance.
882.511  Lease and termination of tenancy.
882.512  Reduction of number of units covered by contract.
882.513  Public notice to low-income families; waiting list.
882.514  Family participation.
882.515  Reexamination of family income and composition.
882.516  Maintenance, operation and inspections.
882.517  HUD review of contract compliance.
882.518  Denial of admission and termination of assistance for criminals 
          and alcohol abusers.

[[Page 74]]

Subpart F-G [Reserved]

   Subpart H--Section 8 Moderate Rehabilitation Single Room Occupancy 
                    Program for Homeless Individuals

882.801  Purpose.
882.802  Definitions.
882.803  Project eligibility and other requirements.
882.804  Other Federal requirements.
882.805  HA application process, ACC execution, and pre-rehabilitation 
          activities.
882.806  Agreement to enter into housing assistance payments contract.
882.807  Housing assistance payments contract.
882.808  Management.
882.809  Waivers.
882.810  Displacement, relocation, and acquisition.

    Authority: 42 U.S.C. 1437f and 3535(d).

    Source: 43 FR 61246, Dec. 29, 1978, unless otherwise noted.



           Subpart A--Applicability, Scope and Basic Policies



Sec. 882.101  Applicability.

    (a) The provisions of this part apply to the Section 8 Moderate 
Rehabilitation program.
    (b) This part states the policies and procedures to be used by a PHA 
in administering a Section 8 Moderate Rehabilitation program. The 
purpose of this program is to upgrade substandard rental housing and to 
provide rental subsidies for low-income families.
    (c) Subpart H of this part only applies to the Section 8 Moderate 
Rehabilitation Single Room Occupancy Program for Homeless Individuals.

[63 FR 23853, Apr. 30, 1998]



Sec. 882.102  Definitions.

    (a) Terms found elsewhere. The following terms are defined in part 
5, subpart A of this title: 1937 Act, covered person, drug, drug-related 
criminal activity, federally assisted housing, guest, household, HUD, 
MSA, other person under the tenant's control, public housing agency 
(PHA), Section 8, and violent criminal activity.
    (b) In addition, the following definitions apply to this part:
    ACC reserve account (or ``project account''). The account 
established and maintained in accordance with Sec. 882.403(b).
    Agreement to enter into Housing Assistance Payments Contract 
(``Agreement''). A written agreement between the Owner and the PHA that, 
upon satisfactory completion of the rehabilitation in accordance with 
requirements specified in the Agreement, the PHA will enter into a 
Housing Assistance Payments Contract with the Owner.
    Annual Contributions Contract (``ACC''). The written agreement 
between HUD and a PHA to provide annual contributions to the PHA to 
cover housing assistance payments and other expenses pursuant to the 
1937 Act.
    Assisted lease (or ``lease''). A written agreement between an Owner 
and a Family for the leasing of a unit by the Owner to the Family with 
housing assistance payments under a Housing Assistance Payments Contract 
between the Owner and the PHA.
    Congregate housing. Housing for elderly persons or persons with 
disabilities that meets the HQS for congregate housing.
    Contract. See definition of Housing Assistance Payments Contract.
    Contract rent. The total amount of rent specified in the Housing 
Assistance Payments Contract as payable to the Owner by the Family and 
by the PHA to the Owner on the Family's behalf.
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary if 
it meets the physical condition standards in 24 CFR part 5, subpart G.
    Gross rent. The total monthly cost of housing an eligible Family, 
which is the sum of the Contract Rent and any utility allowance.
    Group home. A dwelling unit that is licensed by a State as a group 
home for the exclusive residential use of two to twelve persons who are 
elderly or persons with disabilities (including any live-in aide).
    Housing Assistance Payment. The payment made by the PHA to the Owner 
of a unit under lease by an eligible Family, as provided under the 
Contract. The payment is the difference between the Contract Rent and 
the tenant rent. An additional payment (the ``utility reimbursement'') 
is made by the PHA

[[Page 75]]

when the utility allowance is greater than the total tenant payment.
    Housing Assistance Payments Contract (``Contract''). A written 
contract between a PHA and an Owner for the purpose of providing housing 
assistance payments to the Owner on behalf of an eligible Family.
    Moderate rehabilitation. Rehabilitation involving a minimum 
expenditure of $1000 for a unit, including its prorated share of work to 
be accomplished on common areas or systems, to:
    (1) Upgrade to decent, safe and sanitary condition to comply with 
the Housing Quality Standards or other standards approved by HUD, from a 
condition below these standards (improvements being of a modest nature 
and other than routine maintenance); or
    (2) Repair or replace major building systems or components in danger 
of failure.
    Owner. Any person or entity, including a cooperative, having the 
legal right to lease or sublease existing housing.
    Single room occupancy housing (SRO). A unit that contains no 
sanitary facilities or food preparation facilities, or contains either, 
but not both, types of facilities.
    Statement of Family responsibility. An agreement in the form 
prescribed by HUD, between the PHA and a Family to be assisted under the 
Program, stating the obligations and responsibilities of the Family.

[63 FR 23853, Apr. 30, 1998, as amended at 63 FR 46578, Sept. 1, 1998; 
66 FR 28797, May 24, 2001]



Secs. 882.103-882.122  [Reserved]



Sec. 882.123  Conversion of Section 23 Units to Section 8 and Section 23 monitoring.

    (a)-(d) [Reserved]
    (e) Section 23 policies for units planned for conversion on or 
before September 30, 1981. (1) PHAs shall not enter into new leases with 
owners for additional units nor shall they renew or extend leases with 
owners except consistent with the conversion schedules.
    (2) Subject to the rights of families under existing leases, PHAs 
may continue to lease units to families under Section 23 only on a 
month-to-month basis.
    (3) PHAs shall conduct annual inspections of all units to determine 
whether the units are decent, safe and sanitary.
    (4) PHAs shall certify with their requisitions to HUD for payments 
under the ACC that the units are decent, safe and sanitary, or the PHA 
shall furnish HUD with a report of the nature of the deficiencies of the 
units which are not so certified. If an owner's units are not decent, 
safe and sanitary.
    (i) Where the owner is responsible under the terms of the lease for 
correcting the deficiencies, the PHA shall send the owner written 
notification requiring the owner to take specified corrective action 
within a specified time. The notification shall also state that, if the 
owner fails to comply, rent payments will be suspended. If the owner 
fails to comply with the first notification, he shall be notified by the 
PHA of the noncompliance and rent payments shall be suspended 
immediately. In the event of such suspension of rent payments, the PHA 
shall requisition a correspondingly lower ACC payment.
    (ii) Where the PHA is responsible under the terms of the lease for 
correcting the deficiencies, the Field Office shall send written 
notification requiring the PHA to take specified corrective action 
within a specified time. The notification shall also state that, if the 
PHA fails to comply, HUD will make reduced payments to the PHA only in 
the amount of the rent due the owner. If the PHA fails to comply with 
the first notification, the PHA shall be notified of the noncompliance, 
and the PHA shall not receive any fees for performing management 
functions until the PHA has complied with the Field Office request and 
has corrected the noted deficiencies.
    (f) [Reserved]
    (g) Section 23 policies for units not planned to be converted. (1) 
PHAs shall not enter into new leases with owners for additional units 
nor shall they renew or extend leases with owners for more than one 
year.
    (2) The provisions contained in paragraphs (e) (3) and (4) of this 
section shall apply.

[[Page 76]]

    (h) Request for rent increases. An owner may submit to the PHA a 
request for rent increase because of increases in operating cost, when 
the rents to the owner, after adjustments based on provisions in the 
lease, are insufficient to provide decent, safe and sanitary housing. 
Such a request shall be supported by an audited financial statement, and 
the data shall clearly show that failure to obtain additional revenue 
will result in deterioriation of units and loss of decent, safe and 
sanitary housing for low-income families. The PHA shall inspect the 
units to determine whether the units are decent, safe and sanitary. 
Where the need for an adjustment under this paragraph is shown:
    (1) Subject to available contract authority and prior approval by 
the HUD Field Office, the PHA may grant an adjustment to the extent 
documented and justified for those items of expenses (excluding debt 
service) for which the owner is responsible under the lease.
    (2) The amount of the adjustment must be reasonable when compared 
with similar items under the Section 8 Existing Housing program.
    (3) The adjusted amount for expenses shall not exceed the result of 
applying the appropriate Section 8 Existing Housing Annual Adjustment 
Factor (24 CFR part 888) most recently published by HUD in the Federal 
Register to the appropriate expense base in effect under the lease prior 
to this adjustment.
    (4) The adjustment shall not be retroactive to pay for costs that 
the owner had previously incurred.
    (5) The adjustment shall be effective for a period not to exceed one 
year.

[44 FR 28276, Nov. 14, 1979, as amended at 60 FR 34694, July 3, 1995]



Sec. 882.124  Audit.

    PHAs receiving financial assistance under this part are subject to 
audit requirements in 24 CFR part 44.

[50 FR 39091, Sept. 27, 1985; 51 FR 30480, Aug. 27, 1986]

Subpart B-C [Reserved]



    Subpart D--Special Procedures for Moderate Rehabilitation--Basic 
                                Policies

    Source: 47 FR 34379, Aug. 9, 1982, unless otherwise noted.



Sec. 882.401  Eligible properties.

    (a) Eligible properties. Except as provided in paragraph (b) of this 
section, housing suitable for moderate rehabilitation as defined in 
Sec. 882.102 is eligible for inclusion under the Moderate Rehabilitation 
Program. Existing structures of various types may be appropriate for 
this program, including single-family houses, multi-family structures 
and group homes.
    (b) Ineligible properties. (1) Nursing homes, units within the 
grounds of penal, reformatory, medical, mental and similar public or 
private institutions, and facilities providing continual psychiatric, 
medical or nursing services are not eligible for assistance under the 
Moderate Rehabilitation Program.
    (2) Housing owned by a State or unit of general local government is 
not eligible for assistance under this program.
    (3) High rise elevator projects for families with children may not 
be utilized unless HUD determines there is no practical alternative. 
(HUD may make this determination for a locality's Moderate 
Rehabilitation Program in whole or in part and need not review each 
building on a case-by-case basis.)
    (4) Single room occupancy (SRO) housing may not be utilized unless:
    (i) The property is located in an area in which there is a 
significant demand for such units as determined by the HUD Field Office; 
and
    (ii) The PHA and the unit of general local government in which the 
property is located approve of such units being utilized for such 
purpose.
    (5) No Section 8 assistance may be provided with respect to any unit 
occupied by an Owner; however, cooperatives will be considered as rental 
housing for purposes of the Moderate Rehabilitation Program.

[63 FR 23854, Apr. 30, 1998, as amended at 64 FR 14832, Mar. 29, 1999]

[[Page 77]]



Sec. 882.402  [Reserved]



Sec. 882.403  ACC, housing assistance payments contract, and lease.

    (a) Maximum Total ACC Commitments. The maximum total annual 
contribution that may be contracted for is the total of the Moderate 
Rehabilitation Fair Market Rents for all the units. The fee for the 
costs of PHA administration is payable out of the annual contribution.
    (b) Project account. (1) A project account will be established and 
maintained by HUD as a specifically identified and segregated account 
for each project. The account will contain the sum of the amounts by 
which the maximum annual commitment exceeds the amount actually paid out 
for the project under the ACC each year. Payments will be made from this 
account when needed to cover increases in Contract Rents or decreases in 
Gross Family Contributions for (i) housing assistance (including 
vacancy) payments, (ii) the amount of the fee for PHA costs of 
administration, and (iii) other costs specifically approved by the 
Secretary.
    (2) When a HUD-approved estimate of required payments under the ACC 
for a fiscal year exceeds the maximum annual commitment, and would cause 
the amount in the project account to be less than 40 percent of the 
maximum, HUD will, within a reasonable period of time, take such 
additional steps authorized by Section 8(c)(6) of the U.S. Housing Act 
of 1937, as may be necessary, to assure that payments under the ACC will 
be adequate to cover increases in Contract Rents and decreases in Gross 
Family Contributions.
    (c) Term of Housing Assistance Payments Contract. The Contract for 
any unit rehabilitated in accordance with the Program must be for a term 
of 15 years.
    (d) Term of Lease. (1) The initial lease between the family and the 
Owner must be for at least one year or the term of the HAP contract, 
whichever is shorter. In cases where there is less than one year 
remaining on the HAP contract, the owner and the PHA may mutually agree 
to terminate the unit from the HAP contract instead of leasing the unit 
to an eligible family.
    (2) Any renewal or extension of the lease term for any unit must in 
no case extend beyond the remaining term of the HAP contract.

[47 FR 34379, Aug. 9, 1982, as amended at 64 FR 53869, Oct. 4, 1999]



Sec. 882.404  Physical condition standards; physical inspection requirements.

    (a) Compliance with physical condition standards. Housing in this 
program must be maintained and inspected in accordance with the 
requirements in 24 CFR part 5, subpart G.
    (b) Space and security. In addition to the standards in 24 CFR part 
5, subpart G, a dwelling unit used in the Section 8 moderate 
rehabilitation program that is not SRO housing must have a living room, 
a kitchen area, and a bathroom. Such a dwelling unit must have at least 
one bedroom or living/sleeping room for each two persons.
    (c) Special housing types. The following provisions in 24 CFR part 
982, subpart M (Special Housing Types) apply to the Section 8 moderate 
rehabilitation program:
    (1) 24 CFR 982.605(b) (for SRO housing). For the Section 8 moderate 
rehabilitation SRO program under subpart H of this part 882, see also 
Sec. 882.803(b).
    (2) 24 CFR 982.609(b) (for congregate housing).
    (3) 24 CFR 982.614(c) (for group homes).
    (d) Lead-based paint. The Lead-Based Paint Poisoning Prevention Act 
(42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C. 4851-4856), and implementing regulations at part 
35, subparts A, B, H, and R of this title apply to the Section 8 
moderate rehabilitation program.

[63 FR 46579, Sept. 1, 1998; 64 FR 50227, Sept. 15, 1999]



Sec. 882.405  Financing.

    (a) Types. Any type of public or private financing may be utilized 
with the exception of the rehabilitation loan program under Section 312 
of the Housing Act of 1964.
    (b) Use of Contract as security for financing. An Owner may pledge, 
or offer as security for any loan or obligation, an Agreement or 
Contract entered into

[[Page 78]]

pursuant to this Program, Provided That (1) such security is in 
connection with a unit(s) rehabilitated pursuant to this Program and (2) 
the terms of the financing or any refinancing must be approved by the 
PHA in accordance with standards provided by HUD. Any pledge of the 
Agreement or Contract, or payments thereunder, will be limited to the 
amounts payable under the Contract in accordance with its terms.



Sec. 882.406  [Reserved]



Sec. 882.407  Other Federal requirements.

    The moderate rehabilitation program is subject to applicable federal 
requirements in 24 CFR 5.105.

[63 FR 23855, Apr. 30, 1998]



Sec. 882.408  Initial contract rents.

    (a) Fair Market Rent limitation. The Fair Market Rent Schedule for 
Moderate Rehabilitation is 120 percent of the Existing Housing Fair 
Market Rent Schedule, except that the Fair Market Rent limitation 
applicable to single room occupancy housing is 75 percent of the 
Moderate Rehabilitation Fair Market Rent for a 0-bedroom unit. The 
initial Gross Rent for any Moderate Rehabilitation unit must not exceed 
the Moderate Rehabilitation Fair Market Rent applicable to the unit on 
the date that the Agreement is executed except by up to 10 percent as 
provided in paragraph (b) of this section. Additionally, to the extent 
provided in paragraph (d) of this section, the PHA may approve changes 
in the Contract Rent subsequent to execution of the Agreement which 
result in an initial Gross Rent which exceeds the Moderate 
Rehabilitation Fair Market Rent applicable to the unit by up to 20 
percent.
    (b) Exception rents. With HUD Field Office approval, the PHA may 
approve initial Gross Rents which exceed the applicable Moderate 
Rehabilitation Fair Market Rents by up to 10 percent for all units of a 
given size in specified areas where HUD has determined that the rents 
for standard units suitable for the Existing Housing Program are more 
than 10 percent higher than the Existing Housing Fair Market Rents. The 
PHA must submit documentation demonstrating the necessity for such 
exception rents in the area to the HUD Field Office. In areas where HUD 
has approved the use of exception rents for 0-bedroom units, the single 
room occupancy housing exception rent will be 75 percent of the 
exception rent applicable to Moderate Rehabilitation 0-bedroom units.
    (c) Determination Initial Contract Rents. (1) The initial Contract 
Rent and base rent for each unit must be computed in accordance with HUD 
requirements. These amounts may be determined in accordance with 
paragraph (c)(2), or in accordance with an alternative method prescribed 
by HUD. However, the initial Contract Rent may in no event be more than-
-
    (i) The Moderate Rehabilitation Fair Market Rent or exception rent 
applicable to the unit on the date that the Agreement is executed, minus
    (ii) Any applicable allowance for utilities and other services 
attributable to the unit.
    (2) When the initial Contract Rent is computed under this paragraph, 
the rent will be equal to the base rent plus the monthly cost of a 
rehabilitation loan (but not more than the maximum stated in paragraph 
(c)(1)). The base rent must be calculated using the rent charged for the 
unit or the estimated costs to the Owner of owning, managing and 
maintaining the rehabilitated unit. The monthly cost of a rehabilitation 
loan must be calculated using:
    (i) The actual interest rate on the portion of the rehabilitation 
costs borrowed by the Owner,
    (ii) The HUD-FHA maximum interest rate for multifamily housing (or 
another rate prescribed by HUD) for rehabilitation costs paid by the 
Owner out of nonborrowed funds, and
    (iii) At least a 15 year loan term, except that if the total amount 
of rehabilitation is less than $15,000, the actual loan term will be 
used for the portion of the rehabilitation costs borrowed by the Owner. 
(HUD Field Offices may authorize loan terms which differ from the above 
in accordance with HUD requirements.)
    (d) Changes in Initial Contract Rents during rehabilitation. (1) The 
initial Contract Rents established pursuant to paragraph (c) of this 
section will be the Contract Rents on the effective date of

[[Page 79]]

the Contract except under the following circumstances:
    (i) When, during rehabilitation, work items (including substantial 
and necessary design changes) which (A) could not reasonably have been 
anticipated or are necessitated by a change in local codes or 
ordinances, and (B) were not listed in the work write-up prepared or 
approved by the PHA, are subsequently required and approved by the PHA.
    (ii) When the actual cost of the rehabilitation performed is less 
than that estimated in the calculation of Contract Rents for the 
Agreement or the actual, certified costs are more than estimated due to 
unforeseen factors beyond the owner's control (e.g., strikes, weather 
delays or unexpected delays caused by local governments).
    (iii) When the PHA (or HUD) approves changes in financing.
    (iv) When the actual relocation payments made by the Owner to 
temporarily relocated Families varies from the cost estimated in the 
calculation of Contract Rents for the Agreement.
    (v) When necessary to correct errors in computation of the base and 
Contract Rents to comply with the HUD requirements.
    (2) Should changes occur as specified in paragraph (d)(1) (either an 
increase or decrease), the PHA will approve any necessary change in work 
and amendment of the work write-up and cost estimate, recalculate the 
initial Contract Rents in accordance with paragraph (d)(3) of this 
section, and amend the Contract or Agreement, as appropriate, to reflect 
the revised rents.
    (3) In establishing the revised Contract Rents, the PHA must 
determine that the resulting Gross Rents do not exceed the Moderate 
Rehabilitation Fair Market Rent or the exception rent in effect at the 
time of execution of the Agreement. The Fair Market Rent or exception 
rent, as appropriate, may only be exceeded when the PHA determines in 
accordance with paragraph (d)(1) of this section that it will be 
necessary for the revised Gross Rent to exceed the Moderate 
Rehabilitation Fair Market Rent or exception rent. Should this 
determination be made, the PHA may not execute a revised Agreement or 
Contract for Gross Rents exceeding the Fair Market Rents by more than 10 
percent until it receives HUD Field Office approval. The HUD Field 
Office may approve revised Gross Rents which exceed the Fair Market 
Rents by up to 20 percent for reasons specified in paragraph (d)(1) of 
this section upon proper justification by the PHA of the necessity for 
the increase.

[47 FR 34379, Aug. 9, 1982, as amended at 52 FR 19725, May 27, 1987]



Sec. 882.409  Contract rents at end of rehabilitation loan term.

    For a Contract where the initial Contract Rent was based upon a loan 
term shorter than 15 years, the Contract must provide for reduction of 
the Contract Rent effective with the rent for the month following the 
end of the term of the rehabilitation loan. The amount of the reduction 
will be the monthly cost of amortization of the rehabilitation loan. 
This reduction should result in a new Contract Rent equal to the base 
rent established pursuant to Sec. 882.408(c) plus all subsequent 
adjustments.



Sec. 882.410  Rent adjustments.

    (a) Annual and special adjustments. Contract Rents will be adjusted 
as provided in paragraphs (a) (1) and (2) of this section upon submittal 
to the PHA by the Owner of a revised schedule of Contract Rents, 
provided that the unit is in decent, safe, and sanitary condition and 
that the Owner is otherwise in compliance with the terms of the Lease 
and Contract. Subject to the foregoing, adjustments of Contract Rents 
will be as follows:
    (1) The Annual Adjustment Factors which are published annually by 
HUD (see Schedule C, 24 CFR part 888) will be utilized. On or after each 
annual anniversary date of the Contract, the Contract Rents may be 
adjusted in accordance with HUD procedures, effective for the month 
following the submittal by the Owner of a revised schedule of Contract 
Rents. The changes in rent as a result of the adjustment cannot exceed 
the amount established by multiplying the Annual Adjustment Factor by 
the base rents. However, if the amounts borrowed to finance the 
rehabilitation costs or to finance purchase of the property are subject 
to a

[[Page 80]]

variable rate or are otherwise renegotiable, Contract Rents may be 
adjusted in accordance with other procedures as prescribed by HUD, and 
specified in the Contract, provided that the adjusted Contract Rents 
cannot exceed the rents established by multiplying the Annual Adjustment 
Factor by the Contract Rents. Adjusted Contract Rents must then be 
examined in accordance with paragraph (b) of this section and may be 
adjusted accordingly. Contract Rents may be adjusted upward or downward, 
as may be appropriate.
    (2) Special Adjustments. (i) A special adjustment, to the extent 
determined by HUD to reflect increases in the actual and necessary 
expenses of owning and maintaining the unit which have resulted from 
substantial general increases in real property taxes, assessments, 
utility rates and utilities not covered by regulated rates, may be 
recommended by the PHA for approval by HUD. Subject to appropriations, a 
special adjustment may also be recommended by the PHA for approval by 
HUD when HUD determines that a project is located in a community where 
drug-related criminal activity is generally prevalent, and not specific 
to a particular project, and the project's operating, maintenance, and 
capital repair expenses have substantially increased primarily as a 
result of the prevalence of such drug-related activity. HUD may, on a 
project-by-project basis, provide adjustments to the maximum monthly 
rents, to a level no greater than 120 percent of the current gross rents 
for each unit size under a Housing Assistance Payments Contract, to 
cover the costs of maintenance, security, capital repairs and reserves 
required for the Owner to carry out a strategy acceptable to HUD for 
addressing the problem of drug-related criminal activity. Prior to 
approval of a special adjustment to cover the cost of physical 
improvements, HUD will perform an environmental review to the extent 
required by HUD's environmental regulations at 24 CFR part 50, including 
the applicable related authorities at 24 CFR 50.4.
    (ii) The aforementioned special rent adjustments will only be 
approved if and to the extent the Owner clearly demonstrates that these 
general increases have caused increases in the owners operating costs 
which are not adequately compensated for by annual adjustments.
    (iii) The Owner must submit financial information to the PHA which 
clearly supports the increase. For Contracts of more than twenty units, 
the Owner must submit audited financial information.
    (b) Overall limitation. Notwithstanding any other provisions of this 
part, adjustments as provided in this section must not result in 
material differences between the rents charged for assisted and 
comparable unassisted units, as determined by the PHA (and approved by 
HUD in the case of adjustments under paragraph (a)(2) of this section). 
However, unless the rents have been adjusted in accordance with 
Sec. 882.409, this limitation should not be construed to prohibit 
differences in rents between assisted and comparable unassisted units to 
the extent that differences existed with respect to the initial Contract 
Rents.

(Approved by the Office of Management and Budget under OMB approval 
number 2577-0196)

[47 FR 34379, Aug. 9, 1982, as amended at 59 FR 47773, Sept. 16, 1994]



Sec. 882.411  Payments for vacancies.

    (a) Vacancies from execution of Contract to initial occupancy. If a 
Contract unit which has been rehabilitated in accordance with this 
Program is not leased within 15 days of the effective date of the 
Contract, the Owner will be entitled to housing assistance payments in 
the amount of 80 percent of the Contract Rent for the unit for a vacancy 
period not exceeding 60 days from the effective date of the Contract, 
provided that the Owner (1) has complied with Secs. 882.506(d) and 
882.508(c); (2) has taken and continues to take all feasible actions to 
fill the vacancy; and (3) has not rejected any eligible applicant except 
for good cause acceptable to the PHA.
    (b) Vacancies after initial occupancy. (1) If an Eligible Family 
vacates its unit (other than as a result of action by the Owner which is 
in violation of the Lease or the Contract or any applicable law), the 
Owner may receive the housing assistance payments due under

[[Page 81]]

the Contract for so much of the month in which the Family vacates the 
unit as the unit remains vacant. Should the unit continue to remain 
vacant, the Owner may receive from the PHA a housing assistance payment 
in the amount of 80 percent of the Contract Rent for a vacancy period 
not exceeding an additional month. However, if the Owner collects any of 
the Family's share of the rent for this period, the payment must be 
reduced to an amount which, when added to the Family's payment, does not 
exceed 80 percent of the Contract Rent. Any such excess must be 
reimbursed by the Owner to the PHA. The Owner will not be entitled to 
any payment under this paragraph (b)(1) of this section unless the 
Owner:
    (i) Immediately upon learning of the vacancy, has notified the PHA 
of the vacancy or prospective vacancy, and
    (ii) has taken and continues to take all feasible actions specified 
in paragraphs (a) (2) and (3) of this section.
    (2) If the Owner evicts an Eligible Family, the Owner will not be 
entitled to any payment under paragraph (b)(1) of this section unless 
the PHA determines that the Owner complied with all requirements of the 
Contract.
    (c) Prohibition of double compensation for vacancies. The Owner will 
not be entitled to housing assistance payments with respect to vacant 
units under this section if the Owner is entitled to payments from other 
sources (for example, payments for losses of rental income incurred for 
holding units vacant for relocatees pursuant to Title I of the HCD Act 
of 1974 or payments for unpaid rent under Sec. 882.414 (Security and 
Utility Deposits)).

[47 FR 34379, Aug. 9, 1982, as amended at 63 FR 23855, Apr. 30, 1998]



Sec. 882.412  Subcontracting of owner services.

    (a) General. Any Owner may contract with any private or public 
entity to perform for a fee the services required by the Agreement, 
Contract or Lease, provided that such contract may not shift any of the 
Owner's responsibilities or obligations.
    (b) PHA management. If the Owner and a PHA wish to enter into a 
management contract, they may do so provided that:
    (1) The Housing Assistance Payments Contract with respect to the 
housing involved is administered by another PHA, or
    (2) Should another PHA not be available and willing to administer 
the Housing Assistance Payments Contract and no other management 
alternative exists, the HUD Field Office may authorize PHA management of 
units administered by the PHA in accordance with specified criteria.
    (3) Notwithstanding the provisions of Sec. 882.408 (b) and (c), a 
PHA may not approve, without prior HUD approval, rents which exceed the 
appropriate Moderate Rehabilitation Fair Market Rent for a unit for 
which it provides the management functions under this section.



Sec. 882.413  Responsibility of the Family.

    (a) A family receiving housing assistance under this Program must 
fulfill all of its obligations under the Lease and Statement of Family 
Responsibility.
    (b) No family member may engage in drug-related criminal activity or 
violent criminal activity. Failure of the Family to meet its 
responsibilities under the Lease, the Statement of Family 
Responsibility, or this section shall constitute rounds for termination 
of assistance by the PHA. Should the PHA determine to terminate 
assistance to the Family, the provisions of Sec. 882.514(f) must be 
followed.

[55 FR 28546, July 11, 1990, as amended at 63 FR 23855, Apr. 30, 1998]



Sec. 882.414  Security and utility deposits.

    (a) If at the time of the initial execution of the Lease the Owner 
wishes to collect a security deposit, the maximum amount shall be the 
greater of one month's Total Tenant Payment or $50. However, this amount 
shall not exceed the maximum amount allowable under State or local law. 
For units leased in place, security deposits collected prior to the 
execution of a Contract which are in excess of this maximum amount do 
not have to be refunded until the Family vacates the unit subject to the 
lease terms. The

[[Page 82]]

Family is expected to pay security deposits and utility deposits from 
its resources and/or other public or private sources.
    (b) If a Family vacates the unit, the Owner, subject to State and 
local law, may use the security deposit as reimbursement for any unpaid 
Tenant Rent or other amount which the Family owes under the Lease. If a 
Family vacates the unit owing no rent or other amount under the Lease 
consistent with State or local law or if such amount is less than the 
amount of the security deposit, the Owner shall refund the full amount 
or the unused balance to the Family.
    (c) In those jurisdictions where interest is payable by the Owner on 
security deposits, the refunded amount shall include the amount of 
interest payable. The Owner shall comply with all State and local laws 
regarding interest payments on security deposits.
    (d) If the security deposit is insufficient to reimburse the Owner 
for the unpaid Tenant Rent or other amounts which the Family owes under 
the Lease, or if the Owner did not collect a security deposit, the Owner 
may claim reimbursement from the PHA for an amount not to exceed the 
lesser of:
    (1) The amount owed the Owner, or
    (2) Two month's Contract Rent; minus, in either case, the greater of 
the security deposit actually collected or the amount of security 
deposit the Owner could have collected under the program (pursuant to 
paragraph (a) of this section). Any reimbursement under this section 
must be applied first toward any unpaid Tenant Rent due under the Lease 
and then to any other amounts owed. No reimbursement may be claimed for 
unpaid rent for the period after the Family vacates.

[43 FR 61246, Dec. 29, 1978, as amended at 44 FR 31176, May 31, 1979; 49 
FR 19945, May 10, 1984. Redesignated at 63 FR 23854, Apr. 30, 1998]



   Subpart E--Special Procedures for Moderate Rehabilitation--Program 
                        Development and Operation

    Source: 47 FR 34383, Aug. 9, 1982, unless otherwise noted.



Sec. 882.501-882.506  [Reserved]



Sec. 882.507  Completion of rehabilitation.

    (a) Notification of completion. The Owner must notify the PHA when 
the work is completed and submit to the PHA the evidence of completion 
and certifications described in paragraphs (b) and (c) of this section.
    (b) Evidence of completion. Completion of the unit(s) must be 
evidenced by furnishing the PHA with the following:
    (1) A certificate of occupancy and/or other official approvals as 
required by the locality.
    (2) A certification by the Owner that:
    (i) The unit(s) has been completed in accordance with the 
requirements of the Agreement;
    (ii) The unit(s) is in good and tenantable condition;
    (iii) The unit(s) has been rehabilitated in accordance with the 
applicable zoning, building, housing and other codes, ordinances or 
regulations, as modified by any waivers obtained from the appropriate 
officials;
    (iv) The unit(s) are in compliance with part 35, subparts A, B, H, 
and R of this title.
    (iv) Any unit(s) built prior to 1973 are in compliance with 
Sec. 882.404(c)(3) and Sec. 882.404(c)(4).
    (v) If applicable, the Owner has complied with the provisions of the 
Agreement relating to the payment of not less than prevailing wage rates 
and that to the best of the Owner's knowledge and belief there are no 
claims of underpayment concerning alleged violations of said provisions 
of the Agreement. In the event there are any such pending claims to the 
knowledge of the Owner, PHA or HUD, the Owner will be required to place 
sufficient amount in escrow, as determined by the PHA or HUD, to assure 
such payments.
    (c) Actual cost and rehabilitation loan certifications. The Owner 
must provide the PHA with a certification of the costs incurred for the 
rehabilitation and any temporary relocation as well as the interest rate 
and term of any rehabilitation loan. The Owner must certify that these 
are the actual costs, interest rate, and term.

The PHA must review for completeness and accuracy and accept these 
certifications subject to the right of post

[[Page 83]]

audit. The PHA must then establish the Contract Rents as provided in 
Sec. 882.408 which will be subject to reduction based on a post audit.
    (d) Review and inspections. The PHA must review the evidence of 
completion for compliance with paragraph (b) of this section. The PHA 
also must inspect the unit(s) to be assisted to determine that the 
unit(s) has been completed in accordance with the Agreement and meets 
the Housing Quality Standards or other standards approved by HUD for the 
Program. If the inspection discloses defects or deficiencies, the 
inspector must report these in detail.
    (e) Acceptance. (1) If the PHA determines from the review and 
inspection that the unit(s) has been completed in accordance with the 
Agreement, the unit(s) will be accepted.
    (2) If there are any items of delayed completion which are minor 
items or which are incomplete because of weather conditions, and in any 
case which do not preclude or affect occupancy, and all other 
requirements of the Agreement have been met, the unit(s) must be 
accepted. An escrow fund determined by the PHA to be sufficient to 
assure completion for items of delayed completion must be required, as 
well as a written agreement between the PHA and the Owner, to be 
included as an exhibit to the Contract, specifying the schedule for 
completion. If the items are not completed within the agreed time 
period, the PHA may terminate the Contract or exercise other rights 
under the Contract.
    (3) If other deficiencies exist, the PHA must determine whether and 
to what extent the deficiencies are correctable, and whether the 
Contract Rents should be reduced. The Owner must be notified of the 
PHA's decision. If the corrections required by the PHA are possible, the 
PHA and the Owner must enter into an agreement for the correction of the 
deficiencies within a specified time. If the deficiencies are corrected 
within the agreed period of time, the PHA must accept the unit(s).
    (4) Otherwise, the unit(s) may not be accepted, and the Owner must 
be notified with a statement of the reasons for nonacceptance.

[47 FR 34383, Aug. 9, 1982, as amended at 52 FR 1895, Jan. 15, 1987; 64 
FR 50227, Sept. 15, 1999]



Sec. 882.508  [Reserved]



Sec. 882.509  Overcrowded and under occupied units.

    If the PHA determines that a Contract unit is not decent, safe, and 
sanitary by reason of increase in Family size, or that a Contract unit 
is larger than appropriate for the size of the Family in occupancy, 
housing assistance payments with respect to the unit will not be abated; 
However, the Owner must offer the Family a suitable alternative unit 
should one be available and the Family will be required to move. If the 
Owner does not have a suitable available unit, the PHA must assist the 
Family in locating other standard housing in the locality within the 
Family's ability to pay and require the Family to move to such a unit as 
soon as possible. In no case will a Family be forced to move nor will 
housing assistance payments under the Contract be terminated unless the 
Family rejects without good reason the offer of a unit which the PHA 
judges to be acceptable.



Sec. 882.510  Adjustment of utility allowance.

    The PHA must determine, at least annually, whether an adjustment is 
required in the Utility Allowance applicable to the dwelling units in 
the Program, on grounds of changes in utility rates or other change of 
general applicability to all units in the Program. The PHA may also 
establish a separate schedule of allowances for each building of 20 or 
more assisted units, based upon at least one year's actual utility 
consumption data following rehabilitation under the Program. If the PHA 
determines that an adjustment should be made in its Schedule of 
Allowances or if it establishes a separate schedule for a building which 
will change the allowance, the PHA must then determine the amounts of 
adjustments to be made in the amount of rent to be paid by affected 
Families and the amount of housing assistance payments and must

[[Page 84]]

notify the Owners and Families accordingly. Any adjustment to the 
Allowance must be implemented no later than at the Family's next 
reexamination or at lease renewal, whichever is earlier.

[47 FR 34383, Aug. 9, 1982, as amended at 49 FR 19946, May 10, 1984]



Sec. 882.511  Lease and termination of tenancy.

    (a) Lease. (1) The lease must include all provisions required by 
HUD, and must not include any provisions prohibited by HUD.
    (2) The lease must provide that drug-related criminal activity 
engaged in on or near the premises by any tenant, household member, or 
guest, and any such activity engaged in on the premises by any other 
person under the tenant's control is grounds for the owner to terminate 
tenancy. In addition, the lease must provide that the owner may 
terminate the tenancy of a family when the owner determines that a 
household member is illegally using a drug or when the owner determines 
that a pattern of illegal use of a drug interferes with the health, 
safety, or right to peaceful enjoyment of the premises by other 
residents.
    (b) Applicability. The provisions of this section apply to decisions 
by an Owner to terminate the tenancy of a Family during or at the end of 
the Family's lease term.
    (c) Grounds for termination of or refusal to renew the lease. The 
Owner must not terminate or refuse to renew the lease except upon the 
following grounds:
    (1) Serious or repeated violation of the terms and conditions of the 
lease.
    (2) Violation of applicable Federal, State or local law.
    (3) Other good cause.
    (d) Notice of termination of tenancy. (1) The Owner must serve a 
written notice of termination of tenancy on the Family which states the 
date the tenancy shall terminate. Such date must be in accordance with 
the following:
    (i) When termination is based on failure to pay rent, the date of 
termination must be not less than five working days after the Family's 
receipt of the notice.
    (ii) When termination is based on serious or repeated violation of 
the terms and conditions of the lease or on violation of applicable 
Federal, State or local law, the date of termination must be in 
accordance with State and local law.
    (iii) When termination is based on other good cause, the date of 
termination must be no earlier than 30 days after the notice is served 
on the Family.
    (2) The notice of termination must:
    (i) State the reasons for such termination with enough specificity 
to enable the Family to prepare a defense.
    (ii) Advise the Family that if a judicial proceeding for eviction is 
instituted, the tenant may present a defense in that proceeding.
    (iii) Be served on the Family by sending a prepaid first class 
properly addressed letter (return receipt requested) to the tenant at 
the dwelling unit or by delivering a copy of the notice to the dwelling 
unit.
    (3) Substitution of State and local requirements. In the case of 
failure to pay rent, a notice of termination which is issued pursuant to 
State or local law or is common practice in the locality and which 
satisfies paragraph (c)(2) may be substituted for or run concurrently 
with the notice required herein.
    (e) Eviction. All evictions must be carried out through judical 
process under State and local law. ``Eviction'' means the dispossession 
of the Family from the dwelling unit pursuant to State or local court 
action.
    (f) Lease. The requirements of this section shall be incorporated 
into the dwelling lease between the Owner and the Family.

[47 FR 34383, Aug. 9, 1982, as amended at 63 FR 23855, Apr. 30, 1998; 66 
FR 28797, May 24, 2001]



Sec. 882.512  Reduction of number of units covered by contract.

    (a) Limitation on leasing to ineligible Families. Owners must lease 
all assisted units under Contract to Eligible Families. Leasing of 
vacant, assisted units to ineligible tenants is a violation of the 
Contract and grounds for all available legal remedies, including 
suspension or debarment from HUD programs and reduction of the number of 
units

[[Page 85]]

under the Contract, as set forth in paragraph (b) of this section. Once 
the PHA has determined that a violation exists, the PHA must notify HUD 
of its determination and the suggested remedies. At the direction of 
HUD, the PHA must take the appropriate action.
    (b) Reduction for failure to lease to Eligible Families. If, at any 
time beginning six months after the effective date of the Contract, the 
Owner fails for a period of six continuous months to have at least 90 
percent of the assisted units leased or available for leasing by 
Eligible Families (because families initially eligible have become 
ineligible), the PHA may, on at least 30 days' notice, reduce the number 
of units covered by the Contract. The PHA may reduce the number of units 
to the number of units actually leased or available for leasing by 
Eligible Families plus 10 percent (rounded up). If the Owner has only 
one unit under Contract and if one year has elapsed since the date of 
the last housing assistance payment, the Contract may be terminated with 
the consent of the Owner.
    (c) Restoration. The PHA will agree to an amendment of the Contract, 
to provide for subsequent restoration of any reduction made pursuant to 
paragraph (b) if:
    (1) The PHA determines that the restoration is justified by demand,
    (2) The Owner otherwise has a record of compliance with obligations 
under the Contract, and
    (3) Contract authority is available.



Sec. 882.513  Public notice to low-income families; waiting list.

    (a) Public notice to low-income Families. (1) If the PHA does not 
have a waiting list which is sufficient to provide applicants for the 
units under the Moderate Rehabilitation Program, the PHA must, promptly 
after receiving the executed ACC, make known to the public the 
availability of the Program.
    (i) The notice must state that assistance under this Program will be 
available only in specified units which have been rehabilitated under 
the Program.
    (ii) The notice must be made in accordance with the PHA's HUD-
approved application and with the HUD guidelines for fair housing 
requiring the use of the equal housing opportunity logotype, statement 
and slogan.
    (b) Waiting list. The PHA must maintain a waiting list for 
applicants for the Moderate Rehabilitation Program. This requirement may 
be met through the use of waiting lists for other subsidized housing 
programs such as the Existing Housing Program.



Sec. 882.514  Family participation.

    (a) Initial determination of family eligibility. (1) The PHA is 
responsible for receipt and review of applications, and determination of 
family eligibility for participation in accordance with HUD regulations 
(see 24 CFR parts 5, 750 and 760). The PHA is responsible for verifying 
the sources and amount of the family's income and other information 
necessary for determining income eligibility and the amount of the 
assistance payments.
    (2) PHA records on applicants and Families selected to participate 
must be maintained so as to provide HUD with racial, gender, and ethnic 
data.
    (b) Selection of Families for participation. When vacancies occur, 
the PHA will refer to the Owner one or more appropriate size Families on 
its waiting list. The PHA must select Families for participation in 
accordance with the provisions of the Program and in accordance with the 
PHA's application, including any PHA requirement or preferences as 
approved by HUD. The PHA must select Families eligible for housing 
assistance payments currently residing in units that are designated for 
rehabilitation under the Program without requiring that these Families 
be placed on the waiting list. Notwithstanding the fact that the PHA may 
not be accepting additional applications for participation because of 
the length of the waiting list, the PHA may not refuse to place an 
applicant on the waiting list if the applicant is otherwise eligible for 
partcipation and claims that he or she qualifies for a Federal 
preference as provided in 24 CFR part 5, unless the PHA determines, on 
the basis of the number of applicants who are already on the waiting 
list and who claim a Federal preference, and the anticipated number of 
admissions under this part, that--

[[Page 86]]

    (1) There is an adequate pool of applicants who are likely to 
qualify for a Federal preference and
    (2) It is unlikely that, on the basis of the PHA's system for 
applying the Federal preferences, the preference or preferences that the 
applicant claims, and the preferences claimed by applicants on the 
waiting list, the applicant would qualify for assistance before other 
applicants on the waiting list.
    (c) Owner selection of Families. All vacant units under Contract 
must be rented to Eligible Families referred by the PHA from its waiting 
list. However, if the PHA is unable to refer a sufficient number of 
interested applicants on the waiting list to the Owner within 30 days of 
the Owner's notification to the PHA of a vacancy, the Owner may 
advertise or solicit applications from Low-Income Families and refer 
such Families to the PHA to determine eligibility. Since the Owner is 
responsible for tenant selection, the Owner may refuse any Family 
provided that the Owner does not unlawfully discriminate. Should the 
Owner reject a Family, and should the Family believe that the Owner's 
rejection was the result of unlawful discrimination, the Family may 
request the assistance of the PHA in resolving the issue. If the issue 
cannot be resolved promptly, the Family may file a complaint with HUD, 
and the PHA may refer the Family to the next available Moderate 
Rehabilitation unit.
    (d) Briefing of Families. (1) When a Family is initially determined 
to be eligible for housing assistance payments or is selected for 
participation in accordance with this section, the PHA must provide the 
Family with information as to the Tenant Rent and the PHA's schedule of 
Utility Allowances. Each Family must also, either in group or individual 
sessions, be provided with a full explanation of the following:
    (i) Family and Owner responsibilities under the Lease and Contract;
    (ii) Significant aspects of the applicable State and local laws;
    (iii) Significant aspects of Federal, State and local fair housing 
laws;
    (iv) The fact that the subsidy is tied to the unit and the Family 
must occupy a unit rehabilitated under the Program;
    (v) The Family's options under the Program should the Family be 
required to move due to an increase or decrease in Family size; and
    (vi) The advisability and availability of blood lead level screening 
for children under 6 years of age and HUD's lead-based paint 
requirements in part 35, subparts A, B, H, and R of this title.
    (2) For all Families to be temporarily relocated, the briefing must 
include a discussion of the relocation policies.
    (e) Continued participation of Family when Contract is terminated. 
If an Owner evicts an assisted family in violation of the Contract or 
otherwise breaches the Contract, and the Contract for the unit is 
terminated, and if the Family was not at fault and is eligible for 
continued assistance, the Family may continue to receive housing 
assistance through the conversion of the Moderate Rehabilitation 
assistance to tenant-based assistance under the Section 8 certificate or 
voucher program. The Family must then be issued a certificate or 
voucher, and treated as any participant in the tenant-based programs 
under 24 CFR part 982, and must be assisted by the PHA in finding a 
suitable unit. All requirements of 24 CFR part 982 will be applicable 
except that the term of any housing assistance payments contract may not 
extend beyond the term of the initial Moderate Rehabilitation Contract. 
If the Family is determined ineligible for continued assistance, the 
certificate or voucher may be offered to the next Family on the PHA's 
waiting list. The unit will remain under the Moderate Rehabilitation ACC 
which provides for such a conversion of the units; therefore no 
amendment to the ACC will be necessary to convert to the Section 8 
tenant-based assistance programs.
    (f) Families determined by the PHA to be ineligible. If a Family is 
determined to be ineligible in accordance with the PHA's HUD-approved 
application, either at the application stage or after assistance has 
been provided on behalf of the Family, the PHA shall promptly notify the 
Family by letter of the determination and the reasons for it and the 
letter shall state that the Family has the right within a reasonable 
time (specified in the letter) to request an informal hearing. If, after 
conducting

[[Page 87]]

such an informal hearing, the PHA determines, based on a preponderance 
of the evidence, that the Family is ineligible, it shall notify the 
Family in writing. The procedures of this paragraph do not preclude the 
Family from exercising its other rights if it believes it is being 
discriminated against on the basis of race, color, religion, sex, age, 
handicap, familial status, or national origin. The informal review 
provisions for the denial of a Federal selection preference under 
Sec. 882.517 are contained in paragraph (k) of that section. The 
informal hearing requirements for denial and termination of assistance 
on the basis of ineligible immigration status are contained in 24 CFR 
part 5.

(Approved by the Office of Management and Budget under control number 
2502-0123)

[47 FR 34383, Aug. 9, 1982, as amended at 49 FR 19945, May 10, 1984; 51 
FR 11226, Apr. 1, 1986; 52 FR 1895, Jan. 15, 1987; 53 FR 847, Jan. 13, 
1988; 53 FR 1155, Jan. 15, 1988; 53 FR 6601, Mar. 2, 1988; 54 FR 39705, 
Sept. 27, 1989; 55 FR 28547, July 11, 1990; 56 FR 7539, Feb. 22, 1991; 
60 FR 14844, Mar. 20, 1995; 61 FR 9046, Mar. 6, 1996; 61 FR 13625, Mar. 
27, 1996; 63 FR 23855, Apr. 30, 1998; 64 FR 50227, Sept. 15, 1999; 66 FR 
28797, May 24, 2001]



Sec. 882.515  Reexamination of family income and composition.

    (a) Regular reexaminations. The PHA must reexamine the income and 
composition of all families at least once every 12 months. After 
consultation with the family and upon verification of the information, 
the PHA must make appropriate adjustments in the Total Tenant Payment in 
accordance with part 813 of this chapter and determine whether the 
family's unit size is still appropriate (see Sec. 882.213). The PHA must 
adjust Tenant Rent and the Housing Assistance Payment to reflect any 
change in Total Tenant Payment. At the time of the annual reexamination 
of family income and composition, the PHA must require the family to 
disclose and verify Social Security Numbers. For requirements regarding 
the signing and submitting of consent forms by families for the 
obtaining of wage and claim information from State Wage Information 
Collection Agencies, see part 5, subpart B, of this title. At the first 
regular reexamination after June 19, 1995, the PHA shall follow the 
requirements of 24 CFR part 5 concerning obtaining and processing 
evidence of citizenship or eligible immigration status of all family 
members. Thereafter, at each regular reexamination, the PHA shall follow 
the requirements of 24 CFR part 5 concerning verification of immigration 
status of any new family member.
    (b) Interim reexaminations. If the PHA receives information 
concerning a change in the family's income or other circumstances 
between regularly scheduled reexaminations, the PHA must consult with 
the family and make any adjustments determined to be appropriate. Any 
change in the family's income or other circumstances that results in an 
adjustment in the Total Tenant Payment, Tenant Rent, and Housing 
Assistance Payment must be verified. See part 5, subpart B, of this 
title for the requirements for the disclosure and verification of Social 
Security Numbers at interim reexaminations involving new family members. 
For requirements regarding the signing and submitting of consent forms 
by families for the obtaining of wage and claim information from State 
Wage Information Collection Agencies, see part 5, subpart B, of this 
title. At any interim reexamination after June 19, 1995 when there is a 
new family member, the PHA shall follow the requirements of 24 CFR part 
5 concerning obtaining and processing evidence of citizenship or 
eligible immigration status of the new family member.
    (c) Obligation to supply information. The family must supply such 
certification, release, information or documentation as the PHA or HUD 
determine to be necessary, including submission of required evidence of 
citizenship or eligible immigration status, submission of social 
security numbers and verifying documentation, submission of signed 
consent forms for the obtaining of wage and claim information from State 
Wage Information Collection Agencies, and submissions required for an 
annual or interim reexamination of family income and composition. See 24 
CFR part 5.
    (d) Continuation of housing assistance payments. A family's 
eligibility for Housing Assistance Payments shall

[[Page 88]]

continue until the Total Tenant Payment equals the Gross Rent. The 
termination of eligibility at such point will not affect the family's 
other rights under its lease, nor will such termination preclude the 
resumption of payments as a result of later changes in income, rents or 
other relevant circumstances during the term of the Contract. However, 
eligibility also may be terminated in accordance with HUD requirements 
for such reasons as failure to submit requested verification 
information, including failure to meet the disclosure and verification 
requirements for Social Security Numbers, as provided by part 5, subpart 
B, of this title, or failure to sign and submit consent forms for the 
obtaining of wage and claim information from State Wage Information 
Collection Agencies, as provided by part 5, subpart B, of this title. 
For provisions requiring termination of assistance when the PHA 
determines that a family member is not a U.S. citizen or does not have 
eligible immigration status, see 24 CFR parts 5 and 982 for provisions 
concerning certain assistance for mixed families (families whose members 
include those with eligible immigration status, and those without 
eligible immigration status) in lieu of termination of assistance, and 
for provisions concerning deferral of termination of assistance.

[56 FR 7539, Feb. 22, 1991, as amended at 60 FR 14844, Mar. 20, 1995; 61 
FR 11118, Mar. 18, 1996; 61 FR 13625, Mar. 27, 1996; 63 FR 23855, Apr. 
30, 1998]



Sec. 882.516  Maintenance, operation and inspections.

    (a) Maintenance and operation. The Owner must provide all the 
services, maintenance and utilities as agreed to under the Contract, 
subject to abatement of housing assistance payments or other applicable 
remedies if the Owner fails to meet these obligations.
    (b) Periodic inspection. In addition to the inspections required 
prior to execution of the Contract, the PHA must inspect or cause to be 
inspected each dwelling unit under Contract at least annually and at 
such other times as may be necessary to assure that the Owner is meeting 
the obligations to maintain the unit in decent, safe and sanitary 
condition and to provide the agreed upon utilities and other services. 
The PHA must take into account complaints and any other information 
coming to its attention in scheduling inspections.
    (c) Units not decent, safe and sanitary. If the PHA notifies the 
Owner that the unit(s) under Contract are not being maintained in 
decent, safe and sanitary condition and the Owner fails to take 
corrective action (including corrective action with respect to the 
Family where the condition of the unit is the fault of the Family) 
within the time prescribed in the notice, the PHA may exercise any of 
its rights or remedies under the Contract, including abatement of 
housing assistance payments (even if the Family continues in occupancy), 
termination of the Contract on the affected unit(s) and assistance to 
the Family in accordance with Sec. 882.514(e).
    (d) PHA management. Where the PHA is managing units on which it is 
also administering the Housing Assistance Payments Contract pursuant to 
a management contract approved by HUD in accordance with Sec. 882.412, 
HUD will make reviews of project operations, including inspections, in 
addition to required PHA reviews. These HUD reviews will be sufficient 
to assure that the Owner and the PHA are in full compliance with the 
terms and conditions of the Contract and the ACC. Should HUD determine 
that there are deficiencies, it may exercise any rights or remedies 
specified for the PHA under the Contract or reserved for HUD in the ACC, 
require termination of the management contract, or take other 
appropriate action.
    (e) Periodic PHA audits must be conducted as required by HUD, in 
accordance with guidelines prescribed by 24 CFR part 44.

[47 FR 34383, Aug. 9, 1982, as amended at 53 FR 8065, Mar. 11, 1988]



Sec. 882.517  HUD review of contract compliance.

    HUD will review program operations at such intervals as it deems 
necessary to ensure that the Owner and the PHA are in full compliance 
with the terms and conditions of the Contract and the ACC. Equal 
Opportunity review may be

[[Page 89]]

conducted with the scheduled HUD review or at any time deemed 
appropriate by HUD.

[43 FR 61246, Dec. 29, 1978. Redesignated at 63 FR 23854, Apr. 30, 1998]



Sec. 882.518  Denial of admission and termination of assistance for criminals and alcohol abusers.

    (a) Requirement to deny admission.--(1) Prohibiting admission of 
drug criminals. (i) The PHA must prohibit admission to the program of an 
applicant for three years from the date of termination of tenancy if any 
household member's federally assisted housing tenancy has been 
terminated for drug-related criminal activity. However, the PHA may 
admit the household if the PHA determines:
    (A) The household member who engaged in drug-related criminal 
activity and whose tenancy was terminated has successfully completed an 
approved supervised drug rehabilitation program, or
    (B) The circumstances leading to the termination of tenancy no 
longer exist (for example, the criminal household member has died or is 
imprisoned).
    (ii) The PHA must establish standards that permanently prohibit 
admission to the program if any household member has ever been convicted 
of drug-related criminal activity for manufacture or production of 
methamphetamine on the premises of federally assisted housing.
    (iii) The PHA must establish standards that prohibit admission of a 
household to the program if the PHA determines that any household member 
is currently engaging in illegal use of a drug or that it has reasonable 
cause to believe that a household member's pattern of illegal use of a 
drug, as defined in Sec. 5.100 of this title, may threaten the health, 
safety, or right to peaceful enjoyment of the premises by other 
residents.
    (2) Prohibiting admission of sex offenders. The PHA must establish 
standards that prohibit admission to the program if any member of the 
household is subject to a lifetime registration requirement under a 
State sex offender registration program. In this screening of 
applicants, the PHA must perform criminal history background checks 
necessary to determine whether any household member is subject to a 
lifetime sex offender registration requirement in the State where the 
housing is located and in other States where household members are known 
to have resided.
    (b) Authority to deny admission.--(1) Prohibiting admission of other 
criminals. The PHA may prohibit admission of a household to the program 
under standards established by the PHA if the PHA determines that any 
household member is currently engaged in or has engaged in during a 
reasonable time before the admission decision:
    (i) Drug-related criminal activity;
    (ii) Violent criminal activity;
    (iii) Other criminal activity which may threaten the health, safety, 
or right to peaceful enjoyment of the premises by other residents;
    (iv) Other criminal activity which may threaten the health or safety 
of the owner or any employee, contractor, subcontractor or agent of the 
owner who is involved in the owner's housing operations.
    (2) Reasonable time. The PHA may establish a period before the 
admission decision during which an applicant must not have engaged in 
the activities specified in paragraph (b)(1) of this section 
``reasonable time''.
    (3) Sufficient evidence. If the PHA has denied admission to an 
applicant because a member of the household engaged in criminal activity 
in accordance with paragraph (b)(1) of this section, the PHA may 
reconsider the applicant if the PHA has sufficient evidence that the 
members of the household are not currently engaged in, and have not 
engaged in criminal activity during a reasonable period, as determined 
by the PHA, before the admission decision.
    (i) The PHA would have ``sufficient evidence'' if the household 
member submitted a certification that she or he is not currently engaged 
in and has not engaged in such criminal activity during the specified 
period and provided supporting information from such sources as a 
probation officer, a landlord, neighbors, social service agency workers 
and criminal records, which the PHA verified.

[[Page 90]]

    (ii) For purposes of this section, a household member is ``currently 
engaged in'' criminal activity if the person has engaged in the behavior 
recently enough to justify a reasonable belief that the behavior is 
current.
    (4) Prohibiting admission of alcohol abusers. The PHA must establish 
standards that prohibit admission to the program if the PHA determines 
that it has reasonable cause to believe that a household member's abuse 
or pattern of abuse of alcohol may threaten the health, safety, or right 
to peaceful enjoyment of the premises by other residents.
    (c) Terminating assistance.--(1) Terminating assistance for drug 
criminals. (i) The PHA may terminate assistance for drug-related 
criminal activity engaged in on or near the premises by any tenant, 
household member, or guest, and any such activity engaged in on the 
premises by any other person under the tenant's control. In addition, 
the PHA may terminate assistance if the PHA determines that a household 
member is illegally using a drug or when the PHA determines that a 
pattern of illegal use of a drug interferes with the health, safety, or 
right to peaceful enjoyment of the premises by other residents.
    (ii) The PHA must immediately terminate assistance for a family 
under the program if the PHA determines that any member of the household 
has ever been convicted of drug-related criminal activity for 
manufacture or production of methamphetamine on the premises of 
federally assisted housing.
    (2) Terminating assistance for other criminals. (i) The PHA must 
establish standards that allow the PHA to terminate assistance for a 
family if the PHA determines that any household member is engaged in 
criminal activity that threatens the health, safety, or right of 
peaceful enjoyment of the premises by other residents or by persons 
residing in the immediate vicinity of the premises.
    (ii) The PHA may terminate assistance for a family if the PHA 
determines that a member of the household is:
    (A) Fleeing to avoid prosecution, or custody or confinement after 
conviction, for a crime, or attempt to commit a crime, that is a felony 
under the laws of the place from which the individual flees, or that, in 
the case of the State of New Jersey, is a high misdemeanor; or
    (B) Violating a condition of probation or parole imposed under 
Federal or State law.
    (3) Evidence of criminal activity.
    (i) The PHA may terminate assistance for criminal activity in 
accordance with this section if the PHA determines, based on a 
preponderance of the evidence, that a covered person has engaged in the 
criminal activity, regardless of whether the covered person has been 
arrested or convicted for such activity.
    (ii) See part 5, subpart J, of this title for provisions concerning 
access to criminal records.
    (4) Terminating assistance for alcohol abusers. The PHA must 
establish standards that allow termination of assistance for a family if 
the PHA determines that a household member's abuse or pattern of abuse 
of alcohol threatens the health, safety, or right to peaceful enjoyment 
of the premises by other residents.

[66 FR 28797, May 24, 2001]

Subpart F-G [Reserved]



   Subpart H--Section 8 Moderate Rehabilitation Single Room Occupancy 
                    Program for Homeless Individuals

    Source: 61 FR 48057, Sept. 11, 1996, unless otherwise noted.



Sec. 882.801  Purpose.

    The purpose of the Section 8 Moderate Rehabilitation Program for 
Single Room Occupancy (SRO) Dwellings for Homeless Individuals is to 
provide rental assistance for homeless individuals in rehabilitated SRO 
housing. The Section 8 assistance is in the form of rental assistance 
payments. These payments equal the rent for the unit, including 
utilities, minus the portion of the rent payable by the tenant under the 
U.S. Housing Act of 1937 (42 U.S.C. 1437 et seq.).

[[Page 91]]



Sec. 882.802  Definitions.

    In addition to the definitions set forth in 24 CFR part 5 and 
Sec. 882.102 (except for the definition of ``Single Room Occupancy (SRO) 
Housing'' therein) the following will apply:
    Agreement to enter into housing assistance payments contract 
(Agreement). A written agreement between the owner and the HA that, upon 
satisfactory completion of the rehabilitation in accordance with 
requirements specified in the Agreement, the HA will enter into a 
housing assistance payments contract with the owner.
    Applicant. A public housing agency or Indian housing authority 
(collectively referred to as HAs), or a private nonprofit organization 
that applies for assistance under this program. HUD will require private 
nonprofit applicants to subcontract with public housing agencies to 
administer their rental assistance.
    Eligible individual (``individual''). An individual who is capable 
of independent living and is authorized for admission to assisted 
housing under 24 CFR part 5.
    Homeless individual. An individual as described in section 103 of 
the McKinney Act (42 U.S.C. 11302).
    McKinney Act. The Stewart B. McKinney Homeless Assistance Act (42 
U.S.C. 11301 et seq.).
    Moderate rehabilitation. Rehabilitation involving a minimum 
expenditure of $3,000 for a unit, including its prorated share of work 
to be accomplished on common areas or systems, to upgrade to decent, 
safe, and sanitary condition to comply with the Housing Quality 
Standards or other standards approved by HUD, from a condition below 
those standards (improvements being of a modest nature and other than 
routine maintenance).
    Private nonprofit organization. An organization, no part of the net 
earnings of which inures to the benefit of any member, founder, 
contributor, or individual. The organization must:
    (1) Have a voluntary board;
    (2) Have a functioning accounting system that is operated in 
accordance with generally accepted accounting principles, or designate 
an entity that will maintain a functioning accounting system for the 
organization in accordance with generally accepted accounting 
principles; and
    (3) Practice nondiscrimination in the provision of assistance.
    Single room occupancy (SRO) housing. A unit for occupancy by one 
person, which need not but may contain food preparation, sanitary 
facilities, or both.
    Statement of individual responsibility. An agreement, in the form 
prescribed by HUD, between the HA and an individual to be assisted under 
the program, stating the obligations and responsibilities of the two 
parties.

[61 FR 48057, Sept. 11, 1996, as amended at 63 FR 23855, Apr. 30, 1998]



Sec. 882.803  Project eligibility and other requirements.

    (a) Eligible and ineligible properties. (1) Except as otherwise 
provided in paragraph (a) of this section, housing suitable for moderate 
rehabilitation is eligible for inclusion under this program. Existing 
structures of various types may be appropriate for this program, 
including single family houses and multifamily structures.
    (2) Housing is not eligible for assistance under this program if it 
is receiving Federal funding for rental assistance or operating costs 
under other HUD programs.
    (3) Nursing homes and related facilities such as intermediate care 
or board and care homes; units within the grounds of penal, reformatory, 
medical, mental, and similar public or private institutions; and 
facilities providing continual psychiatric, medical, or nursing services 
are not eligible for assistance under this program.
    (4) No Section 8 assistance may be provided with respect to any unit 
occupied by an owner.
    (5) Housing located in the Coastal Barrier Resources System 
designated under the Coastal Barriers Resources Act is not eligible.
    (6) Single-sex facilities are allowable under this program, provided 
that the HA determines that because of the physical limitations or 
configuration of the facility, considerations of personal privacy 
require that the facility (or parts of the facility) be available only 
to members of a single sex.

[[Page 92]]

    (b)(1) Physical condition standards. Section 882.404 applies to this 
program.
    (2) Site standards. (i) The site must be adequate in size, exposure, 
and contour to accommodate the number and type of units proposed; 
adequate utilities and streets must be available to service the site. 
(The existence of a private disposal system and private sanitary water 
supply for the site, approved in accordance with local law, may be 
considered adequate utilities.)
    (ii) The site must be suitable from the standpoint of facilitating 
and furthering full compliance with the applicable provisions of title 
VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d-2000d-4), title VIII 
of the Civil Rights Act of 1968 (42 U.S.C. 3601-19), E.O. 11063 (as 
amended by E.O. 12259; 3 CFR, 1959-1963 Comp., p. 652 and 3 CFR, 1980 
Comp., p. 307), and HUD regulations issued pursuant thereto.
    (iii) The site must be accessible to social, recreational, 
educational, commercial, and health facilities, and other appropriate 
municipal facilities and services.
    (c) Financing. Section 882.405 applies to this program.
    (d) Relocation. Section 882.406 applies to a project assisted under 
this program.
    (e) HA-owned housing. (1) A unit that is owned by the HA that 
administers the assistance under the ACC (including a unit owned by an 
entity substantially controlled by the HA) may only be assisted if:
    (i) The unit is not ineligible under Sec. 882.803(a); and
    (ii) HUD approves the base and contract rent calculations prior to 
execution of the Agreement and prior to execution of the HAP contract.
    (2) The HA as owner is subject to the same program requirements that 
apply to other owners in the program.

[61 FR 48057, Sept. 11, 1996, as amended at 63 FR 46579, Sept. 1, 1998; 
64 FR 50227, Sept. 15, 1999]



Sec. 882.804  Other Federal requirements.

    (a) Participation in this program requires compliance with the 
Federal requirements set forth in 24 CFR 5.105, and with the Americans 
with Disabilities Act (42 U.S.C. 12101 et seq.).
    (b) For agreements covering nine or more assisted units, the 
following requirements for labor standards apply:
    (1) Not less than the wages prevailing in the locality, as 
determined by the Secretary of Labor under the Davis-Bacon Act (40 
U.S.C. 276a through 276a-5), must be paid to all laborers and mechanics 
employed in the development of the project, other than volunteers under 
the conditions set out in 24 CFR part 70;
    (2) The employment of laborers and mechanics is subject to the 
provisions of the Contract Work Hours and Safety Standards Act (40 
U.S.C. 327-333); and
    (3) HAs, owners, contractors, and subcontractors must comply with 
all related rules, regulations, and requirements.
    (c) The environmental review requirements of 24 CFR part 58, 
implementing the National Environmental Policy Act and related 
environmental laws and authorities, apply to this program.



Sec. 882.805  HA application process, ACC execution, and pre-rehabilitation activities.

    (a) Review. When funds are made available for assistance, HUD will 
publish a notice of funding availability (NOFA) in the Federal Register 
in accordance with the requirements of 24 CFR part 4. HUD will review 
and screen applications in accordance with the guidelines, rating 
criteria, and procedures published in the NOFA.
    (b) ACC Execution. (1) Before execution of the annual contributions 
contract (ACC), the HA must submit to the appropriate HUD field office 
the following:
    (i) Estimates of Required Annual Contributions, Forms HUD-52672 and 
HUD-52673;
    (ii) Administrative Plan, which should include:
    (A) Procedures for tenant outreach;
    (B) A policy governing temporary relocation; and
    (C) A mechanism to monitor the provision of supportive services.
    (iii) Proposed Schedule of Allowances for Tenant-Furnished Utilities 
and Other Services, Form HUD-52667, with a justification of the amounts 
proposed;

[[Page 93]]

    (iv) If applicable, proposed variations to the acceptability 
criteria of the Housing Quality Standards (see Sec. 882.803(b)); and
    (v) The fire and building code applicable to each structure.
    (2) After HUD has approved the HA's application, the review and 
comment requirements of 24 CFR part 791 have been complied with, and the 
HA has submitted (and HUD has approved) the items required by paragraph 
(b)(1) of this section, HUD and the HA must execute the ACC in the form 
prescribed by HUD. The initial term of the ACC must be 11 years. This 
term allows one year to rehabilitate the units and place them under a 
10-year HAP contract. The ACC must give HUD the option to renew the ACC 
for an additional 10 years.
    (3) Section 882.403(a) (Maximum Total ACC Commitments) applies to 
this program.
    (4) Section 882.403(b) (Project account) applies to this program.
    (c)(1) If an owner is proposing to accomplish at least $3000 per 
unit of rehabilitation by including work to make the unit(s) accessible 
to a person with disabilities occupying the unit(s) or expected to 
occupy the unit(s), the PHA may approve such units not to exceed 5 
percent of the units under its Program, provided that accessible units 
are necessary to meet the requirements of 24 CFR part 8, which 
implements section 504 of the Rehabilitation Act of 1973. The 
rehabilitation must make the unit(s), and access and egress to the 
unit(s), barrier-free with respect to the disability of the individual 
in residence or expected to be in residence.
    (2) The PHA must take the applications and determine the eligibility 
of all tenants residing in the approved units who wish to apply for the 
Program. After eligibility of all the tenants has been determined, the 
Owner must be informed of any adjustment in the number of units to be 
assisted. In order to make the most efficient use of housing assistance 
funds, an Agreement may not be entered into covering any unit occupied 
by a family which is not eligible to receive housing assistance 
payments. Therefore, the number of units approved by the PHA for a 
particular proposal must be adjusted to exclude any unit(s) determined 
by the PHA to be occupied by a family not eligible to receive housing 
assistance payments. Eligible Families must also be briefed at this 
stage as to their rights and responsibilities under the Program.
    (3) Should the Owner agree with the assessment of the PHA as to the 
work that must be accomplished, the preliminary feasibility of the 
proposal, and the number of units to be assisted, the Owner, with the 
assistance of the PHA where necessary, must prepare detailed work write-
ups including specifications and plans (where necessary) so that a cost 
estimate may be prepared. The work write-up will describe how the 
deficiencies eligible for amortization through the Contract Rents are to 
be corrected including minimum acceptable levels of workmanship and 
materials. From this work write-up, the Owner, with the assistance of 
the PHA, must prepare a cost estimate for the accomplishment of all 
specified items.
    (4) The owner is responsible for selecting a competent contractor to 
undertake the rehabilitation. The PHA must propose opportunities for 
minority contractors to participate in the program.
    (5) The PHA must discuss with the Owner the various financing 
options available. The terms of the financing must be approved by the 
PHA in accordance with standards prescribed by HUD.
    (6) Before execution of the Agreement, the HA must:
    (i)(A) Inspect the structure to determine the specific work items 
that need to be accomplished to bring the units to be assisted up to the 
Housing Quality Standards (see Sec. 882.803(b)) or other standards 
approved by HUD;
    (B) Conduct a feasibility analysis, and determine whether cost-
effective energy conserving improvements can be added;
    (C) Ensure that the owner prepares the work write-ups and cost 
estimates required by paragraph (c)(3) of this section;
    (D) Determine initial base rents and contract rents;

[[Page 94]]

    (ii) Assure that the owner has selected a contractor in accordance 
with paragraph (c)(4) of this section;
    (iii) After the financing and a contractor are obtained, determine 
whether the costs can be covered by initial contract rents, computed in 
accordance with paragraph (d) of this section; and, if a structure 
contains more than 50 units to be assisted, submit the base rent and 
contract rent calculations to the appropriate HUD field office for 
review and approval in sufficient time for execution of the Agreement in 
a timely manner;
    (iv) Obtain firm commitments to provide necessary supportive 
services;
    (v) Obtain firm commitments for other resources to be provided;
    (vi) Determine that the $3,000 minimum amount of work requirement 
and other requirements in paragraph (c)(1) of this section are met;
    (vii) Determine eligibility of current tenants, and select the units 
to be assisted, in accordance with paragraph (c)(2) of this section;
    (viii) Comply with the financing requirements in paragraph (c)(5) of 
this section;
    (ix) Assure compliance with all other applicable requirements of 
this subpart; and
    (x) If the HA determines that any structure proposed in its 
application is infeasible, or the HA proposes to select a different 
structure for any other reason, the HA must submit information for the 
proposed alternative structure to HUD for review and approval. HUD will 
rate the proposed structure in accordance with procedures in the 
applicable notice of funding availability. The HA may not proceed with 
processing for the proposed structure or execute an Agreement until HUD 
notifies the HA that HUD has approved the proposed alternative structure 
and that all requirements have been met.
    (d) Initial contract rents. Section 882.408 (Initial contract 
rents), including the establishment of fair market rents for SRO units 
at 75 percent of the O-bedroom Moderate Rehabilitation Fair Market Rent, 
applies to this program, except as follows:
    (1)(i) In determining the monthly cost of a rehabilitation loan, in 
accordance with Sec. 882.408(c)(2), a loan term of a least 10 years 
(instead of 15 years) may be used. The exception in 
Sec. 882.408(c)(2)(iii) for using the actual loan term if the total 
amount of the rehabilitation is less than $15,000 continues to apply. In 
addition, the cost of the rehabilitation that may be included for the 
purpose of calculating the amount of the initial contract rent for any 
unit must not exceed the lower of:
    (A) The projected cost of rehabilitation; or
    (B) The per unit cost limitation that is established by Federal 
Register notice, plus the cost of the fire and safety improvements 
required by 24 CFR 982.605(b)(4). HUD may, however, increase the 
limitation in paragraph (d)(1)(i)(B) of this section by an amount HUD 
determines is reasonable and necessary to accommodate special local 
conditions, including high construction costs or stringent fire or 
building codes. HUD will publish future cost limitation changes in the 
Federal Register in the Notice of Funding Availability issued each year.
    (ii) If the Federal Housing Administration (FHA) believes that high 
construction costs warrant an increase in the per unit cost limitation 
in paragraph (d)(1)(i)(B) of this section, the HA must demonstrate to 
HUD's satisfaction that a higher average per unit amount is necessary to 
conduct this program, and that every appropriate step has been taken to 
contain the amount of the rehabilitation within the published per unit 
cost limitation established at that time, plus the cost of the required 
fire and safety improvements. These higher amounts will be determined as 
follows:
    (A) HUD may approve a higher per unit amount up to, but not to 
exceed, an amount computed by multiplying the HUD-approved High Cost 
Percentage for Base Cities (used for computing FHA high cost area 
adjustments) for the area, by the current published cost limitation plus 
the cost of the required fire and safety improvements.
    (B) HUD may, on a structure-by-structure basis, increase the level 
approved in paragraph (d)(1)(i) of this section to up to an amount 
computed by multiplying 2.4 by the current published cost limitation 
plus the cost of

[[Page 95]]

the required fire and safety improvements.
    (2) In approving changes to initial contract rents during 
rehabilitation in accordance with Sec. 882.408(d), the revised initial 
contract rents may not reflect an average per unit rehabilitation cost 
that exceeds the limitation specified in paragraph (d)(1) of this 
section.
    (3) If the structure contains four or fewer SRO units, the Fair 
Market Rent for that size structure (the Fair Market Rent for a 1-, 2-, 
3-, or 4-bedroom unit, as applicable) must be used to determine the Fair 
Market Rent limitation instead of using the separate Fair Market Rent 
for each SRO unit. To determine the Fair Market Rent limitation for each 
SRO unit, the Fair Market Rent for the structure must be apportioned 
equally to each SRO unit.
    (4) Contract rents must not include the costs of providing 
supportive services, transportation, furniture, or other nonhousing 
costs, as determined by HUD. SRO program assistance may be used for 
efficiency units selected for rehabilitation under this program, but the 
gross rent (contract rent plus any Utility Allowance) for these units 
will be no higher than for SRO units (i.e., 75 percent of the 0-bedroom 
Moderate Rehabilitation Fair Market Rent).

(Approved by the Office of Management and Budget under control number 
2506-0131)

[61 FR 48057, Sept. 11, 1996, as amended at 63 FR 23855, Apr. 30, 1998]



Sec. 882.806  Agreement to enter into housing assistance payments contract.

    (a) Rehabilitation period. (1) Agreement. Before the owner begins 
any rehabilitation, the HA must enter into an Agreement with the owner 
in the form prescribed by HUD.
    (2) Timely performance of work. (i) After execution of the 
Agreement, the Owner must promptly proceed with the rehabilitation work 
as provided in the Agreement. If the work is not so commenced, 
diligently continued, or completed, the PHA will have the right to 
rescind the Agreement, or take other appropriate action.
    (ii) The Agreement must provide that the work must be completed and 
the contract executed within 12 months of execution of the ACC. HUD may 
reduce the number of units or the amount of the annual contribution 
commitment if, in HUD's determination, the HA fails to demonstrate a 
good faith effort to adhere to this schedule or if other reasons justify 
reducing the number of units.
    (3) Inspections. The PHA must inspect, as appropriate, during 
rehabilitation to ensure that work is proceeding on schedule and is 
being accomplished in accordance with the terms of the Agreement, 
particularly that the work meets the acceptable levels of workmanship 
and materials specified in the work write-up.
    (4) Changes. (i) The Owner must submit to the PHA for approval any 
changes from the work specified in the Agreement which would alter the 
design or the quality of the required rehabilitation. The PHA may 
condition its approval of such changes on a reduction of the Contract 
Rents. If changes are made without prior PHA approval, the PHA may 
determine that Contract Rents must be reduced or that the Owner must 
remedy any deficiency as a condition for acceptance of the unit(s).
    (ii) Contract rents may not be increased except in accordance with 
Secs. 882.408(d) and 882.805(d)(2).
    (b) Completion of rehabilitation. (1) Notification of completion. 
Section 882.507(a) applies to this program.
    (2) Evidence of completion. Section 882.507(b) applies to this 
program, except that Sec. 882.507(b)(2)(iv), concerning lead-based paint 
requirements, does not apply.
    (3) Actual cost and rehabilitation loan certifications. Section 
882.507(c) applies to this program, except that contract rents must be 
established in accordance with Sec. 882.805(d).
    (4) Review and inspections. Section 882.507(d) applies to this 
program.
    (5) Acceptance. Section 882.507(e) applies to this program.

(Approved by the Office of Management and Budget under control number 
2502-0367)

[61 FR 48057, Sept. 11, 1996, as amended at 63 FR 23856, Apr. 30, 1998]

[[Page 96]]



Sec. 882.807  Housing assistance payments contract.

    (a) Time of execution. Upon PHA acceptance of the unit(s) and 
certifications pursuant to Sec. 882.507, the Contract will be executed 
by the Owner and the PHA. The effective date must be no earlier than the 
PHA inspection which provides the basis for acceptance as specified in 
Sec. 882.507(e).
    (b) Term of contract. The contract for any unit rehabilitated in 
accordance with this program must be for a term of 10 years. The 
contract must give the HA the option to renew the contract for an 
additional 10 years.
    (c) Changes in contract rents from agreement. The contract rents may 
be higher or lower than those specified in the Agreement, in accordance 
with Sec. 882.805(d).
    (d) Unleased unit(s). At the time of execution of the Contract, the 
Owner will be required to submit a list of dwelling unit(s) leased and 
not leased as of the effective date of the Contract.
    (e) Contract rents at end of rehabilitation loan term. For a 
contract in which the initial contract rent was based upon a loan term 
shorter than 10 years, the contract must provide for reduction of the 
contract rent effective with the rent for the month following the end of 
the term of the rehabilitation loan. The amount of the reduction will be 
the monthly cost of amortization of the rehabilitation loan. This 
reduction should result in a new contract rent equal to the base rent 
plus all subsequent adjustments.

(Approved by the Office of Management and Budget under control number 
2502-0367)

[61 FR 48057, Sept. 11, 1996, as amended at 63 FR 23856, Apr. 30, 1998]



Sec. 882.808  Management.

    (a) Outreach to homeless individuals and appropriate organizations. 
(1) The HA or the owner must undertake outreach efforts to homeless 
individuals so that they may be brought into the program. The outreach 
effort should include notification to emergency shelter providers and 
other organizations that could provide referrals of homeless 
individuals. If the owner conducts the outreach effort, the owner must 
notify the HA so that it may provide referrals of homeless individuals.
    (2) Additional outreach concerns. If the procedures that the HA or 
owner intends to use to publicize the availability of this program are 
unlikely to reach persons of any particular race, color, religion, sex, 
age, national origin, or mental or physical disability who may qualify 
for admission to the program, the HA or owner must establish additional 
procedures that will ensure that such persons are made aware of the 
availability of the program. The HA or owner must also adopt and 
implement procedures to ensure that interested persons can obtain 
information concerning the existence and location of services and 
facilities that are accessible to persons with disabilities.
    (3) First priority for homeless individuals. Homeless individuals 
must have the first priority for occupancy of housing rehabilitated 
under this program.
    (b) Individual participation. (1) Initial determination of 
individual eligibility. Section 882.514(a) applies to this program.
    (2) Owner selection of individuals. The owner must rent all vacant 
units under contract to homeless individuals located through HA or owner 
outreach efforts and determined by the HA to be eligible. The owner is 
responsible for tenant selection and may refuse any individual, provided 
the owner does not unlawfully discriminate. If the owner rejects an 
individual, and the individual believes that the owner's rejection was 
the result of unlawful discrimination, the individual may request the 
assistance of the HA in resolving the issue and may also file a 
complaint with HUD's Office of Fair Housing and Equal Opportunity in 
accordance with 24 CFR 103.25. If the individual requests the assistance 
of the HA, and if the HA cannot resolve the complaint promptly, the HA 
should advise the individual that he or she may file a complaint with 
HUD, and provide the individual with the address of the nearest HUD 
Office of Fair Housing and Equal Opportunity.
    (3) Briefing of individuals. Section 882.514(d) applies to this 
program, except that Sec. 882.514(d)(1)(vi) does not apply.

[[Page 97]]

    (4) Continued participation of individual when contract is 
terminated. Section 882.514(e) applies to this program.
    (5) Individuals determined by the HA to be ineligible. Section 
882.514(f) applies to this program. In addition, individuals are not 
precluded from exercising other rights if they believe they have been 
discriminated against on the basis of age.
    (c) Lease. Sections 882.403(d) and 882.511(a) apply to this program. 
In addition, the lease must limit occupancy to one eligible individual.
    (d) Security and utility deposits. Section 882.414 applies to this 
program.
    (e) Rent adjustments. Section 882.410 applies to this program.
    (f) Payments for vacancies. Section 882.411 applies to this program.
    (g) Subcontracting of owner services. Section 882.412 applies to 
this program.
    (h) Responsibility of the individual. Section 882.413 applies to 
this program.
    (i) Reexamination of individual income. (1) Regular reexaminations. 
The HA must reexamine the income of all individuals at least once every 
12 months. After consultation with the individual and upon verification 
of the information, the HA must make appropriate adjustments in the 
Total Tenant Payment in accordance with 24 CFR part 5, subpart F, and 
verify that only one individual is occupying the unit. The HA must 
adjust Tenant Rent and the Housing Assistance Payment to reflect any 
change in Total Tenant Payment. At each regular reexamination, the HA 
must follow the requirements of 24 CFR part 5, subpart E concerning 
verification of immigration status of any new family member.
    (2) Interim reexaminations. The individual shall supply such 
certification, release, information, or documentation as the PHA or HUD 
determines to be necessary, including submissions required for interim 
reexaminations of individual income and determinations as to whether 
only one individual is occupying the unit. In addition Sec. 882.515(b) 
shall apply.
    (3) Continuation of Housing Assistance Payments. Section 882.515(d) 
applies to this program.
    (j) Overcrowded units. If the HA determines that anyone other than, 
or in addition to, the eligible individual is occupying an SRO unit 
assisted under this program, the HA must take all necessary action, as 
soon as reasonably feasible, to ensure that the unit is occupied by only 
one eligible individual.
    (k) Adjustment of utility allowance. Section 882.510 applies to this 
program.
    (l) Termination of tenancy. Section 882.511 applies to this program. 
For provisions requiring termination of assistance when the HA 
determines that a family member is not a U.S. citizen or does not have 
eligible immigration status, see 24 CFR part 5, subpart E for provisions 
concerning certain assistance for mixed families (families whose members 
include those with eligible immigration status, and those without 
eligible immigration status) in lieu of termination of assistance, or 
for provisions concerning deferral of termination of assistance.
    (m) Reduction of number of units covered by contract. Section 
882.512 applies to this program.
    (n) Maintenance, operation, and inspections. Section 882.516 applies 
to this program.
    (o) HUD review of contract compliance. Section 882.517 applies to 
this program.
    (p) Records and reports. Each recipient of assistance under this 
subpart must keep any records and make any reports that HUD may require 
within the timeframe required.
    (q) Participation of homeless individuals. (1) Each approved 
applicant receiving assistance under this program, except HAs, must 
provide for the participation of not less than one homeless individual 
or formerly homeless individual on the board of directors or other 
equivalent policymaking entity of such applicant, to the extent that the 
entity considers and makes policies and decisions regarding the 
rehabilitation of any housing with assistance under this subpart. This 
requirement is waived if the applicant is unable to meet this 
requirement and presents a plan that HUD approves to consult with 
homeless or formerly homeless individuals in considering and making such 
policies and decisions.
    (2) To the maximum extent practicable, each approved applicant must 
involve homeless individuals and families, through employment, volunteer 
services, or otherwise, in rehabilitating

[[Page 98]]

and operating facilities assisted under this subpart, and in providing 
services for occupants of such facilities.

(Approved by the Office of Management and Budget under control number 
2506-0131)

[61 FR 48057, Sept. 11, 1996, as amended at 63 FR 23857, Apr. 30, 1998]



Sec. 882.809  Waivers.

    Section 5.405(b) of this title does not apply to this program.



Sec. 882.810  Displacement, relocation, and acquisition.

    (a) Minimizing displacement. (1) Consistent with the other goals and 
objectives of this part, owners must assure that they have taken all 
reasonable steps to minimize the displacement of persons (households, 
businesses, nonprofit organizations, and farms) as a result of a project 
assisted under this part. To the extent feasible, residential tenants 
must be provided a reasonable opportunity to lease and occupy a 
suitable, decent, safe, sanitary, and affordable dwelling unit in the 
project upon its completion.
    (2) Whenever a building/complex is rehabilitated, and some but not 
all of the rehabilitated units will be assisted upon completion of the 
rehabilitation, the relocation requirements described in this section 
apply to the occupants of each rehabilitated unit, whether or not 
Section 8 assistance will be provided for the unit.
    (b) Temporary relocation. The following policies cover residential 
tenants who will not be required to move permanently but who must 
relocate temporarily for the project. Such tenants must be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses incurred 
in connection with the temporary relocation;
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe, and sanitary 
dwelling to be made available for the temporary period;
    (iii) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the project 
upon completion; and
    (iv) The assistance required under paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons. A ``displaced 
person'' (defined in paragraph (g) of this section) must be provided 
relocation assistance at the levels described in, and in accordance with 
the requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended (URA) (42 U.S.C. 4601-4655) 
and implementing regulations in 49 CFR part 24. A displaced person must 
be advised of his or her rights under the Fair Housing Act (42 U.S.C. 
3601-19) and, if the comparable replacement dwelling used to establish 
the amount of the replacement housing payment to be provided to a 
minority is located in an area of minority concentration, such person 
also must be given, if possible, referrals to comparable and suitable, 
decent, safe, and sanitary replacement dwellings not located in such 
areas.
    (d) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (e) Appeals. A person who disagrees with the HA's determination 
concerning whether the person qualifies as a displaced person, or the 
amount of relocation assistance for which the person is eligible, may 
file a written appeal of that determination with the HA. A person who is 
dissatisfied with the HA's determination on his or her appeal may submit 
a written request for review of that determination to the HUD field 
office.
    (f) Responsibility of HA. (1) The HA must certify (i.e., provide 
assurance of compliance as required by 49 CFR part 24) that it will 
comply with the URA, the regulations in 49 CFR part 24, and the 
requirements of this section, and must ensure such compliance 
notwithstanding any third party's contractual obligation to the HA to 
comply with these provisions.
    (2) The cost of required relocation assistance is an eligible 
project cost in the same manner and to the same extent as other project 
costs. Such costs may be paid for with local public funds

[[Page 99]]

or funds available from other sources. The cost of HA advisory services 
for temporary relocation of tenants to be assisted under the program 
also may be paid from preliminary administrative funds.
    (3) The HA must maintain records in sufficient detail to demonstrate 
compliance with the provisions of this section. The HA must maintain 
data on the racial, ethnic, gender, and disability status of displaced 
persons.
    (g) Definition of displaced person. (1) For purposes of this 
section, the term displaced person means a person (household, business, 
nonprofit organization, or farm) that moves from real property, or moves 
personal property from real property, permanently, as a direct result of 
acquisition, rehabilitation, or demolition for a project assisted under 
this part. The term displaced person includes, but may not be limited 
to:
    (i) A person who moves permanently from the real property after 
receiving notice requiring such move, if the move occurs on or after the 
date the owner submits to the HA the owner proposal that is later 
approved;
    (ii) A person, including a person who moves from the property before 
the date the owner submits the proposal to the HA, if the HA or HUD 
determines that the displacement resulted directly from acquisition, 
rehabilitation, or demolition for the assisted project; or
    (iii) A tenant-occupant of a dwelling unit who moves from the 
building/complex permanently after the execution of the Agreement 
between the owner and the HA (or, for projects assisted under subpart H 
of this part, after the ``initiation of negotiations'' (see paragraph 
(h) of this section)), if the move occurs before the tenant is provided 
a written notice offering him or her the opportunity to lease and occupy 
a suitable, decent, safe, and sanitary dwelling in the same building/
complex, under reasonable terms and conditions, upon its completion. 
Such reasonable terms and conditions must include a monthly rent and 
estimated average monthly utility costs that do not exceed the greater 
of:
    (A) The tenant's monthly rent before the execution of the agreement 
and estimated average monthly utility costs; or
    (B) Thirty percent of gross household income.
    (C) For projects assisted under subpart H of this part, the amount 
cannot exceed the greater of the tenant's monthly rent before the 
``initiation of negotiations'' and estimated average monthly utility 
costs; or (if the tenant is low-income) the total tenant payment, as 
determined under 24 CFR 5.613, or (if the tenant is not low-income) 30 
percent of gross household income; or
    (iv) A tenant-occupant of a dwelling, who is required to relocate 
temporarily, but does not return to the building/complex, if either:
    (A) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation; or
    (B) Other conditions of the temporary relocation are not reasonable; 
or
    (v) A tenant-occupant of a dwelling who moves from the building/
complex permanently after he or she has been required to move to another 
dwelling unit in the building/complex, if either:
    (A) The tenant is not offered reimbursement for all reasonable out-
of-pocket expenses incurred in connection with the move; or
    (B) Other conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, a person does not qualify as a displaced person (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State, or local law, or other good cause, and the 
HA determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the submission of the 
preliminary proposal (or application, if there is no preliminary 
proposal), and before signing a lease and commencing occupancy, received 
written notice of the project and its possible impact on

[[Page 100]]

the person (e.g., the person may be displaced, temporarily relocated, or 
suffer a rent increase) and the fact that the person would not qualify 
as a displaced person (or for any assistance provided under this 
section) as a result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (3) The HA may request, at any time, HUD's determination of whether 
a displacement is or would be covered by this section.
    (h) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a residential tenant displaced as a direct result of 
private-owner rehabilitation or demolition of the real property, the 
term initiation of negotiations means the execution of the Agreement 
between the owner and the HA.

(Approved by Office of Management and Budget under OMB control number 
2506-0121)

[61 FR 48056, Sept. 11, 1996. Redesignated and amended at 63 FR 23857, 
Apr. 30, 1998]



PART 883--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--STATE HOUSING AGENCIES--Table of Contents




                      Subpart A--Summary and Guide

Sec.
883.101  General.
883.105  Applicability of part 883 in effect as of February 29, 1980.
883.106  Applicability and relationships between HUD and State agencies.

Subpart B [Reserved]

              Subpart C--Definitions and Other Requirements

883.301  Applicability.
883.302  Definitions.
883.306  Limitation on distributions.
883.307  Financing.
883.308  Adjustments to reflect changes in terms of financing.
883.310  Property standards.
883.313  Audit.

Subparts D-E [Reserved]

             Subpart F--Housing Assistance Payments Contract

883.601  Applicability.
883.602  The contract.
883.603  Term of contract.
883.604  Maximum annual commitment and project account.
883.605  Leasing to eligible families.
883.606  Administration fee.
883.607  Default by owner and/or agency.
883.608  Notice upon contract expiration.

                          Subpart G--Management

883.701  Cross-reference.

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

    Source: 45 FR 6889, Jan. 30, 1980, unless otherwise noted.



                      Subpart A--Summary and Guide



Sec. 883.101  General.

    (a) The purpose of the Section 8 program is to provide decent, safe 
and sanitary housing for low-income families through the use of a system 
of housing assistance payments. These needs may be met by statewide or 
special purpose housing agencies established by the various States.
    (b) The regulations in this part 883 contain the policies and 
procedures applicable to the Section 8 program for these State agencies.

[61 FR 13592, Mar. 27, 1996]



Sec. 883.105  Applicability of part 883 in effect as of February 29, 1980.

    (a) Part 883, in effect as of February 29, 1980, applies to projects 
for which the initial application was submitted on or after the February 
29, 1980, effective date. (See 24 CFR part 883, revised as of April 1, 
1980.) Projects for which applications or proposals were submitted 
before the February 29, 1980, effective date of part 883 have been 
processed under the part 883 regulations and procedures in effect at the 
date of submission. If, however, the agency notified HUD within 60 
calendar days of the February 29, 1980, effective date of the part 883 
regulations that they chose to have the provisions of part 883, in 
effect as of February 29, 1980, apply to a specific case, it must have 
promptly modified the application(s) and proposal(s) to comply.

[[Page 101]]

    (b) Subpart F of this part, dealing with the HAP contract and 
subpart G of this part, dealing with management, apply to all projects 
for which an Agreement was not executed before the February 29, 1980, 
effective date of part 883. In cases where an Agreement has been 
executed:
    (1) The Agency, owner and HUD may agree to make the revised subpart 
F of this part applicable and execute appropriate amendments to the 
Agreement or Contract;
    (2) The Agency, Owner and HUD may agree to make the revised subpart 
G of this part applicable (with or without the limitation on 
distributions) and execute appropriate amendments to the Agreement or 
Contract.
    (c) Section 883.708, Termination of Tenancy and Modifications of 
Leases, applies to new families who begin occupancy or execute a lease 
on or after 30 days following the February 29, 1980, effective date of 
part 883. This section also applies to families not covered by the 
preceding sentence, including families currently under lease, who have a 
lease in which a renewal becomes effective on or after the 60th day 
following the February 29, 1980 effective date of part 883. A lease is 
considered renewed when both the landlord and the family fail to 
terminate a tenancy under a lease permitting either to terminate.
    (d) Notwithstanding the provisions of paragraph (b) of this section, 
the provisions of 24 CFR part 5 (concerning preferences for selection of 
applicants) apply to all projects, regardless of when am Agreement was 
executed.

[61 FR 13592, Mar. 27, 1996]



Sec. 883.106  Applicability and relationships between HUD and State agencies.

    (a) Applicability. This subpart A applies to contract authority set 
aside for a State Agency.
    (b) General responsibilities and relationships. Subject to audit and 
review by HUD to assure compliance with Federal requirements and 
objectives, Housing Finance Agencies (HFAs) shall assume responsibility 
for project development and for supervision of the development, 
management and maintenance functions of owners.
    (c) Certifications and HUD monitoring. (1) Generally, when reviewing 
any of the certifications of an HFA required by this part, HUD shall 
accept the certification as correct. If HUD has substantial reason to 
question the correctness of any element in a certification, HUD shall 
promptly bring the matter to the attention of the HFA and ask it to 
provide documentation supporting the certifications. When the HFA 
provides such evidence, HUD will act in accordance with the HFA's 
judgment or evaluation unless HUD determines that the certification is 
clearly not supported by the documentation.
    (2) HUD will periodically monitor the activities of HFA's 
participating under this part only with respect to Section 8 or other 
HUD programs. This monitoring is intended primarily to ensure that 
certifications submitted and projects operated under this part reflect 
appropriate compliance with Federal law and requirements.

[61 FR 13592, Mar. 27, 1996]

Subpart B--[Reserved]



              Subpart C--Definitions and Other Requirements



Sec. 883.301  Applicability.

    The provisions of this subpart are applicable to newly constructed 
and substantially rehabilitated housing allocated contract authority 
under subpart B of this part and processed and constructed under the 
Fast Tract Procedures of subpart D. The definitions contained in 
Sec. 883.302 and the provisions of Sec. 883.307(b) regarding review and 
approval of financing documents, however, apply to all of this part.



Sec. 883.302  Definitions.

    The terms Fair Market Rent (FMR), HUD, and Public Housing Agency 
(PHA) are defined in 24 CFR part 5.
    ACC (Annual Contributions Contract). The contract between the State 
Agency and HUD under which HUD commits to provide the Agency with the 
funds needed to make housing assistance payments to the Owner and to pay 
the Agency for administrative fees in cases where it is eligible for 
them.
    Agency. See State Agency.

[[Page 102]]

    Agreement--(Agreement to enter into Housing Assistance Payments 
Contract). The agreement between the owner and the State Agency on new 
construction and substantial rehabilitation projects which provides 
that, upon satisfactory completion of the project in accordance with the 
HUD-approved proposal or final proposal, the Agency will enter into a 
Housing Assistance Payments Contract with the owner.
    Annual income. As defined in part 813 of this chapter.
    Assisted unit. A dwelling unit eligible for assistance under a 
Contract.
    Application. A request, submitted by a State Agency, to assign a 
portion of its set-aside to a specific jurisdiction or project.
    Contract--(Housing Assistance Payments Contract). The Contract 
entered into by the owner and the State Agency upon satisfactory 
completion of a new construction or substantial rehabilitation project 
which sets forth the rights and duties of the parties with respect to 
the project and the payments under the Contract.
    Contract Rent. The total amount of rent specified in the Contract as 
payable by the Agency and the tenant to the owner for an assisted unit. 
In the case of the rental of only a manufactured home space, ``contract 
rent'' is the total rent specified in the Contract as payable by the 
Agency and the tenant to the owner for rental of the space, including 
fees or charges for management and maintenance services with respect to 
the space, but excluding utility charges for the manufactured home.
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary if 
it meets the physical condition requirements in 24 CFR part 5, subpart 
G.
    Existing Housing. Housing assisted under a contract entered into 
pursuant to 24 CFR part 882. (See subpart E of this part.)
    Family (Eligible Family). As defined in part 812 of this chapter.
    Fast Track procedures. The procedures contained in subpart D for 
processing and construction of new construction and substantial 
rehabilitation projects. In order to be eligible for these procedures, a 
State Agency must provide permanent financing without Federal mortgage 
insurance or a Federal guarantee except coinsurance under Section 244 of 
the National Housing Act.
    Financing Cost Contingency (FCC). The maximum amount of contract 
authority which may be used to amend the Annual Contributions Contract 
(ACC) and Housing Assistance Payments Contract (HAP Contract) to provide 
increased contract rents to cover higher than anticipated debt service 
on the loan for a new construction or substantial rehabilitation 
project.
    Gross Rent. As defined in part 813 of this chapter.
    Household type. The three household types are (1) elderly and 
handicapped, (2) family, and (3) large family.
    Housing Assistance Payment. The payment made to the Owner of an 
assisted unit by the State Agency as provided in the Contract. Where the 
unit is leased to an eligible Family, the payment is the difference 
between the Contract Rent and the Tenant Rent. An additional payment is 
made to the Family when the Utility Allowance is greater than Total 
Tenant Payment. In the case of a Family renting only a manufactured home 
space as provided in Sec. 883.303(i), the Housing Assistance Payment is 
the difference between Gross Rent and the Total Tenant Payment, but such 
payment may not exceed the Contract Rent for the space, and no 
additional payment is made to the Family. A Housing Assistance Payment, 
known as a ``vacancy payment'', may be made to the Owner when an 
assisted unit is vacant, as provided in Sec. 883.712.
    Housing Assistance Plan (HAP). A housing plan submitted by a unit of 
general local or State government and approved by HUD as being 
acceptable under the standards of 24 CFR part 570.
    Housing type. The three housing types are new construction, 
substantial rehabilitation, and existing housing/moderate 
rehabilitation.
    HFA (Housing Finance Agency). A State Agency which provides 
permanent financing for newly constructed or substantially rehabilitated 
housing processed under subpart D and financed without Federal mortgage 
insurance or a Federal guarantee except coinsurance under Section 244 of 
the National Housing Act.

[[Page 103]]

    Independent Public Accountant. Certified Public Accountant or a 
licensed or registered public accountant, none of which has a business 
relationship with the owner or State Agency except for the performance 
of audit, systems work and tax preparation. If not certified, the 
Independent Public Accountant must have been licensed or registered by a 
regulatory authority of a State or other political subdivision of the 
United States on or before December 31, 1970. In States that do not 
regulate the use of the title ``public accountant,'' only Certified 
Public Accountants may be used.
    Low-Income Family. As defined in part 813 of this chapter.
    Moderate rehabilitation. The improvement of dwelling units in 
accordance with HUD requirements, under 24 CFR part 882.
    New construction. Housing for which construction starts after 
execution of an Agreement, or housing which is already under 
construction when the Agreement is executed provided that:
    (a) At the date an application is submitted to HUD, a substantial 
amount of construction (generally at least 25 percent) remains to be 
completed;
    (b) At the date of application to HUD, the project cannot be 
completed and occupied by eligible families without assistance under 
this part; and
    (c) At the time construction was initiated, all of the parties 
reasonably expected that the project would be completed without 
assistance under this part.
    Override. The difference between an HFA's cost of borrowing on 
obligations issued to finance a new construction or substantial 
rehabilitation project and the lending rate at which they provide 
permanent financing for the project.
    Owner. Any private person or entity (including a cooperative) or a 
public entity, having the legal right to lease or sublease dwelling 
units assisted under this part. The term Owner also includes the person 
or entity submitting a proposal to a State Agency under this part.
    Partially-assisted Project. A project for non-elderly families under 
this part which includes more than 50 units, of which the number of 
assisted units does not exceed the greater of (a) 20 percent of the 
units in the project, rounded to the next highest whole number of units, 
or (b) the minimum percentage required by State law as a condition of 
HFA permanent financing, if the Assistant Secretary approves such 
minimum percentage for purposes of applicability of this definition.
    Permanent financing. An Agency is determined to provide permanent 
financing if HUD determines that (a) the Agency permanently finances a 
project from its own funds, including the sale of its obligations; or 
(b) permanent financing for projects developed or administered by the 
Agency is provided by the State government or by an agency or 
instrumentality thereof other than the Agency; or (c) the permanent 
financing (by a public or private entity other than the Agency) is 
backed by the commitment of the Agency to assume the risks of loss on 
default or foreclosure of the loan.
    Project Account. A specifically identified and segregated account 
for each project which is established in accordance with Sec. 883.604(b) 
out of the amounts by which the maximum Annual Contributions Contract 
commitment exceeds the amount actually paid out under the ACC each year.
    Proposal. A proposal for a project that is submitted by an HFA to 
HUD for Section 8 assistance under this part.
    Rent. In the case of an assisted unit in a cooperative project, rent 
means the carrying charges payable to the cooperative with respect to 
occupancy of the unit.
    Replacement cost--(a) New construction. The estimated construction 
cost of the project when the proposed improvements are completed. The 
replacement cost may include the land, the physical improvements, 
utilities within the boundaries of the land, architect's fees, 
miscellaneous charges incident to construction as approved by the 
Assistant Secretary.
    (b) Substantial rehabilitation. The sum of the ``as is'' value 
before rehabilitation of the property as determined by the Agency and 
the estimated cost of rehabilitation, including carrying and finance 
charges.
    Single Room Occupancy (SRO) Housing. A unit for occupancy by a 
single

[[Page 104]]

eligible individual capable of independent living, which does not 
contain food preparation and/or sanitary facilities and is located 
within a multifamily structure consisting of more than 12 units.
    Secretary. The Secretary of Housing and Urban Development (or 
designee).
    Small Project. A project for non-elderly families under this part 
which includes a total of 50 or fewer units (assisted and unassisted).
    State Agency (Agency). An agency which has been notified by HUD in 
accordance with Sec. 883.203 that it is authorized to apply for a set-
aside and/or to use the Fast Track Procedures of this part.
    Substantial rehabilitation. (a) The improvement of a property to 
decent, safe and sanitary condition in accordance with the standards of 
this part from a condition below these standards. Substantial 
Rehabilitation may vary in degree from gutting and extensive 
reconstruction to the cure of substantial accumulation of deferred 
maintenance. Cosmetic improvements alone do not qualify as Substantial 
Rehabilitation under this definition.
    (b) Substantial Rehabilitation may also include renovation, 
alteration or remodeling for the conversion or adaptation of 
structurally sound property to the design and condition required for use 
under this part, or the repair or replacement of major building systems 
or components in danger of failure.
    (c) Housing on which rehabilitation work has already started when 
the Agreement is executed is eligible for assistance as a Substantial 
Rehabilitation project under this part provided:
    (1) At the date of application to HUD, a substantial amount of 
construction (generally at least 25 percent) remains to be completed;
    (2) At the date of application to HUD, the project cannot be 
completed and occupied by eligible families without assistance under 
this part; and
    (3) At the time construction was initiated, all of the parties 
reasonably expected that the project would be completed without 
assistance under this part.
    Tenant Rent. The monthly amount defined in, and determined in 
accordance with part 813 of this chapter.
    Total Tenant Payment. The monthly amount defined in, and determined 
in accordance with part 813 of this chapter.
    Utility Allowance. As defined in part 813 of this chapter, made or 
approved by HUD.
    Utility reimbursement. As defined in part 813 of this chapter.
    Vacancy payments. The housing assistance payment made to the owner 
by the State Agency for a vacant, assisted unit if certain conditions 
are fulfilled as provided in the Contract. The amount of vacancy payment 
varies with the length of the vacancy period and is less after the first 
60 days of any vacancy.
    Very Low-Income Family. As defined in part 813 of this chapter.

[45 FR 6889, Jan. 30, 1980, as amended at 45 FR 56326, Aug. 22, 1980; 48 
FR 12708, Mar. 28, 1983; 49 FR 17449, Apr. 24, 1984; 49 FR 19946, May 
10, 1984; 61 FR 5213, Feb. 9, 1996; 61 FR 13592, Mar. 27, 1996; 63 FR 
46579, Sept. 1, 1998]



Sec. 883.306  Limitation on distributions.

    (a) Non-profit owners are not entitled to distributions of project 
funds.
    (b) For the life of the Contract, project funds may only be 
distributed to profit-motivated owners at the end of each fiscal year of 
project operation following the effective date of the Contract and after 
all project expenses have been paid, or funds have been set aside for 
payment, and all reserve requirements have been met. The first year's 
distribution may not be made until the HFA certification of project 
costs, (See Sec. 883.411), where applicable, has been submitted to HUD. 
The HFA must certify that distributions will not exceed the following 
maximum returns:
    (1) For projects for elderly families, the first year's distribution 
will be limited to 6 percent on equity. The Assistant Secretary may 
provide for increases in subsequent years' distributions on an annual or 
other basis so that the permitted return reflects a 6 percent return on 
the value, in subsequent years, as determined in accordance with HUD 
guidelines, of the approved initial equity. Any such adjustments will be 
made in accordance with a Notice in the Federal Register. The HFA may 
approve a lesser increase or

[[Page 105]]

no increase in subsequent years' distributions.
    (2) For projects for non-elderly families the first year's 
distribution will be limited to 10 percent on equity. The Assistant 
Secretary may provide for increases in subsequent years' distributions 
on an annual or other basis so that the permitted return reflects a 10 
percent return on the value, in subsequent years, as determined in 
accordance with HUD guidelines, of the approved initial equity. Any such 
adjustments will be made in accordance with a Notice in the Federal 
Register. The HFA may approve a lesser increase or no increase in 
subsequent years' distributions.
    (c) For the purpose of determining the allowable distribution, an 
owner's equity investment in a project is deemed to be 10 percent of the 
replacement cost of the part of the project attributable to dwelling use 
accepted by the HFA at cost certification (See Sec. 883.411), or as 
specified in the Proposal where cost certification is not required, 
unless the owner justifies a higher equity contribution through cost 
certification documentation accepted by the HFA.
    (d) Any short-fall in return may be made up from surplus project 
funds in future years.
    (e) If the HFA determines at any time that surplus project funds are 
more than the amount needed for project operations, reserve requirements 
and permitted distributions, the HFA may require the excess to be placed 
in a separate account to be used to reduce housing assistance payments 
or for other project purposes. Upon termination of the Contract, any 
excess project funds must be remitted to HUD.
    (f) Owners of small projects or partially assisted projects are 
exempt from the limitation on distributions contained in paragraphs (b) 
through (d) of this section.
    (g) HUD may permit increased distributions of surplus, in excess of 
the amounts otherwise permitted, to profit-motivated owners who 
participate in a HUD-approved initiative or program to preserve below-
market housing stock. The increased distributions will be limited to a 
maximum amount based on market rents and calculated according to HUD 
instructions. Funds that the owner is authorized to retain under section 
236(g)(2) of the National Housing Act are not considered distributions 
to the owner.
    (h) Any State or local law or regulation that restricts 
distributions to an amount lower than permitted by this section or 
permitted by the Commissioner under this paragraph (h) is preempted as 
provided by section 524(f) of the Multifamily Assisted Housing Reform 
and Affordability Act of 1997.

[45 FR 6889, Jan. 30, 1980, as amended at 65 FR 61075, Oct. 13, 2000; 65 
FR 68891, Nov. 15, 2000]



Sec. 883.307  Financing.

    (a) Types of financing. A State Agency that used the Fast Track 
Procedures formerly in this part must provide permanent financing for 
any new construction or substantial rehabilitation project without 
Federal mortgage insurance, except coinsurance under section 244 under 
the National Housing Act (12 U.S.C. 1701 et seq). Obligations issued by 
the HFA for this purpose may be taxable under section 802 of the Housing 
and Community Development Act of 1974 (42 U.S.C. 1440) or tax-exempt 
under section 103 of the Internal Revenue Code (26 U.S.C. 103), 24 CFR 
part 811 or other Federal Law.
    (b) HUD approval. (1) A State Agency, prior to receiving HUD 
approval of its first New Construction or Substantial Rehabilitation 
Proposal using contract authority under this part, must submit copies of 
the documents relating to the method of financing Section 8 projects to 
HUD for review. These documents shall include bond resolutions or 
indentures, loan agreements, regulatory agreements, notes, mortgages or 
deeds of trust and other related documents, if any, but does not need to 
include the ``official statement'' or copies of the prospectus for 
individual bond issues. HUD review will be limited to making certain 
that the documents are not inconsistent with or in violation of these 
regulations and the administrative procedures used to implement them. 
After review, HUD must notify the Agency that the documents are 
acceptable or,

[[Page 106]]

if unacceptable, will request clarification or changes. This review and 
approval will meet the requirements of 24 CFR 811.107(a).
    (2) When an Agency which has received HUD approval of its financing 
documents proposes substantive changes in them which affect the Section 
8 program, the revised documents must be submitted for review. HUD 
review will be limited to the areas indicated in paragraph (b)(1) of 
this section and must be carried out promptly. HUD will notify the 
Agency that the revised documents are acceptable, or, if unacceptable, 
will request clarification or changes.
    (3) The review and approval of financing documents required under 24 
CFR part 811 will constitute HUD approval under this section.
    (4) The Agency must retain in its files, and make available for HUD 
inspection, the documentation relating to its financing of Section 8 
projects, including any relating to the certifications of compliance 
with applicable Department of Treasury or HUD regulations (24 CFR part 
811) regarding tax-exempt financing.
    (c) Pledge of Contracts. The HFA or owner may pledge, or offer as 
security for any loan or obligation, an Agreement, Contract, or ACC 
entered into pursuant this part provided that such security is in 
connection with a project constructed pursuant to this part. Any pledge 
of the Agreement, Contract, or ACC, or payments thereunder will be 
limited to the amounts payable under the Contract or ACC in accordance 
with its terms. If the pledge or other document provides that all 
payments will be paid directly to the HFA, other mortgagee or the 
trustee for bondholders, the HFA, other mortgagee or trustee may make 
all payments or deposits required under the mortgage or trust indenture 
and remit any excess to the owner.
    (d) Foreclosure and other transfers. In the event of assignment, 
sale, or other disposition of the project or the contracts agreed to by 
the HFA and approved by HUD (which approval shall not be unreasonably 
delayed or withheld), foreclosure, or assignment of the mortgage or deed 
in lieu of foreclosure,
    (1) The Agreement, the Contract and the ACC will continue in effect, 
and
    (2) Housing assistance payments will continue in accordance with the 
terms of the Contract, unless approval to amend or terminate the 
Agreement, the Contract or the ACC has been obtained from the Assistant 
Secretary.
    (e) In the case of a newly constructed or substantially 
rehabilitated manufactured home park, the principal amount of any 
mortgage attributable to the rental spaces in the park may not exceed an 
amount per space determined in accordance with Sec. 207.33(b) of this 
title.

[45 FR 6889, Jan. 30, 1980, as amended at 45 FR 56327, Aug. 22, 1980; 48 
FR 12709, Mar. 28, 1983; 49 FR 17449, Apr. 24, 1984; 61 FR 13592, Mar. 
27, 1996]



Sec. 883.308  Adjustments to reflect changes in terms of financing.

    (a) Certifications of projected financing terms. When an HFA, under 
this part, provides permanent financing for a project through the 
issuance of obligations and these are not sold until after the contract 
rents for a project have been set, the HFA must submit, with the 
Proposal, a certification of:
    (1) Its projected rate of borrowing (net interest cost), based on a 
reasonable evaluation of market conditions, on obligations issued to 
provide interim and permanent financing for the project,
    (2) The projected cost of borrowing to the owner on interim 
financing for the project,
    (3) The projected loan amount for the project,
    (4) The projected cost of borrowing and the term of the permanent 
financing to be provided to the owner for the project,
    (5) The projected annual debt service for the permanent financing on 
which the Contract Rents are based, and
    (6) The override, if any.
    (b) Revised certifications. If, at any time prior to the execution 
of the Agreement, the terms and conditions of financing change, other 
than the HFA's projected cost of borrowing, the HFA must submit revised 
certifications based upon the new terms.

[[Page 107]]

    (c) Certifications of actual financing terms. After a project has 
been permanently financed, the HFA must submit a certification which 
specifies the actual financing terms. The items that must be included in 
this certification include:
    (1) The HFA's actual cost of borrowing (net interest cost) on 
obligations from which funds were used to permanently finance the 
project,
    (2) The override, if any, added to the actual cost of borrowing on 
obligations in setting the rate of lending to the owner,
    (3) The annual debt service to the owner for the permanent financing 
on which contract rents are based; and,
    (4) The actual loan amount and the term on which the annual debt 
service is based.
    (d) Reduction of Contract Rents. If the actual debt service to the 
owner under the permanent financing is lower than the anticipated debt 
service on which the Contract Rents were based, the initial Contract 
Rents, or the Contract Rents currently in effect, must be reduced 
commensurately, and the amount of the savings credited to the project 
account.
    (e) Increase of Contract Rents. This paragraph (e) applies only if 
the HFA is using its set-aside for the project and it is processed under 
subpart D. If the actual debt service to the owner under the permanent 
financing is higher than the anticipated debt service on which the 
Contract Rents are based, the initial Contract Rents or the Contract 
Rents currently in effect may, if sufficient contract and budget 
authority is available, be increased commensurately based on the 
certification submitted under paragraph (c) of this section. The amount 
of this increase may not exceed the amount of the Financing Cost 
Contingency (FCC) authorized but not reserved for the project at the 
time the proposal is approved. The adjustment must not exceed the amount 
necessary to reflect an increase in debt service (based on the 
difference between the projected and actual terms of the permanent 
financing) resulting from an increase over the projected interest rate 
of not more than:
    (1) One and one-half percent if the projected override was three-
fourths of one percent or less, or
    (2) One percent if such projected override was more than three-
fourths of one percent but not more than one percent, or
    (3) One-half of one percent if such projected override was more than 
one percent.
    (f) Recoupment of savings in financing costs. In the event that 
interim financing is continued after the first year of the term of the 
Contract and the debt service of the interim financing for any period of 
three months after such first year is less than the anticipated debt 
service under the permanent financing on which the Contract Rents were 
based, an appropriate amount reflecting the savings in financing cost 
will be credited by HUD to the Project Account and withheld from housing 
assistance payments payable to the owner. If during the course of the 
same year there is any period of three months in which the debt service 
is greater than the anticipated debt service under the projected 
permanent financing, an adjustment will be made so that only the net 
amount of savings in debt service for the year is credited by HUD to the 
Project Account and withheld from housing assistance payments to the 
owner. No increased payments will be made to the owner on account of any 
net excess for the year of actual interim debt service over the 
anticipated debt service under the permanent financing. Nothing in this 
paragraph will be construed as requiring a permanent reduction in the 
Contract Rents or precluding adjustments of Contract Rents in accordance 
with paragraphs (d) or (e) of this section.
    (g) Compliance with other regulations. The HFA must also submit a 
certification specifying:
    (1) That the terms of financing, the amount of the obligations 
issued with respect to the project and the use of the funds will be in 
compliance with any regulation governing the issuance of the 
obligations, e.g., Department of the Treasury regulations regarding 
arbitrage or HUD regulations regarding Tax Exemption of Obligations of 
Public Housing Agencies (24 CFR part 811), and

[[Page 108]]

    (2) That the override, if any, on the permanent financing for the 
project will not be greater than the projected override nor greater than 
the override allowed for the borrowing as a whole under applicable 
regulations, e.g., the Department of Treasury regulations regarding 
arbitrage. The certifications required under 24 CFR 811.107(a)(2) will 
be sufficient to meet the certification requirements of this paragraph 
(g).



Sec. 883.310  Property standards.

    (a) New Construction. Projects must comply with:
    (1) [Reserved]
    (2) In the case of manufactured homes, the Federal Manufactured Home 
Construction and Safety Standards, pursuant to Title VI of the Housing 
and Community Development Act of 1974, and 24 CFR part 3280;
    (3) In the case of congregate or single room occupant housing, the 
appropriate HUD guidelines and standards,
    (4) HUD requirements pursuant to Section 209 of the Housing and 
Community Development Act of 1974 for projects for the elderly or the 
handicapped;
    (5) HUD requirements pertaining to noise abatement and control; and
    (6) Applicable state and local laws, codes, ordinances, and 
regulations.
    (b) Substantial Rehabilitation. Projects must comply with:
    (1) [Reserved]
    (2) In the case of congregate or single room occupant housing, the 
appropriate HUD guidelines and standards,
    (3) HUD requirements pursuant to Section 209 of the HCD Act for 
projects for the elderly or the handicapped;
    (4) HUD requirements pertaining to noise abatement and control;
    (5) The Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4821-
4846), the Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 
U.S.C. 4851-4856), and implementing regulations at part 35, subparts A, 
B, H, and R of this title.
    (6) Applicable State and local laws, codes, ordinances, and 
regulations.
    (c) Smoke detectors. (1) Performance requirement. After October 30, 
1992, each dwelling unit must include at least one battery-operated or 
hard-wired smoke detector, in proper working condition, on each level of 
the unit. If the unit is occupied by hearing-impaired persons, smoke 
detectors must have an alarm system, designed for hearing-impaired 
persons, in each bedroom occupied by a hearing-impaired person.
    (2) Acceptability criteria. The smoke detector must be located, to 
the extent practicable, in a hallway adjacent to a bedroom, unless the 
unit is occupied by a hearing-impaired person, in which case each 
bedroom occupied by a hearing-impaired person must have an alarm system 
connected to the smoke detector installed in the hallway.

[45 FR 6889, Jan. 30, 1980, as amended at 50 FR 9269, Mar. 7, 1985; 57 
FR 33851, July 30, 1992; 63 FR 46579, Sept. 1, 1998; 64 FR 50227, Sept. 
15, 1999]



Sec. 883.313  Audit.

    (a) Where housing assistance under the Section 8 Program is provided 
for projects developed by State agencies, these agencies shall follow 
audit requirements in 24 CFR part 44.
    (b) Where a nonprofit organization is the eligible owner of a 
project receiving financial assistance under this part, the audit 
requirements in 24 CFR part 45 shall apply.

[50 FR 39092, Sept. 27, 1985; 51 FR 30480, Aug. 27, 1986, as amended at 
57 FR 33257, July 27, 1992]

Subparts D-E [Reserved]



             Subpart F--Housing Assistance Payments Contract



Sec. 883.601  Applicability.

    The provisions of this subpart apply to new construction and 
substantial rehabilitation projects using contract authority allocated 
under subpart B, Allocation and Assignment of Contract Authority, or 
processed and constructed under subpart D, Fast Track Procedures.



Sec. 883.602  The contract.

    (a) Contract. The Housing Assistance Payments Contract sets forth 
rights and duties of the owner and State Agency with respect to the 
project and the Housing Assistance payments.
    (b) Housing Assistance Payments to Owners under the Contract. The 
Housing

[[Page 109]]

Assistance Payments made under the Contract are:
    (1) Payments to the owner to assist eligible families leasing 
assisted units, and
    (2) Payments to the owner for vacant assisted units (``vacancy 
payments'') if the conditions specified in Sec. 880.611 of this chapter 
are satisfied.

The housing assistance payments are made monthly by the State Agency 
upon proper requisition by the owner, except payments for vacancies of 
more than 60 days, which are made semi-annually by the Agency upon 
proper requisition by the owner.
    (c) Amount of Housing Assistance Payments to the Owner. (1) The 
amount of the housing assistance payments made to the owner of a unit 
being leased by an eligible family is the difference between the 
contract rent for the unit and the tenant rent payable by the family.
    (2) A housing assistance payment will be made to the owner for a 
vacant assisted unit in an amount equal to 80 percent of the contract 
rent for the first 60 days of vacancy, subject to the conditions in 
Sec. 880.611 of this chapter. If the owner collects any tenant rent or 
other amount for this period which, when added to this vacancy payment, 
exceeds the contract rent, the excess must be repaid as the Agency 
directs in accordance with HUD guidelines.
    (3) For a vacancy that exceeds 60 days, a housing assistance payment 
for the vacant unit will be made, subject to the conditions in 
Sec. 880.611 of this chapter, in an amount equal to the principal and 
interest payments required to amortize that portion of the debt 
attributable to the vacant unit for up to 12 additional months.
    (d) Payment of utility reimbursement. Where applicable, the Utility 
Reimbursement will be paid to the Family as an additional Housing 
Assistance Payment. The Contract will provide that the Owner will make 
this payment on behalf of the Agency. Funds will be paid to the Owner in 
trust solely for the purpose of making this additional payment. If the 
Family and the utility company consent, the Owner may pay the Utility 
Reimbursement jointly to the Family and the utility company or directly 
to the utility company.

[45 FR 6889, Jan. 30, 1980, as amended at 49 FR 19946, May 10, 1984; 61 
FR 13593, Mar. 27, 1996]



Sec. 883.603  Term of contract.

    (a) New Construction. The term of the Contract will be governed by 
the following provisions:
    (1) For assisted units in a project financed with the aid of a loan 
insured by the Federal government (including coinsurance under Section 
244 of the National Housing Act) or a loan made, guaranteed or intended 
for purchase by the Federal government and for assisted units in newly 
constructed manufactured home parks, the term of the Contract will be 20 
years.
    (2) For assisted units in a project owned by or financed by a loan 
or loan guarantee from a State or local agency, where the assisted units 
are intended for occupancy by non-elderly families and where it is 
located in an area designated by the Assistant Secretary as one 
requiring special financial assistance, the Contract will be for an 
initial term of 20 years for any dwelling unit, with provision for 
renewal for additional terms of not more than 5 years each. The total 
term of initial and renewal terms will not exceed the lesser of (i) 40 
years for any dwelling unit, or (ii) the term of the permanent financing 
(but not less than 20 years).
    (3) For assisted units in all other projects, the Contract will be 
for an initial term of 20 years for any dwelling unit, with provision 
for renewal for additional terms of not more than 5 years each. The 
total term of initial and renewal terms will not exceed the lesser of 
(i) 30 years for any dwelling unit, or (ii) the term of the permanent 
financing (but not less than 20 years).
    (b) Substantial Rehabilitation. The Contract will be for a term 
which is consistent with paragraph (b)(1) and with paragraph (b) (2), 
(3), or (4) of this section.
    (1) The Contract term will cover the longest term, but not less than 
20 years, of a single credit instrument covering:
    (i) The cost of rehabilitation or
    (ii) The existing indebtedness, or

[[Page 110]]

    (iii) The cost of rehabilitation and the refinancing of the existing 
indebtedness, or
    (iv) The cost of rehabilitation and the acquisition of the property; 
and
    (2) For assisted units in a project financed with the aid of a loan 
(including coinsurance under Section 244 of the National Housing Act), 
or a loan made, guaranteed or intended for purchase by the Federal 
Government, and for assisted units in a substantially rehabilitated 
manufactured home park, the term of the Contract will not exceed 20 
years; or
    (3) For assisted units in a project owned or financed by a loan or 
loan guarantee from a State or local agency where the assisted units are 
intended for occupancy by non-elderly families and where it is located 
in an area designated by the Assistant Secretary as one requiring 
special financial assistance, the Contract will be for an initial term 
of 20 years for any dwelling unit. There will be a provision for renewal 
for additional terms of not more than 5 years each. The total of initial 
and renewal terms will not exceed the lesser of (i) 40 years for any 
dwelling unit, or (ii) the term of the permanent financing (but not less 
than 20 years); or
    (4) For assisted units in projects financed other than as described 
in paragraph (b) (2) or (3) of this section, the Contract will be for an 
initial term of 20 years for any dwelling unit. There will be a 
provision for renewal for additional terms of not more than 5 years 
each. The total of initial and renewal terms will not exceed the lesser 
of (i) 30 years for any dwelling unit, or (ii) the term of the permanent 
financing (but not less than 20 years).
    (c) Staged Projects. If a project is completed in stages, the term 
of the Contract must relate separately to the units in each stage unless 
the Agency and the owner agree that only the units in the first stage 
will be assisted for the maximum term of the Contract. The total 
Contract term, for the units in all stages, beginning with the effective 
date of the Contract for the first stage, may not exceed the overall 
maximum term allowable for any one unit under this section, plus two 
years.

[45 FR 56327, Aug. 22, 1980, as amended at 48 FR 12710, Mar. 28, 1983; 
49 FR 17449, Apr. 24, 1984]



Sec. 883.604  Maximum annual commitment and project account.

    (a) Maximum annual commitment. The maximum annual contribution that 
may be contracted for in the ACC is the total of the contract rents and 
utility allowances for all assisted units in the project, plus the HUD-
approved fees, if any, for State Agency administration of the Contract. 
(See Sec. 883.606)
    (b) Project Account. (1) A project account will be established and 
maintained by HUD as a specifically identified and segregated account 
for each project. The account will be established out of the amounts by 
which the maximum annual commitment exceeds the amount actually paid out 
under the ACC each year. Payments will be made from this account for 
housing assistance payments (and fees for Agency admininstration, if 
appropriate) when needed to cover increases in contract rents or 
decreases in tenant rents and for other costs specifically approved by 
the Secretary.
    (2) Whenever a HUD-approved estimate of required payments under the 
ACC for a fiscal year exceeds the maximum annual commitment and would 
cause the amount in the project account to be less than 40 percent of 
the maximum, HUD will, within a reasonable period of time, take such 
additional steps authorized by Section 8(c)(6) of the 1937 Act, as may 
be necessary, to assure that payments under the ACC will be adequate to 
cover increases in contract rents and decreases in tenant rents.

[45 FR 6889, Jan. 30, 1980, as amended at 61 FR 13593, Mar. 27, 1996]



Sec. 883.605  Leasing to eligible families.

    The provisions of Sec. 880.504 of this chapter apply, subject to the 
requirements of Sec. 883.105.

[61 FR 13593, Mar. 27, 1996]

[[Page 111]]



Sec. 883.606  Administration fee.

    (a) The State Agency is responsible for administration of the 
Contract subject to periodic review and audit by HUD.
    (b) The Agency is entitled to a reasonable fee, determined by HUD, 
for administering a Contract on newly constructed or substantially 
rehabilitated units provided there is no override on the permanent loan 
granted by the Agency to the owner for a project containing assisted 
units.



Sec. 883.607  Default by owner and/or agency.

    (a) Rights of Owner if Agency defaults under Agreement or Contract. 
The ACC, the Agreement and the Contract will provide that, in the event 
of failure of the Agency to comply with the Agreement or Contract with 
the owner, the owner will have the right, if he/she is not in default, 
to demand that HUD investigate. HUD will first give the Agency a 
reasonable opportunity to take corrective action. If HUD determines that 
a substantial default exists, HUD will assume the Agency's rights and 
obligations under the Agreement or Contract and meet the obligations of 
the Agency under the Agreement or Contract including the obligation to 
enter into the Contract.
    (b) Rights of HUD if Agency defaults under ACC. The ACC will provide 
that, if the Agency fails to comply with any of its obligations, HUD may 
determine that there is a substantial default and require the Agency to 
assign to HUD all of its rights and interests under the Contract; 
however, HUD will continue to pay annual contributions in accordance 
with the terms of the ACC and the Contract. Before determining that an 
Agency is in substantial default, HUD will give the Agency a reasonable 
opportunity to take corrective action.
    (c) Rights of Agency and HUD if Owner defaults under Contract. (1) 
The Contract will provide that if the Agency determines that the owner 
is in default under the Contract, the Agency will notify the owner, and 
lender, if applicable, with a copy to HUD,
    (i) Of the actions required to be taken to cure the default,
    (ii) Of the remedies to be applied by the Agency including specific 
performance under the Contract, abatement of housing assistance payments 
and recovery of overpayments, where appropriate; and
    (iii) That, if he/she fails to cure the default, the Agency has the 
right to terminate the Contract or to take other corrective action, in 
its discretion.
    (2) If the Agency provided the permanent financing, the Contract 
will also provide that HUD has an independent right to determine whether 
the owner is in default and to take corrective action and apply 
appropriate remedies, except that HUD will not have the right to 
terminate the Contract without proceeding in accordance with paragraph 
(c) of this section.



Sec. 883.608  Notice upon contract expiration.

    The provisions of Sec. 880.508 of this chapter apply, subject to the 
requirements of Sec. 883.105.

[61 FR 13593, Mar. 27, 1996]



                          Subpart G--Management



Sec. 883.701  Cross-reference.

    All of the provisions of part 880, subpart F, of this chapter apply 
to projects assisted under this part, subject to the requirements of 
Sec. 883.105. For purposes of this subpart G, all references in part 
880, subpart F, of this chapter to ``contract administrator'' shall be 
construed to refer to ``Agency''.

[61 FR 13593, Mar. 27, 1996]



PART 884--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM, NEW CONSTRUCTION SET-ASIDE FOR SECTION 515 RURAL RENTAL HOUSING PROJECTS--Table of Contents




           Subpart A--Applicability, Scope and Basic Policies

Sec.
884.101  Applicability and scope.
884.102  Definitions.
884.104  Maximum total annual contract commitment and project account 
          (private-owner or PHA-owner projects).

[[Page 112]]

884.105  Maximum total ACC commitment and project account (private-
          owner/PHA projects).
884.106  Housing assistance payments to owners.
884.108  Term of housing assistance payments contract.
884.108a  Notice upon contract expiration.
884.109  Rent adjustments.
884.110  Types of housing and property standards.
884.114  Financing.
884.115  Security and utility deposits.
884.116  Establishment of income limit schedules; 30 percent occupancy 
          by very-low income families.
884.117  Disclosure and verification of Social Security and Employer 
          Identification Numbers by owners.
884.118  Responsibilities of the owner.
884.119  Responsibility for contract administration and defaults 
          (private-owner and PHA-owner projects).
884.120  Responsibility for contract administration and defaults 
          (private-owner/PHA projects).
884.121  Rights of owner if PHA defaults under agreement (private-owner/
          PHA projects).
884.122  Separate project requirement.
884.123  Conversions.
884.124  Audit.

              Subpart B--Project Development and Operation

884.212  Project completion.
884.213  Execution of housing assistance payments contract.
884.214  Marketing.
884.215  Lease requirements.
884.216  Termination of tenancy.
884.217  Maintenance, operation and inspections.
884.218  Reexamination of family income and composition.
884.219  Overcrowded and underoccupied units.
884.220  Adjustment of utility allowances.
884.221  Continued family participation.
884.222  Inapplicability of low-rent public housing model lease and 
          grievance procedures.
884.223  Leasing to eligible families.
884.223a  Preference for occupancy by elderly families.
884.224  HUD review of contract compliance.
884.225  PHA reporting requirements. [Reserved]

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

    Source: 41 FR 47168, Oct. 27, 1976, unless otherwise noted. 
Redesignated at 45 FR 6909, Jan. 30, 1980.



           Subpart A--Applicability, Scope and Basic Policies



Sec. 884.101  Applicability and scope.

    (a) The policies and procedures in subparts A and B of this part 
apply to the making of Housing Assistance Payments on behalf of Eligible 
Families leasing newly constructed housing pursuant to the provisions of 
section 8 of the 1937 Act. They are applicable only to proposals 
submitted by the Department of Agriculture/Farmers Home Administration 
(now the Department of Agriculture/Rural Housing and Community 
Development Service) that have been charged against the set-aside of 
section 8 contract authority specifically established for projects to be 
funded under section 515 of title V of the Housing Act of 1949 (42 
U.S.C. 1485).
    (b) For the purpose of these subparts A and B, ``new construction'' 
shall mean newly constructed housing for which, prior to the start of 
construction, an Agreement to Enter into Housing Assistance Payments 
Contract is executed between the Owner and HUD or a Public Housing 
Agency.

[41 FR 47168, Oct. 27, 1976, as amended at 61 FR 13593, Mar. 27, 1996]



Sec. 884.102  Definitions.

    The terms Fair Market Rent (FMR), HUD, Public housing agency (PHA), 
and Secretary are defined in 24 CFR part 5.
    Agreement to enter into housing assistance payments contract 
(``agreement''). (a) In the case of a Private-Owner Project or a PHA-
Owner Project, a written agreement between the Owner and HUD that, upon 
satisfactory completion of the housing in accordance with the HUD-
approved Proposal and submission by RHCDS of the required 
certifications, HUD will enter into a Housing Assistance Payments 
Contract with the Owner.
    (b) In the case of a Private-Owner/PHA Project, a written agreement 
between the private owner and the PHA, approved by HUD, that, upon 
satisfactory completion of the housing in accordance with the HUD-
approved Proposal and submission by RHCDS of the required 
certifications, the PHA will

[[Page 113]]

enter into a Housing Assistance Payments Contract with the Private 
Owner.
    Annual contributions contract (``ACC''). In the case of a Private-
Owner/PHA Project, a written agreement between HUD and the PHA to 
provide annual contributions to the PHA with respect to the project.
    Annual income. As defined in part 5 of this title.
    Contract. See definition of Housing Assistance Payments Contract.
    Contract rent. The rent payable to the Owner under his Contract 
including the portion of the rent payable by the Family. In the case of 
a cooperative, the term ``Contract Rent'' means charges under the 
occupancy agreements between the members and the cooperative.
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary if 
it meets the physical condition requirements in 24 CFR part 5, subpart 
G.
    Drug-related criminal activity. The illegal manufacture, sale, 
distribution, use or possession with the intent to manufacture, sell, 
distribute, or use, of a controlled substance as defined in section 102 
of the Controlled Substances Act, 21 U.S.C. 802.
    Family. As defined in part 5 of this title.
    HCD Act. The Housing and Community Development Act of 1974.
    Housing Assistance Payment. The payment made by the contract 
administrator to the Owner of an assisted unit as provided in the 
Contract. Where the unit is leased to an eligible Family, the payment is 
the difference between the Contract Rent and Tenant Rent. An additional 
Housing Assistance Payment is made to the Family when the Utility 
Allowance is greater than the Total Tenant Payment. A Housing Assistance 
Payment may be made to the Owner when a unit becomes vacant, in 
accordance with the terms of the Contract.
    Housing assistance payments contract (``Contract''). (a) In the case 
of a Private-Owner Project or a PHA-Owner Project, a written contract 
between the Owner and HUD for the purpose of providing housing 
assistance payments to the Owner on behalf of Eligible Families.
    (b) In the case of a Private-Owner/PHA Project, a written contract 
between the private Owner, and the PHA, approved by HUD, for the purpose 
of providing housing assistance payments to the Owner on behalf of 
Eligible Families.
    Income. Income from all sources of each member of the household as 
determined in accordance with criteria established by HUD.
    Lease. A written agreement between an Owner and an Eligible Family 
for the leasing of a Decent, Safe, and Sanitary dwelling unit in 
accordance with the applicable Contract, which agreement is in 
compliance with the provisions of this part.
    Local housing assistance plan. A housing assistance plan submitted 
by a unit of general local government and approved by HUD under Section 
104 of the HCD Act or, in the case of a unit of general local government 
not participating under Title I of the HCD Act, a housing plan which 
contains the elements set forth in Section 104(a)(4) of the HCD Act and 
which is approved by the Secretary as meeting the requirements of 
Section 213 of that Act.
    Low-income family. As defined in part 5 of this title.
    Owner. Any private person or entity, including a cooperative or a 
PHA, having the legal right to lease or sublease newly constructed 
dwelling units.
    PHA-owner proposal and PHA-owner project. A proposal for a project 
under this part (and the resulting project) to be owned by a PHA 
throughout the term of the Agreement and Contract where such Agreement 
and Contract are to be entered into between the PHA and HUD.
    Private-owner/PHA proposal and private-owner/PHA project. A proposal 
for a project under this part (and the resulting project) to be owned by 
a private Owner throughout the term of the Agreement and Contract where 
such Agreement and Contract are to be entered into between the private 
Owner and the PHA pursuant to an ACC between the PHA and HUD. The term 
also covers the situation where the ACC is with one PHA and the Owner is 
another PHA.
    Private-owner proposal and private-owner project. A proposal for a 
project

[[Page 114]]

under this part (and the resulting project) to be owned by a private 
Owner throughout the term of the Agreement and Contract where such 
Agreement and Contract are to be entered into between the private Owner 
and HUD.
    Project account. The account established and maintained in 
accordance with Sec. 884.104 or Sec. 884.105.
    Proposal. A proposal for a Private-Owner or PHA-Owner/PHA Project to 
provide newly constructed housing submitted to HUD by RHCDS on the 
prescribed RHCDS form.
    RHCDS. The Rural Housing and Community Development Service.
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.
    Very low-income family. As defined in part 5 of this title.

[41 FR 47168, Oct. 27, 1976, as amended at 42 FR 63745, Dec. 19, 1977. 
Redesignated at 45 FR 6909, Jan. 30, 1980, and amended at 48 FR 12710, 
Mar. 28, 1983; 49 FR 17449, Apr. 24, 1984; 49 FR 19947, May 10, 1984; 50 
FR 38795, Sept. 25, 1985; 61 FR 5213, Feb. 9, 1996; 61 FR 13593, Mar. 
27, 1996; 61 FR 47382, Sept. 6, 1996; 63 FR 46579, Sept. 1, 1998; 65 FR 
16723, Mar. 29, 2000]



Sec. 884.104  Maximum total annual contract commitment and project account (private-owner or PHA-owner projects).

    (a) Maximum total annual contract commitment. The maximum total 
annual housing assistance payments that may be committed under the 
Contract shall be the total of the Gross Rents for all the Contract 
units in the project.
    (b) Project account. In order to assure that housing assistance 
payments will be increased on a timely basis to cover increases in 
Contract Rents or decreases in Family Incomes:
    (1) A Project Account shall be established and maintained in an 
amount as determined by the Secretary consistent with his 
responsibilities under Section 8(c)(6) of the Act, out of amounts by 
which the maximum annual Contract commitment per year exceeds amounts 
paid under the Contract for any year. This account shall be established 
and maintained by HUD as a specifically identified and segregated 
account, and payment shall be made therefrom only for the purposes of 
(i) housing assistance payments, and (ii) other costs specifically 
authorized or approved by the Secretary.
    (2) Whenever a HUD-approved estimate of required housing assistance 
payments for a fiscal year exceeds the maximum annual Contract 
commitment, and would cause the amount in the Project Account to be less 
than an amount equal to 40 percent of such maximum annual Contract 
commitment, HUD shall, within a reasonable period of time, take such 
additional steps authorized by Section 8(c)(6) of the Act as may be 
necessary to carry out this assurance, including (as provided in that 
section of the Act) ``the reservation of annual contributions authority 
for the purpose of amending housing assistance contracts or the 
allocation of a portion of new authorizations for the purpose of 
amending housing assistance contracts.''



Sec. 884.105  Maximum total ACC commitment and project account (private-owner/PHA projects).

    (a) Maximum total ACC commitment. The maximum total annual 
contribution that may be contracted for in the ACC for a project shall 
be the total of the Contract Rents plus any utility allowances for all 
the Contract units in the project, plus a fee for the regular costs of 
PHA administration. HUD-approved preliminary costs for administration 
(including administrative costs in connection with PHA activities 
related to relocation of occupants) shall be payable out of this total.
    (b) Project account. In order to assure that housing assistance 
payments will be increased on a timely basis to cover increases in 
Contract Rents or decreases in Family Incomes:
    (1) A Project Account shall be established and maintained, in an 
amount as determined by the Secretary consistent with his 
responsibilities under Section 8(c)(6) of the 1937 Act, out of amounts 
by which the maximum ACC commitment per year exceeds amounts paid

[[Page 115]]

under the ACC for any year. This account shall be established and 
maintained by HUD as a specifically identified and segregated account, 
and payment shall be made therefrom only for the purposes of (i) housing 
assistance payments and (ii) other costs specifically authorized or 
approved by the Secretary.
    (2) Whenever a HUD-approved estimate of required Annual Contribution 
exceeds the maximum ACC commitment then in effect, and would cause the 
amount in the Project Account to be less than an amount equal to 40 
percent of such maximum ACC commitment, HUD shall, within a reasonable 
period of time, take such additional steps authorized by Section 8(c)(6) 
of the 1937 Act as may be necessary to carry out this assurance, 
including (as provided in that section of the Act) ``the reservation of 
annual contributions authority for the purpose of amending housing 
assistance contracts or the allocation of a portion of new 
authorizations for the purpose of amending housing assistance 
contracts.''

[41 FR 47168, Oct. 27, 1976, as amended at 61 FR 13593, Mar. 27, 1996; 
65 FR 16723, Mar. 29, 2000]



Sec. 884.106  Housing assistance payments to owners.

    (a) General. Housing Assistance Payments shall be paid to Owners for 
units under lease by eligible families, in accordance with the Contract 
and as provided in this section. These Housing Assistance Payments will 
cover the difference between the Contract Rent and the Tenant Rent. 
Where applicable, the Utility Reimbursement will be paid to the Family 
as an additional Housing Assistance Payment. The Contract will provide 
that the Owner will make this payment on behalf of the contract 
administrator. Funds will be paid to the Owner in trust solely for the 
purpose of making this additional payment. If the Family and the utility 
company consent, the Owner may pay the utility reimbursement jointly to 
the Family and the utility company or directly to the utility company. 
No Section 8 assistance may be provided for any unit occupied by an 
Owner; however, cooperatives are considered rental housing, rather than 
Owner-occupied housing, for this purpose.
    (b) Vacancies during rent-up. If a Contract Unit is not leased as of 
the effective date of the Contract, the Owner shall be entitled to 
housing assistance payments in the amount of 80 percent of the Contract 
Rent for the unit for a vacancy period not exceeding 60 days from the 
effective date of the Contract, in accordance with the procedure set 
forth in Sec. 884.213(b): Provided, That the Owner: (1) Commenced 
marketing and otherwise complied with Sec. 884.211(e), (2) has taken and 
continues to take all feasible actions to fill the vacancy, including, 
but not limited to, contacting applicants on his waiting list, if any, 
requesting the PHA and other appropriate sources to refer eligible 
applicants, and advertising the availability of the unit, and (3) has 
not rejected any eligible applicant, except for good cause acceptable to 
HUD or the PHA, as the case may be.
    (c) Vacancies after rent-up. (1) If an Eligible Family vacates its 
unit (other than as a result of action by the Owner which is in 
violation of the Lease or the Contract or any applicable law), the Owner 
shall receive housing assistance payments in the amount of 80 percent of 
the Contract Rent for a vacancy period not exceeding 60 days; provided, 
however, That if the Owner collects any of the Family's share of the 
rent for this period in an amount which, when added to the 80 percent 
payments, results in more than the Contract Rent, such excess shall be 
payable to HUD or as HUD may direct. (See also Sec. 884.115). The Owner 
shall not be entitled to any payment under this paragraph (c)(1) unless 
he: (i) Immediately upon learning of the vacancy, has notified HUD or 
the PHA, as the case may be, of the vacancy or prospective vacancy and 
the reasons for the vacancy, and (ii) has taken and continues to take 
the actions specified in paragraphs (b) (2) and (3) of this section.
    (2) If the Owner evicts an Eligible Family, he shall not be entitled 
to any payment under paragraph (c)(1) of this section unless the request 
for such payment is supported by a certification that: (i) He gave such 
Family a written notice of the proposed eviction, stating

[[Page 116]]

the grounds and advising the Family that it had 10 days within which to 
present its objections to the Owner in writing or in person and (ii) the 
proposed eviction was not in violation of the Lease or the Contract or 
any applicable law.
    (d) Debt-service vacancy payments. (1) If a unit continues to be 
vacant after the 60-day period specified in paragraph (b) or (c) of this 
section, the owner may submit a claim to receive additional housing 
assistance payments on a semiannual basis with respect to the vacant 
unit in an amount equal to the principal and interest payments required 
to amortize the portion of the debt attributable to that unit for the 
period of the vacancy, whether the vacancy commenced during rent-up or 
after rent-up.
    (2) Additional payments under this paragraph (d) for any unit shall 
not be for more than 12 months for any vacancy period, and shall be made 
only if:
    (i) The unit was in decent, safe and sanitary condition during the 
vacancy period for which payments are claimed.
    (ii) The Owner has taken and is continuing to take the actions 
specified in paragraphs (b) (1), (2) and (3) or paragraphs (c)(1) (i) 
and (ii) and (c)(2) of this section, as appropriate.
    (iii) The owner has demonstrated, in connection with the semiannual 
claim on a form and in accordance wih the standards prescribed by HUD 
with respect to the period of the vacancy, that the project is not 
providing the owner with revenues at least equal to the project costs 
incurred by the owner and that the amount of the payments requested is 
not in excess of the amount needed to make up the deficiency.
    (iv) The owner has submitted to HUD or the PHA, as appropriate, in 
connection with the semiannual claim, a statement with relevant 
supporting evidence that there is a reasonable prospect that the project 
can achieve financial soundness within a reasonable time. The statement 
shall indicate the causes of the deficiency; the corrective steps that 
have been and will be taken; and the time by which it is expected that 
the project revenues will at least equal project costs without the 
additional payments provided under this paragraph.
    (3) HUD or the PHA, as appropriate, may deny any claim for 
additional payments or suspend or terminate payments if it determines 
that, based on the owner's statement and other evidence, there is not a 
reasonable prospect that the project can achieve financial soundness 
within a reasonable time.
    (e) Prohibition of double compensation for vacancies. The Owner 
shall not be entitled to housing assistance payments with respect to 
vacant units under this section to the extent he is entitled to payments 
from other sources (for example, payments for losses of rental income 
incurred for holding units vacant for relocatees pursuant to Title I of 
the HCD Act or payments under Sec. 884.115).

[41 FR 47168, Oct. 27, 1976, as amended at 42 FR 12983, Mar. 7, 1977; 43 
FR 33880, Aug. 1, 1978. Redesignated at 45 FR 6909, Jan. 30, 1980; 49 FR 
19947, May 10, 1984]



Sec. 884.108  Term of housing assistance payments contract.

    (a) Except in the case of a Contract described in paragraph (b) of 
this section, the Contract shall be for an initial term of 20 years: 
Provided, That at the end of such Contract term and at the request of 
RHCDS, HUD may, subject to the availability of contract and budget 
authority, authorize the execution of a new Contract providing for a 
total Contract term of an additional 20 years.
    (b) In the case of a Contract under which housing assistance 
payments are made with respect to a project owned by a State or local 
agency, the total Contract term may be equal to the term of such 
financing but may not exceed 40 years for any dwelling unit.
    (c) If the project is completed in stages, the dates for the initial 
and the renewal terms shall be separately related to the units in each 
stage: Provided, however, That the total Contract term for the units in 
all the stages, beginning with the effective date of the Contract with 
respect to the first

[[Page 117]]

stage, may not exceed the overall maximum term allowable for any one 
unit, plus two years.

[41 FR 47168, Oct. 27, 1976. Redesignated at 45 FR 6909, Jan. 30, 1980, 
and amended at 48 FR 12710, Mar. 28, 1983; 49 FR 17449, Apr. 24, 1984; 
61 FR 13593, Mar. 27, 1996]



Sec. 884.108a  Notice upon contract expiration.

    (a) The Contract will provide that the owner will notify each 
assisted family, at least 90 days before the end of the Contract term, 
of any increase in the amount the family will be required to pay as rent 
which may occur as a result of its expiration. If the Contract is to be 
renewed but with a reduction in the number of units covered by it, this 
notice shall be given to each family who will no longer be assisted 
under the Contract.
    (b) The notice provided for in paragraph (a) of this section shall 
be accomplished by: (1) Sending a letter by first class mail, properly 
stamped and addressed, to the family at its address at the project, with 
a proper return address, and (2) serving a copy of the notice on any 
adult person answering the door at the leased dwelling unit, or if no 
adult responds, by placing the notice under or through the door, if 
possible, or else by afffixing the notice to the door. Service shall not 
be considered to be effective until both required notices have been 
accomplished. The date on which the notice shall be considered to be 
received by the family shall be the date on which the owner mails the 
first class letter provided for in this paragraph, or the date on which 
the notice provided for in this paragraph is properly given, whichever 
is later.
    (c) The notice shall advise each affected family that, after the 
expiration date of the Contract, the family will be required to bear the 
entire cost of the rent and that the owner will be free (to the extent 
the project is not otherwise regulated by HUD) to alter the rent without 
HUD approval, but subject to any applicable requirements or restrictions 
under the lease or under State or local law. The notice shall also 
state: (1) The actual (if known) or the estimated rent which will be 
charged following the expiration of the Contract; (2) the difference 
between the rent and the Total Tenant Payment toward rent under the 
Contract; and (3) the date the Contract will expire.
    (d) The owner shall give HUD a certification that families have been 
notified in accordance with this section with an example of the text of 
the notice attached.
    (e) This section applies to all Contracts entered into pursuant to 
an Agreement executed on or after October 1, 1981, or entered into 
pursuant to an Agreement executed before October 1, 1981, but renewed or 
amended on or after October 1, 1984.

[49 FR 31284, Aug. 6, 1984]



Sec. 884.109  Rent adjustments.

    (a) Funding of adjustments. Housing assistance payments will be made 
in increased amounts commensurate with Contract Rent adjustments under 
this paragraph, up to the maximum amount authorized under the Contract. 
(See Secs. 884.104 and 884.105).
    (b) Automatic annual adjustments. (1) Automatic Annual Adjustment 
Factors will be determined by HUD at least annually; interim revisions 
may be made as market conditions warrant. Such Factors and the basis for 
their determination will be published in the Federal Register. These 
published Factors will be reduced appropriately by HUD where utilities 
are paid directly by Families.
    (2) On each anniversary date of the Contract, the Contract Rents 
shall be adjusted by applying the applicable Automatic Annual Adjustment 
Factor most recently published by HUD. Contract Rents may be adjusted 
upward or downward, as may be appropriate; however, in no case shall the 
adjusted rents be less than the Contract Rents on the effective date of 
the Contract.
    (c) Special additional adjustments. Special additional adjustments 
shall be granted, when approved by HUD, to reflect increases in the 
actual and necessary expenses of owning and maintaining the Contract 
Units which have resulted from substantial general increases in real 
property taxes, utility

[[Page 118]]

rates, or similar costs (i.e., assessments, and utilities not covered by 
regulated rates), but only if and to the extent that the Owner clearly 
demonstrates that such general increases have caused increases in the 
Owner's operating costs which are not adequately compensated for by 
automatic annual adjustments. The Owner shall submit to HUD financial 
statements which clearly support the increase.
    (d) Overall limitation. Notwithstanding any other provisions of this 
part, adjustments as provided in this section shall not result in 
material differences between the rents charged for assisted and 
comparable unassisted units, as determined by HUD: Provided, however, 
That this limitation shall not be construed to prohibit differences in 
rents between assisted and comparable unassisted units to the extent 
that such differences may have existed with respect to the initial 
Contract Rents.



Sec. 884.110  Types of housing and property standards.

    (a) Newly constructed single-family houses and multifamily 
structures may be utilized in this program. Congregate housing may be 
developed for elderly, disabled, or handicapped Families and 
individuals. Except in the case of housing predominantly for the 
elderly, high-rise elevator projects for Families with children may not 
be utilized unless HUD determines there is no practical alternative.
    (b) Participation in this program requires compliance with:
    (1) [Reserved]
    (2) In the case of congregate housing, the appropriate HUD 
guidelines and standards;
    (3) HUD requirements pursuant to section 209 of the HCD Act for 
projects for the elderly, disabled, or handicapped;
    (4) HUD requirements pertaining to noise abatement and control; and
    (5) Applicable State and local laws, codes, ordinances, and 
regulations.
    (c) Housing assisted under this part shall be modest in design. 
Amenities in projects assisted under this part (except partially 
assisted projects) will be limited to those amenities, as determined by 
HUD, which are generally provided in unassisted, decent, safe and 
sanitary housing for low-income families, in the market area. The use of 
more durable, high-quality materials to control or reduce maintenance, 
repair and replacement costs will not be considered an excess amenity.
    (d) Smoke detectors. (1) Performance requirement. After October 30, 
1992, each dwelling unit must include at least one battery-operated or 
hard-wired smoke detector, in proper working condition, on each level of 
the unit. If the unit is occupied by hearing-impaired persons, smoke 
detectors must have an alarm system, designed for hearing-impaired 
persons, in each bedroom occupied by a hearing-impaired person.
    (2) Acceptability criteria. The smoke detector must be located, to 
the extent practicable, in a hallway adjacent to a bedroom, unless the 
unit is occupied by a hearing-impaired person, in which case each 
bedroom occupied by a hearing-impaired person must have an alarm system 
connected to the smoke detector installed in the hallway.

[48 FR 12710, Mar. 28, 1983, as amended at 57 FR 33852, July 30, 1992; 
63 FR 46579, Sept. 1, 1998]



Sec. 884.114  Financing.

    (a) Types. Eligible projects under this program shall be financed 
under Section 515, Title V of the Housing Act of 1949.
    (b) Use of contract as security for financing. (1) An Owner may 
pledge, or offer as security for any loan or obligation, an Agreement or 
Contract entered into pursuant to this part: Provided, however, That 
such security is in connection with a project constructed pursuant to 
this part, and the terms of the financing or any refinancing have been 
approved by HUD. It is the Owner's responsibility to request such 
approval in sufficient time before he needs the financing to permit 
review of the method and terms of the financing and the instrument of 
pledge, offer or other assignment that HUD is requested to approve.
    (2) Any pledge of the Agreement, Contract, or ACC, or payments 
thereunder, shall be limited to the amounts payable under the Contract 
or ACC in accordance with its terms.
    (3) In the event of foreclosure and in the event of assignment or 
sale agreed

[[Page 119]]

to by HUD, housing assistance payments shall continue in accordance with 
the Terms of the Contract.



Sec. 884.115  Security and utility deposits.

    (a) An Owner may require Families to pay a security deposit in an 
amount equal to one month's Gross Family Contribution. If a Family 
vacates its unit, the Owner, subject to State and local laws, may 
utilize the deposit as reimbursement for any unpaid rent or other amount 
owed under the Lease. If the Family has provided a security deposit, and 
it is insufficient for such reimbursement, the Owner may claim 
reimbursement from HUD or the PHA, as appropriate, not to exceed an 
amount equal to the remainder of one month's Contract Rent. Any 
reimbursement under this section shall be applied first toward any 
unpaid rent. If a Family vacates the unit owing no rent or other amount 
under the Lease or if such amount is less than the amount of the 
security deposit, the Owner shall refund the full amount or the unused 
balance, as the case may be, to the Family.
    (b) In those jurisdictions where interest is payable by the Owner on 
security deposits, the refunded amount shall include the amount of 
interest payable. All security deposit funds shall be deposited by the 
Owner in a segregated bank account, and the balance of this account, at 
all times, shall be equal to the total amount collected from tenants 
then in occupancy, plus any accrued interest. The Owner shall comply 
with all State and local laws regarding interest payments on security 
deposits.
    (c) Families shall be expected to obtain the funds to pay security 
and utility deposits, if required, from their own resources and/or other 
private or public sources.



Sec. 884.116  Establishment of income limit schedules; 30 percent occupancy by very-low income families.

    (a) HUD will establish schedules of Income limits for determining 
whether families qualify as Low-Income Families and Very Low-Income 
Families.
    (b) In the leasing of units, the Owner shall comply with HUD 
requirements concerning the permissible income levels of families, as 
prescribed in part 5 of this title.

[41 FR 47168, Oct. 27, 1976. Redesignated at 45 FR 6909, Jan. 30, 1980, 
and amended at 49 FR 19947, May 10, 1984; 65 FR 16723, Mar. 29, 2000]



Sec. 884.117  Disclosure and verification of Social Security and Employer Identification Numbers by owners.

    To be eligible to become an owner of housing assisted under this 
part, the owner (other than a PHA) must meet the disclosure and 
verification requirements for Social Security and Employer 
Identification Numbers, as provided by 24 CFR part 5.

(Approved by the Office of Management and Budget under control number 
2502-0204)

[54 FR 39707, Sept. 27, 1989, as amended at 61 FR 13593, Mar. 27, 1996]



Sec. 884.118  Responsibilities of the owner.

    (a) The Owner shall be responsible (subject to post-review or audit 
by HUD or the PHA, as the case may be) for management and maintenance of 
the project. These responsibilities shall include but not be limited to:
    (1) Payment for utilities and services (unless paid directly by the 
Family), insurance and taxes;
    (2) Performance of all ordinary and extraordinary maintenance;
    (3) Performance of all management functions, including the taking of 
applications; determining eligibility of applicants in accordance with 
part 5 of this title; selection of families, including verification of 
income, provision of Federal selection preferences in accordance with 24 
CFR part 5, obtaining and verifying Social Security Numbers submitted by 
applicants (as provided by 24 CFR part 5), obtaining signed consent 
forms from applicants for the obtaining of wage and claim information 
from State Wage Information Collection Agencies (as provided in 24 CFR 
part 5), and other pertinent requirements; and determination of the 
amount of tenant rent in accordance with HUD established schedules and 
criteria;
    (4) Collection of Tenant Rents;
    (5) Termination of tenancies, including evictions;
    (6) Preparation and furnishing of information required under the 
Contract;

[[Page 120]]

    (7) Reexamination of family income and composition; redetermination, 
as appropriate, of the amount of Tenant Rent and the amount of housing 
assistance payment in accordance with part 5 of this title; obtaining 
and verifying Social Security Numbers submitted by participants, as 
provided by 24 CFR part 5; and obtaining signed consent forms from 
participants for the obtaining of wage and claim information from State 
Wage Information Collection Agencies, as provided by 24 CFR part 5;
    (8) Redetermination of amount of Tenant Rent and amount of housing 
assistance payment in accordance with part 5 of this title as a result 
of an adjustment by the PHA or HUD, as appropriate, of any applicable 
Utility Allowance; and
    (9) Compliance with equal opportunity requirements issued by RHCDS 
and HUD with respect to project operation.
    (b) Subject to HUD approval, any Owner may contract with any private 
or public entity to perform for a fee the services required by paragraph 
(a) of this section: Provided, That such contract shall not relieve the 
Owner of his responsibilities or obligations. However, no entity which 
is responsible for administration of the Contract (for example, a PHA in 
the case of a Private-Owner/PHA Project) may contract to perform 
management and maintenance of the project: Provided, however, That this 
prohibition shall not preclude management by the PHA in the event it 
takes possession as the result of foreclosure or assignment in lieu of 
foreclosure. (See, however, Sec. 884.123(b), which permits conversion of 
a Private-Owner/PHA Project to a Private-Owner Project.)

(Approved by the Office of Management and Budget under control number 
2502-0204)

[41 FR 47168, Oct. 27, 1976. Redesignated at 45 FR 6909, Jan. 30, 1980, 
and amended at 49 FR 19947, May 10, 1984; 51 FR 11227, Apr. 1, 1986; 53 
FR 847, Jan. 13, 1988; 53 FR 1162, Jan. 15, 1988; 53 FR 6601, Mar. 2, 
1988; 54 FR 39707, Sept. 27, 1989; 56 FR 7540, Feb. 22, 1991; 60 FR 
14845, Mar. 20, 1995; 61 FR 13593, Mar. 27, 1996; 65 FR 16723, Mar. 29, 
2000]



Sec. 884.119  Responsibility for contract administration and defaults (private-owner and PHA-owner projects).

    (a) Contract administration. HUD is responsible for administration 
of the Contract. HUD may contract with another entity for the 
performance of some or all of its Contract administration functions.
    (b) Defaults by owner. The Contract shall contain a provision to the 
effect (1) that if HUD determines that the Owner is in default under the 
Contract, HUD shall notify the Owner (with a copy to RHCDS) of the 
actions required to be taken to cure the default and of the remedies to 
be applied by HUD including abatement of housing assistance payments and 
recovery of overpayments, where appropriate; and (2) that if he fails to 
cure the default, HUD has the right to terminate the Contract or to take 
other corrective action.

[41 FR 47168, Oct. 27, 1976, as amended at 61 FR 13593, Mar. 27, 1996]



Sec. 884.120  Responsibility for contract administration and defaults (private-owner/PHA projects).

    (a) Contract administration. The PHA is primarily responsible for 
administration of the Contract, subject to review and audit by HUD.
    (b) Defaults by PHA and/or owner. (1) The ACC and the Contract shall 
contain a provision to the effect that in the event of failure of the 
PHA to comply with the Contract with the Owner, the Owner shall have the 
right, if he is not in default, to demand that HUD determine, after 
notice to the PHA giving it a reasonable opportunity to take corrective 
action, whether a substantial default exists, and if HUD determines that 
such a default exists, that HUD assure that the obligations of the PHA 
to the Owner are carried out.
    (2) The ACC shall contain a provision to the effect that if the PHA 
fails to comply with any of its obligations (including specifically 
failure to enforce its rights under the Contract, in the event of any 
default by the Owner, to achieve compliance to the satisfaction of HUD 
or to terminate the Contract in whole or in part, as directed by HUD),

[[Page 121]]

HUD may, after notice to the PHA giving it a reasonable opportunity to 
take corrective action, determine that there is a substantial default 
and require the PHA to assign to HUD all of the PHA's rights and 
interests under the Contract. In such case, HUD will continue to pay 
annual contributions in accordance with the terms of the ACC and the 
Contract.
    (3) The Contract shall contain a provision to the effect (i) that if 
the PHA determines that the Owner is in default under the Contract, the 
PHA shall notify the Owner, with a copy to HUD and RHCDS, of the actions 
required to be taken to cure the default and of the remedies to be 
applied by the PHA including abatement of housing assistance payments 
and recovery of overpayments, where appropriate; and (ii) that if he 
fails to cure the default, the PHA has the right to terminate the 
Contract or to take other corrective action, in its discretion or as 
directed by HUD.

[41 FR 47168, Oct. 27, 1976, as amended at 61 FR 13593, Mar. 27, 1996]



Sec. 884.121  Rights of owner if PHA defaults under agreement (private-owner/PHA projects).

    The ACC and the Agreement shall contain a provision to the effect 
that in the event of failure of the PHA to comply with the Agreement 
with the Owner, the Owner shall have the right, if he is not in default, 
to demand that HUD determine, after notice to the PHA giving it a 
reasonable opportunity to take corrective action, whether a substantial 
default exists, and if HUD determines that such a default exists, that 
HUD assume the PHA's rights and obligations under the Agreement, and 
carry out the obligations of the PHA under the Agreement, including the 
obligation to enter into the Contract.



Sec. 884.122  Separate project requirement.

    (a) In the case of a Private-Owner Project or a PHA-Owner Project, 
each Agreement and Contract shall constitute a separate project.
    (b) In the case of a Private-Owner/PHA Project such project may not 
include more than one type of Section 8 assistance, shall be processed 
with a separate ACC List and ACC Part I and shall be assigned a separate 
project number. All new construction units to be placed under a single 
Contract shall comprise a separate project. However, the field office 
director may designate as a single project the units to be covered by 
two or more such Contracts for new construction projects where:
    (1) The units are placed under ACC on the same date; and
    (2) Such consolidation is necessary in the interest of 
administrative efficiency.



Sec. 884.123  Conversions.

    (a) Conversion of private-owner project to private-owner/PHA 
project. HUD may request the Owner of a Private-Owner Project and an 
appropriate PHA to agree, if they are willing, to a conversion of any 
such project to a Private-Owner/PHA Project if HUD determines that such 
conversion would promote efficient project administration.
    (b) Conversion of private-owner/PHA project to private-owner 
project. The Private Owner and the PHA, in the case of a Private-Owner/
PHA Project, may request HUD to agree to a conversion of any such 
project to a Private-Owner or PHA-Owner Project. HUD shall agree to such 
conversion if it determines it to be in the best interest of the 
project.



Sec. 884.124  Audit.

    (a) Where a State or local government is the eligible owner of a 
project, or is a contract administrator under Sec. 884.119 or 
Sec. 884.120, receiving financial assistance under this part, the audit 
requirements in 24 CFR part 44 shall apply.
    (b) Where a nonprofit organization is the eligible owner of a 
project, receiving financial assistance under this part, the audit 
requirements in 24 CFR part 45 shall apply.

[50 FR 39092, Sept. 27, 1985; 51 FR 30480, Aug. 27, 1986, as amended at 
57 FR 33257, July 27, 1992]



              Subpart B--Project Development and Operation



Sec. 884.212  Project completion.

    (a) FmHA certifications upon completion. Upon completion of the 
project,

[[Page 122]]

FmHA shall inspect the project and, if determined to be acceptable, 
submit to the HUD field office the following certifications:
    (1) The project has been completed in accordance with the 
requirements of the Agreement;
    (2) The project is in good and tenantable condition;
    (3) There are no defects or deficiencies in the project other than 
punchlist items, or incomplete work awaiting seasonal opportunity;
    (4) There has been no change in management capability.
    (b) HUD review. HUD shall promptly review the certifications 
submitted pursuant to paragraphs (a) and (b) of this section (see 
Sec. 884.203(b)).
    (c) HUD acceptance. If HUD determines from the review that the 
certifications are acceptable in accordance with these subparts, the 
project shall be accepted.
    (d) Acceptance where defects or deficiencies reported. If the only 
defects or deficiencies are punchlist items or incomplete items awaiting 
seasonal opportunity, the project may be accepted and the Contract 
executed. If the Owner fails to complete the items within a reasonable 
time to the satisfaction of HUD (and the PHA, if applicable), HUD may, 
after consultation with FmHA, upon 30 days notice to the Owner (and the 
PHA, if applicable), terminate the Contract and/or exercise its other 
rights thereunder or, if the Contract is with a PHA, cancel its approval 
of the Contract and require its termination and/or exercise its other 
rights under the Contract and the ACC.
    (e) Arbitration. In the event the Owner disputes HUD determinations, 
he may submit the controversy to third-party arbitration at his expense, 
provided that the arbitration is advisory only.
    (f) Completion in stages. If the project is to be completed in 
stages, the procedures of this section shall apply to each stage.



Sec. 884.213  Execution of housing assistance payments contract.

    (a) Time of execution. Upon acceptance of the project by HUD 
pursuant to Sec. 884.212, the Contract shall be executed first by the 
Owner and then by HUD, or, in the case of a Private-Owner/PHA Project, 
executed by the Owner and the PHA and then approved by HUD.
    (b) Unleased units. At the time of execution of the Contract, HUD 
(or the PHA, as appropriate) shall examine the lists of dwelling units 
leased and not leased, referred to in Sec. 884.211(e) and shall 
determine whether or not the Owner has met his obligations under that 
section with respect to any unleased units. HUD (or the PHA, as 
appropriate) shall state in writing its determination with respect to 
the unleased units and for which of those units it will make housing 
assistance payments. The Owner shall indicate in writing his concurrence 
with this determination or his disagreement, reserving his rights to 
claim housing assistance payments for the unleased units pursuant to the 
Contract, without prejudice by reason of his signing the Contract. 
Copies of all documents referred to this paragraph shall be furnished to 
HUD in the case of a Private-Owner/PHA Project.



Sec. 884.214  Marketing.

    (a) Compliance with equal opportunity requirements. Marketing of 
units and selection of Families by the Owner shall be in accordance with 
the Owner's FmHA-approved Affirmative Fair Housing Marketing Plan, if 
required, and with all regulations relating to fair housing advertising 
including use of the equal opportunity logotype statement and slogan in 
all advertising. Projects shall be managed and operated without regard 
to race, color, creed, religion, sex, or national origin.
    (b) Eligibility, selection and admission of families. (1) The owner 
is responsible for determination of eligibility of applicants in 
accordance with the procedure of 24 CFR part part 5, selection of 
families from among those determined to be eligible (including provision 
of Federal selection preferences in accordance with 24 CFR part 5), and 
computation of the amount of housing assistance payments on behalf of 
each selected family, in accordance with schedules and criteria 
established by HUD.
    (2) For every family that applies for admission, the owner and the 
applicant

[[Page 123]]

will complete and sign the form of application prescribed by HUD. 
However, if there are no vacant units and the owner's waiting list is 
such that there would be an unreasonable length of time before the 
applicant could be admitted, the owner may advise the applicant that the 
owner is not accepting applications for that reason.

The owner must retain copies of all completed applications together with 
any related correspondence for three years. For each family selected for 
admission, the owner must submit one copy of the completed and signed 
application to the HUD field office (in the case of private-owner/PHA 
projects, the owner simultaneously must send a copy of the form to the 
PHA). Housing assistance payments will not be made on behalf of an 
admitted family unit after this copy has been received by the HUD field 
office (or, in the case of private-owner/PHA projects, until the copy 
has been received by the PHA with a certification by the owner that the 
owner has sent a copy to HUD).
    (3) If the Owner determines that the applicant is eligible on the 
basis of Income and family composition and is otherwise acceptable but 
the Owner does not have a suitable unit to offer, the Owner shall place 
such Family on his waiting list and so advise the Family.
    (4) If the Owner determines that the applicant is eligible on the 
basis of Income and family composition and is otherwise acceptable and 
if the Owner has a suitable unit, the Owner and the Family shall enter 
into a Lease. Such Lease shall be on the form of Lease included in the 
Owner's approved Final Proposal and shall otherwise be in conformity 
with the provisions of this part.
    (5) Records on applicant families and approved Families shall be 
maintained by the Owner so as to provide HUD with racial, ethnic and 
gender data and shall be retained by the Owner for three years.
    (6) In the case of a PHA-Owner project, (i) if the PHA places a 
Family on its waiting list, it shall notify the Family of the 
approximate date of availability of a suitable unit insofar as such date 
can be reasonably determined, and (ii) if the PHA determines that an 
applicant is ineligible on the basis of income or family composition, or 
that the PHA is not selecting the applicant for other reasons, the PHA 
shall promptly send the applicant a letter notifying him of the 
determination and the reasons and that the applicant has the right 
within a reasonable time (specified in the letter) to request an 
informal hearing. If, after conducting such an informal hearing, the PHA 
determines that the applicant shall not be admitted, the PHA shall so 
notify the applicant in writing and such notice shall inform the 
applicant that he has the right to request a review by HUD of the PHA's 
determination. The procedures of this subparagraph do not preclude the 
applicant from exercising his other rights if he believes he is being 
discriminated against on the basis of race, color, creed, religion, sex, 
or national origin. The PHA shall retain for three years a copy of the 
application, the letter, the applicant's response if any, the record of 
any informal hearing, and a statement of final disposition.
    (7) See 24 CFR part 5 for the informal review provisions for the 
denial of a Federal selection preference.
    (8) For the informal hearing provisions related to denial of 
assistance based upon failure to establish citizenship or eligible 
immigration status, see part 5 of this title for provisions concerning 
certain assistance for mixed families (families whose members include 
those with eligible immigration status, and those without eligible 
immigration status) in lieu of denial of assistance.

[41 FR 47168, Oct. 27, 1976. Redesignated at 45 FR 6909, Jan. 30, 1980, 
and amended at 53 FR 1162, Jan. 15, 1988; 53 FR 6601, Mar. 2, 1988; 60 
FR 14845, Mar. 20, 1995; 61 FR 9047, Mar. 6, 1996; 61 FR 13594, Mar. 27, 
1996; 65 FR 16723, Mar. 29, 2000]



Sec. 884.215  Lease requirements.

    The Lease shall contain all required provisions specified in 
paragraph (b) of this section and none of the prohibited provisions 
listed in paragraph (c) of this section.
    (a) Term of lease. The term of the Lease shall be for not less than 
one year. The Lease may (or, in the case of a Lease for a term of more 
than one

[[Page 124]]

year, shall) contain a provision permitting termination upon 30 days 
advance written notice by either party.
    (b) Required provisions. The Lease between the Owner (Lessor) and 
the Family (Lessee) shall contain the following provisions:

                            Addendum to Lease

    The following additional Lease provisions are incorporated in full 
in the Lease between -------------------- (Lessor) and ----------------
---- (Lessee) for the following dwelling unit: --------------------. In 
case of any conflict between these and any other provisions of the 
Lease, these provisions shall prevail.
    a. The total rent shall be $------------ per month.
    b. Of the total rent, $------------ shall be payable by or at the 
direction of the Department of Housing and Urban Development (``HUD'') 
as housing assistance payments on behalf of the Lessee and $------------ 
shall be payable by the Lessee. These amounts shall be subject to change 
by reason of changes in the Lessee's family income, family composition, 
or extent of exceptional medical or other unusual expenses, in 
accordance with HUD-established schedules and criteria; or by reason of 
adjustment by HUD, or the PHA, if appropriate, of any applicable 
Allowance for Utilities and Other Services. Any such change shall be 
effective as of the date stated in a notification to the Lessee.
    c. The Lessor shall not discriminate against the Lessee in the 
provision of services, or in any other manner, on the grounds of race, 
color, creed, religion, sex, or national origin.
    d. The Lessor shall provide the following services and maintenance:

Lessor__________________________________________________________________
By______________________________________________________________________
Date____________________________________________________________________
Lessee__________________________________________________________________
Date____________________________________________________________________

    (c) Prohibited provisions. Lease clauses which fall within the 
classifications listed below shall not be included in any Lease.
    (1) Confession of judgment. Prior consent by tenant to any lawsuit 
the landlord may bring against him in connection with the Lease and to a 
judgment in favor of the landlord.
    (2) Distraint for rent or other charges. Authorization to the 
landlord to take property of the tenant and hold it as a pledge until 
the tenant performs any obligation which the landlord has determined the 
tenant has failed to perform.
    (3) Exculpatory clause. Agreement by tenant not to hold the landlord 
or landlord's agents liable for any acts or omissions whether 
intentional or negligent on the part of the landlord or the landlord's 
authorized representative or agents.
    (4) Waiver of legal notice to tenant prior to actions for eviction 
or money judgments. Agreement by tenant that the landlord may institute 
suit without any notice to the tenant that the suit has been filed.
    (5) Waiver of legal proceedings. Authorization to the landlord to 
evict the tenant or hold or sell the tenant's possessions whenever the 
landlord determines that a breach or default has occurred, without 
notice to the tenant or any determination by a court of the rights and 
liabilities of the parties.
    (6) Waiver of jury trial. Authorization to the landlord's lawyer to 
appear in court for the tenant and to waive the tenant's right to a 
trial by jury.
    (7) Waiver of right to appeal judicial error in legal proceedings. 
Authorization to the landlord's lawyer to waive the tenant's right to 
appeal on the ground of judicial error in any suit or the tenant's right 
to file a suit in equity to prevent the execution of a judgment.
    (8) Tenant chargeable with costs of legal actions regardless of 
outcome. Agreement by the tenant to pay attorney's fees or other legal 
costs whenever the landlord decides to take action against the tenant 
even though the court finds in favor of the tenant. (Omission of such 
clause does not mean that the tenant as a party to a lawsuit may not be 
obligated to pay attorney's fee or other costs if he loses the suit.)



Sec. 884.216  Termination of tenancy.

    (a) The owner is responsible for termination of tenancies, including 
evictions. However, conditions for payment of housing assistance 
payments for any resulting vacancies must be as set forth in 
Sec. 884.106(c)(1). Failure of the family to sign and submit consent 
forms for the obtaining of wage and claim information from State Wage 
Information Collection Agencies, as provided by 24 CFR part 5, shall be 
grounds for termination of tenancy. For provisions requiring termination 
of

[[Page 125]]

assistance for failure to establish citizenship or eligible immigration 
status, including the applicable informal requirements, see 24 CFR part 
5 and also for provisions concerning assistance for mixed families 
(families whose members include those with eligible immigration status, 
and those without eligible immigration status) in lieu of termination of 
assistance, and for provisions concerning deferral of termination of 
assistance.
    (b) Termination of tenancy for criminal activity by a covered person 
is subject to 24 CFR 5.858 and 5.859, and termination of tenancy for 
alcohol abuse by a covered person is subject to 24 CFR 5.860.

[56 FR 7541, Feb. 22, 1991, as amended at 60 FR 14845, Mar. 20, 1995; 61 
FR 13594, Mar. 27, 1996; 61 FR 47382, Sept. 6, 1996; 66 FR 28798, May 
24, 2001]



Sec. 884.217  Maintenance, operation and inspections.

    (a) Maintenance and operation. The Owner shall maintain and operate 
the project so as to provide Decent, Safe, and Sanitary housing and he 
shall provide all the services, maintenance and utilities which he 
agrees to provide under the Contract, subject to abatement of housing 
assistance payments or other applicable remedies if he fails to meet 
these obligations.
    (b) Inspection prior to occupancy. Prior to occupancy of any unit by 
a Family, the Owner and the Family shall inspect the unit and both shall 
certify, on forms prescribed by HUD, that they have inspected the unit 
and have determined it to be Decent, Safe, and Sanitary in accordance 
with the criteria provided in the prescribed forms. Copies of these 
reports shall be kept on file by the Owner for at least three years.
    (c) Periodic inspections. HUD (or the PHA, as appropriate) will 
inspect or cause to be inspected each Contract unit and related 
facilities at least annually and at such other times (including prior to 
initial occupancy and rerenting of any unit) as HUD (or the PHA) may 
determine to be necessary to assure that the Owner is meeting his 
obligation to maintain the units in Decent, Safe, and Sanitary condition 
and to provide the agreed upon utilities and other services. HUD (or the 
PHA) will take into account complaints by occupants and any other 
information coming to its attention in scheduling inspections and shall 
notify the Owner and the Family of its determination.
    (d) Units not decent, safe, and sanitary. If HUD (or the PHA, as 
appropriate) notifies the Owner that he has failed to maintain a 
dwelling unit in Decent, Safe, and Sanitary condition and the Owner 
fails to take corrective action within the time prescribed in the 
notice, HUD (or the PHA) may exercise any of its rights or remedies 
under the Contract, including abatement of housing assistance payments, 
even if the Family continues to occupy the unit. If, however, the Family 
wishes to be rehoused in another dwelling unit with Section 8 assistance 
and HUD (or the PHA) does not have other Section 8 funds for such 
purposes, HUD (or the PHA) may use the abated housing assistance 
payments for the purpose of rehousing the Family in another dwelling 
unit. Where this is done, the Owner shall be notified that he will be 
entitled to resumption of housing assistance payments for the vacated 
dwelling unit if:
    (1) The unit is restored to Decent, Safe, and Sanitary condition;
    (2) The Family is willing to and does move back to the restored 
dwelling unit; and
    (3) A deduction is made for the expenses incurred by the Family for 
both moves.



Sec. 884.218  Reexamination of family income and composition.

    (a) Regular reexaminations. The owner must reexamine the income and 
composition of all families at least once each year. Upon verification 
of the information, the owner must make appropriate adjustments in the 
Total Tenant Payment in accordance with part 5 of this title and 
determine whether the family's unit size is still appropriate. The owner 
must adjust Tenant Rent and the Housing Assistance Payment to reflect 
any change in Total Tenant Payment and carry out any unit transfer 
required by HUD. At the time of the annual reexamination of family 
income and composition, the

[[Page 126]]

owner must require the family to disclose and verify Social Security 
Numbers, as provided by 24 CFR part 5. For requirements regarding the 
signing and submitting of consent forms by families for the obtaining of 
wage and claim information from State Wage Information Collection 
Agencies, see 24 CFR part 5. At the first regular reexamination after 
June 19, 1995, the owner shall follow the requirements of 24 CFR part 5 
concerning obtaining and processing evidence of citizenship or eligible 
immigration status of all family members. Thereafter, at each regular 
reexamination, the owner shall follow the requirements of 24 CFR part 5 
concerning verification of the immigration status of any new family 
member.
    (b) Interim reexaminations. The family must comply with provisions 
of its lease regarding interim reporting of changes in income. If the 
owner receives information concerning a change in the family's income or 
other circumstances between regularly scheduled reexaminations, the 
owner must consult with the family and make any adjustments determined 
to be appropriate. Any change in the family's income or other 
circumstances that results in an adjustment in the Total Tenant Payment, 
Tenant Rent and Housing Assistance Payment must be verified. See 24 CFR 
750.10(d)(2)(i) for the requirements for the disclosure and verification 
of Social Security Numbers at interim reexaminations involving new 
family members. For requirements regarding the signing and submitting of 
consent forms by families for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, see 24 CFR 
part 5. At any interim reexamination after June 19, 1995 when there is a 
new family member, the owner shall follow the requirements of 24 CFR 
part 5 concerning obtaining and processing evidence of citizenship or 
eligible immigration status of the new family member.
    (c) Continuation of housing assistance payments. A family's 
eligibility for Housing Assistance Payments continues until the Total 
Tenant Payment equals the Contract Rent plus any utility allowance, or 
until the family loses eligibility for continued occupancy under 
Farmer's Home Administration regulations. However, eligibility also may 
be terminated in accordance with HUD requirements, for such reasons as 
failure to submit requested verification information, including failure 
to meet the disclosure and verification requirements for Social Security 
Numbers, as provided by 24 CFR part 5, or failure to sign and submit 
consent forms for the obtaining of wage and claim information from State 
Wage Information Collection Agencies, as provided by 24 CFR part 5. For 
provisions requiring termination of assistance for failure to establish 
citizenship or eligible immigration status, see 24 CFR part 5 and also 
for provisions concerning certain assistance for mixed families 
(families whose members include those with eligible immigration status, 
and those without eligible immigration status) in lieu of termination of 
assistance, and for provisions concerning deferral of termination of 
assistance.

[56 FR 7541, Feb. 22, 1991, as amended at 60 FR 14845, Mar. 20, 1995; 61 
FR 13594, Mar. 27, 1996; 65 FR 16723, Mar. 29, 2000]



Sec. 884.219  Overcrowded and underoccupied units.

    If HUD or the PHA, as the case may be, determines that a Contract 
unit assisted under this part is not Decent, Safe, and Sanitary by 
reason of increase in Family size, or that a Contract unit is larger 
than appropriate for the size of the Family in occupancy, housing 
assistance payments with respect to such unit will not be abated, unless 
the Owner fails to offer the Family a suitable unit as soon as one 
becomes vacant and ready for occupancy. In the case of an overcrowded 
unit, if the Owner does not have any suitable units or if no vacancy of 
a suitable unit occurs within a reasonable time, HUD (or the PHA) will 
assist the Family in finding a suitable dwelling unit and require the 
Family to move to such a unit as soon as possible. The Owner may receive 
housing assistance payments for the vacated unit if he complies with the 
requirements of Sec. 884.106(c)(1).

[[Page 127]]



Sec. 884.220  Adjustment of utility allowances.

    In connection with annual and special adjustments of contract rents, 
the owner must submit an analysis of the project's Utility Allowances. 
Such data as changes in utility rates and other facts affecting utility 
consumption should be provided as part of this analysis to permit 
appropriate adjustments in the Utility Allowances. In addition, when 
approval of a utility rate change would result in a cumulative increase 
of 10 percent or more in the most recently approved Utility Allowances, 
the project owner must advise the Secretary and request approval of new 
Utility Allowances. Whenever a Utility Allowance for a unit is adjusted, 
the owner will promptly notify affected families and make a 
corresponding adjustment of the tenant rent and the amount of the 
housing assistance payment for the unit.

(Approved by the Office of Management and Budget under control number 
2502-0161)

[50 FR 39098, Sept. 27, 1985]



Sec. 884.221  Continued family participation.

    A Family must continue to occupy its approved unit to remain 
eligible for participation in the Housing Assistance Payments Program 
except that if the Family (a) wishes to vacate its unit at the end of 
the Lease term (or prior thereto but in accordance with the provisions 
of the Lease), or (b) is required to move for reasons other than 
violation of the Lease on the part of the Family, and if the Family 
wishes to receive the benefit of housing assistance payments in another 
approvable unit, the Family should give reasonable notice of the 
circumstances to HUD or to the PHA, as appropriate, so that HUD or the 
PHA may have the opportunity to consider the Family's request.



Sec. 884.222  Inapplicability of low-rent public housing model lease and grievance procedures.

    Model lease and grievance procedures established by HUD for PHA-
owned low-rent public housing are applicable only to PHA-Owner Projects 
under the Section 8 Housing Assistance Payments Program.



Sec. 884.223  Leasing to eligible families.

    (a) Availability of units for occupancy by Eligible Families. During 
the term of the Contract, an owner shall make available for occupancy by 
eligible families the total number of units for which assistance is 
committed under the Contract. For purposes of this section, making units 
available for occupancy by eligible families means that the owner: (1) 
Is conducting marketing in accordance with Sec. 884.214; (2) has leased 
or is making good faith efforts to lease the units to eligible and 
otherwise acceptable families, including taking all feasible actions to 
fill vacancies by renting to such families; and (3) has not rejected any 
such applicant family except for reasons acceptable to HUD (or the PHA 
in accordance with HUD guidelines and at the direction of HUD, as 
appropriate). If the owner is temporarily unable to lease all units for 
which assistance is committed under the Contract to eligible families, 
one or more units may be leased to ineligible families with the prior 
approval of HUD (or the PHA in accordance with HUD guidelines and at the 
direction of HUD, as appropriate). Failure on the part of the owner to 
comply with these requirements is a violation of the Contract and 
grounds for all available legal remedies, including specific performance 
of the Contract, suspension or debarment from HUD programs, and 
reduction of the number of units under the Contract as set forth in 
paragraph (b) of this section.
    (b) Reduction of number of units covered by Contract. HUD (or the 
PHA at the direction of HUD, as appropriate), after consultation with 
the Farmers Home Administration, may reduce the number of units covered 
by the Contract to the number of units available for occupancy by 
eligible families if:
    (1) The owner fails to comply with the requirements of paragraph (a) 
of this section; or
    (2) Notwithstanding any prior approval by HUD (or the PHA at the 
direction of HUD, as appropriate) to lease such units to ineligible 
families, HUD (or the PHA at the direction of HUD, as appropriate) 
determines that the inability to lease units to eligible families is not 
a temporary problem.

[[Page 128]]

    (c) Restoration. HUD will agree to an amendment of the ACC or the 
Contract, as appropriate, to provide for subsequent restoration of any 
reduction made pursuant to paragraph (b) of this section if:
    (1) HUD determines that the restoration is justified by demand;
    (2) The owner otherwise has a record of compliance with his or her 
obligations under the Contract; and
    (3) Contract and budget authority are available.
    (d) Applicability. In accordance with section 555 of the Cranston-
Gonzalez National Affordable Housing Act of 1990, paragraphs (a) and (b) 
of this section apply to all contracts. An owner who had leased an 
assisted unit to an ineligible family consistent with the regulations in 
effect at the time will continue to lease the unit to that family. 
However, the owner must make the unit available for occupancy by an 
eligible family when the ineligible family vacates the unit.
    (e) Termination of assistance for failure to establish citizenship 
or eligible immigration status. If an owner subject to paragraphs (a) 
and (b) of this section is required to terminate housing assistance 
payments for the family in accordance with 24 CFR part 5 because the 
owner determines that the entire family does not have U.S. citizenship 
or eligible immigration status, the owner may allow continued occupancy 
of the unit by the family without Section 8 assistance following the 
termination of assistance, or if the family constitutes a mixed family, 
as defined in 24 CFR part 5, the owner shall comply with the provisions 
of 24 CFR part 5 concerning assistance to mixed families, and deferral 
of termination of assistance.

[49 FR 31398, Aug. 7, 1984, as amended at 53 FR 847, Jan. 13, 1988; 53 
FR 6601, Mar. 2, 1988; 59 FR 13653, Mar. 23, 1994; 60 FR 14846, Mar. 20, 
1995; 61 FR 13594, Mar. 27, 1996]



Sec. 884.223a  Preference for occupancy by elderly families.

    (a) Election of preference for occupancy by elderly families--(1) 
Election by owners of eligible projects. (i) An owner of a project 
assisted under this part (including a partially assisted project) that 
was originally designed primarily for occupancy by elderly families (an 
``eligible project'') may, at any time, elect to give preference to 
elderly families in selecting tenants for assisted, vacant units in the 
project, subject to the requirements of this section.
    (ii) For purposes of this section, a project eligible for the 
preference provided by this section, and for which the owner makes an 
election to give preference in occupancy to elderly families is referred 
to as an ``elderly project.'' ``Elderly families'' refers to families 
whose heads of household, their spouses or sole members are 62 years or 
older.
    (iii) An owner who elects to provide a preference to elderly 
families in accordance with this section is required to notify families 
on the waiting list who are not elderly that the election has been made 
and how the election may affect them if:
    (A) The percentage of disabled families currently residing in the 
project who are neither elderly nor near-elderly (hereafter, 
collectively referred to as ``non-elderly disabled families'') is equal 
to or exceeds the minimum required percentage of units established for 
the elderly project in accordance with paragraph (c)(1) of this section, 
and therefore non-elderly families on the waiting list (including non-
elderly disabled families) may be passed over for covered section 8 
units; or
    (B) The project, after making the calculation set forth in paragraph 
(c)(1) of this section, will have no units set aside for non-elderly 
disabled families.
    (iv) An owner who elects to give a preference for elderly families 
in accordance with this section shall not remove an applicant from the 
project's waiting list solely on the basis of having made the election.
    (2) HUD approval of election not required. (i) An owner is not 
required to solicit or obtain the approval of HUD before exercising the 
election of preference for occupancy provided in paragraph (a)(1) of 
this section. The owner, however, if challenged on the issue of 
eligibility of the project for the election provided in paragraph (a)(1) 
of this section must be able to support the project's eligibility 
through the production of all relevant documentation

[[Page 129]]

in the possession of the owner that pertains to the original design of 
the project.
    (ii) The Department reserves the right at any time to review and 
make determinations regarding the accuracy of the identification of the 
project as an elderly project. The Department can make such 
determinations as a result of ongoing monitoring activities, or the 
conduct of complaint investigations under the Fair Housing Act (42 
U.S.C. 3601 through 3619), or compliance reviews and complaint 
investigations under section 504 of the Rehabilitation Act of 1973 (29 
U.S.C. 794) and other applicable statutes.
    (b) Determining projects eligible for preference for occupancy by 
elderly families--(1) Evidence supporting project eligibility. Evidence 
that a project assisted under this part (or portion of a project) was 
originally designed primarily for occupancy by elderly families, and is 
therefore eligible for the election of occupancy preference provided by 
this section, shall consist of at least one item from the sources 
(``primary'' sources) listed in paragraph (b)(1)(i) of this section, or 
at least two items from the sources (``secondary'' sources) listed in 
paragraph (b)(1)(ii) of this section:
    (i) Primary sources. Identification of the project (or portion of a 
project) as serving elderly (seniors) families in at least one primary 
source such as: the application in response to the notice of funding 
availability; the terms of the notice of funding availability under 
which the application was solicited; the regulatory agreement; the loan 
commitment; the bid invitation; the owner's management plan, or any 
underwriting or financial document collected at or before loan closing; 
or
    (ii) Secondary sources. Two or more sources of evidence such as: 
lease records from the earliest two years of occupancy for which records 
are available showing that occupancy has been restricted primarily to 
households where the head, spouse or sole member is 62 years of age or 
older; evidence that services for elderly persons have been provided, 
such as services funded by the Older Americans Act, transportation to 
senior citizen centers, or programs coordinated with the Area Agency on 
Aging; project unit mix with more than fifty percent of efficiency and 
one-bedroom units [a secondary source particularly relevant to 
distinguishing elderly projects under the previous section 3(b) 
definition (in which disabled families were included in the definition 
of ``elderly families'') from non-elderly projects and which in 
combination with other factors (such as the number of accessible units) 
may be useful in distinguishing projects for seniors from those serving 
the broader definition of ``elderly families'' which includes disabled 
families]; or any other relevant type of historical data, unless clearly 
contradicted by other comparable evidence.
    (2) Sources in conflict. If a primary source establishes a design 
contrary to that established by the primary source upon which the owner 
would base support that the project is an eligible project (as defined 
in this section), the owner cannot make the election of preferences for 
elderly families as provided by this section based upon primary sources 
alone. In any case where primary sources do not provide clear evidence 
of original design of the project for occupancy primarily by elderly 
families, including those cases where sources documents conflict, 
secondary sources may be used to establish the use for which the project 
was originally designed.
    (c) Reservation of units in elderly projects for non-elderly 
disabled families. The owner of an elderly project is required to 
reserve, at a minimum, the number of units specified in paragraph (c)(1) 
of this section for occupancy by non-elderly disabled families.
    (1) Minimum number of units to be reserved for non-elderly disabled 
families. The number of units in an elderly project required to be 
reserved for occupancy by non-elderly disabled families, shall be, at a 
minimum, the lesser of:
    (i) The number of units equivalent to the higher of--
    (A) The percentage of units assisted under this part in the elderly 
project that were occupied by non-elderly disabled families on October 
28, 1992; and
    (B) The percentage of units assisted under this part in the elderly 
project

[[Page 130]]

that were occupied by non-elderly disabled families upon January 1, 
1992; or
    (ii) 10 percent of the number of units assisted under this part in 
the eligible project.
    (2) Option to reserve greater number of units for non-elderly 
disabled families. The owner, at the owner's option, and at any time, 
may reserve a greater number of units for non-elderly disabled families 
than that provided for in paragraph (c)(1) of this section. The option 
to provide a greater number of units to non-elderly disabled families 
will not obligate the owner to always provide that greater number to 
non-elderly disabled families. The number of units required to be 
provided to non-elderly disabled families at any time in an elderly 
project is that number determined under paragraph (c)(1) of this 
section.
    (d) Secondary preferences. An owner of an elderly project also may 
elect to establish secondary preferences in accordance with the 
provisions of this paragraph (d) of this section.
    (1) Preference for near-elderly disabled families in units reserved 
for elderly families. If the owner of an elderly project determines, in 
accordance with paragraph (f) of this section, that there are an 
insufficient number of elderly families who have applied for occupancy 
to fill all the vacant units in the elderly project reserved for elderly 
families (that is, all units except those reserved for the non-elderly 
disabled families as provided in paragraph (c) of this section), the 
owner may give preference for occupancy of such units to disabled 
families who are near-elderly families.
    (2) Preference for near-elderly disabled families in units reserved 
for non-elderly disabled families. If the owner of an elderly project 
determines, in accordance with paragraph (f) of this section, that there 
are an insufficient number of non-elderly disabled families to fill all 
the vacant units in the elderly project reserved for non-elderly 
disabled families as provided in paragraph (c) of this section, the 
owner may give preference for occupancy of these units to disabled 
families who are near-elderly families.
    (e) Availability of units to families without regard to preference. 
An owner shall make vacant units in an elderly project generally 
available to otherwise eligible families who apply for housing, without 
regard to the preferences and reservation of units provided in this 
section if either:
    (1) The owner has adopted the secondary preferences and there are an 
insufficient number of families for whom elderly preference, reserve 
preference, and secondary preference has been given, to fill all the 
vacant units; or
    (2) The owner has not adopted the secondary preferences and there 
are an insufficient number of families for whom elderly preference, and 
reserve preference has been given to fill all the vacant units.
    (f) Determination of insufficient number of applicants qualifying 
for preference. To make a determination that there are an insufficient 
number of applicants who qualify for the preferences, including 
secondary preferences, provided by this section, the owner must:
    (1) Conduct marketing in accordance with Sec. 884.214(a) to attract 
applicants qualifying for the preferences and reservation of units set 
forth in this section; and
    (2) Make a good faith effort to lease to applicants who qualify for 
the preferences provided in this section, including taking all feasible 
actions to fill vacancies by renting to such families.
    (g) Prohibition of evictions. An owner may not evict a tenant 
without good cause, or require that a tenant vacate a unit, in whole or 
in part because of any reservation or preference provided in this 
section, or because of any action taken by the Secretary pursuant to 
subtitle D (sections 651 through 661) of title VI of the Housing and 
Community Development Act of 1992 (42 U.S.C. 13611 through 13620).

[59 FR 65855, Dec. 21, 1994, as amended at 61 FR 9047, Mar. 6, 1996; 65 
FR 16723, Mar. 29, 2000]



Sec. 884.224  HUD review of contract compliance.

    HUD will review project operation at such intervals as it deems 
necessary to ensure that the Owner is in full compliance with the terms 
and conditions of the Contract. Equal Opportunity review may be 
conducted with the scheduled HUD review or at any time deemed 
appropriate by HUD.

[[Page 131]]



Sec. 884.225  PHA reporting requirements. [Reserved]



PART 886--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--SPECIAL ALLOCATIONS--Table of Contents




 Subpart A--Additional Assistance Program for Projects With HUD-Insured 
                         and HUD-Held Mortgages

Sec.
886.101  Applicability.
886.102  Definitions.
886.103  Allocation of Section 8 contract authority.
886.104  Invitations to participate.
886.105  Content of application; Disclosure.
886.106  Notices.
886.107  Approval of applications.
886.108  Maximum annual contract commitment.
886.109  Housing assistance payments to owners.
886.110  Contract rents.
886.111  Term of contract.
886.111a  Notice upon contract expiration.
886.112  Rent adjustments.
886.113  Physical condition standard; physical inspection requirements.
886.114  Equal opportunity requirements.
886.115  [Reserved]
886.116  Security and utility deposits.
886.117  [Reserved]
886.118  Amount of housing assistance payments in projects receiving 
          other HUD assistance.
886.119  Responsibilities of the owner.
886.120  Responsibility for contract administration.
886.121  Marketing.
886.122  [Reserved]
886.123  Maintenance, operation and inspections.
886.124  Reexamination of family income and composition.
886.125  Overcrowded and underoccupied units.
886.126  Adjustment of utility allowances.
886.127  Lease requirements.
886.128  Termination of tenancy.
886.129  Leasing to eligible families.
886.130  HUD review of contract compliance.
886.131  Audit.
886.132  Tenant selection..
886.138  Displacement, relocation, and acquisition.

Subpart B [Reserved]

 Subpart C--Section 8 Housing Assistance Program for the Disposition of 
                           HUD-Owned Projects

886.301  Purpose.
886.302  Definitions.
886.303  Allocation and reservation of Section 8 contract authority and 
          budget authority.
886.304  Project eligibility criteria.
886.305  Disclosure and verification of Social Security and Employer 
          Identification Numbers by owners.
886.306  Notices.
886.307  Physical condition standards; physical inspection requirements.
886.308  Maximum total annual contract commitment.
886.309  Housing assistance payment to owners.
886.310  Initial contract rents.
886.311  Term of contract.
886.311a  Notice upon contract expiration.
886.312  Rent adjustments.
886.313  Other Federal requirements.
886.314  Financial default.
886.315  Security and utility deposits.
886.316--886.317  [Reserved]
886.318  Responsibilities of the owner.
886.319  Responsibility for contract administration.
886.320  Default under the contract.
886.321  Marketing.
886.322  [Reserved]
886.323  Maintenance, operation, and inspections.
886.324  Reexamination of family income and composition.
886.325  Overcrowded and underoccupied units.
886.326  Adjustment of utility allowances.
886.327  Lease requirements.
886.328  Termination of tenancy.
886.329  Leasing to eligible families.
886.329a  Preferences for occupancy by elderly families.
886.330  Work write-ups and cost estimates.
886.331  Agreement to enter into housing assistance payments contract.
886.332  Rehabilitation period.
886.333  Completion of rehabilitation.
886.334  Execution of housing assistance payments contract.
886.335  HUD review of agreement and contract compliance.
886.336  Audit.
886.337  Selection preferences.
886.338  Displacement, relocation, and acquisition.

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

[[Page 132]]



 Subpart A--Additional Assistance Program for Projects With HUD-Insured 
                         and HUD-Held Mortgages

    Source: 42 FR 5603, Jan. 28, 1977, unless otherwise noted.



Sec. 886.101  Applicability.

    (a) The policies and procedures of this subpart apply to Housing 
Assistance Payments under Section 8 of the United States Housing Act of 
1937 on behalf of Eligible Families in Eligible Projects (see 
definitions in Sec. 886.102).
    (b) The primary goal of the Section 8 Loan Management Set-Aside 
Program is to reduce claims on the Department's insurance fund by aiding 
those FHA-insured or Secretary-Held projects with immediately or 
potentially serious financial difficulties. A first priority should be 
given to projects with presently serious financial problems, which are 
likely to result in a claim on the insurance fund in the near future. To 
the extent resources remain available, assistance also may be provided 
to projects with potentially serious financial problems which, on the 
basis of financial and/or management analysis, appear to have a high 
probability of producing a claim on the insurance fund within 
approximately the next five years.

[42 FR 5603, Jan. 28, 1977, as amended at 53 FR 3368, Feb. 5, 1988]



Sec. 886.102  Definitions.

    The terms Fair Market Rent (FMR), HUD, Public Housing Agency (PHA), 
and Secretary are defined in 24 CFR part 5.
    Act. The United States Housing Act of 1937.
    Annual income. As defined in part 5 of this title.
    Contract (See Section 8 Contract).
    Contract Rent. The rent payable to the Owner as required by HUD in 
connection with its mortgage insurance and/or lending functions, 
including the portion of the rent payable by the Family, not to exceed 
the amount stated in the Section 8 Contract as such amount may be 
adjusted in accordance with Sec. 886.112. In the case of a cooperative, 
the term ``Contract Rent'' means charges under the occupancy agreements 
between the members and the cooperative.
    Decent, Safe, and Sanitary. Housing is decent, safe, and sanitary if 
it meets the physical condition requirements in 24 CFR part 5, subpart 
G.
    Eligible Project. Any existing subsidized or unsubsidized 
multifamily residential project that is subject to a mortgage insured or 
any section of the National Housing Act; any such project subject to a 
mortgage that has been assigned to the Secretary; any such project 
acquired by the Secretary and thereafter sold under a Secretary-held 
purchase money mortgage; or a project for the elderly financed under 
section 202 of the Housing Act of 1959 (except projects receiving 
assistance under 24 CFR part 885).
    Family. As defined in part 5 of this title.
    HCD Act. The Housing and Community Development Act of 1974.
    Housing Assistance Payment. The payment made by HUD to the Owner of 
an assisted unit as provided in the Contract. Where the unit is leased 
to an eligible Family, the payment is the difference between the 
Contract Rent and the Tenant Rent. An additional Housing Assistance 
Payment is made when the Utility Allowance is greater than the Total 
Tenant Payment. A Housing Assistance Payment may be made to the Owner 
when a unit is vacant, in accordance with Sec. 886.109.
    Income. Income from all sources of each member of the household as 
determined in accordance with criteria established by HUD.
    Lease. A written agreement between the owner and a family for 
leasing of a decent, safe and sanitary dwelling unit to the family.
    Low-income family. As defined in part 5 of this title.
    Owner. The mortgagor of record under a multifamily project mortgage 
insured, or held by the Secretary, including purchase money mortgages; 
the owner of a Section 202 project.
    Project. See Sec. 886.101.
    Project Account. The account established and maintained in 
accordance with Sec. 886.108.
    Section 8 Contract (``Contract''). A written Contract between the 
Owner of

[[Page 133]]

an Eligible Project and HUD for providing Housing Assistance Payments to 
the Owner on behalf of Eligible Families pursuant to this part.
    Subsidized Rent. In Section 221(d)(3) BMIR, Section 202, or Section 
236 projects, the rent payable to the project, based on the particular 
circumstances of any assisted tenant in the absence of any Housing 
Assistance Payment.
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.
    Very low-income family. As defined in part 5 of this title.

[42 FR 5603, Jan. 28, 1977, as amended at 42 FR 63745, Dec. 19, 1977; 49 
FR 19948, May 10, 1984; 50 FR 38795, Sept. 25, 1985; 53 FR 3368, Feb. 5, 
1988; 61 FR 5213, Feb. 9, 1996; 63 FR 46579, Sept. 1, 1998; 65 FR 16723, 
Mar. 29, 2000]



Sec. 886.103  Allocation of Section 8 contract authority.

    HUD will allocate to field offices contract authority for Section 8 
project commitments for metropolitan and nonmetropolitan areas in 
conformance with Section 213(d) of the HCD Act.



Sec. 886.104  Invitations to participate.

    (a) HUD shall identify Eligible Projects which are most likely to 
meet the selection criteria set forth in Sec. 886.117, and shall invite 
the Owners of such projects to make application for Section 8 assistance 
under this part.
    (b) An Owner of an Eligible Project who has not been notified 
pursuant to paragraph (a) of this section may also make application for 
such assistance.



Sec. 886.105  Content of application; Disclosure.

    Applications shall be in the form and in accordance with the 
instructions prescribed by HUD, and shall include:
    (a) Information on Gross Income, family size, and amount of rent 
paid to the project by Families currently in residence;
    (b) Information on vacancies and turnover;
    (c) Estimate of effect of the availability of Section 8 assistance 
on marketability of units in the project;
    (d) For projects having a history of financial default, financial 
difficulties or deferred maintenance, a plan and a schedule for 
remedying such defaulted or deferred obligations;
    (e) Total number of units by unit size (by bedroom count) for which 
Section 8 assistance is requested; and
    (f) Affirmative Fair Housing Marketing Plan on a HUD-prescribed 
form.

To be eligible to become an owner of housing assisted under this 
subpart, the owner must meet the disclosure and verification 
requirements for Social Security and Employer Identification Numbers, as 
provided by part 5, subpart B, of this title.

(Approved by the Office of Management and Budget under control number 
2502-0204)

[42 FR 5603, Jan. 28, 1977, as amended at 54 FR 39708, Sept. 27, 1989; 
61 FR 11118, Mar. 18, 1996]



Sec. 886.106  Notices.

    (a) Within 10 days of receipt of each completed application by the 
HUD field office, the field office shall send to the chief executive 
officer of the unit of general local government in which the proposed 
assistance is to be provided, a notification in a form prescribed by HUD 
for purposes of compliance with Section 213 of the HCD Act.
    (b) If an application is approved, HUD shall send to the Owner a 
notice of application approval. If an application can be approved only 
on certain conditions, HUD shall notify the Owner of the conditions and 
specify a time limit by which those conditions must be met. If an 
application is disapproved, HUD shall so notify the Owner by letter 
indicating the reasons for disapproval.

[42 FR 5603, Jan. 28, 1977, as amended at 53 FR 3368, Feb. 5, 1988]



Sec. 886.107  Approval of applications.

    HUD shall approve applications, after considering all pertinent 
information including comments (if any) received during the comment 
period from the unit of general local government, based on the following 
criteria:

[[Page 134]]

    (a) The Owner's Affirmative Fair Housing Marketing Plan is 
approvable.
    (b) The HUD-approved unit rents are approvable within the Fair 
Market Rent limitations contained in Sec. 886.110.
    (c) The residential units meet the housing quality standards set 
forth in Sec. 886.113, except for such variations as HUD may approve. 
Local climatic or geological conditions or local codes are examples 
which may justify such variations.
    (d) A significant number of residents, or potential residents, in 
the case of projects having a vacancy rate over 10 percent, are eligible 
for and in need of Section 8 assistance.
    (e) The infusion of Section 8 assistance into the subject project 
should not affect other HUD-related multifamily housing within the same 
neighborhood in a substantially adverse manner. Examples of such adverse 
effects are (1) substantial move-outs from nearby HUD-related projects 
precipitated by much lower rents in the subject project, or (2) 
substantial diversion of prospective applicants from such projects to 
the subject project.
    (f) A first priority is given to HUD-Insured or Secretary-Held 
projects with presently serious financial problems, which are likely to 
result in a claim on the insurance fund in the near future. To the 
extent resources remain available, assistance also may be provided to 
projects with potentially serious financial problems which, on the basis 
of financial and/or management analysis, appear to have a high 
probability of producing a claim on the insurance funds within 
approximately the next five years.
    (g) The infusion of Section 8 assistance into the subject project 
solves an identifiable problem, e.g., high vacancies and/or turnover, 
and provides a reasonable assurance of long-term project viability. A 
determination of long-term viability shall be based upon the following 
considerations:
    (1) The project is not subject to any serious problems that are non-
economic in nature. Examples of such problems are poor location, 
structural deficiencies or disinterested ownership.
    (2) The Owner is in substantial compliance with the Regulatory 
Agreement. Owners are not diverting project funds for personal use. No 
dividends are being paid during any period of financial difficulty.
    (3) The management agent is in substantial compliance with the 
management agreement. The current management agreement has been approved 
by HUD. Financial records are adequately kept. Occupancy requirements 
are being met. Marketing and maintenance programs are being carried out 
in an adequate manner, based upon available financial resources.
    (4) The project's problems are primarily the result of factors 
beyond the control of the present ownership and management.
    (5) The major problems are traceable to an inadequate cash flow.
    (6) The infusion of Section 8 assistance will solve the cash flow 
problem by:
    (i) Making it possible to grant needed rent increases;
    (ii) Reducing turnover, vacancies and collection losses.
    (7) The Owner's plan for remedying any deferred maintenance, 
financial problems, or other problems is realistic and achievable. There 
is positive evidence that the Owner will carry out the plan. Examples of 
such evidence are the Owner's past performance in correcting problems 
and, in the case of profit-motivated Owners, any cash contributions made 
to correct project problems.
    (h) Any plan submitted pursuant to Sec. 886.105(d) is found by HUD 
to be adequate.



Sec. 886.108  Maximum annual contract commitment.

    (a) Number of units assisted. Based on analysis of housing 
assistance needs of families residing or expected to reside in the 
project, HUD shall determine the number of units to be assisted up to 
100 percent of the units in the project. All units currently assisted 
under section 23 or section 8 shall be converted and included under the 
Contract pursuant to this subpart, unless the parties to the Lease or 
Contract object to such conversion. Units assisted under section 101 of 
the Housing and Urban Development Act of 1965 or under section 236(f)(2) 
of the National Housing Act shall not be included

[[Page 135]]

under the Contract pursuant to this subpart unless the Owner proposes 
and HUD approves such conversion.
    (b) Maximum annual Contract commitment. The maximum annual housing 
assistance payments that may be committed under the Contract shall be 
that amount which, when paid annually over the term of the Contract, is 
determined by HUD to be sufficient to provide for all housing assistance 
payments and fees under the Contract.
    (c) Project Account. In order to assure that housing assistance 
payments will be increased on a timely basis to cover increases in 
Contract Rents or decreases in Family Incomes:
    (1) A Project Account shall be established and maintained, in an 
amount as determined by the Secretary consistent with his 
responsibilities under section 8(c)(6) of the Act, out of amounts by 
which the maximum annual Contract commitment per year exceeds amounts 
paid under the Contract for any year. This account shall be established 
and maintained by HUD for each project as a specifically identified and 
segregated account, and payment shall be made therefrom only for the 
purposes of (i) housing assistance payments, and (ii) other costs 
specifically authorized or approved by the Secretary.
    (2) Whenever a HUD-approved estimate of required housing assistance 
payments for a fiscal year exceeds the maximum annual Contract 
commitment, and would cause the amount in the Project Account to be less 
than an amount equal to 40 percent of such maximum annual Contract 
commitment, HUD shall, within a reasonable period of time, take such 
additional steps authorized by Section 8(c)(6) of the Act as may be 
necessary to carry out this assurance, including (as provided in that 
section of the Act) ``the allocation of a portion of new authorizations 
for the purpose of amending housing assistance contracts.''



Sec. 886.109  Housing assistance payments to owners.

    (a) General. Housing Assistance Payments shall be paid to Owners for 
units under lease by eligible families, in accordance with the Contract 
and as provided in this section. These Housing Assistance Payments will 
cover the difference between the Contract Rent and the Tenant Rent. 
Where applicable, the Utility Reimbursement will be paid to the Family 
as an additional Housing Assistance Payment. The Contract will provide 
that the Owner will make this payment on behalf of HUD. Funds will be 
paid to the Owner in trust solely for the purpose of making this 
additional payment. If the Family and the utility company consent, the 
Owner may pay the Utility Reimbursement jointly to the Family and the 
utility company or directly to the utility company.
    (b) No Section 8 assistance may be provided for any unit occupied by 
an Owner; cooperatives are considered rental housing.
    (c) If an Eligible Family vacates its unit (other than as a result 
of action by the Owner which is in violation of the Lease or the 
Contract or any applicable law), the Owner shall receive housing 
assistance payments in the amount of 80 percent of the Contract Rent for 
a vacancy period not exceeding 60 days: Provided, however, That if the 
Owner collects any of the Family's share of the rent for this period, or 
applies security deposits for unpaid rent, in amounts which when added 
to the 80 percent payments, results in more than the Contract Rent, such 
excess shall be payable to HUD or as HUD may direct. (See also 
Sec. 886.116.) The Owner shall not be entitled to any payment under this 
paragraph unless he:
    (1) Immediately upon learning of the vacancy, has notified HUD of 
the vacancy or prospective vacancy and the reasons for the vacancy, and
    (2) Has taken and continues to take all feasible actions to fill the 
vacancy including, but not limited to, contacting applicants on his 
waiting list (if any), and advising them of the availability of the 
unit, and
    (3) Has not rejected any eligible applicant except for good cause.

[42 FR 5603, Jan. 28, 1977, as amended at 49 FR 19948, May 10, 1984]



Sec. 886.110  Contract rents.

    (a) The sum of the Contract Rents plus an Allowance for Utilities 
and Other Services shall not exceed the published Section 8 Fair Market 
Rents for Existing Housing, except that they may be exceeded by:

[[Page 136]]

    (1) Up to 10 percent if the Field Office Director determines that 
special circumstances warrant such higher rents, or
    (2) By up to 20 percent where the Regional Administrator determines 
that special circumstances warrant such higher rents, and in either 
case, such higher rents meet the test of reasonableness in paragraph (c) 
of this section.
    (b) In the case of any project completed not more than six years 
prior to the application for assistance under that part, or in the case 
of units converted to Section 8 which were previously assisted under 
Section 101 of the Housing and Urban Development Act of 1965 or Section 
236(f)(2) of the National Housing Act, contract rents plus any allowance 
for utilities and other services may be as high as 75 percent of the 
published Section 8 Fair Market Rents for New Construction, which 
limitation may be increased: (1) By up to 10 percent if the Field Office 
Director determines that special circumstances warrant such higher 
rents, or (2) by up to 20 percent where the Regional Administrator 
determines that special circumstances warrant such higher rents, and in 
either case, such higher rents meet the test of reasonableness contained 
in paragraph (c) of this section. The project shall be converted using 
the current HUD approved rent level established pursuant to 24 CFR 
207.19(e)(2)(i).
    (c) In any case, HUD shall determine and so certify that the 
Contract Rents for the project do not exceed rents which are reasonable 
for the location, quality, amenities, facilities, and management and 
maintenance services in relation to the rents paid for comparable units 
in the private unassisted market, nor shall the Contract Rents exceed 
the rents charged by the Owner to unassisted Families for comparable 
units. HUD shall maintain for three years all certifications and 
relevant documentation under this paragraph (c).

[42 FR 5603, Jan. 28, 1977, as amended at 48 FR 36103, Aug. 9, 1983; 48 
FR 56949, Dec. 27, 1983]



Sec. 886.111  Term of contract.

    A Contract may be for an initial term of not more than 5 years, 
renewable for successive 5 year terms by agreement between HUD and the 
Owner: Provided, That the total Contract term, including renewals, shall 
not exceed 15 years.



Sec. 886.111a  Notice upon contract expiration.

    (a) The Contract will provide that the owner will notify each 
assisted family, at least 90 days before the end of the Contract term, 
of any increase in the amount the family will be required to pay as rent 
which may occur as a result of its expiration. If the Contract is to be 
renewed but with a reduction in the number of units covered by it, this 
notice shall be given to each family who will not longer be assisted 
under the Contract.
    (b) The notice provided for in paragraph (a) of this section shall 
be accomplished by: (1) Sending a letter by first class mail, properly 
stamped and addressed, to the family at its address at the project, with 
a proper return address, and (2) serving a copy of the notice on any 
adult person answering the door at the leased dwelling unit, or if no 
adult responds, by placing the notice under or through the door, if 
possible, or else by affixing the notice to the door. Service shall not 
be considered to be effective until both required notices have been 
accomplished. The date on which the notice shall be considered to be 
received by the family shall be the date on which the owner mails the 
first class letter provided for in this paragraph, or the date on which 
the notice provided for in this paragraph is properly given, whichever 
is later.
    (c) The notice shall advise each affected family that, after the 
expiration date of the Contract, the family will be required to bear the 
entire cost of the rent and that the owner will be free (to the extent 
the project is not otherwise regulated by HUD) to alter the rent without 
HUD approval, but subject to any applicable requirements or restrictions 
under the lease or under State or local law. The notice shall also 
state:

[[Page 137]]

(1) The actual (if known) or the estimated rent which will be charged 
following the expiration of the Contract; (2) the difference between the 
rent and the Total Tenant Payment toward rent under the Contract; and 
(3) the date the Contract will expire.
    (d) The owner shall give HUD a certification that families have been 
notified in accordance with this section with an example of the text of 
the notice attached.
    (e) This section applies to all Contracts executed, renewed or 
amended on or after October 1, 1984.

[49 FR 31285, Aug. 6, 1984]



Sec. 886.112  Rent adjustments.

    This section applies to adjustments of the dollar amount stated in 
the Contract as the Maximum Unit Rent. It does not apply to adjustments 
in rents payable to Owners as required by HUD in connection with its 
mortgage insurance and/or lending functions.
    (a) Funding of adjustments. Housing Assistance Payments will be made 
in increased amounts commensurate with Contract Rent adjustments up to 
the maximum annual amount of housing assistance payments specified in 
the Contract pursuant to Sec. 886.108(b).
    (b) Annual adjustments. The contract rents may be adjusted annually, 
or more frequently, at HUD's option, either (1) on the basis of a 
written request for a rent increase submitted by the owner and properly 
supported by substantiating evidence, or (2) by applying, on each 
anniversary date of the contract, the applicable Automatic Annual 
Adjustment Factor most recently published by HUD in the Federal Register 
in accordance with 24 CFR part 888, subpart B. Published Automatic 
Annual Adjustment Factors will be reduced appropriately by HUD where 
utilities are paid directly by Families. If HUD requires that the owner 
submit a written request, HUD, within a reasonable time, shall approve a 
rental schedule that is necessary to compensate for any increase in 
taxes (other than income taxes) and operating and maintenance costs over 
which owners have no effective control, or shall deny the increase 
stating the reasons therefor. Increases in taxes and maintenance and 
operating costs shall be measured against levels of such expenses in 
comparable assisted and unassisted housing in the area to ensure that 
adjustments in the Contract Rents shall not result in material 
differences between the rents charged for assisted and comparable 
unassisted units. Contract Rents may be adjusted upward or downward as 
may be appropriate; however, in no case shall the adjusted rents be less 
than the contract rents on the effective date of the contract.
    (c) Special additional adjustments. Special additional adjustments 
shall be granted, when approved by HUD, to reflect increases in the 
actual and necessary expenses of owning and maintaining the Contract 
units which have resulted from substantial general increases in real 
property taxes, utility rates or similar costs (i.e., assessment, and 
utilities not covered by regulated rates), but only if and to the extent 
that the Owner clearly demonstrates that such general increases have 
caused increases in the Owner's operating costs which are not adequately 
compensated for by automatic annual adjustments. The Owner shall submit 
to HUD financial statements which clearly support the increase.
    (d) Overall limitation. Notwithstanding any other provisions of the 
subpart, adjustments as provided in this section shall not result in 
material differences between the rents charged for assisted and 
comparable unassisted units, as determined by HUD.
    (e) Incorporation of rent adjustments. Any adjustment in Maximum 
Unit Rents shall be incorporated into the Contract by a dated addendum 
to the Contract establishing the effective date of the adjustment.

[42 FR 5603, Jan. 28, 1977, as amended at 45 FR 59149, Sept. 8, 1980; 47 
FR 24700, June 8, 1982]



Sec. 886.113  Physical condition standard; physical inspection requirements.

    (a) General. Housing used in this program must be maintained and 
inspected in accordance with the requirements in 24 CFR part 5, subpart 
G.
    (b) Space and security. In addition to the standards in 24 CFR part 
5, subpart G, the dwelling unit must have a living room, a kitchen area, 
and a bathroom. The dwelling unit must have at least

[[Page 138]]

one bedroom or living/sleeping room for each two persons.
    (c)-(h) [Reserved]
    (i) Lead based paint. The Lead-Based Paint Poisoning Prevention Act 
(42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C. 4851-4856), and implementing regulations at part 
35, subparts A, B, H, and R of this title apply to activities under this 
program.
    (j)-(m) [Reserved]
    (n) Congregate housing. In addition to the foregoing standards, the 
following standards apply to congregate housing:
    (1) The unit shall contain a refrigerator of appropriate size.
    (2) The central dining facility (and kitchen facility, if any) shall 
contain suitable space and equipment to store, prepare and serve food in 
a sanitary manner, and there shall be adequate facilities and services 
for the sanitary disposal of food wastes and refuse, including 
facilities for temporary storage where necessary (e.g., garbage cans).

[42 FR 5603, Jan. 28, 1977, as amended at 52 FR 1895, Jan. 15, 1987; 52 
FR 9828, Mar. 27, 1987; 53 FR 20802, June 6, 1988; 57 FR 33852, July 30, 
1992; 63 FR 46579, Sept. 1, 1998; 64 FR 50227, Sept. 15, 1999]



Sec. 886.114  Equal opportunity requirements.

    Participation in the program authorized in this subpart requires 
compliance with (a) Title VI of the Civil Rights Act of 1964, Title VIII 
of the Civil Rights Act of 1968, Executive Orders 11063 and 11246, and 
section 3 of the Housing and Urban Development Act of 1968; and (b) all 
rules, regulations, and requirements issued pursuant thereto.



Sec. 886.115  [Reserved]



Sec. 886.116  Security and utility deposits.

    (a) An Owner may require Families to pay a security deposit in an 
amount up to, but not more than, one month's Gross Family Contribution. 
If a Family vacates its unit, the Owner, subject to State and local 
laws, may utilize the deposit as reimbursement for any unpaid rent or 
other amount owed under the Lease. If the Family has provided a security 
deposit and it is insufficient for such reimbursement, the Owner may 
claim reimbursement from HUD, not to exceed an amount equal to the 
remainder of one month's Contract Rent. Any reimbursement under this 
section shall be applied first toward any unpaid rent. If a Family 
vacates the unit owing no rent or other amount under the Lease or if 
such amount is less than the amount of the security deposit, the Owner 
shall refund the full amount or the unused balance, as the case may be, 
to the Family.
    (b) In those jurisdictions where interest is payable by the Owner on 
security deposits, the refunded amount shall include the amount of 
interest payable. All security deposit funds shall be deposited by the 
Owner in a segregated bank account, and the balance of this account, at 
all times, shall be equal to the total amount collected from tenants 
then in occupancy, plus any accrued interest. The Owner shall comply 
with all State and local laws regarding interest payments on security 
deposits.
    (c) Families shall be expected to obtain the funds to pay security 
and utility deposits, if required, from their own resources and/or other 
private or public sources.



Sec. 886.117  [Reserved]



Sec. 886.118  Amount of housing assistance payments in projects receiving other HUD assistance.

    (a) For any Section 221(d)(3) BMIR, Section 236, or Section 202 
project, the Housing Assistance Payment shall be the amount by which the 
rent payable by the eligible Family under Section 8 is less than the 
subsidized rent (which subsidy shall not be reduced by reason of any 
Section 8 assistance).
    (b) In no event may any tenant benefit from more than one of the 
following subsidies: Rent Supplements, Section 236 deep subsidies, 
Section 23 leasing assistance, and Section 8 housing assistance.

[42 FR 5603, Jan. 28, 1977, as amended at 49 FR 19948, May 10, 1984]



Sec. 886.119  Responsibilities of the owner.

    (a) The Owner shall be responsible for management and maintenance of 
the project in conformance with requirements of the Regulatory 
Agreement. These responsibilities shall include but not be limited to:

[[Page 139]]

    (1) Payment for utilities and services (unless paid directly by the 
Family), insurance and taxes;
    (2) Performance of all ordinary and extraordinary maintenance;
    (3) Performance of all management functions, including the taking of 
applications; determining eligibility of applicants in accordance with 
part 5 of this title; selection of families, including verification of 
income, in accordance with part 5 of this title, obtaining and verifying 
Social Security Numbers submitted by applicants (as provided by part 5, 
subpart B, of this title), obtaining signed consent forms from 
applicants for the obtaining of wage and claim information from State 
Wage Information Collection Agencies (as provided in part 5, subpart B, 
of this title), and other pertinent requirements; and determination of 
the amount of tenant rent in accordance with HUD established schedules 
and criteria.
    (4) Collection of Tenant Rents;
    (5) Termination of tenancies, including evictions;
    (6) Preparation and furnishing of information required under the 
Contract;
    (7) Reexamination of family income and composition, redetermination, 
as appropriate, of the amount of Tenant Rent and the amount of housing 
assistance payment in accordance with part 5 of this title; collection 
of rent; obtaining and verifying participant Social Security Numbers, as 
provided by part 5, subpart B, of this title; and obtaining signed 
consent forms from participants for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, as provided 
by part 5, subpart B, of this title.
    (8) Redeterminations of amount of Tenant Rent and amount of Housing 
Assistance Payment in accordance with part 5 of this title as a result 
of an adjustment by HUD of any applicable Utility Allowance; and
    (9) Compliance with equal opportunity requirements.
    (b) In the event of a financial default under the project mortgage, 
HUD shall have the right to make subsequent Housing Assistance Payments 
to the mortgagee until such time as the default is cured, or, at the 
option of the mortgagee and subject to HUD approval, until some other 
agreed-upon time.
    (c) Subject to HUD approval, any Owner may contract with any private 
or public entity to perform for a fee the services required by paragraph 
(a) of this section: Provided, That such contract shall not shift any of 
the Owner's responsibilities or obligations.

(Approved by the Office of Management and Budget under control number 
2502-0204)

[42 FR 5603, Jan. 28, 1977, as amended at 49 FR 19948, May 10, 1984; 51 
FR 11227, Apr. 1, 1986; 53 FR 847, Jan. 13, 1988; 53 FR 1165, Jan. 15, 
1988; 53 FR 3368, Feb. 5, 1988; 53 FR 6601, Mar. 2, 1988; 54 FR 39708, 
Sept. 27, 1989; 56 FR 7542, Feb. 22, 1991; 60 FR 14846, Mar. 20, 1995; 
61 FR 9047, Mar. 6, 1996; 61 FR 11119, Mar. 18, 1996; 65 FR 16723, Mar. 
29, 2000]



Sec. 886.120  Responsibility for contract administration.

    (a) HUD is responsible for administration of the Contract. HUD may 
contract with another entity for the performance of some or all of its 
Contract administration functions.
    (b) The Contract shall contain a provision to the effect (1) that if 
HUD determines that the Owner is not in compliance under the Contract, 
HUD shall notify the Owner of the actions required to be taken to 
restore compliance and of the remedies to be applied by HUD including 
abatement of Housing Assistance Payments and recovery of overpayments, 
where appropriate; and (2) that if he fails to comply, HUD has the right 
to terminate the Contract or to take other corrective action. A default 
under the Regulatory Agreement shall be treated as non-compliance under 
the Contract.



Sec. 886.121  Marketing.

    (a) Marketing of units and selection of Families by the Owner shall 
be in accordance with the Owner's HUD-approved Affirmative Fair Housing 
Marketing Plan, if required, and with all regulations relating to fair 
housing advertising including use of the equal opportunity logotype, 
statement, and slogan in all advertising. Projects shall be managed and 
operated without regard to race, color, creed, religion, sex, or 
national origin.
    (b) The Owner shall comply with the applicable provisions of the 
Contract,

[[Page 140]]

this subpart A, and the procedures of part 5 of this title in taking 
applications, selecting families, and all related determinations.
    (c) For the informal hearing provisions related to denial of 
assistance based upon failure to establish citizenship or eligible 
immigration status, see part 5, subpart E, of this title for provisions 
concerning certain assistance for mixed families (families whose members 
include those with eligible immigration status, and those without 
eligible immigration status) in lieu of denial of assistance.

[42 FR 5603, Jan. 28, 1977, as amended at 53 FR 1166, Jan. 15, 1988; 53 
FR 6601, Mar. 2, 1988; 60 FR 14846, Mar. 20, 1995; 65 FR 16723, Mar. 29, 
2000]



Sec. 886.122  [Reserved]



Sec. 886.123  Maintenance, operation and inspections.

    (a) Maintenance and operation. The Owner shall maintain and operate 
the project so as to provide Decent, Safe, and Sanitary housing and he 
shall provide all the services, maintenance and utilities which he 
agrees to provide under the Contract, subject to abatement of housing 
assistance payments or other applicable remedies if he fails to meet 
these obligations.
    (b) Inspection prior to occupancy. Prior to occupancy of any unit by 
a Family, the Owner and the Family shall inspect the unit and both shall 
certify, on forms prescribed by HUD that they have inspected the unit 
and have determined it to be Decent, Safe, and Sanitary in accordance 
with the criteria provided in the prescribed forms. Copies of these 
reports shall be kept on file by the Owner for at least three years.
    (c) Periodic inspections. HUD will inspect or cause to be inspected 
a reasonable sample of contract units at least annually and at such 
other times as may be necessary to assure that the owner is meeting his 
contractual obligations. HUD will take into account complaints by 
occupants and any other information coming to its attention in 
scheduling inspections and shall notify the owner of its determination.
    (d) Units not Decent, Safe, and Sanitary. If HUD notifies the Owner 
that he has failed to maintain a dwelling unit in Decent, Safe, and 
Sanitary condition and the Owner fails to take corrective action within 
the time prescribed in the notice, HUD may exercise any of its rights or 
remedies under the Contract, including abatement of housing assistance 
payments, even if the Family continues to occupy the unit.

[42 FR 5603, Jan. 28, 1977, as amended at 43 FR 60157, Dec. 26, 1978]



Sec. 886.124  Reexamination of family income and composition.

    (a) Regular reexaminations. The owner must reexamine the income and 
composition of all families at least once each year. Upon verification 
of the information, the owner must make appropriate adjustments in the 
Total Tenant Payment in accordance with part 5 of this title and 
determine whether the family's unit size is still appropriate. The owner 
must adjust Tenant Rent and the Housing Assistance Payment to reflect 
any change in Total Tenant Payment and carry out any unit transfer 
required by HUD. At the time of the annual reexamination of family 
income and composition, the owner must require the family to disclose 
and verify Social Security Numbers. For requirements regarding the 
signing and submitting of consent forms by families for the obtaining of 
wage and claim information from State Wage Information Collection 
Agencies, see part 5, subpart B, of this title. At the first regular 
reexamination after June 19, 1995, the owner shall follow the 
requirements of part 5, subpart E, of this title concerning obtaining 
and processing evidence of citizenship or eligible immigration status of 
all family members. Thereafter, at each regular reexamination, the owner 
shall follow the requirements of part 5, subpart E, of this title 
concerning verification of the immigration status of any new family 
member.
    (b) Interim reexaminations. The family must comply with provisions 
in its lease regarding interim reporting of changes in income. If the 
owner receives information concerning a change in the family's income or 
other circumstances between regularly scheduled reexaminations, the 
owner must consult with the family and make

[[Page 141]]

any adjustments determined to be appropriate. Any change in the family's 
income or other circumstances that results in an adjustment in the Total 
Tenant Payment, Tenant Rent and Housing Assistance Payment must be 
verified. See part 5, subpart B, of this title for the requirements for 
the disclosure and verification of Social Security Numbers at interim 
reexaminations involving new family members. For requirements regarding 
the signing and submitting of consent forms by families for the 
obtaining of wage and claim information from State Wage Information 
Collection Agencies, see part 5, subpart B, of this title. At any 
interim reexamination after June 19, 1995, when there is a new family 
member, the owner shall follow the requirements of part 5, subpart E, of 
this title concerning obtaining and processing evidence of citizenship 
or eligible immigration status of the new family member.
    (c) Continuation of housing assistance payments. A family's 
eligibility for housing assistance payments will continue until the 
Total Tenant Payment equals the Gross Rent. The termination of 
eligibility will not affect the family's other rights under its lease, 
nor will such termination preclude the resumption of payments as a 
result of later changes in income, rents, or other relevant 
circumstances during the term of the Contract. However, eligibility also 
may be terminated in accordance with program requirements, for such 
reasons as failure to submit requested verification information, 
including failure to meet the disclosure and verification requirements 
for Social Security Numbers, as provided by part 5, subpart B, of this 
title, or failure to sign and submit consent forms for the obtaining of 
wage and claim information from State Wage Information Collection 
Agencies, as provided by part 5, subpart B, of this title. For 
provisions requiring termination of assistance for failure to establish 
citizenship or eligible immigration status, see part 5, subpart E, of 
this title for provisions concerning certain assistance for mixed 
families (families whose members include those with eligible immigration 
status, and those without eligible immigration status) in lieu of 
termination of assistance, and for provisions concerning deferral of 
termination of assistance

[56 FR 7542, Feb. 22, 1991, as amended at 60 FR 14846, Mar. 20, 1995; 61 
FR 11119, Mar. 18, 1996; 65 FR 16723, Mar. 29, 2000]



Sec. 886.125  Overcrowded and underoccupied units.

    If HUD determines that a contract unit assisted under this part is 
not Decent, Safe, and Sanitary by reason of increase in Family size or 
that a Contract unit is larger than appropriate for the size of the 
Family in occupancy, housing assistance payments with respect to such 
unit will not be abated, unless the Owner fails to offer the Family a 
suitable unit as soon as one becomes vacant and ready for occupancy. The 
Owner may receive housing assistance payments for the vacated unit if he 
complies with the requirements of Sec. 886.109.



Sec. 886.126  Adjustment of utility allowances.

    When the owner requests HUD approval of adjustment in Contract Rents 
under Sec. 886.112, an analysis of the project's Utility Allowances must 
be included. Such data as changes in utility rates and other facts 
affecting utility consumption should be provided as part of this 
analysis to permit appropriate adjustments in the Utility Allowances. In 
addition, when approval of a utility rate change would result in a 
cumulative increase of 10 percent or more in the most recently approved 
Utility Allowances, the owner must advise the Secretary and request 
approval of new Utility Allowances.

(Approved by the Office of Management and Budget under control numbers 
2502-0352 and 2502-0354)

[51 FR 21863, June 16, 1986]



Sec. 886.127  Lease requirements.

    (a) Term of lease. (1) The term of a lease, including a new lease or 
a lease amendment, executed by the owner and the family must be for at 
least one year, or the remaining term of the contract if the remaining 
term of the contract is less than one year.
    (2) During the first year of the lease term, the owner may not 
terminate the

[[Page 142]]

tenancy for ``other good cause'' under 24 CFR 247.3(a)(3), unless the 
termination is based on family malfeasance or nonfeasance. For example, 
during the first year of the lease term, the owner may not terminate the 
tenancy for ``other good cause'' based on the failure by the family to 
accept the offer of a new lease.
    (3) The lease may contain a provision permitting the family to 
terminate the lease on 30 days advance written notice to the owner. In 
the case of a lease term for more than one year, the lease must contain 
this provision.
    (b) Required and prohibited provisions. The lease between the owner 
and the family must comply with HUD regulations and requirements, and 
must be in the form required by HUD. The lease may not contain any of 
the following types of prohibited provisions:
    (1) Admission of guilt. Agreement by the family (i) to be sued, (ii) 
to admit guilt, or (iii) to a judgment in favor of the owner, in a court 
proceeding against the family in connection with the lease.
    (2) Treatment of family property. Agreement by the family that the 
owner may take or hold family property, or may sell family property, 
without notice to the family and a court decision on the rights of the 
parties.
    (3) Excusing owner from responsibility. Agreement by the family not 
to hold the owner or the owner's agents responsible for any action or 
failure to act, whether intentional or negligent.
    (4) Waiver of notice. Agreement by the family that the owner does 
not need to give notice of a court proceeding against the family in 
connection with the lease, or does not need to give any notice required 
by HUD.
    (5) Waiver of court proceeding for eviction. Agreement by the family 
that the owner may evict the family (i) without instituting a civil 
court proceeding in which the family has the opportunity to present a 
defense, or (ii) before a decision by the court on the rights of the 
parties.
    (6) Waiver of jury trial. Agreement by the family to waive any right 
to a trial by jury.
    (7) Waiver of appeal. Agreement by the family to waive the right to 
appeal, or to otherwise challenge in court, a court decision in 
connection with the lease.
    (8) Family chargeable with legal costs regardless of outcome. 
Agreement by the family to pay lawyer's fees or other legal costs of the 
owner, even if the family wins in a court proceeding by the owner 
against the family. (However, the family may have to pay these fees and 
costs if the family loses.)

[53 FR 3368, Feb. 5, 1988]



Sec. 886.128  Termination of tenancy.

    Part 247 of this title applies to the termination of tenancy and 
eviction of a family assisted under this subpart. For cases involving 
termination of tenancy because of a failure to establish citizenship or 
eligible immigration status, the procedures of parts 247 and 5 of this 
title shall apply. The provisions of part 5, Subpart E, of this title 
concerning certain assistance for mixed families (families whose members 
include those with eligible immigration status, and those without 
eligible immigration status) in lieu of termination of assistance, and 
concerning deferral of termination of assistance also shall apply.

[60 FR 14846, Mar. 20, 1995, as amended at 65 FR 16724, Mar. 29, 2000]



Sec. 886.129  Leasing to eligible families.

    (a) Availability of units for occupancy by Eligible Families. During 
the term of the Contract, an owner shall make available for occupancy by 
eligible families the total number of units for which assistance is 
committed under the Contract. For purposes of this section, making units 
available for occupancy by eligible families means that the owner: (1) 
Is conducting marketing in accordance with Sec. 886.121; (2) has leased 
or is making good faith efforts to lease the units to eligible and 
otherwise acceptable families, including taking all feasible actions to 
fill vacancies by renting to such families; and (3) has not rejected any 
such applicant family except for reasons acceptable to HUD. If the owner 
is temporarily unable to lease all units for which assistance is 
committed under the Contract to eligible families, one or more units may 
be leased to ineligible families

[[Page 143]]

with the prior approval of HUD. Failure on the part of the owner to 
comply with these requirements is a violation of the Contract and 
grounds for all available legal remedies, including specific performance 
of the Contract, suspension or debarment from HUD programs, and 
reduction of the number of units under the Contract as set forth in 
paragraph (b) of this section.
    (b) Reduction of number of units covered by Contract. HUD may reduce 
the number of units covered by the Contract to the number of units 
available for occupancy by eligible families if:
    (1) The owner fails to comply with the requirements of paragraph (a) 
of this section; or
    (2) Notwithstanding any prior approval by HUD to lease such units to 
ineligible families, HUD determines that the inability to lease units to 
eligible families is not a temporary problem.
    (c) Restoration. HUD will agree to an amendment of the Contract to 
provide for subsequent restoration of any reduction made pursuant to 
paragraph (b) of this section if:
    (1) HUD determines that the restoration is justified by demand;
    (2) The owner otherwise has a record of compliance with his or her 
obligations under the Contract; and
    (3) Contract and budget authority are available.
    (d) Applicability. Paragraphs (a) and (b) of this section apply to 
Contracts executed on or after October 3, 1984.
    (e) Termination of assistance for failure to establish citizenship 
or eligible immigration status. If an owner subject to paragraphs (a) 
and (b) of this section is required to terminate housing assistance 
payments for the family in accordance with part 5, subpart E, of this 
title because the owner determines that the entire family does not have 
U.S. citizenship or eligible immigration status, the owner may allow 
continued occupancy of the unit by the family without Section 8 
assistance following the termination of assistance, or if the family 
constitutes a mixed family, as defined in part 5, subpart E, of this 
title, the owner shall comply with the provisions of part 5, subpart E, 
of this title concerning assistance to mixed families, and deferral of 
termination of assistance.

[49 FR 31399, Aug. 7, 1984, as amended at 53 FR 847, Jan. 13, 1988; 53 
FR 6601, Mar. 2, 1988; 60 FR 14846, Mar. 20, 1995; 65 FR 16724, Mar. 29, 
2000]



Sec. 886.130  HUD review of contract compliance.

    HUD will review project operation at such intervals as it deems 
necessary to ensure that the Owner is in full compliance with the terms 
and conditions of the Contract. Equal Opportunity review may be 
conducted with the scheduled HUD review or at any time deemed 
appropriate by HUD.



Sec. 886.131  Audit.

    (a) Where a State or local government is the eligible owner of a 
project, or is a contract administrator under Sec. 886.120, receiving 
financial assistance under this part, the audit requirements in 24 CFR 
part 44 shall apply.
    (b) Where a nonprofit organization is the eligible owner of a 
project, receiving financial assistance under this part, the audit 
requirements of 24 CFR part 45 shall apply.

[50 FR 39092, Sept. 27, 1985; 51 FR 30480, Aug. 27, 1986, as amended at 
57 FR 33257, July 27, 1992]



Sec. 886.132  Tenant selection.

    Sections 5.653 through 5.661 of this title govern selection of 
tenants and occupancy requirements applicable under this subpart A.

[65 FR 16724, Mar. 29, 2000]



Sec. 886.138  Displacement, relocation, and acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, owners shall assure that they have taken all 
reasonable steps to minimize the displacement of persons (families, 
individuals, businesses, nonprofit organization, and farms) as a result 
of a project assisted under this part.
    (b) Temporary relocation. The following policies cover residential 
tenants who will not be required to move permanently but who must 
relocate temporarily for the project. Such tenants must be provided;

[[Page 144]]

    (1) Reimbursement for all reasonable out-of-pocket expenses incurred 
in connection with the temporary relocation, including the cost of 
moving to and from the temporary housing and any increase in monthly 
rent/utility costs; and
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe, and sanitary 
dwelling to be made available for the temporary period;
    (iii) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex following completion of the rehabilitation; and
    (iv) The provisions of paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons. A ``displaced 
person'' (as defined in paragraph (g) of this section) must be provided 
relocation assistance at the levels described in, and in accordance with 
the requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (URA) (42 U.S.C. 4601-4655) and 
implementing regulations at 49 CFR part 24. A ``displaced person'' shall 
be advised of his or her rights under the Fair Housing Act (42 U.S.C. 
3601-19), and, if the representative comparable replacement dwelling 
used to establish the amount of the replacement housing payment to be 
provided to a minority person is located in an area of minority 
concentration, such person also shall be given, if possible, referrals 
to comparable and suitable, decent, safe, and sanitary replacement 
dwellings not located in such areas.
    (d) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (e) Appeals. A person who disagrees with the Owner's determination 
concerning whether the person qualifies as a ``displaced person,'' or 
the amount of relocation assistance for which the person is found to be 
eligible, may file a written appeal of that determination with the 
owner. A low-income person who is dissatisfied with the owner's 
determination on such appeal may submit a written request for review of 
that determination to the HUD Field Office.
    (f) Responsibility of owner. (1) The owner shall certify (i.e., 
provide assurance of compliance, as required by 49 CFR part 24) that he 
or she will comply with the URA, the regulations at 49 CFR part 24, and 
the requirements of this section. The owner is responsible for such 
compliance notwithstanding and third party's contractual obligation to 
the owner to comply with these provisions.
    (2) The cost of providing required relocation assistance is an 
eligible project cost to the same extent and in the same manner as other 
project costs. Such costs also may be paid for with funds available from 
other sources.
    (3) The owner shall maintain records in sufficient detail to 
demonstrate compliance with the provisions of this section. The owner 
shall maintain data on the race, ethnic, gender, and handicap status of 
displaced persons.
    (g) Definition of displaced person. (1) for purposes of this 
section, the term displaced person means a person (family, individual, 
business, nonprofit organization, or farm) that moves from real 
property, or moves personal property from real property, permanently, as 
a direct result of acquisition, rehabilitation, or demolition for a 
project assisted under this part. This includes any permanent, 
involuntary move for an assisted project, including any permanent move 
from the real property that is made:
    (i) After notice by the owner to move permanently from the property, 
if the move occurs on or after the date of the submission of the 
application to HUD;
    (ii) Before submission of the application to HUD, if HUD determines 
that the displacement resulted directly from acquisition, 
rehabilitation, or demolition for the assisted project; or
    (iii) By a tenant-occupant of a dwelling unit, if any one of the 
following three situations occurs;
    (A) The tenant moves after execution of the Housing Assistance 
Payments Contract, and the move occurs before the tenant is provided 
written notice

[[Page 145]]

offering him or her the opportunity to lease and occupy a suitable, 
decent, safe, and sanitary dwelling in the same building/complex, under 
reasonable terms and conditions, upon completion of the project. Such 
reasonable terms and conditions include a monthly rent and estimated 
average monthly utility costs that do not exceed the greater of:
    (1) The tenant's monthly rent before execution of the Housing 
Assistance Payments Contract and estimated average monthly utility 
costs; or
    (2) The total tenant payment, as determined under part 5 of this 
title, if the tenant is low-income, or 30 percent of gross household 
income, if the tenant is not low-income;
    (B) The tenant is required to relocate temporarily, does not return 
to the building/complex, and either:
    (1) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation, or
    (2) Other conditions of the temporary relocation are not reasonable; 
or
    (C) The tenant is required to move to another dwelling unit in the 
same building/complex but is not offered reimbursement for all 
reasonable out-of-pocket expenses incurred in connection with the move, 
or other conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State or local law, or other good cause, and HUD 
determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the submission of the 
application and, before signing a lease and commencing occupancy, 
received written notice of the project, its possible impact on the 
person (e.g., the person may be displaced, temporarily relocated, or 
suffer a rent increase) and the fact that he or she would not qualify as 
a ``displaced person'' (or for assistance under this section) as a 
result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (3) The owner may ask HUD, at any time, to determine whether a 
displacement is or would be covered by this section.
    (h) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a residential tenant displaced as a direct result of 
private-owner rehabilitation, demolition or acquisition of the real 
property, the term ``initiation of negotiations'' means the owner's 
execution of the Housing Assistance Payments Contract.

(Approved by Office of Management and Budget under OMB Control Number 
2506-0121)

[58 FR 43721, Aug. 17, 1993. Redesignated at 59 FR 36643, July 18, 1994, 
as amended at 65 FR 16724, Mar. 29, 2000]

Subpart B--[Reserved]



 Subpart C--Section 8 Housing Assistance Program for the Disposition of 
                           HUD-Owned Projects

    Source: 44 FR 70365, Dec. 6, 1979, unless otherwise noted.



Sec. 886.301  Purpose.

    The purpose of this subpart is to provide for the use of Section 8 
housing assistance in connection with the sale of HUD-owned multifamily 
rental housing projects and the foreclosure of HUD-held mortgages on 
rental housing projects (as defined in 24 CFR 290.5).

[58 FR 43722, Aug. 17, 1993]



Sec. 886.302  Definitions.

    The terms Fair Market Rent (FMR), HUD, and Public Housing Agency 
(PHA) are defined in 24 CFR part 5.
    Act. The United States Housing Act of 1937.

[[Page 146]]

    Agreement. An Agreement to Enter into a Housing Assistance Payments 
Contract. See Sec. 886.332.
    Annual income. As defined in part 5 of this title.
    Contract. (See Section 8 contract.)
    Contract rent. The rent payable to the owner under the contract, 
including the portion of the rent payable by the family. In the case of 
a cooperative, the term ``contract rent'' means charges under the 
occupancy agreements between the members and the cooperative.
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary if 
it meets the physical condition requirements in 24 CFR part 5, subpart 
G.
    Eligible project or project. A multifamily housing project (see 24 
CFR part 290):
    (1) For which the disposition in accordance with the provisions of 
24 CFR part 290 involves sale with Section 8 housing assistance to 
enable the project to be used, in whole or in part, to provide housing 
for lower income families; and
    (2) The units of which are decent, safe, and sanitary.
    Family. As defined in part 5 of this title.
    HCD Act. The Housing and Community Development Act of 1974.
    Housing Assistance Payment. The payment made by the contract 
administrator to the Owner of an assisted unit as provided in the 
Contract. Where the unit is leased to an eligible Family, the payment is 
the difference between the Contract Rent and the Tenant Rent. A Housing 
Assistance Payment may be made to the Owner when a unit is vacant, in 
accordance with the terms of the Contract. An additional Housing 
Assistance Payment is made when the Utility Allowance is greater than 
the Total Tenant Payment.
    Lease. A written agreement between the owner and a family for 
leasing of decent, safe and sanitary dwelling unit to the family.
    Low-income family. As defined in part 5 of this title.
    Owner. The purchaser, including a cooperative entity or an agency of 
the Federal Government, under this subpart, of a HUD-owned project; or 
the purchaser, including a cooperative entity or an agency of the 
Federal Government, through a foreclosure sale of a project that was 
subject to a HUD-held mortgage.
    Project account. The account established and maintained in 
accordance with Sec. 886.308.
    Rehabilitation. The rehabilitation of an eligible project to upgrade 
the property to decent, safe, and sanitary condition to comply with the 
Housing Quality Standards described in Sec. 886.307 of this part, or 
other standards approved by HUD, from a condition below those standards 
and requiring repairs that may vary in degree from gutting and extensive 
reconstruction to the cure of deferred maintenance. Rehabilitation may 
exceed the requirements of Sec. 886.307 of this part.
    Section 8 contract (``Contract''). A written contract between the 
owner of an eligible project and HUD providing housing assistance 
payments to the owner on behalf of eligible families pursuant to this 
subpart.
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.
    Very low-income family. As defined in part 5 of this title.

[44 FR 70365, Dec. 6, 1979, as amended at 49 FR 19949, May 10, 1984; 50 
FR 9269, Mar. 7, 1985; 50 FR 38795, Sept. 25, 1985; 53 FR 3369, Feb. 5, 
1988; 58 FR 43722, Aug. 17, 1993; 60 FR 11859, Mar. 2, 1995; 61 FR 5213, 
Feb. 9, 1996; 63 FR 46580, Sept. 1, 1998; 65 FR 16724, Mar. 29, 2000]



Sec. 886.303  Allocation and reservation of Section 8 contract authority and budget authority.

    Allocation. The contract authority and budget authority for this 
program will be provided from the Headquarters reserve authority 
approved specifically for use in connection with the sale of eligible 
projects.



Sec. 886.304  Project eligibility criteria.

    (a) Selection of projects. HUD shall select projects for sale with 
assistance under this subpart on the basis of the final disposition 
programs developed and approved in accordance with part

[[Page 147]]

290 and the requirements of this subpart. In the evaluation of projects, 
consideration shall be given to whether there are site occupants who 
would have to be displaced, whether the relocation of site occupants is 
feasible, and the degree of hardship which displacement might cause.
    (b) Projects needing rehabilitation. A project, which is sold 
subject to the condition that following sale the project will be 
rehabilitated by the owner so as to become decent, safe and sanitary, 
will be sold with an Agreement that Section 8 assistance will be 
provided after the repairs are completed by the owner and the project is 
inspected and accepted by HUD. In these projects, Section 8 payments may 
be made only for project units which are determined to be decent, safe 
and sanitary.
    (c) High-rise elevator projects. High-rise elevator projects for 
families with children will not be assisted under this subpart unless 
the final disposition program, prepared in accordance with 24 CFR part 
290 indicates that there is a need for assisted housing for families and 
there is no other practical alternative for providing the needed 
housing.

[44 FR 70365, Dec. 6, 1979, as amended at 58 FR 43722, Aug. 17, 1993]



Sec. 886.305  Disclosure and verification of Social Security and Employer Identification Numbers by owners.

    To be eligible to become an owner of housing assisted under this 
subpart, the owner must meet the disclosure and verification 
requirements for Social Security and Employer Identification Numbers, as 
provided by part 5, subpart B, of this title.

(Approved by the Office of Management and Budget under control number 
2502-0204)

[54 FR 39709, Sept. 27, 1989; 55 FR 11905, Mar. 30, 1990, as amended at 
61 FR 11119, Mar. 18, 1996]



Sec. 886.306  Notices.

    Before a project is approved for sale in accordance with this 
subpart, and as a part of the process of preparing a disposition 
recommendation in accordance with 24 CFR part 290, the field office 
manager must notify in writing the chief executive officer of the unit 
of general local government in which the project is located (or the 
designee of that officer) of the proposed sale with housing assistance, 
and must afford the unit of local government an opportunity to review 
and comment upon the proposed sale in accordance with 24 CFR part 791. 
Local government review should address consistency with the housing 
needs and strategy of the community, rather than strict conformance to 
the limitations on variations from housing assistance plan goals which 
are contained in part 791.

[53 FR 3369, Feb. 5, 1988]



Sec. 886.307  Physical condition standards; physical inspection requirements.

    (a) General. Housing assisted under this part must be maintained and 
inspected in accordance with the requirements in 24 CFR part 5, subpart 
G.
    (b) Space and security. In addition to the standards in 24 CFR part 
5, subpart G, the dwelling unit must have a living room, a kitchen area, 
and a bathroom. The dwelling unit must have at least one bedroom or 
living/sleeping room for each two persons.
    (c)-(h) [Reserved]
    (i) Lead-based paint. The Lead-Based Paint Poisoning Prevention Act 
(42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C. 4851-4856), and implementing regulations at part 
35, subparts A, B, H, and R of this title apply to activities under this 
program.
    (j)-(l) [Reserved]
    (m) Congregate housing. In addition to the foregoing standards, the 
following standards apply to congregate housing:
    (1) The unit shall contain and have ready access to a flush toilet 
which can be used in privacy, a fixed basin with hot and cold running 
water, and a shower and/or tub equipped with hot and cold running water 
all in proper operating condition and adequate for personal cleanliness 
and the disposal of human wastes. These facilities shall utilize an 
approved public or private disposal system, and shall be sufficient in 
number so that they need not be shared by more than four occupants. 
Those units accommodating physically

[[Page 148]]

handicapped occupants with wheelchairs or other special equipment shall 
provide access to all sanitary facilities, and shall provide, as 
appropriate to needs of the occupants, basins and toilets of appropriate 
height; grab bars to toilets, showers and/or bathtubs; shower seats; and 
adequate space for movement.
    (2) The unit shall contain suitable space to store, prepare and 
serve foods in a sanitary manner. A cooking stove or range, a 
refrigerator(s) of appropriate size and in sufficient quantity for the 
number of occupants, and a kitchen sink with hot and cold running water 
shall be present in proper operating condition. The sink shall drain 
into an approved private or public system. Adequate space for the 
storage, preparation and serving of food shall be provided. There shall 
be adequate facilities and services for the sanitary disposal of food 
wastes and refuse, including facilities for temporary storage where 
necessary (e.g., garbage cans).
    (3) The dwelling unit shall afford the Family adequate space and 
security. A living room, kitchen, dining area, bathroom, and other 
appropriate social and/or recreational community space shall be within 
the unit and the dwelling unit shall contain at least one sleeping room 
of appropriate size for each two persons. Exterior doors and windows 
accessible from outside each unit shall be capable of being locked. An 
emergency exit plan shall be developed and occupants shall be apprised 
of the details of the plan. Regular fire inspections shall be conducted 
by appropriate local officials. Readily accessible first aid supplies 
and fire extinguishers shall be provided throughout the unit, smoke 
detectors shall be provided and emergency phone numbers (police, 
ambulance, fire department, etc.) shall be available at every phone and 
individual copies shall be provided to each occupant. All emergency and 
safety features and procedures shall meet applicable State and local 
standards.
    (n) Independent group residence. In addition to the foregoing 
standards, the standards in 24 CFR 887.467 (a) through (g) apply to 
independent group residences.

[44 FR 70365, Dec. 6, 1979, as amended at 50 FR 9269, Mar. 7, 1985; 52 
FR 1986, Jan. 15, 1987; 57 FR 33852, July 30, 1992; 58 FR 43722, Aug. 
17, 1993; 63 FR 46580, Sept. 1, 1998; 64 FR 50227, Sept. 15, 1999]



Sec. 886.308  Maximum total annual contract commitment.

    (a) Number of units assisted. Based on the final disposition program 
developed in accordance with 24 CFR part 290, HUD shall determine the 
number of units to be assisted up to 100 percent of the units in the 
project.
    (b) Maximum assistance. The maximum total annual housing assistance 
payments that may be committed under the contract shall be the total of 
the gross rents for all the contract units in the project.
    (c) Changes in contract amounts. In order to assure that housing 
assistance payments will be increased on a timely basis to cover 
increases in contract rents, changes in family composition, or decreases 
in family incomes:
    (1) A project account shall be established and maintained, in an 
amount as determined by HUD consistent with section 8(c)(6) of the Act, 
out of amounts by which the maximum annual contract commitment per year 
exceeds amounts paid under the contract for any fiscal year. This 
account shall be established and maintained by HUD as a specifically 
identified and segregated account, and payment shall be made therefrom 
only for the purposes of:
    (i) Housing assistance payments, and
    (ii) Other costs specifically authorized or approved by HUD.
    (2) Whenever a HUD-approved estimate of required housing assistance 
payments for a fiscal year exceeds the maximum annual contract 
commitment, causing the amount in the project account to be less than an 
amount equal to 40 percent of the maximum annual contract commitment, 
HUD, within a reasonable period of time, shall take such additional 
steps authorized by Section 8(c)(6) of the Act as may be necessary to 
carry out this assurance, including (as provided in

[[Page 149]]

that section of the Act) ``the reservation of annual contributions 
authority for the purpose of amending housing assistance contracts or 
the allocation of a portion of new authorizations for the purpose of 
amending housing assistance contracts.''



Sec. 886.309  Housing assistance payment to owners.

    (a) General. Housing Assistance Payments shall be paid to Owners for 
units under lease by eligible Families, in accordance with the Contract 
and as provided in this section. These Housing Assistance Payments will 
cover the difference between the Contract Rent and the Tenant Rent. 
Where applicable, the Utility Reimbursement will be paid to the Family 
as an additional Housing Assistance Payment. The Contract will provide 
that the Owner will make this payment on behalf of HUD. Funds will be 
paid to the Owner in trust solely for the purpose of making this 
additional payment. If the Family and the utility company consent, the 
Owner may pay the Utility Reimbursement jointly to the Family and the 
utility company or directly to the utility company.
    (b) No assistance for owners. No Section 8 assistance may be 
provided for any unit occupied by an owner. However, cooperatives are 
considered rental housing rather than owner-occupied housing under this 
subpart.
    (c) Payments for vacancies from execution of contract to initial 
occupancy. If a Contract unit which is decent, safe and sanitary and has 
been accepted by HUD as available as of the effective date of the 
Contract is not leased within 15 days of the effective date of the 
Contract, the Owner will be entitled to housing assistance payments in 
the amount of 80 percent of the Contract Rent for the unit for a vacancy 
period not exceeding 60 days from the effective date of the Contract 
provided that the Owner (1) has submitted a list of units leased as of 
the effective date and a list of the units not so leased; (2) 60 days 
prior to the completion of the rehabilitation or the date the agreement 
was executed, whichever is later, had notified the PHA of any units 
which the owner anticipated would be vacant on the anticipated effective 
date of the contract; (3) has taken and continues to take all feasible 
actions to fill the vacancy including, but not limited to: contracting 
applicants on the Owner's waiting list, if any, requesting the PHA and 
other appropriate sources to refer eligible applicants, and advertising 
the availability of the units in a manner specifically designed to reach 
low-income families; and (4) has not rejected any eligible applicant 
except for good cause acceptable to HUD.
    (d) Payments for vacancies after initial occupancy. If an eligible 
family vacates its unit (other than as a result of action by the Owner 
which is in violation of the Lease or the Contract or any applicable 
law), the owner may receive housing assistance payments for so much of 
the month in which the Family vacates the unit as the unit remains 
vacant. Should the unit remain vacant, the Owner may receive from HUD a 
housing assistance payment in the amount of 80 percent of Contract Rent 
for a vacancy period not exceeding an additional month. However, if the 
owner collects any of the family's share of the rent for this period, 
the payment must be reduced to an amount which, when added to the 
family's payments, does not exceed 80 percent of the Contract Rent. Any 
such excess shall be reimbursed by the Owner to HUD or as HUD may 
direct. (See also Sec. 886.315.) The owner shall not be entitled to any 
payment under this paragraph unless he or she: (1) Immediately upon 
learning of the vacancy, has notified HUD of the vacancy or prospective 
vacancy and the reasons for the vacancy, and (2) has made and continues 
to make a good faith effort to fill the vacancy, including but not 
limited to, contacting applicants on the waiting list, if any, 
requesting the PHA and other appropriate sources to refer eligible 
applicants, and advertising the availability of the unit, and (3) has 
not rejected any eligible applicant, except for good cause acceptable to 
HUD.
    (e) Payments for units where family is evicted. If the owner evicts 
a family, the owner shall not be entitled to any payments pursuant to 
paragraph (d) of this section unless the request for such payment is 
supported by a certification that the provisions of Sec. 886.327 and 
part 247 of this title have been followed.

[[Page 150]]

    (f) Prohibition for double compensation for vacancies. The owner 
shall not be entitled to housing assistance payments with respect to 
vacant units under this section to the extent he or she is entitled to 
payments from other sources (for example, payments for losses of rental 
income incurred for holding units vacant for relocatees pursuant to 
Title I of the HCD Act or payments under Sec. 886.315).
    (g) Debt service payments. (1) If a contract unit continues to be 
vacant after the 60-day period specified in paragraph (c) or (d) of this 
section, the Owner may submit a claim and receive additional housing 
assistance payments on a semiannual basis with respect to such a vacant 
unit in an amount equal to the principal and interest payments required 
to amortize the portion of the debt attributable to that unit for the 
period of the vacancy, whether such vacancy commenced during rent-up or 
after rent-up.
    (2) Additional payments under this paragraph (g) for any unit shall 
not be for more than 12 months for any vacancy period, and shall be made 
only if:
    (i) The unit is not in a project insured under the National Housing 
Act except pursuant to section 244 of that Act.
    (ii) The unit was in decent, safe, and sanitary condition during the 
vacancy period for which payments are claimed.
    (iii) The owner has taken and is continuing to take the actions 
specified in paragraphs (c)(1), (2) and (3) or paragraphs (d)(1) and (2) 
of this section, as appropriate.
    (iv) The Owner has demonstrated in connection with the semiannual 
claim on a form and in accordance with the standards prescribed by HUD 
with respect to the period of the vacancy, that the project is not 
providing the Owner with revenues at least equal to the project costs 
incurred by the Owner, and that the amount of the payments requested is 
not in excess of that portion of the deficiency which is attributable to 
the vacant units for the period of the vacancies.
    (v) The Owner has submitted, in connection with the semiannual 
claim, a statement with relevant supporting evidence that there is a 
reasonable prospect that the project can achieve financial soundness 
within a reasonable time. The statement shall indicate the causes of the 
deficiency; the corrective steps that have been and will be taken; and 
the time by which it is expected that the project revenues will at least 
equal project costs without the additional payments provided under this 
paragraph.
    (3) HUD may deny any claim for additional payments or suspend or 
terminate payments if it determines that based on the Owner's statement 
and other evidence, there is not a reasonable prospect that the project 
can achieve financial soundness within a reasonable time.

[44 FR 70365, Dec. 6, 1979, as amended at 49 FR 19949, May 10, 1984; 53 
FR 3369, Feb. 5, 1988; 58 FR 43722, Aug. 17, 1993]



Sec. 886.310  Initial contract rents.

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

[60 FR 11859, Mar. 2, 1995]



Sec. 886.311  Term of contract.

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

[[Page 151]]

    (b) The contract term may be less than 15 years if the assistance is 
provided under a contract authorized under section 6 of the HUD 
Demonstration Act of 1993, and pursuant to a disposition plan under this 
part for a project that is determined by the HUD to be otherwise in 
compliance with this part.

[60 FR 11859, Mar. 2, 1995]



Sec. 886.311a  Notice upon contract expiration.

    (a) The Contract will provide that the owner will notify each 
assisted family, at least 90 days before the end of the Contract term, 
of any increase in the amount the family will be required to pay as rent 
which may occur as a result of its expiration. If the Contract is to be 
renewed but with a reduction in the number of units covered by it, this 
notice shall be given to each family who will no longer be assisted 
under the Contract.
    (b) The notice provided for in paragraph (a) of this section shall 
be accomplished by: (1) Sending a letter by first class mail, properly 
stamped and addressed, to the family at its address at the project, with 
a proper return address, and (2) serving a copy of the notice on any 
adult person answering the door at the leased dwelling unit, or if no 
adult responds, by placing the notice under or through the door, if 
possible, or else by affixing the notice to the door. Service shall not 
be considered to be effective until both required notices have been 
accomplished. The date on which the notice shall be considered to be 
received by the family shall be the date on which the owner mails the 
first class letter provided for in this paragraph, or the date on which 
the notice provided for in this paragraph is properly given, whichever 
is later.
    (c) The notice shall advise each affected family that, after the 
expiration date of the Contract, the family will be required to bear the 
entire cost of the rent and that the owner will be free (to the extent 
the project is not otherwise regulated by HUD) to alter the rent without 
HUD approval, but subject to any applicable requirements or restrictions 
under the lease or under State or local law. The notice shall also 
state:
    (1) The actual (if known) or the estimated rent which will be 
charged following the expiration of the Contract;
    (2) The difference between the rent and the Total Tenant Payment 
toward rent under the Contract; and
    (3) The date the Contract will expire.
    (d) The owner shall give HUD a certification that families have been 
notified in accordance with this section with an example of the text of 
the notice attached.
    (e) This section shall apply to (1) Contracts involving Substantial 
Rehabilitation entered into pursuant to Agreements executed on or after 
October 1, 1981, or Contracts involving Substantial Rehabilitation 
entered into pursuant to Agreements executed before October 1, 1981, but 
renewed or amended on or after October 1, 1984 and (2) all other 
Contracts executed, renewed or amended on or after October 1, 1984.

[49 FR 31285, Aug. 6, 1984]



Sec. 886.312  Rent adjustments.

    (a) Limits. Housing assistance payments will be made in amounts 
commensurate with contract rent adjustments under this paragraph, up to 
the maximum amount authorized under the contract. (See Sec. 886.308.)
    (b) Annual adjustments. The contract rents may be adjusted annually, 
at HUD's option, either (1) on the basis of a written request for a rent 
increase submitted by the owner and properly supported by substantiating 
evidence, or (2) by applying, on each anniversary date of the contract, 
the applicable automatic annual adjustment factor most recently 
published by HUD in the Federal Register. If HUD requires that the owner 
submit a written request, HUD within a reasonable time shall approve a 
rental schedule that is necessary to compensate for any increase 
occurring since the last approved rental schedule in taxes (other than 
income taxes) and operating and maintenance costs over which owners have 
no effective control, or shall deny the increase stating the reasons 
therefor. Increases in taxes and maintenance and operating costs shall 
be measured against levels of such expenses in comparable assisted and 
unassisted housing in the area to ensure that adjustments

[[Page 152]]

in the contract rents shall not result in material differences between 
the rents charged for assisted and comparable unassisted units. Contract 
rents may be adjusted upward or downward as may be appropriate; however, 
in no case shall the adjusted rents be less than the contract rents on 
the effective date of the contract, provided there was no fraud or 
mistake adverse to the Department's interest in determining the initial 
contract rent.
    (c) Special adjustments. Special adjustments in the contract rents 
shall be requested in writing by the owner and may be authorized by HUD 
to the extent HUD determines such adjustments are necessary to reflect 
increases in the actual and necessary expenses of owning and maintaining 
the contract units which have resulted from substantial general 
increases in real property taxes, utility rates or similar costs (i.e., 
assessments and utilities not covered be regulated rates) which are not 
adequately compensated for by the adjustment authorized by paragraph (b) 
of this section.
    (d) Comparability between assisted and unassisted units. 
Notwithstanding any other provisions of this subpart, adjustments as 
provided in this section shall not result in material differences 
between the rents charged for assisted and comparable unassisted units, 
as determined by HUD: Provided, however, That this limitation shall not 
be construed to prohibit differences in rents between assisted and 
comparable unassisted units to the extent that such differences may have 
existed with respect to the initial contract rents assuming no fraud or 
mistake adverse to the Department's interest.
    (e) Addendums to contract and leases. Any adjustment in contract 
rents shall be incorporated into the contract and leases by dated 
addendums to the contract and leases establishing the effective date of 
the adjustment.



Sec. 886.313  Other Federal requirements.

    Participation in this program requires:
    (a) Compliance with (1) title VI of the Civil Rights Act of 1964, 
title VIII of the Civil Rights Act of 1968, Executive Orders 11063 and 
11246, and Section 3 of the Housing and Urban Development Act of 1968, 
and (2) all rules, regulations, and requirements issued pursuant 
thereto.
    (b) Submission of an approvable Affirmative Fair Housing Marketing 
Plan.
    (c) For projects where rehabilitation is to be completed by or at 
the direction of the owner, compliance with:
    (1) The Clean Air Act and Federal Water Pollution Control Act;
    (2) Where the property contains nine or more units to be assisted, 
the requirement to pay not less than the wage rates prevailing in the 
locality, as predetermined by the Secretary of Labor under the Davis-
Bacon Act (40 U.S.C. 276a-276a-5) to all laborers and mechanics (other 
than volunteers under the conditions set out in 24 CFR part 70) who are 
employed in the rehabilitation work, and the labor standards provisions 
contained in the Contract Work Hours and Safety Standards Act, Copeland 
Anti-Kickback Act, and implementing regulations of the Department of 
Labor.
    (3) Section 504 of the Rehabilitation Act of 1973;
    (4) The National Historic Preservation Act (Pub. L. 89-665);
    (5) The Archeological and Historic Preservation Act of 1974 (Pub. L. 
93-291);
    (6) Executive Order 11593 on Protection and Enhancement of the 
Cultural Environment, including the procedures prescribed by the 
Advisory Council on Historic Preservation at 36 CFR part 800;
    (7) The National Environmental Policy Act of 1969;
    (8) The Flood Disaster Protection Act of 1973;
    (9) Executive Order 11988, Flood Plains Management;
    (10) Executive Order 11990, Protection of Wetlands.

[44 FR 70365, Dec. 6, 1979, as amended at 57 FR 14760, Apr. 22, 1992]



Sec. 886.314  Financial default.

    In the event of a financial default under the project mortgage, HUD 
shall have the right to make subsequent housing assistance payments to 
the mortgagee until such time as the default is cured, or until some 
other time

[[Page 153]]

agreeable to the mortgagee and approved by HUD.



Sec. 886.315  Security and utility deposits.

    (a) Amount of deposits. If at the time of the initial execution of 
the Lease the Owner wishes to collect a security deposit, the maximum 
amount shall be the greater of one month's Gross Family Contribution or 
$50. However, this amount shall not exceed the maximum amount allowable 
under State or local law. For units leased in place, security deposits 
collected prior to the execution of a Contract which are in excess of 
this maximum amount do not have to be refunded until the Family is 
expected to pay security deposits and utility deposits from its 
resources and/or other public or private sources.
    (b) When a Family vacates. If a Family vacates the unit, the Owner, 
subject to State and local law, may use the security deposit as 
reimbursement for any unpaid Family Contribution or other amount which 
the Family owes under the Lease. If a Family vacates the unit owing no 
rent or other amount under the Lease consistent with State or local law 
or if such amount is less than the amount of the security deposit, the 
Owner shall refund the full amount or the unused balance to the Family.
    (c) Interest payable on deposits. In those jurisdictions where 
interest is payable by the Owner on security deposits, the refunded 
amount shall include the amount of interest payable. The Owner shall 
comply with all State and local laws regarding interest payments on 
security deposits.
    (d) Insufficient deposits. If the security deposit is insufficient 
to reimburse the Owner for the unpaid Family Contribution or other 
amounts which the Family owes under the Lease, or if the Owner did not 
collect a security deposit, the Owner may claim reimbursement from HUD 
for an amount not to exceed the lesser of: (1) The amount owed the 
Owner, (2) two months' Contract Rent, minus, in either case, the greater 
of the security deposit actually collected or the amount of security 
deposit the owner could have collected under the program (pursuant to 
paragraph (a) of this section). Any reimbursement under this section 
must be applied first toward any unpaid Family Contribution due under 
the Lease and then to any other amounts owed. No reimbursement shall be 
claimed for unpaid rent for the period after the family vacates.



Secs. 886.316-886.317  [Reserved]



Sec. 886.318  Responsibilities of the owner.

    (a) Management and maintenance. The owner shall be responsible for 
the management and maintenance of the project in accordance with 
requirements established by HUD. These responsibilities shall include 
but not be limited to:
    (1) Payment for utilities and services (unless paid directly by the 
family), insurance and taxes;
    (2) Performance of all ordinary and extraordinary maintenance;
    (3) Performance of all management functions, including the taking of 
applications; determining eligibility of applicants in accordance with 
24 CFR part 5 of this title; selection of families, including 
verification of income, obtaining and verifying Social Security Numbers 
submitted by applicants (as provided by part 5, subpart B, of this 
title), obtaining signed consent forms from applicants for the obtaining 
of wage and claim information from State Wage Information Collection 
Agencies (as provided in part 5, subpart B, of this title), and other 
pertinent requirements; and determination of the amount of tenant rent 
in accordance with HUD established schedules and criteria.
    (4) Collection of Tenant Rents;
    (5) Preparation and furnishing of information required under the 
contract;
    (6) Reexamination of family income, composition, and extent of 
exceptional medical or other unusual expenses; redeterminations, as 
appropriate, of the amount of Tenant Rent and amount of housing 
assistance payment in accordance with part 5 of this title; obtaining 
and verifying Social Security Numbers submitted by participants, as 
provided by CFR part 750; and obtaining signed consent forms from 
participants for the obtaining of wage and claim information from State 
Wage Information Collection Agencies, as provided by part 5, subpart B, 
of this title.

[[Page 154]]

    (7) Redeterminations of the amount of Tenant Rent and the amount of 
housing assistance payment in accordance with part 5 of this title as a 
result of an adjustment by HUD of any applicable utility allowance;
    (8) Notifying families in writing when they are determined to be 
qualified for assistance under this subpart where they have not already 
been notified by HUD prior to sale;
    (9) Reviewing at least annually the allowance for utilities and 
other services;
    (10) Compliance with equal opportunity requirements; and
    (11) Compliance with Federal requirements set forth in 
Sec. 886.313(c).
    (b) Contracting for Services. Subject to HUD approval, any owner may 
contract with any private or public entity to perform for a fee the 
services required by paragraph (a) of this section: Provided, That such 
contract shall not shift any of the owner's responsibilities or 
obligations.
    (c) HUD review. The owner shall permit HUD to review and audit the 
management and maintenance of the project at any time.
    (d) Submission of financial and operating statements. After 
execution of the Contract, the owner must submit to HUD:
    (1) Financial information in accordance with 24 CFR part 5, subpart 
H; and
    (2) Other statements as to project operation, financial conditions 
and occupancy as HUD may require pertinent to administration of the 
Contract and monitoring of project operations.

(Approved by the Office of Management and Budget under control numbers 
2502-0204 and 2505-0052)

[44 FR 70365, Dec. 6, 1979, as amended at 49 FR 19949, May 10, 1984; 53 
FR 1169, Jan. 15, 1988; 53 FR 6601, Mar. 2, 1988; 54 FR 39709, Sep. 27, 
1989; 56 FR 7542, Feb. 22, 1991; 58 FR 43722, Aug. 17, 1993; 60 FR 
14846, Mar. 20, 1995; 61 FR 11119, Mar. 18, 1996; 63 FR 46593, Sept. 1, 
1998; 65 FR 16724, Mar. 29, 2000]



Sec. 886.319  Responsibility for contract administration.

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

[60 FR 11860, Mar. 2, 1995]



Sec. 886.320  Default under the contract.

    The contract shall contain a provision to the effect that if HUD 
determines that the owner is in default under the contract, HUD shall 
notify the owner of the actions required to be taken to cure the default 
and of the remedies to be applied by HUD including recovery of 
overpayments, where appropriate, and that if the owner fails to cure the 
default within a reasonable time as determined by HUD, HUD has the right 
to terminate the contract or to take other corrective action, including 
recission of the sale. When contract termination is under consideration 
by HUD, HUD shall give eligible families an opportunity to submit 
written and other comments. Where the project is sold under the 
arrangement that involves a regulatory agreement between HUD and the 
owner, a default under the regulatory agreement shall be treated as 
default under the contract.



Sec. 886.321  Marketing.

    (a) Marketing in accordance with HUD-Approved Plan. Marketing of 
units and selection of families by the owner shall be in accordance with 
the owner's HUD-approved Affirmative Fair Housing Marketing Plan, HUD-
approved tenant selection factors and with all regulations relating to 
fair housing advertising including use of the equal opportunity 
logotype, statement, and slogan in all advertising. Projects shall be 
managed and operated without regard to race, color, creed, religion, 
sex, or national origin.
    (b)(1) HUD will determine the eligibility for assistance of families 
in occupancy before sales closing. After the sale, the owner shall be 
responsible for taking applications, selecting families, and all related 
determinations, in accordance with part 5 of this title. (See 
especially, Secs. 5.653 through 5.661.)
    (2) For every family that applies for admission, the owner and the 
applicant must complete and sign the form of application prescribed by 
HUD. When the owner decides no longer to accept applications, the owner 
must publish a notice to that effect in a publication

[[Page 155]]

likely to be read by potential applicants. The notice must state the 
reasons for the owner's refusal to accept additional applications. When 
the owner agrees to accept applications again, a notice to this effect 
must also be published. The owner must retain copies of all completed 
applications together with any related correspondence for three years. 
For each family selected for admission, the owner must submit one copy 
of the completed and signed application to HUD. Housing assistance 
payments will not be made on behalf of an admitted family until after 
this copy has been received by HUD.
    (3) If the owner determines that the applicant is eligible on the 
basis of income and family composition and is otherwise acceptable but 
the owner does not have a suitable unit to offer, the owner shall place 
such family on the waiting list and so advise the family indicating 
approximately when a unit may be available.
    (4) If the owner determines that the applicant is eligible on the 
basis of income and family composition and is otherwise acceptable in 
accordance with the HUD approved tenant selection factors and if the 
owner has a suitable unit, the owner and the family shall enter into a 
lease. The lease shall be on a form approved by HUD and shall otherwise 
be in conformity with the provisions of this subpart.
    (5) Records on applicant families and approved families shall be 
maintained by the owner so as to provide HUD with racial, ethnic, and 
gender data and shall be retained by the owner for 3 years.
    (6) If the owner determines that an applicant is not eligible, or, 
if eligible, not selected, the owner must notify the applicant in 
writing of the determination, the reasons upon which the determination 
is made, and inform the applicant that the applicant has the right 
within a reasonable time (specified in the letter) to request an 
informal hearing if the applicant believes that the owner's 
determination is based on erroneous information. The procedures of this 
paragraph (b)(6) do not preclude an applicant from exercising his or her 
other rights if the applicant believes that he or she is being 
discriminated against on the basis of race, color, religion, sex, 
national origin, age, or handicap. The owner must retain for three years 
a copy of the application, the letter, the applicant's response, if any, 
the record of any informal hearing, and a statement of final 
disposition. The informal review provisions for the denial of a tenant 
selection preference under Sec. 886.337 are contained in paragraph (k) 
of that section.
    (7) For the informal hearing provisions related to denial of 
assistance based upon failure to establish citizenship or eligible 
immigration status, see part 5 of this title for provisions concerning 
certain assistance for mixed families (families whose members include 
those with eligible immigration status, and those without eligible 
immigration status) in lieu of denial of assistance.
    (c) Initial occupancy. (1) Where rehabilitation is involved, sixty 
days prior to the completion of the rehabilitation, or when the 
rehabilitation is begun, whichever is later, the Owner shall determine 
whether the tenant population of the project generally reflects the 
racial/ethnic makeup of the housing market area. Based on this 
determination, the Owner shall then conduct appropriate marketing 
activities in accordance with a HUD-approved Affirmative Fair Housing 
Marketing Plan. Such activities may include special outreach to those 
groups identified as not ordinarily expected to apply for these units 
without special outreach; notification to PHA's in the housing market 
area of any anticipated vacancies; and formulation of waiting lists 
based on the Owner's HUD-approved tenant selection factors.
    (2) Where a PHA is notified, the PHA shall notify an appropriate 
size family (families) on its waiting list of the availability of the 
unit and refer the family (families) to the owner. (Since the Owner is 
responsible for tenant selection, the owner is not required to lease to 
a PHA selected family, but the owner must comply with 
Sec. 886.321(b)(6).)

[44 FR 70365, Dec. 6, 1979, as amended at 53 FR 1169, Jan. 15, 1988; 53 
FR 6601, Mar. 2, 1988; 58 FR 43722, Aug. 17, 1993; 60 FR 14846, Mar. 20, 
1995; 65 FR 16724, Mar. 29, 2000]

[[Page 156]]



Sec. 886.322  [Reserved]



Sec. 886.323  Maintenance, operation, and inspections.

    (a) Maintain decent, safe, and sanitary housing. The owner shall 
maintain and operate the project so as to provide decent, safe, and 
sanitary housing and the owner shall provide all the services, 
maintenance, and utilities which he or she agrees to provide under the 
contract and the lease. Failure to do so shall be considered a material 
default under the contract and Regulatory Agreement, if any.
    (b) HUD inspection. Prior to execution of the contract, HUD shall 
inspect (or cause to be inspected) each proposed contract unit and 
related facilities to ensure that they are in decent, safe, and sanitary 
condition.
    (c) Owner and family inspection. Prior to occupancy of any vacant 
until by a family, the owner and the family shall inspect the unit and 
both shall certify that they have inspected the unit and have determined 
it to be decent, safe, and sanitary. Copies of these reports shall be 
kept on file by the owner for at least 3 years.
    (d) Annual inspections. HUD will inspect the project (or cause it to 
be inspected) at least annually and at such other times as HUD may 
determine to be necessary to assure that the owner is meeting his or her 
obligation to maintain the units and the related facilities in decent, 
safe, and sanitary condition and to provide the agreed-upon utilities 
and other services. HUD will take into account complaints by occupants 
and any other information coming to its attention in scheduling 
inspections and shall notify the owner and the family of its 
determination regarding the condition of the units.
    (e) Failure to maintain decent, safe, and sanitary units. If HUD 
notifies the owner that he/she has failed to maintain a dwelling unit in 
decent, safe, and sanitary condition, and the owner fails to take 
corrective action within the time prescribed in the notice, HUD may 
exercise any of its rights or remedies under the contract, or Regulatory 
Agreement, if any, including abatement of housing assistance payments 
(even if the family continues to occupy the unit) and rescission of the 
sale. If, however, the family wishes to be rehoused in another dwelling 
unit, HUD shall provide assistance in finding such a unit for the 
family.



Sec. 886.324  Reexamination of family income and composition.

    (a) Regular reexaminations. The owner must reexamine the income and 
composition of all families at least once each year. Upon verification 
of the information, the owner must make appropriate adjustments in the 
Total Tenant Payment in accordance with part 5 of this title and 
determine whether the family's unit size is still appropriate. The owner 
must adjust Tenant Rent and the Housing Assistance Payment to reflect 
any change in Total Tenant Payment and carry out any unit transfer 
required by HUD. At the time of the annual reexamination of family 
income and composition, the owner must require the family to disclose 
and verify Social Security Numbers, as provided by part 5, subpart B, of 
this title. For requirements regarding the signing and submitting of 
consent forms by families for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, see part 5, 
subpart B, of this title. At the first regular reexamination after June 
19, 1995, the owner shall follow the requirements of part 5 of this 
title concerning obtaining and processing evidence of citizenship or 
eligible immigration status of all family members. Thereafter, at each 
regular reexamination, the owner shall follow the requirements of part 5 
of this title concerning verification of the immigration status of any 
new family member.
    (b) Interim reexaminations. The family must comply with provisions 
in its lease regarding interim reporting of changes in income. If the 
owner receives information concerning a change in the family's income or 
other circumstances between regularly scheduled reexaminations, the 
owner must consult with the family and make any adjustments determined 
to be appropriate. Any change in the family's income or other 
circumstances that results in an adjustment in the Total Tenant Payment, 
Tenant Rent and Housing Assistance Payment must be

[[Page 157]]

verified. See part 5, subpart B, of this title for the requirements for 
the disclosure and verification of Social Security Numbers at interim 
reexaminations involving new family members. For requirements regarding 
the signing and submitting of consent forms by families for the 
obtaining of wage and claim information from State Wage Information 
Collection Agencies, see part 5, subpart B, of this title. At any 
interim reexamination after June 19, 1995 when there is a new family 
member, the owner shall follow the requirements of part 5 of this title 
concerning obtaining and processing evidence of citizenship or eligible 
immigration status of the new family member.
    (c) Continuation of housing assistance payments. A family's 
eligibility for Housing Assistance Payments will continue until the 
Total Tenant Payment equals the Contact Rent plus any applicable Utility 
Allowance. The termination of eligibility at such point will not affect 
the family's other rights under its lease, nor will such termination 
preclude the resumption of payments as a result of later changes in 
income, rents, or other relevant circumstances during the term of the 
contract. However, eligibility also may be terminated in accordance with 
HUD requirements, for such reasons as failure to submit requested 
verification information, including failure to meet the disclosure and 
verification requirements for Social Security Numbers, as provided by 
part 5, subpart B, of this title, or failure to sign and submit consent 
forms for the obtaining of wage and claim information from State Wage 
Information Collection Agencies, as provided by part 5, subpart B, of 
this title. For provisions requiring termination of assistance for 
failure to establish citizenship or eligible immigration status, see 
part 5, subpart E, of this title for provisions concerning certain 
assistance for mixed families (families whose members include those with 
eligible immigration status, and those without eligible immigration 
status) in lieu of termination of assistance, and for provisions 
concerning deferral of termination of assistance.

[56 FR 7543, Feb. 22, 1991, as amended at 60 FR 14847, Mar. 20, 1995; 61 
FR 11119, Mar. 18, 1996; 65 FR 16724, Mar. 29, 2000]



Sec. 886.325  Overcrowded and underoccupied units.

    (a) Change in family composition, family's notification. The family 
shall notify the owner of a change in family composition and shall 
transfer to an appropriate size dwelling unit, based on family 
composition, upon appropriate notice by the owner of HUD that such a 
dwelling unit is available. Such a family shall have priority over a 
family on the owner's waiting list seeking the same size unit.
    (b) Change in family composition, owner's responsibilities. Upon 
receipt by the owner of a notification by the family of a change in the 
family size, the owner agrees to offer the family a suitable unit as 
soon as one becomes vacant and ready for occupancy. If the owner does 
not have any suitable units or if no vacancy of a suitable unit occurs 
within a reasonable time, HUD may assist the family in finding a 
suitable dwelling unit and require the family to move to such unit as 
soon as possible.
    (c) HUD actions if appropriate size unit is not made available. If 
the owner fails to offer the family a unit appropriate for the size of 
the family when such unit becomes vacant and ready for occupancy, HUD 
may abate housing assistance payments to the owner for the unit occupied 
by the family and assist the family in finding a suitable dwelling unit 
elsewhere.

[46 FR 19467, Mar. 31, 1981]



Sec. 886.326  Adjustment of utility allowances.

    When the owner requests HUD approval of an adjustment in Contract 
Rents under Sec. 886.312, an analysis of the project's Utility 
Allowances must be included. Such data as changes in utility rates and 
other facts affecting utility consumption should be provided as part of 
this analysis to permit appropriate adjustments in the Utility 
Allowances. In addition, when approval of

[[Page 158]]

a utility rate change would result in a cumulative increase of 10 
percent or more in the most recently approved Utility Allowances, the 
owner must advise the Secretary and request approval of new Utility 
Allowances.

(Approved by the Office of Management and Budget under control numbers 
2502-0352 and 2502-0354)

[51 FR 21864, June 16, 1986]



Sec. 886.327  Lease requirements.

    (a) Term of lease. (1) The term of a lease, including a new lease or 
a lease amendment, executed by the owner and the family must be for at 
least one year, or the remaining term of the contract if the remaining 
term of the contract is less than one year.
    (2) During the first year of the lease term, the owner may not 
terminate the tenancy for ``other good cause'' under 24 CFR 247.3(a)(3), 
unless the termination is based on family malfeasance or nonfeasance. 
For example, during the first year of the lease term, the owner may not 
terminate the tenancy for ``other good cause'' based on the failure of 
the family to accept the offer of a new lease.
    (3) The lease may contain a provision permitting the family to 
terminate on 30 days advance written notice to the owner. In this case 
of a lease term for more than one year, the lease must contain this 
provision.
    (b) Required and prohibited provisions. The lease between the owner 
and the family must comply with HUD regulations and requirements, and 
must be in the form required by HUD. The lease may not contain any of 
the following types of prohibited provisions:
    (1) Admission of guilt. Agreement by the family (i) to be sued, and 
(ii) to admit guilt, or (iii) to a judgment in favor of the owner, in a 
court proceeding against the family in connection with the lease.
    (2) Treatment of family property. Agreement by the family that the 
owner may take or hold family property, or may sell family property, 
without notice to the family and a court decision on the rights of the 
parties.
    (3) Excusing owner from responsibility. Agreement by the family not 
to hold the owner or the owner's agents responsible for any action or 
failure to act, whether intentional or negligent.
    (4) Waiver of notice. Agreement by the family that the owner does 
not need to give notice of a court proceeding against the family in 
connection with the lease, or does not need to give any notice required 
by HUD.
    (5) Waiver of court proceeding for eviction. Agreement by the family 
that the owner may evict the family (i) without instituting a civil 
court proceeding in which the family has the opportunity to present a 
defense, or (ii) before a decision by the court on the rights of the 
parties.
    (6) Waiver of jury trial. Agreement by the family to waive any right 
to a trial by jury.
    (7) Waiver of appeal. Agreement by the family to waive the right to 
appeal, or to otherwise challenge in court, a court decision in 
connection with the lease.
    (8) Family chargeable with legal costs regardless of outcome. 
Agreement by the family to pay lawyer's fees or other legal costs of the 
owner, even if the family wins in a court proceeding by the owner 
against the family. (However, the family may have to pay these fees and 
costs if the family loses.)

[53 FR 3369, Feb. 5, 1988]



Sec. 886.328  Termination of tenancy.

    Part 247 of this title applies to the termination of tenancy and 
eviction of a family assisted under this subpart. For cases involving 
termination of tenancy because of a failure to establish citizenship or 
eligible immigration status, the procedures of part 247 and 5 of this 
title shall apply. The provisions of part 5, subpart E, of this title 
concerning certain assistance for mixed families (families whose members 
include those with eligible immigration status, and those without 
eligible immigration status) in lieu of termination of assistance, and 
concerning deferral of termination of assistance also shall apply.

[60 FR 14847, Mar. 20, 1995, as amended by 65 FR 16724, Mar. 29, 2000]



Sec. 886.329  Leasing to eligible families.

    (a) Availability of units for occupancy by Eligible Families. During 
the term of

[[Page 159]]

the Contract, an owner shall make available for occupancy by eligible 
families the total number of units for which assistance is committed 
under the Contract. For purposes of this section, making units available 
for occupancy by eligible families means that the owner: (1) Is 
conducting marketing in accordance with Sec. 886.321; (2) has leased or 
is making good faith efforts to lease the units to eligible and 
otherwise acceptable families, including taking all feasible actions to 
fill vacancies by renting to such families; and (3) has not rejected any 
such applicant family except for reasons acceptable to HUD. If the owner 
is temporarily unable to lease all units for which assistance is 
committed under the Contract to eligible families, one or more units may 
be leased to ineligible families with the prior approval of HUD. Failure 
on the part of the owner to comply with these requirements is a 
violation of the Contract and grounds for all available legal remedies, 
including specific performance of the Contract, suspension or debarment 
from HUD programs, and reduction of the number of units under the 
Contract as set forth in paragraph (b) of this section.
    (b) Reduction of number of units covered by Contract. HUD may reduce 
the number of units covered by the Contract to the number of units 
available for occupancy by eligible families if:
    (1) The owner fails to comply with the requirements of paragraph (a) 
of this section; or
    (2) Notwithstanding any prior approval by HUD to lease such units to 
ineligible families, HUD determines that the inability to lease units to 
eligible families is not a temporary problem.
    (c) Restoration. HUD will agree to an amendment of the Contract to 
provide for subsequent restoration of any reduction made pursuant to 
paragraph (b) of this section if:
    (1) HUD determines that the restoration is justified by demand;
    (2) The owner otherwise has a record of compliance with his or her 
obligations under the Contract; and
    (3) Contract and budget authority are available.
    (d) Applicability. In accordance with section 555 of the Cranston-
Gonzalez National Affordable Housing Act of 1990, paragraphs (a) and (b) 
of this section apply to all contracts involving substantial 
rehabilitation. These paragraphs apply to all other Contracts executed 
on or after October, 3, 1984. An owner who had leased an assisted unit 
to an ineligible family consistent with the regulations in effect at the 
time will continue to lease the unit to that family. However, the 
Borrower must make the unit available for occupancy by an eligible 
family when the ineligible family vacates the unit.
    (e) Termination of assistance for failure to establish citizenship 
or eligible immigration status. If an owner who is subject to paragraphs 
(a) and (b) of this section is required to terminate housing assistance 
payments for the family in accordance with part 5, subpart E, of this 
title because the owner determines that the entire family does not have 
U.S. citizenship or eligible immigration status, the owner may allow 
continued occupancy of the unit by the family without Section 8 
assistance following the termination of assistance, or if the family 
constitutes a mixed family, as defined in part 5, subpart E, of this 
title, the owner shall comply with the provisions of part 5, subpart E, 
of this title concerning assistance to mixed families, and deferral of 
termination of assistance.

[49 FR 31399, Aug. 7, 1984, as amended at 53 FR 847, Jan. 13, 1988; 53 
FR 6601, Mar. 2, 1988; 58 FR 43722, Aug. 17, 1993; 59 FR 13653, Mar. 23, 
1994; 60 FR 14847, Mar. 20, 1995; 65 FR 16724, Mar. 29, 2000]



Sec. 886.329a  Preferences for occupancy by elderly families.

    (a) Election of preference for occupancy by elderly families--(1) 
Election by owners of eligible projects. (i) An owner of a project 
involving substantial rehabilitation and assisted under this part 
(including a partially assisted project) that was originally designed 
primarily for occupancy by elderly families (an ``eligible project'') 
may, at any time, elect to give preference to elderly families in 
selecting tenants for assisted, vacant units in the project, subject to 
the requirements of this section.
    (ii) For purposes of this section, a project eligible for the 
preference provided by this section, and for which the

[[Page 160]]

owner makes an election to give preference in occupancy to elderly 
families is referred to as an ``elderly project.'' ``Elderly families'' 
refers to families whose heads of household, their spouses or sole 
members are 62 years or older.
    (iii) An owner who elects to provide a preference to elderly 
families in accordance with this section is required to notify families 
on the waiting list who are not elderly that the election has been made 
and how the election may affect them if:
    (A) The percentage of disabled families currently residing in the 
project who are neither elderly nor near-elderly (hereafter, 
collectively referred to as ``non-elderly disabled families'') is equal 
to or exceeds the minimum required percentage of units established for 
the elderly project in accordance with paragraph (c)(1) of this section, 
and therefore non-elderly families on the waiting list (including non-
elderly disabled families) may be passed over for covered section 8 
units; or
    (B) The project, after making the calculation set forth in paragraph 
(c)(1) of this section, will have no units set aside for non-elderly 
disabled families.
    (iv) An owner who elects to give a preference for elderly families 
in accordance with this section shall not remove an applicant from the 
project's waiting list solely on the basis of having made the election.
    (2) HUD approval of election not required. (i) An owner is not 
required to solicit or obtain the approval of HUD before exercising the 
election of preference for occupancy provided in paragraph (a)(1) of 
this section. The owner, however, if challenged on the issue of 
eligibility of the project for the election provided in paragraph (a)(1) 
of this section must be able to support the project's eligibility 
through the production of all relevant documentation in the possession 
of the owner that pertains to the original design of the project.
    (ii) The Department reserves the right at any time to review and 
make determinations regarding the accuracy of the identification of the 
project as an elderly project. The Department can make such 
determinations as a result of ongoing monitoring activities, or the 
conduct of complaint investigations under the Fair Housing Act (42 
U.S.C. 3601 through 3619), or compliance reviews and complaint 
investigations under section 504 of the Rehabilitation Act of 1973 (29 
U.S.C. 794) and other applicable statutes.
    (b) Determining projects eligible for preference for occupancy by 
elderly families. (1) Evidence supporting project eligibility. Evidence 
that a project assisted under this part (or portion of a project) was 
originally designed primarily for occupancy by elderly families, and is 
therefore eligible for the election of occupancy preference provided by 
this section, shall consist of at least one item from the sources 
(``primary'' sources) listed in paragraph (b)(1)(i), or at least two 
items from the sources (``secondary'' sources) listed in paragraph 
(b)(1)(ii) of this section:
    (i) Primary sources. Identification of the project (or portion of a 
project) as serving elderly (seniors) families in at least one primary 
source such as: the application in response to the notice of funding 
availability; the terms of the notice of funding availability under 
which the application was solicited; the regulatory agreement; the loan 
commitment; the bid invitation; the owner's management plan, or any 
underwriting or financial document collected at or before loan closing; 
or
    (ii) Secondary sources. Two or more sources of evidence such as: 
lease records from the earliest two years of occupancy for which records 
are available showing that occupancy has been restricted primarily to 
households where the head, spouse or sole member is 62 years of age or 
older; evidence that services for elderly persons have been provided, 
such as services funded by the Older Americans Act, transportation to 
senior citizen centers, or programs coordinated with the Area Agency on 
Aging; project unit mix with more than fifty percent of efficiency and 
one-bedroom units [a secondary source particularly relevant to 
distinguishing elderly projects under the previous section 3(b) 
definition (in which disabled families were included in the definition 
of ``elderly families'') from non-elderly projects and which in 
combination with other factors (such as the number of accessible units) 
may be

[[Page 161]]

useful in distinguishing projects for seniors from those serving the 
broader definition of ``elderly families'' which includes disabled 
families]; or any other relevant type of historical data, unless clearly 
contradicted by other comparable evidence.
    (2) Sources in conflict. If a primary source establishes a design 
contrary to that established by the primary source upon which the owner 
would base support that the project is an eligible project (as defined 
in this section), the owner cannot make the election of preferences for 
elderly families as provided by this section based upon primary sources 
alone. In any case where primary sources do not provide clear evidence 
of original design of the project for occupancy primarily by elderly 
families, including those cases where primary sources conflict, 
secondary sources may be used to establish the use for which the project 
was originally designed.
    (c) Reservation of units in elderly projects for non-elderly 
disabled families. The owner of an elderly project is required to 
reserve, at a minimum, the number of units specified in paragraph (c)(1) 
of this section for occupancy by non-elderly disabled families.
    (1) Minimum number of units to be reserved for non-elderly disabled 
families. The number of units in an elderly project required to be 
reserved for occupancy by non-elderly disabled families, shall be, at a 
minimum, the lesser of:
    (i) The number of units equivalent to the higher of--
    (A) The percentage of units assisted under this part in the elderly 
project that were occupied by non-elderly disabled families on October 
28, 1992; and
    (B) The percentage of units assisted under this part in the elderly 
project that were occupied by non-elderly disabled families upon January 
1, 1992; or
    (ii) 10 percent of the number of units assisted under this part in 
the eligible project.
    (2) Option to reserve greater number of units for non-elderly 
disabled families. The owner, at the owner's option, and at any time, 
may reserve a greater number of units for non-elderly disabled families 
than that provided for in paragraph (c)(1) of this section. The option 
to provide a greater number of units to non-elderly disabled families 
will not obligate the owner to always provide that greater number to 
non-elderly disabled families. The number of units required to be 
provided to non-elderly disabled families at any time in an elderly 
project is that number determined under paragraph (c)(1) of this 
section.
    (d) Secondary preferences. An owner of an elderly project also may 
elect to establish secondary preferences in accordance with the 
provisions of this paragraph (d) of this section.
    (1) Preference for near-elderly disabled families in units reserved 
for elderly families. If the owner of an elderly project determines, in 
accordance with paragraph (f) of this section, that there are an 
insufficient number of elderly families who have applied for occupancy 
to fill all the vacant units in the elderly project reserved for elderly 
families (that is, all units except those reserved for the non-elderly 
disabled families as provided in paragraph (c) of this section), the 
owner may give preference for occupancy of such units to disabled 
families who are near-elderly families.
    (2) Preference for near-elderly disabled families in units reserved 
for non-elderly disabled families. If the owner of an elderly project 
determines, in accordance with paragraph (f) of this section, that there 
are an insufficient number of non-elderly disabled families to fill all 
the vacant units in the elderly project reserved for non-elderly 
disabled families as provided in paragraph (c) of this section, the 
owner may give preference for occupancy of these units to disabled 
families who are near-elderly families.
    (e) Availability of units to families without regard to preference. 
An owner shall make vacant units in an elderly project generally 
available to otherwise eligible families who apply for housing, without 
regard to the preferences and reservation of units provided in this 
section if either:
    (1) The owner has adopted the secondary preferences and there are an 
insufficient number of families for whom elderly preference, reserve 
preference, and secondary preference has been given, to fill all the 
vacant units; or
    (2) The owner has not adopted the secondary preferences and there 
are an

[[Page 162]]

insufficient number of families for whom elderly preference, and reserve 
preference has been given to fill all the vacant units.
    (f) Determination of insufficient number of applicants qualifying 
for preference. To make a determination that there are an insufficient 
number of applicants who qualify for the preferences, including 
secondary preferences, provided by this section, the owner must:
    (1) Conduct marketing in accordance with Sec. 886.321(a) to attract 
applicants qualifying for the preferences and reservation of units set 
forth in this section; and
    (2) Make a good faith effort to lease to applicants who qualify for 
the preferences provided in this section, including taking all feasible 
actions to fill vacancies by renting to such families.
    (g) Prohibition of evictions. An owner may not evict a tenant 
without good cause, or require that a tenant vacate a unit, in whole or 
in part because of any reservation or preference provided in this 
section, or because of any action taken by the Secretary pursuant to 
subtitle D (sections 651 through 661) of title VI of the Housing and 
Community Development Act of 1992 (42 U.S.C. 13611 through 13620).

[59 FR 65857, Dec. 21, 1994, as amended at 65 FR 16724, Mar. 29, 2000]



Sec. 886.330  Work write-ups and cost estimates.

    (a) HUD preparation of work write-ups. If needed, a work write-up, 
including plans and specifications, will be made by HUD specifying 
necessary rehabilitation.
    (b) HUD specifies deficiencies and corrective action. The work 
write-up will specify deficiencies noted by HUD and describe the manner 
in which the deficiencies are to be corrected, including minimum 
acceptable levels of workmanship and materials.
    (c) HUD preparation of cost estimates. HUD shall perform or cause to 
be performed a cost estimate to complete rehabilitation. The cost of any 
necessary relocation, as determined by HUD as being necessary to 
expedite the rehabilitation and the estimated cost to the owner of 
maintaining project rents at the Section 8 level, as required by HUD 
prior to execution of the Contract, plus other costs allowable by HUD 
will be included in the cost estimate. The work write-up and cost 
estimate shall become part of the disposition package and will be used 
in determining the sales price of the project.

[44 FR 70365, Dec. 6, 1979, as amended at 58 FR 43722, Aug. 17, 1993]



Sec. 886.331  Agreement to enter into housing assistance payments contract.

    (a) Execution of agreement. At the sales closing and prior to the 
Owner's commencement of any rehabilitation under this subpart, HUD will 
enter into an Agreement with the Owner which contains the following:
    (1) A statement that the Owner agrees to rehabilitate the project 
unit(s) to make the unit(s) decent, safe, and sanitary in accordance 
with the work write-up, cost estimates, and this subpart.
    (2) A date by which rehabilitation will have commenced and a 
deadline date by which the rehabilitated project unit(s) will be 
completed and ready for occupancy. The Agreement may provide for staged 
rehabilitation, occupancy, and payments under the contract.
    (3) The Contract Rent which will be paid to the Owner once 
rehabilitation is completed, the Contract is executed, and the unit(s) 
is/are occupied by an eligible family.
    (4) A date for final inspection of the unit(s) by HUD and the owner 
shall be specified. This date shall be as soon as possible after the 
deadline date specified pursuant to paragraph (a)(2) of this section.
    (5) The term of the contract.
    (b) Agreement part of sales contract. The Agreement will be prepared 
by HUD and incorporated into the Contract of Sale and Purchase. The 
Agreement shall include all required information in paragraph (a) of 
this section and a statement specifying the Owner's responsibility for 
making relocation payments to Families temporarily displaced.

[44 FR 70365, Dec. 6, 1979, as amended at 58 FR 43722, Aug. 17, 1993]

[[Page 163]]



Sec. 886.332  Rehabilitation period.

    (a) Immediate start of rehabilitation after sales closing. After the 
execution of the Agreement and the sales closing, the owner shall 
immediately proceed with the rehabilitation work as provided in the 
Agreement. In the event the work is not immediately commenced, 
diligently continued, and/or completed by the deadline date stated on 
the Agreement, HUD will have the right, upon written notification to the 
owner, to rescind the Agreement and the sale, or take other appropriate 
action.
    (b) Extensions. Although extensions of time may be granted by HUD 
upon a written request from the owner stating the grounds for the 
extension, no increases in Contract Rents shall be granted for delays.
    (c) Changes. (1) The Owner must submit to HUD for approval any 
changes from the work specified in the Agreement which would materially 
reduce or alter the Owner's obligations or the quality or amenities of 
the project. HUD may condition its approval of such changes on a 
reduction of the Contract Rents. If changes are made without prior HUD 
approval, HUD will have the right to take action consistent with the 
purpose of this subpart, including action intended to preclude the owner 
from benefiting from a change in the work specified without HUD 
approval. HUD action shall include but is not limited to reducing the 
Contract Rents, requiring the owner to remedy the deficiency, or 
rescission of the Contract of Sale with reimbursement to the owner for 
the HUD determined reasonable cost of work items completed by the Owner 
and acceptable to HUD.
    (2) Contract Rents for project units being rehabilitated shall not 
be increased except in accordance with this subpart. Should an increase 
in Contract Rents be necessitated by changes in local codes or 
ordinances or other unanticipated changes in work items which could not 
have been anticipated by HUD, an increase will only be approved if HUD 
approval is obtained prior to incorporation of any changes in the 
project.

[44 FR 70365, Dec. 6, 1979, as amended at 58 FR 43722, Aug. 17, 1993]



Sec. 886.333  Completion of rehabilitation.

    (a) Notification of completion. The owner must notify HUD in writing 
when work is completed and submit to HUD the evidence of completion and 
cost certifications described in paragraph (b) and (c) of this section.
    (b) Evidence of completion. Completion of the project must be 
evidenced by furnishing HUD with the following:
    (1) A certificate of occupancy and/or other official approvals 
necessary for occupancy as required by the locality.
    (2) A certification by the owner that:
    (i) The project unit(s) has been completed in accordance with the 
requirements of the Agreement;
    (ii) The project unit(s) is/are decent, safe, and sanitary;
    (iii) The project unit(s) has/have been rehabilitated in accordance 
with the applicable zoning, building, housing and other codes, 
ordinances or regulations, as modified by any waivers obtained from the 
appropriate officials;
    (iv) The project was in compliance with applicable HUD lead-based 
paint regulations at part 35, subparts A, B, H, and R of this title.
    (v) If applicable, the owner has complied with the provisions of the 
Agreement relating to the payment of not less than prevailing wage rates 
and that to the best of the owner's knowledge and belief there are no 
claims of underpayment in alleged violation of said provisions of the 
Agreement. In the event there are any such pending claims to the 
knowledge of the owner of HUD, the owner shall be required to place a 
sufficient amount in escrow, as determined by HUD, to assure such 
payments;
    (vi) There are no defects or deficiencies in the project except for 
ordinary punchlist items, or incomplete work awaiting seasonal 
opportunity such as landscaping and heating system test (such excepted 
items to be specified); and
    (vii) There has been no change in the evidence of management 
capability or in the proposed management program (if one was required) 
specified in the

[[Page 164]]

approved purchase proposal other than changes approved in writing by HUD 
in accordance with the Agreement.
    (c) Actual cost and interest rate certifications. The Owner must 
provide HUD with statements of the actual costs, including the interest 
rate incurred for the rehabilitation, Contract Rent shortfalls, and any 
relocation approved by HUD. The owner shall certify that these are the 
actual costs. HUD shall review and approve these costs subject to post 
audit.
    (d) Review and inspections. (1) Within fifteen working days of the 
receipt of the evidence of completion, and the owner's certification of 
costs, HUD shall review the evidence of completion for compliance with 
paragraphs (b) and (c) of this section.
    (2) Within the same time period, a HUD representative shall inspect 
the units, to determine whether the units meet the Housing Quality 
Standards, the Agreement to Enter into the HAP, and any applicable work 
write-up.
    (e) If the inspection discloses defects or deficiencies, the 
inspector shall report these with sufficient detail and information for 
purposes of paragraphs (g) (1) and (2) of this section.
    (f) Acceptance. If HUD determines from the review and inspection 
that the project has been completed in accordance with the Agreement, 
the project shall be accepted.
    (g) Acceptance where defects or deficiencies reported. If the 
projects unit(s) are not acceptable under paragraph (f) of this section, 
the following shall apply:
    (1) If the only defects or deficiencies are punchlist items or 
incomplete items awaiting seasonal opportunity, the project may be 
accepted and the contract executed. If the owner fails to complete the 
items within a reasonable time to the satisfaction of HUD, HUD may, upon 
30 days notice to the owner terminate the contract and/or exercise its 
other rights thereunder, including rescission of the sale.
    (2) If the defects or deficiencies are other than punchlist items or 
incomplete work awaiting seasonal opportunity, HUD shall determine 
whether and to what extent the defects or deficiencies can be corrected, 
what corrections are essential to permit HUD to accept the project, 
whether and to what extent a reduction of Contract Rents will be 
required as a condition to acceptance of the project, and the extension 
of time required for the remaining work to be done. The owner shall be 
notified of HUD's determinations and, if the owner agrees to comply with 
the conditions, an addendum to the Agreement shall be entered into, 
specifying the remaining work, pursuant to which the defects or 
deficiencies will be corrected and the unit(s) then accepted. If the 
owner is unwilling to enter into such an addendum or fails to perform 
under the addendum, the units will not be accepted and appropriate 
remedies will be sought by HUD. Paragraphs (a) through (g) will apply 
when the remaining work is completed satisfactorily.
    (h) Notification of non-acceptance. If HUD determines that, based on 
the review of the evidence of completion and inspection, the unit(s) 
cannot be accepted, the Owner must be promptly notified of this decision 
and the reasons and steps shall be taken immediately to rescind the 
sale, or such other action deemed appropriate by HUD.

[44 FR 70365, Dec. 6, 1979, as amended at 52 FR 1896, Jan. 15, 1987; 58 
FR 43723, Aug. 17, 1993; 64 FR 50227, Sept. 15, 1999]



Sec. 886.334  Execution of housing assistance payments contract.

    (a) Time of execution. Upon acceptance of the unit(s) by HUD 
pursuant to Sec. 886.333(f), the contract will be executed first by the 
Owner and then by HUD. The effective date must be no earlier than the 
HUD inspection which provides the basis for unconditional acceptance.
    (b) Changes in initial contract rents during rehabilitation. (1) The 
Contract Rents established pursuant to Sec. 886.310 and 24 CFR part 290 
will be the Contract Rents on the effective date of the Contract except 
under the following circumstances:
    (i) When, during rehabilitation, work items are discovered which 
could not reasonably have been anticipated by HUD or are necessitated by 
an unforeseen change in local codes or ordinances; were not listed in 
the work write-up prepared by HUD but are

[[Page 165]]

deemed by HUD, in writing, to be necessary work; and will require 
additional expenditures which would make the rehabilitations infeasible 
at the Contract Rents established in the Agreement. Under these 
circumstances, HUD will:
    (A) Approve a change order to the rehabilitation contract, or amend 
the work write-up if there is no rehabilitation contract, specifying the 
additional work to be accomplished and the additional cost for this 
work,
    (B) Recompute the Contract Rents, within the limits specified in 
paragraph (b)(4) of this section, based upon the revised cost estimate, 
and
    (C) Prepare and execute an amendment to the Agreement stating the 
additional work required and the revised Contract Rents.
    (ii) When the actual cost of the rehabilitation performed is less 
than that estimated in the calculation of Contract Rents for the 
Agreement.
    (iii) When, due to unforeseen factors, the actual certified 
relocation payments made by the Owner to temporarily relocated Families 
varies from the cost estimated by HUD.
    (2) Should changes occur as specified in paragraph (b)(1) (ii) or 
(iii) (either an increase or decrease), HUD may recalculate the Contract 
Rents and amend the Contract or Agreement, as appropriate, to reflect 
the revised rents. The rents shall not be recalculated based on 
increased costs to maintain rents at the Section 8 level during the 
rehabilitation period.
    (3) HUD must review and approve the Owner's certification that the 
rehabilitation costs and relocation costs are the actual costs incurred.
    (4) In establishing the revised Contract Rents, HUD must determine 
that the resulting Contract Rents plus an applicable Utility Allowances 
do not exceed the Fair Market Rent or the exception rent provided in 
Sec. 886.310 in effect at the time of execution of the Agreement.
    (c) Unleased unit(s). At the time the contract is executed, HUD will 
provide a list of dwelling unit(s) leased as of the effective date of 
the Contract and a list of the unit(s) not so leased, if any, and shall 
determine whether or not the owner has met the obligations with respect 
to any unleased unit(s) and for which of those unit(s) vacancy payments 
will be made by HUD. The owner must indicate in writing either 
concurrence with this determination or disagreement reserving all rights 
to claim vacancy payments for the unleased unit(s) pursuant to the 
contract, without prejudice by reason of the owner's signing the 
contract.

[44 FR 70365, Dec. 6, 1979, as amended at 48 FR 12711, Mar. 28, 1983; 49 
FR 17449, Apr. 24, 1984; 65 FR 16427, Mar. 29, 2000]



Sec. 886.335  HUD review of agreement and contract compliance.

    HUD will review project operations at such intervals as it deems 
necessary to ensure that the owner is in full compliance with the terms 
and conditions of the contract, Regulatory Agreement, and Agreement to 
Enter into a Housing Assistance Contract, if any. The equal opportunity 
review may be conducted with the scheduled HUD review or at any time 
deemed appropriate by HUD.



Sec. 886.336  Audit.

    (a) Where a State or local government is the eligible owner of a 
project receiving financial assistance under this part, the audit 
requirements in 24 CFR part 44 shall apply.
    (b) Where a nonprofit organization is the eligible owner of a 
project receiving financial assistance under this part, the audit 
requirements in 24 CFR part 45 shall apply.

[50 FR 39092, Sept. 27, 1985; 51 FR 30480, Aug. 27, 1986, as amended at 
57 FR 33257, July 27, 1992]



Sec. 886.337  Selection preferences.

    Sections 5.410 through 5.430 govern the use of preferences in the 
selection of tenants under this subpart.

[59 FR 36647, July 18, 1994, as amended at 61 FR 9047, Mar. 6, 1996]



Sec. 886.338  Displacement, relocation, and acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, owners shall assure that they have taken all 
reasonable steps to minimize the displacement of

[[Page 166]]

persons (families, individuals, businesses, nonprofit organizations, and 
farms) as a result of a project assisted under this part.
    (b) Temporary relocation. The following policies cover residential 
tenants who will not be required to move permanently but who must 
relocate temporarily for the project. Such tenants must be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses incurred 
in connection with the temporary relocation, including the cost of 
moving to and from the temporary housing and any increase in monthly 
rent/utility costs; and
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe, and sanitary 
dwelling to be made available for the temporary period;
    (iii) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex following completion of the rehabilitation; and
    (iv) The provisions of paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons. A ``displaced 
person'' (defined in paragraph (g) of this section) must be provided 
relocation assistance at the levels described in, and in accordance with 
the requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (URA) (42 U.S.C. 4601-4655) and 
implementing regulations at 49 CFR part 24. A ``displaced person'' shall 
be advised of his or her rights under the Fair Housing Act (42 U.S.C. 
3601-19), and, if the representative comparable replacement dwelling 
used to establish the amount of the replacement housing payment to be 
provided to a minority person is located in an area of minority 
concentration, such person also shall be given, if possible, referrals 
to comparable and suitable, decent, safe, and sanitary replacement 
dwellings not located in such areas.
    (d) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (e) Appeals. A person who disagrees with the owner's determination 
concerning whether the person qualifies as a ``displaced person,'' or 
the amount of relocation assistance for which the person is found to be 
eligible, may file a written appeal of that determination with the 
owner. A low-income person who is dissatisfied with the owner's 
determination on such appeal may submit a written request for review of 
that determination to the HUD Field Office.
    (f) Responsibility of owner. (1) The owner shall certify (i.e., 
provide assurance of compliance, as required by 49 CFR part 24) that he 
or she will comply with the URA, the regulations at 49 CFR part 24, and 
the requirements of this section. The owner is responsible for such 
compliance notwithstanding any third party's contractual obligation to 
the owner to comply with these provisions.
    (2) The cost of providing required relocation assistance is an 
eligible project cost to the same extent and in the same manner as other 
project costs. Such costs may also be paid for with funds available from 
other sources.
    (3) The owner shall maintain records in sufficient detail to 
demonstrate compliance with the provisions of this section. The owner 
shall maintain data on the race, ethnic, gender, and handicap status of 
displaced persons.
    (g) Definition of displaced person. (1) For purposes of this 
section, the term displaced person means a person (family, individual, 
business, nonprofit organization, or farm) that moves from real 
property, or moves personal property from real property, permanently, as 
a direct result of acquisition, rehabilitation, or demolition for a 
project assisted under this part. This includes any permanent, 
involuntary move for an assisted project, including any permanent move 
from the real property that is made:
    (i) After notice by the owner to move permanently from the property, 
if the move occurs on or after the date of the submission of the 
application to HUD;
    (ii) Before submission of the application to HUD, if HUD determines 
that

[[Page 167]]

the displacement resulted directly from acquisition, rehabilitation, or 
demolition for the assisted project; or
    (iii) By a tenant-occupant of a dwelling unit, if any one of the 
following three situations occurs:
    (A) The tenant moves after the execution of the contract to provide 
Housing Assistance Payments, and the move occurs before the tenant is 
provided written notice offering him or her the opportunity to lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the same 
building/complex, under reasonable terms and conditions, upon completion 
of the project. Such reasonable terms and conditions include a monthly 
rent and estimated average monthly utility costs that do not exceed the 
greater of:
    (1) The tenant's monthly rent before execution of the Housing 
Assistance Payments Contract and estimated average monthly utility 
costs; or
    (2) The total tenant payment, as determined under part 5 of this 
title, if the tenant is low-income, or 30 percent of gross household 
income, if the tenant is not low-income; or
    (B) The tenant is required to relocate temporarily, does not return 
to the building/complex, and either:
    (1) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation, or
    (2) Other conditions of the temporary relocation are not reasonable; 
or
    (C) The tenant is required to move to another dwelling unit in the 
same building/complex but is not offered reimbursement for all 
reasonable out-of-pocket expenses incurred in connection with the move, 
or other conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State or local law, or other good cause, and HUD 
determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the submission of the 
application and, before signing a lease and commencing occupancy, 
received written notice of the project, its possible impact on the 
person (e.g., the person may be displaced, temporarily relocated, or 
suffer a rent increase) and the fact that he or she would not qualify as 
a ``displaced person'' (or for assistance under this section) as a 
result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (3) The owner may ask HUD, at any time, to determine whether a 
displacement is or would be covered by this section.
    (h) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a residential tenant displaced as a direct result of 
privately undertaken rehabilitation, demolition, or acquisition of the 
real property, the term ``initiation of negotiations'' means the owner's 
execution of the Housing Assistance Payments Contract.

(Approved by Office of Management and Budget under OMB Control Number 
2506-0121)

[58 FR 43723, Aug. 17, 1993, amended at 65 FR 16724, Mar. 29, 2000]

                           PART 887 [RESERVED]



PART 888--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--FAIR MARKET RENTS AND CONTRACT RENT ANNUAL ADJUSTMENT FACTORS--Table of Contents




                      Subpart A--Fair Market Rents

Sec.
888.111  Fair market rents for existing housing: Applicability.
888.113  Fair market rents for existing housing: Methodology.
888.115  Fair market rents for existing housing: Manner of publication.

[[Page 168]]

           Subpart B--Contract Rent Annual Adjustment Factors

888.201  Purpose.
888.202  Manner of publication.
888.203  Use of contract rent automatic annual adjustment factors.
888.204  Revision to the automatic annual adjustment factors.

Subpart C--Retroactive Housing Assistance Payments for New Construction, 

Substantial Rehabilitation, State Finance Agencies, Section 515 Farmers 
 
 Home Administration, Section 202 Elderly or Handicapped, and Special 
 
                         Allocations Projects

888.301  Purpose and scope.
888.305  Amount of the retroactive Housing Assistance Payments.
888.310  Notice of eligibility requirements for retroactive payments.
888.315  Restrictions on retroactive payments.
888.320  One-time Contract Rent determination.

    Subpart D--Retroactive Housing Assistance Payments for Moderate 
                         Rehabilitation Projects

888.401  Purpose and scope.
888.405  Amount of the retroactive Housing Assistance Payments.
888.410  Notice of eligibility requirements for retroactive payments.
888.415  Restrictions on retroactive payments.
888.420  One-time Contract Rent determination.

    Authority: 42 U.S.C. 1437f and 3535d.

    Source: 50 FR 38796, Sept. 25, 1985, unless otherwise noted.

    Editorial Note: For revisions and amendments affecting Schedules A, 
B, C, and D, issued under part 888, but not carried in the Code of 
Federal Regulations, see the List of CFR Sections Affected, in the 
Finding Aids section of the printed volume and on GPO Access.



                      Subpart A--Fair Market Rents



Sec. 888.111  Fair market rents for existing housing: Applicability.

    (a) The fair market rents (FMRs) for existing housing are determined 
by HUD and are used in the Section 8 Housing Choice Voucher Program 
(``voucher program'') (part 982 of this title), Section 8 project-based 
assistance programs and other programs requiring their use. In the 
voucher program, the FMRs are used to determine payment standard 
schedules. In the Section 8 project-based assistance programs, the FMRs 
are used to determine the maximum initial rent (at the beginning of the 
term of a housing assistance payments contract).
    (b) Fair market rent means the rent, including the cost of utilities 
(except telephone), as established by HUD, pursuant to this subpart, for 
units of varying sizes (by number of bedrooms), that must be paid in the 
market area to rent privately owned, existing, decent, safe and sanitary 
rental housing of modest (non-luxury) nature with suitable amenities.

[64 FR 56911, Oct. 21, 1999]



Sec. 888.113  Fair market rents for existing housing: Methodology.

    (a) Basis for setting fair market rents. Fair Market Rents (FMRs) 
are estimates of rent plus the cost of utilities, except telephone. FMRs 
are housing market-wide estimates of rents that provide opportunities to 
rent standard quality housing throughout the geographic area in which 
rental housing units are in competition. The level at which FMRs are set 
is expressed as a percentile point within the rent distribution of 
standard quality rental housing units in the FMR area. FMRs are set at 
either the 40th or 50th percentile rent--the dollar amount below which 
the rent for 40 or 50 percent of standard quality rental housing units 
falls. The 40th or 50th percentile rent is drawn from the distribution 
of rents of all units that are occupied by recent movers. Adjustments 
are made to exclude public housing units, newly built units and 
substandard units.
    (b) Setting FMRs at the 40th or 50th percentile rent. Generally HUD 
will set the FMRs at the 40th percentile rent. HUD will set FMRs at the 
50th percentile only in accordance with paragraph (c) of this section.
    (c) Setting FMRs at the 50th percentile rent to provide a broad 
range of housing opportunities throughout a metropolitan area. (1) HUD 
will set the FMRs at the 50th percentile rent for all unit sizes in each 
metropolitan FMR area that meets all of the following criteria at

[[Page 169]]

the time of annual publication of the FMRs:
    (i) The FMR area contains at least 100 census tracts;
    (ii) 70 percent or fewer of the census tracts with at least 10 two 
bedroom rental units are census tracts in which at least 30 percent of 
the two bedroom rental units have gross rents at or below the two 
bedroom FMR set at the 40th percentile rent; and
    (iii) 25 percent or more of the tenant-based rental program 
participants in the FMR area reside in the 5 percent of the census 
tracts within the FMR area that have the largest number of program 
participants.
    (2) If the FMRs are set at the 50th percentile rent in accordance 
with paragraph (c)(1) of this section, HUD will set the FMRs at the 50th 
percentile rent for a total of three years.
    (i) At the end of the three-year period, HUD will continue to set 
the FMRs at the 50th percentile rent only so long as the concentration 
measure for the current year is less than the concentration measure at 
the time the FMR area first received an FMR set at the 50th percentile 
rent. HUD will publish FMRs based on the 40th percentile rent for FMR 
areas that do not qualify for continued use of the 50th percentile rent.
    (ii) For purposes of this section, the term ``concentration 
measure'' means the percentage of tenant-based rental program 
participants in the FMR area who reside in the 5 percent of the census 
tracts within the FMR area that have the largest number of program 
participants.
    (iii) FMR areas that do not meet the test for continued use of FMRs 
set at the 50th percentile will be ineligible to use FMRs set at the 
50th percentile for a period of three years.
    (iv) A PHA whose jurisdiction includes one or more FMR areas that 
are no longer eligible to use FMRs set at the 50th percentile may be 
eligible for a higher payment standard under Sec. 982.503(f).
    (d) FMR Areas. FMR areas are metropolitan areas and nonmetropolitan 
counties (nonmetropolitan parts of counties in the New England States). 
With several exceptions, the most current Office of Management and 
Budget (OMB) metropolitan area definitions of Metropolitan Statistical 
Areas (MSAs) and Primary Metropolitan Statistical Areas (PMSAs) are used 
because of their generally close correspondence with housing market area 
definitions. HUD may make exceptions to OMB definitions if the MSAs or 
PMSAs encompass areas that are larger than housing market areas. The 
counties deleted from the HUD-defined FMR areas in those cases are 
established as separate metropolitan county FMR areas. FMRs are 
established for all areas in the United States, the District of 
Columbia, Puerto Rico, the Virgin Islands, and the Pacific Islands.
    (e) Data sources. (1) HUD uses the most accurate and current data 
available to develop the FMR estimates and may add other data sources as 
they are discovered and determined to be statistically valid. The 
following sources of survey data are used to develop the base-year FMR 
estimates:
    (i) The most recent decennial Census, which provides statistically 
reliable rent data.
    (ii) The American Housing Survey (AHS) data, conducted by the Bureau 
of the Census for HUD. AHS's have comparable accuracy to the decennial 
Census, and are used to develop between-census revisions for the largest 
metropolitan areas on a four-year revolving schedule.
    (iii) Random Digit Dialing (RDD) telephone survey data, based on a 
sampling procedure that uses computers to select statistically random 
samples of rental housing.
    (iv) Statistically valid information, as determined by HUD, 
presented to HUD during the public comment and review period.
    (2) Base-year FMRs are updated and trended to the midpoint of the 
program year they are to be effective using Consumer Price Index (CPI) 
data for rents and for utilities or using rent-change factors obtained 
from the RDD regional surveys. The RDD rent-change factors are developed 
annually for the metropolitan and nonmetropolitan parts of the HUD-
specified geographic regions not covered by CPI surveys, and are used to 
update the base-year FMR estimates within these regions.

[[Page 170]]

    (f) Unit size adjustments. (1) For most areas the ratios developed 
from the most recent decennial Census are applied to the two-bedroom FMR 
estimates to derive FMRs for other bedroom sizes. Exceptions to this 
procedure may be made for areas with local bedroom intervals below an 
acceptable range. To help the largest most difficult to house families 
find units, higher ratios than the actual market ratios may be used for 
three-bedroom and larger-size units.
    (2) The FMR for single room occupancy housing is 75 percent of the 
FMR for a zero bedroom unit.
    (g) Manufactured home space rental. The FMR for a manufactured home 
space rental (for the voucher program under part 982 of this title) is:
    (1) 40 percent of the FMR for a two bedroom unit; or
    (2) When approved by HUD on the basis of survey data submitted in 
public comments, either the 40th or 50th percentile as applicable of the 
rental distribution of manufactured home spaces for the FMR area. HUD 
accepts public comments requesting revision of the proposed manufactured 
home spaces FMRs for areas where space rentals are thought to differ 
from 40 percent of the FMR for a two-bedroom unit. To be considered for 
approval, the comments must contain statistically valid survey data that 
show either the 40th or 50th percentile manufactured home space rent 
(including the cost of utilities for the manufactured home) for the FMR 
area. Once approved, the revised manufactured home space FMRs establish 
new base-year estimates that will be updated annually using the same 
data used to update the FMRs.

[60 FR 42226, Aug. 15, 1995, as amended at 64 FR 56911, Oct. 21, 1999; 
65 FR 58873, Oct. 2, 2000]



Sec. 888.115  Fair market rents for existing housing: Manner of publication.

    FMRs will be published at least annually in the Federal Register. 
The Department will propose FMRs and provide a comment period of at 
least 30 days for the purpose of identifying areas where the FMRs are 
believed to be too high or too low. To be considered for FMR revisions, 
public comments must include statistically valid rental housing survey 
data that justify the requested changes. After the comments have been 
considered, the Department will publish a final notice announcing FMRs 
to be effective on October 1 each year.

[60 FR 42227, Aug. 15, 1995]



           Subpart B--Contract Rent Annual Adjustment Factors



Sec. 888.201  Purpose.

    Automatic Annual Adjustment Factors are used to adjust rents under 
the Section 8 Housing Assistance Payments Program.

[44 FR 75383, Dec. 20, 1979]



Sec. 888.202  Manner of publication.

    Adjustment Factors will be published in the Federal Register at 
least annually by Notice. Interim revisions may be published as market 
conditions indicate. In the case of revised factors applicable only to 
specific areas, the HUD Field Office will publish a notice appropriate 
to the limited scope of the revised factors (see Sec. 888.204).

[42 FR 60508, Nov. 25, 1977, as amended at 44 FR 75383, Dec. 20, 1979; 
47 FR 4252, Jan. 29, 1982]



Sec. 888.203  Use of contract rent automatic annual adjustment factors.

    (a) To compute an adjustment to a Contract Rent, find the schedule 
of Automatic Annual Adjustment Factors for the appropriate Census Region 
or Standard Metropolitan Statistical Area--
    (1) If the Contract Rent includes all utilities, use the factor 
shown on the basic schedule for the rent bracket within which the 
particular Contract Rent falls and for the applicable size of unit (by 
number of bedrooms).
    (2) If the Contract Rent does not include all utilities but does 
include the highest cost utility, use the appropriate factor shown on 
the basic schedule.
    (3) If the Contract Rent does not include any utilities or includes 
some utilities but not the highest cost utility, use the Annual 
Adjustment Factor for Contract Rent (Excluding Utilities).

[[Page 171]]

    (b) The adjusted monthly amount of the Contract Rent of a dwelling 
unit shall be determined by multiplying the Contract Rent in effect on 
the anniversary date of the contract by the applicable Automatic Annual 
Adjustment Factor (see paragraph (a) of this section) and rounding the 
result as follows:
    (1) If the result contains a fractional dollar amount ranging from 
$0.01 to $0.49, round to the next lower whole dollar amount;
    (2) If the result contains a fractional dollar amount ranging from 
$0.50 to $0.99, round to the next higher whole dollar amount.

[42 FR 60508, Nov. 25, 1977, as amended at 44 FR 21769, Apr. 12, 1979; 
47 FR 4252, Jan. 29, 1982; 59 FR 38564, July 29, 1994]



Sec. 888.204  Revision to the automatic annual adjustment factors.

    If the application of the Annual Adjustment Factors results in rents 
that are substantially lower than rents charged for comparable units not 
receiving assistance under the U.S. Housing Act of 1937, in the area for 
which the factor was published or a portion thereof, and it is shown to 
HUD that the costs of operating comparable rental housing have increased 
at a substantially greater rate than the Adjustment Factors, the HUD 
Field Office will consider establishing separate or revised Automatic 
Annual Adjustment Factors for that particular area. Any request for 
revision of the factors must be accompanied by an identification of the 
area, its boundaries and evidence that the area constitutes the largest 
contiguous area in which substantially the same rent levels prevail. The 
HUD Field Office will publish appropriate notice of the establishment of 
any such revised Automatic Annual Adjustment Factors. These factors will 
remain in effect until superseded by the subsequent publication of 
Automatic Annual Adjustment Factors pursuant to Sec. 888.202.

[44 FR 21769, Apr. 12, 1979]



Subpart C--Retroactive Housing Assistance Payments for New Construction, 

Substantial Rehabilitation, State Finance Agencies, Section 515 Farmers 

 Home Administration, Section 202 Elderly or Handicapped, and Special 
 
                         Allocations Projects

    Source: 56 FR 20084, May 1, 1991, unless otherwise noted.



Sec. 888.301  Purpose and scope.

    (a) Purpose. This subpart describes the basic policies and 
procedures for the retroactive payment of Housing Assistance Payments to 
eligible project owners for the period from October 1, 1979 to May 31, 
1991 and for one-time Contract Rent determinations for such eligible 
project owners.
    (b) Applicability. This subpart applies to all project-based Section 
8 Housing Assistance Payments Contracts under New Construction (Part 
880); Substantial Rehabilitation (Part 881); State Finance Agencies 
(Part 883); and Section 515 Farmers Home Administration (Part 884). It 
also applies to those projects under Section 202 Elderly or Handicapped 
(Part 885) and Special Allocations (Part 886, Subparts A and C) whose 
Contract Rents are adjusted by use of the Annual Adjustment Factors 
(AAFs), as described in subpart B of this part.
    (c) Eligible project owners. Project owners may be eligible for 
retroactive payments if, during the period from October 1, 1979 to May 
31, 1991:
    (1) The use of a comparability study by HUD (or the Contract 
Administrator), which was conducted as an independent limitation on the 
amount of rent adjustment that would have resulted from use of the 
applicable AAF, resulted in the reduction of the maximum monthly 
Contract Rents for units covered by a Housing Assistance Payments (HAP) 
contract or resulted in less than the maximum increase for those units 
than would otherwise be permitted by the AAF; or

[[Page 172]]

    (2) The HAP contract required a project owner to request annual rent 
adjustments, and the project owner certifies that a request was not made 
because of an anticipated reduction of the maximum monthly Contract 
Rents resulting from a comparability study.



Sec. 888.305  Amount of the retroactive Housing Assistance Payments.

    (a) Recalculating the total rent adjustment. To establish the amount 
of the retroactive HAP payment for which a project owner meeting the 
criteria in Sec. 888.301(c) is eligible, the total rent adjustment will 
be recalculated for the period from October 1, 1979 to May 31, 1991. For 
purposes of establishing the amount of the retroactive payment only, the 
total rent adjustment will be an amount equal to the Contract Rent, 
minus the amount of the Contract Rent attributable to debt service, 
multiplied by the applicable AAF, for each year.
    (b) Calculating the retroactive payment. HUD (or the Contract 
Administrator) will pay, as a retroactive Housing Assistance Payment, 
the amount, if any, by which the total rent adjustment, calculated under 
paragraph (a) of this section, exceeds the rent adjustments actually 
approved for the same time period, except that in no event will any 
payment be an amount less than 30 percent of the aggregate of the full 
Contract Rent multiplied by the applicable AAF, minus the sum of the 
rent adjustments actually approved for the same time period, adjusted by 
the average occupancy rate.
    (c) Occupancy rates. (1) Retroactive payments will be made only for 
units that were occupied, based on average occupancy rate, including 
units qualifying for vacancy payments under 24 CFR 880.611, 881.611, 
883.712, 884.106, 885.985, 886.109, or 886.309, during the time period 
from October 1, 1979 to May 31, 1991.
    (2) When requesting retroactive payment, a project owner must, if 
the information is available, submit documentation of occupancy rates, 
on either an annual or monthly basis, for the same time period. The 
average occupancy rate will be based on these records. If records are 
unavailable for the full time period, HUD (or the Contract 
Administrator) will establish an average occupancy rate, to be used for 
the entire period, from the occupancy rate for the three years 
immediately preceding May 31, 1991.
    (d) Revised AAFs. For any year during the period from October 1, 
1979 to May 31, 1991, where a HUD field office published a revised 
Annual Adjustment Factor that replaced the applicable AAF for a specific 
locality under 24 CFR 888.204, the revised Annual Adjustment Factor, 
which applied to all projects in that area, will be used to recalculate 
the total rent adjustment under paragraph (a) of this section, and to 
establish the amount of the retroactive payments.
    (e) Special adjustments. When calculating the total rent adjustments 
and establishing the amount of the retroactive payments under paragraphs 
(a) and (b) of this section, any special adjustments granted under 24 
CFR 880.609(b), 881,609(b), 883.710(b), 884.109(c), 886.112(c), or 
886.312(c) during the time period from October 1, 1979 to May 31, 1991, 
to reflect substantial general increases in real property taxes, 
assessments, utility rates, utilities not covered by regulated rates, or 
for special adjustments for any other purpose authorized by a waiver of 
the regulations, will be deducted from the Contract Rent before applying 
the AAF.
    (f) AAFs less than 1.0. For any area where an AAF of less than 1.0 
was published, a factor of 1.0 will be used to recalculate the total 
rent adjustments and to establish the amount of the retroactive payments 
under paragraphs (a) and (b) of this section.
    (g) Debt service. (1) For purposes of this section, debt service 
includes principal, interest, and the mortgage insurance premium, if 
any.
    (2) The monthly debt service set forth in the original mortgage 
documents for a project will be used to compute the debt service portion 
of the contract rent. The debt service will be compared to the spread of 
unit sizes included in the original HAP contract, and the amount used in 
the calculation will be based on the percentage of total rent potential 
of the various unit types.
    (3) If, in some cases, HUD or the Contract Administrator cannot 
determine

[[Page 173]]

the debt service for a project, the project owner will be asked to 
provide documentation of the debt service. The project owner will be 
notified by the HUD Field Office or the Contract Administrator of the 
need for documentation of the debt service, and allowed 30 days to 
respond, or for such longer period as approved by HUD or the Contract 
Administrator on a case-by-case basis. Where the debt service is not 
available to HUD or the Contract Administrator and the owner is unable 
to provide the necessary information, retroactive payments cannot be 
made.
    (h) Applicable AAF. The applicable AAF is the factor in effect on 
the anniversary date of the contract and appropriate for the area, for 
the size of the unit, and for the treatment of utilities; except where, 
for any year when AAFs were published after November 8 and made 
retroactive to November 8, a project owner was given the option to 
choose the factor in effect on the anniversary date or the retroactive 
factor, the applicable AAF is the factor chosen by the project owner in 
that year.

(Approved by the Office of Management and Budget under control number 
2502-0042)



Sec. 888.310  Notice of eligibility requirements for retroactive payments.

    (a) Notice of eligibility requirements. HUD (or the Contract 
Administrator) will give written notice to all current owners of 
projects of the eligibility requirements for retroactive payments. 
Eligible project owners must make a request for payment and a request 
for a one-time contract determination within 60 days from the date of 
the notice.
    (b) Request for payment. (1) Owners eligible for retroactive 
payments under Sec. 888.301(c) must submit a request for a calculation 
of the total rent adjustments and the establishment of the amount of the 
retroactive payment, as described in Sec. 888.301 (a) and (b), and 
documentation of the occupancy rate for the period from October 1, 1979, 
to May 31, 1991, if available.
    (2) Owners whose HAP contract requires a request to be made for 
annual rent adjustments must certify that a request was not made because 
of an anticipated reduction in the Contract Rents as a result of a 
comparability study. The certification must contain the year or years 
upon which the request for payment is based and a statement of the basis 
for the belief that rents would have been reduced.
    (3) Retroactive payments will be made to owners over a three-year 
period as funds are appropriated for that purpose. When funds are 
available for payment, HUD will publish a Federal Register notice 
containing procedures for claiming payments.
    (c) Request for one-time contract rent determination. When making a 
request for payment, eligible owners may also request a one-time 
contract rent determination, as described in Sec. 888.320. Eligible 
owners may request a one-time contract rent determination even if they 
choose not to request retroactive payments, provided they are eligible 
for retroactive payments.
    (d) Transfer of ownership since October 1, 1979. Eligible owners who 
request retroactive payments must certify that they are entitled to the 
entire amount of the payment. Any owner who is unable to certify must 
present documentation of an agreement between the current and former 
owners of the proportionate share of the payment for which each is 
eligible.

(Approved by the Office of Management and Budget under control number 
2502-0042)



Sec. 888.315  Restrictions on retroactive payments.

    (a) Restrictions on distribution of surplus cash. Retroactive 
payments for HUD-insured projects and other projects subject to 
limitations on the distribution of surplus cash will be deposited, in 
the manner of Housing Assistance Payments, into the appropriate project 
account. The payments will be subject to HUD rules and procedures (or 
rules and procedures of other agencies, as appropriate), described in 
the applicable regulations and the HAP contracts, for distribution of 
surplus cash to project owners.
    (b) Replacement reserve. Projects required by HUD regulations to 
maintain a reserve for replacement account and to adjust the annual 
payment to the account each year by the amount of

[[Page 174]]

the annual rent adjustment must deposit into the account the 
proportionate share of any retroactive payment received, in accordance 
with HUD regulations and the HAP contract.
    (c) Physical condition of HUD-insured or State-financed projects. If 
the most recent physical inspection report of a HUD-insured project, 
completed by the mortgagee, or by HUD or the Contract Administrator if a 
mortgagee inspection is not present, shows significant deficiencies that 
have not been addressed to the satisfaction of HUD by the date the 
retroactive payment is deposited into the project account, the payment 
will not be made available for surplus cash distribution until the 
deficiencies are resolved or a plan for their resolution has been 
approved by HUD.



Sec. 888.320  One-time Contract Rent determination.

    (a) Determining the amount of the new Contract Rent. Project owners 
eligible for retroactive payments, as described in Sec. 888.301(c), may 
request a one-time Contract Rent determination, to be effective as 
described in paragraph (c) of this section. The request for a one-time 
rent determination must be made when submitting a request for 
retroactive payments, as described in Sec. 888.315. If no claim for 
retroactive payments is made, an owner may submit only the request for a 
one-time rent determination, provided the owner is eligible for 
retroactive payments. The new Contract Rent under this provision will be 
the greater of:
    (1) The Contract Rent currently approved by HUD (or the Contract 
Administrator); or
    (2) An amount equal to the applicable AAF multipled by the Contract 
Rent minus debt service, calculated for each year from October 1, 1979, 
to May 31, 1991.
    (b) Currently approved rent. The Contract Rent currently approved by 
HUD (or the Contract Administrator) is the Contract Rent stated in the 
most recent amendment to the HAP Contract signed by both HUD (or the 
Contract Administrator) and the owner, or as shown on HUD Form 92458 
(Rental Schedule) if the most recent amendment to the HAP Contract 
cannot be located.
    (c) Effective date of new Contract Rent. The new Contract Rent, 
determined under paragraph (a) of this section, will be effective on May 
31, 1991.

(Approved by the Office of Management and Budget under control number 
2505-0042)



    Subpart D--Retroactive Housing Assistance Payments for Moderate 
                         Rehabilitation Projects

    Source: 56 FR 20085, May 1, 1991, unless otherwise noted.



Sec. 888.401  Purpose and scope.

    (a) Purpose. This subpart describes the basic policies and 
procedures for the retroactive payment of Housing Assistance Payments to 
eligible project owners for the period from October 1, 1979 to May 31, 
1991 and a one-time Contract Rent determination for such eligible 
project owners.
    (b) Applicability. This subpart applies to all Moderate 
Rehabilitation projects under 24 CFR part 882, subparts D, E, and H.
    (c) Eligible project owners. Project owners may be eligible for 
retroactive payments if, during the period from October 1, 1979 to May 
31, 1991:
    (1) The use of a comparability study by the Public Housing Agency 
(PHA) as contract administrator, which was conducted as an independent 
limitation on the amount of rent adjustment that would have resulted 
from use of the applicable AAF, resulted in the reduction of the maximum 
monthly Contract Rents for units covered by a Housing Assistance 
Payments (HAP) contract or resulted in less than the maximum increase 
for those units than would otherwise be permitted by the AAF; or
    (2) The project owner certifies that a request for an annual rent 
adjustment was not made because of an anticipated reduction of the 
maximum monthly Contract Rents resulting from a comparability study.



Sec. 888.405  Amount of the retroactive Housing Assistance Payments.

    (a) Recalculating the total rent adjustment. To establish the amount 
of the retroactive HAP payment for which a project owner meeting the 
criteria in

[[Page 175]]

Sec. 888.401(c) is eligible, the total rent adjustment will be 
recalculated for the period from October 1, 1979 to May 31, 1991. Rents 
for that period will be recalculated, under the procedures set out in 24 
CFR 882.410(a)(1), by applying the AAF for any affected year, and 
recalculating the rents for the remainder of the period as necessary. 
For each year thereafter, all rent adjustments made at the request of 
the owner at the time will be recalculated, under the procedures in 24 
CFR 882.410(a)(1), to account for the new adjustments.
    (b) Calculating the retroactive payment. HUD will pay, through the 
PHA, as a retroactive Housing Assistance Payment the amount, if any, by 
which the total rent adjustment, calculated under paragraph (a) of this 
section exceeds the rent adjustments actually approved for the same time 
period.
    (c) Occupancy rate. (1) Retroactive payments will be made only for 
units that were occupied, based on average occupancy rate, including 
units qualifying for vacancy payments under 24 CFR 882.411, during the 
time period from October 1, 1979 to May 31, 1991.
    (2) When requesting a retroactive payment, a project owner must, if 
the information is available, submit documentation of occupancy rates, 
on either an annual or monthly basis, for the same time period. The 
average occupancy rate will be based on these records. If records are 
unavailable for the full time period, the PHA will establish an average 
occupancy rate, to be used for the entire period, from the occupancy 
rate for the three years immediately preceding May 31, 1991.
    (d) Revised AAFs. For any year during the period from October 1, 
1979 to May 31, 1991, where a HUD field office published a revised 
Annual Adjustment Factor that replaced the applicable AAF for a specific 
locality under 24 CFR 888.204, the revised Annual Adjustment Factor, 
which applied to all projects in that area, will be used to recalculate 
the total rent adjustment under paragraph (a) of this section, and to 
establish the amount of the retroactive payments.
    (e) Special adjustments. When calculating the total rent adjustments 
and establishing the amount of the retroactive payments under paragraphs 
(a) and (b) of this section, any special adjustments granted under 24 
CFR 882.410(a)(2) during the period from October 1, 1979 to May 31, 
1991, to reflect substantial general increases in real property taxes, 
assessments, utility rates, utilities not covered by regulated rates, or 
for special adjustments for any other purpose authorized by a waiver of 
the regulations, will be deducted from the base rent before applying the 
AAF.
    (f) AAFs less than 1.0. For any area where an AAF of less than 1.0 
was published, a factor of 1.0 will be used to recalculate the total 
rent adjustments and to establish the amount of the retroactive payments 
under paragraphs (a) and (b) of this section.

(Approved by the Office of Management and Budget under control number 
2502-0042)



Sec. 888.410  Notice of eligibility requirements for retroactive payments.

    (a) Notice of eligibility requirements. PHAs will give written 
notice to all current owners of projects, for which they are the 
Contract Administrators, of the eligibility requirements for retroactive 
payments. Eligible project owners must make a request for payment or a 
request for a one-time contract determination within 60 days from the 
date of the notice.
    (b) Request for payment. (1) Owners eligible for retroactive 
payments under Sec. 888.401(c) must submit a request for a calculation 
of the total rent adjustments and the establishment of the amount of the 
retroactive payment, as described in Sec. 888.401 (a) and (b), and 
documentation of the occupancy rate for the period from October 1, 1979 
to May 31, 1991, if available.
    (2) Owners claiming eligibility under Sec. 888.401(c)(2) must 
certify that a request was not made because of an anticipated reduction 
in the Contract Rents as a result of a comparability study. The 
certification must contain the year or years upon which the request for 
payment is based and a statement of the basis for the belief that rents 
would have been reduced.
    (3) Retroactive payments will be made to owners over a three-year 
period as funds are appropriated for that purpose. When funds are 
available for payment, HUD will publish a Federal

[[Page 176]]

Register Notice containing procedures for claiming payments.
    (c) Request for one-time contract rent determination. When making a 
request for payment, eligible owners may also request a one-time 
contract rent determination, as described in Sec. 888.420. Eligible 
owners may request a one-time contract rent determination even if they 
choose to forgo receiving retroactive payments, provided they are 
eligible for retroactive payments.
    (d) Transfer of ownership since October 1, 1979. Eligible owners 
requesting retroactive payments must certify that they are entitled to 
the entire amount of the payment. Any owner who is unable to certify 
must present documentation of an agreement between the current and 
former owners of the proportionate share of the payment for which each 
is eligible.

(Approved by the Office of Management and Budget under control number 
2502-0042)



Sec. 888.415  Restrictions on retroactive payments.

    (a) Restrictions. Retroactive payments are subject to all 
regulations, procedures, or restrictions that apply to Housing 
Assistance Payments.
    (b) Review of initial rents. Before calculating the amount of any 
retroactive payment, the PHA, if directed by HUD, will review whether 
rents were excessive when initially set.
    (c) Physical condition of projects. If the most recent physical 
inspection report by the PHA shows significant deficiencies that have 
not been addressed to the satisfaction of the PHA by the date the 
retroactive payment is deposited into the project account, the payment 
will not be made available until the deficiencies are resolved or a plan 
for their resolution has been approved by the PHA.



Sec. 888.420  One-time Contract Rent determination.

    (a) Determining the amount of the new Contract Rent. Project owners 
eligible for retroactive payments, as described in Sec. 888.401(c), may 
request a one-time Contract Rent determination, to be effective as 
described in paragraph (c) of this section. The request for a one-time 
rent determinaton must be made when submitting a request for retroactive 
payments, as described in Sec. 888.415. If no claim for retroactive 
payments is made, an owner may submit only the request for a one-time 
rent determinaton, provided the owner is eligible for retroactive 
payments. The new Contract Rent under this provision will be the greater 
of:
    (1) The Contract Rent currently approved by the PHA; or
    (2) An amount equal to the Contract Rent as adjusted to May 31, 1991 
under Sec. 888.405(a).
    (b) Currently approved rent. The Contract Rent currently approved by 
the PHA is the Contract Rent stated in the most recent amendment to the 
HAP Contract signed by both the PHA and the owner.
    (c) Effective date of new Contract Rent. The new Contract Rent, 
determined under paragraph (a) of this section, will be effective on May 
31, 1991.

(Approved by the Office of Management and Budget under control number 
2502-0042)



PART 891--SUPPORTIVE HOUSING FOR THE ELDERLY AND PERSONS WITH DISABILITIES--Table of Contents




                 Subpart A--General Program Requirements

Sec.
891.100  Purpose and policy.
891.105  Definitions.
891.110  Allocation of authority.
891.115  Notice of funding availability.
891.120  Project design and cost standards.
891.125  Site and neighborhood standards.
891.130  Prohibited relationships.
891.135  Amount and terms of capital advances.
891.140  Development cost limits.
891.145  Owner deposit (Minimum Capital Investment).
891.150  Operating cost standards.
891.155  Other Federal requirements.
891.160  Audit requirements.
891.165  Duration of capital advance.
891.170  Repayment of capital advance.
891.175  Technical assistance.
891.180  Physical condition standards; physical inspection requirements.
891.185  Preemption of rent control laws.

        Subpart B--Section 202 Supportive Housing for the Elderly

891.200  Applicability.
891.205  Definitions.
891.210  Special project standards.

[[Page 177]]

891.215  Limits on number of units.
891.220  Prohibited facilities.
891.225  Provision of services.
891.230  Selection preferences.

 Subpart C--Section 811 Supportive Housing for Persons With Disabilities

891.300  Applicability.
891.305  Definitions.
891.310  Special project standards.
891.315  Prohibited facilities.
891.320  Site and neighborhood standards.
891.325  Lead-based paint requirements.

                      Subpart D--Project Management

891.400  Responsibilities of owner.
891.405  Replacement reserve.
891.410  Selection and admission of tenants.
891.415  Obligations of the household or family.
891.420  Overcrowded and underoccupied units.
891.425  Lease requirements.
891.430  Denial of admission, termination of tenancy, and modification 
          of lease.
891.435  Security deposits.
891.440  Adjustment of utility allowances.
891.445  Conditions for receipt of vacancy payments for assisted units.
891.450  HUD review.

     Subpart E--Loans for Housing for the Elderly and Persons with 
                              Disabilities

891.500  Purpose and policy.
891.505  Definitions
891.510  Displacement, relocation, and real property acquisition.
891.515  Audit requirements.

     Section 202 Projects for the Elderly or Handicapped--Section 8 
                               Assistance

891.520  Definitions applicable to 202/8 projects.
891.525  Amount and terms of financing.
891.530  Prepayment privileges.
891.535  Requirements for awarding construction contracts.
891.540  Loan disbursement procedures.
891.545  Completion of project, cost certification, and HUD approvals.
891.555  Smoke detectors.
891.560  HAP contract.
891.565  Term of HAP contract.
891.570  Maximum annual commitment and project account.
891.575  Leasing to eligible families.
891.580  HAP contract administration.
891.585  Default by Borrower.
891.590  Notice upon HAP contract expiration.
891.595  HAP contract extension or renewal.
891.600  Responsibilities of Borrower.
891.605  Replacement reserve.
891.610  Selection and admission of tenants.
891.615  Obligations of the family.
891.620  Overcrowded and underoccupied units.
891.625  Lease requirements.
891.630  Denial of admission, termination of tenancy, and modification 
          of lease.
891.635  Security deposits.
891.640  Adjustment of rents.
891.645  Adjustment of utility allowances.
891.650  Conditions for receipt of vacancy payments for assisted units.

    Section 202 Projects for the Nonelderly Handicapped Families and 
                   Individuals--Section 162 Assistance

891.655  Definitions applicable to 202/162 projects.
891.660  Project standards.
891.665  Project size limitations.
891.670  Cost containment and modest design standards.
891.675  Prohibited facilities.
891.680  Site and neighborhood standards.
891.685  Prohibited relationships.
891.690  Other Federal requirements.
891.695  Operating cost standards.
891.700  Prepayment of loans.
891.705  Project assistance contract.
891.710  Term of PAC.
891.715  Maximum annual commitment and project account.
891.720  Leasing to eligible families.
891.725  PAC administration.
891.730  Default by Borrower.
891.735  Notice upon PAC expiration.
891.740  Responsibilities of Borrower.
891.745  Replacement reserve.
891.750  Selection and admission of tenants.
891.755  Obligations of the family.
891.760  Overcrowded and underoccupied units.
891.765  Lease requirements.
891.770  Denial of admission, termination of tenancy, and modification 
          of lease.
891.775  Security deposits.
891.780  Adjustment of rents.
891.785  Adjustment of utility allowances.
891.790  Conditions for receipt of vacancy payments for assisted units.

    Authority: 12 U.S.C. 1701q; 42 U.S.C. 1437f, 3535(d), and 8013.

    Source: 61 FR 11956, Mar. 22, 1996, unless otherwise noted.



                 Subpart A--General Program Requirements



Sec. 891.100  Purpose and policy.

    (a) Purpose. The Section 202 Program of Supportive Housing for the 
Elderly and the Section 811 Program of Supportive Housing for Persons 
with Disabilities provide Federal capital advances and project rental 
assistance

[[Page 178]]

under section 202 of the Housing Act of 1959 (12 U.S.C. 1701q) (section 
202) and section 811 of the National Affordable Housing Act (42 U.S.C. 
8013) (section 811), respectively, for housing projects serving elderly 
households and persons with disabilities. Section 202 projects shall 
provide a range of services that are tailored to the needs of the 
residents. Owners of Section 811 projects shall ensure that the 
residents are provided with any necessary supportive services that 
address their individual needs.
    (b) General policy. (1) Supportive Housing for the Elderly. A 
capital advance and contract for project rental assistance provided 
under this program shall be used for the purposes described in Section 
202 (12 U.S.C. 1701q(b)).
    (2) Supportive Housing for Persons with Disabilities. A capital 
advance and contract for project rental assistance provided under this 
program shall be used for the purposes described in Section 811 (42 
U.S.C. 8013(b)).
    (c) Use of capital advance funds. No part of the funds reserved may 
be transferred by the Sponsor, except to the Owner caused to be formed 
by the Sponsor. This action must be accomplished prior to issuance of a 
commitment for capital advance funding.
    (d) Amendments. Subject to the availability of funds, HUD may amend 
the amount of an approved capital advance only after initial closing has 
occurred.



Sec. 891.105  Definitions.

    The following definitions apply, as appropriate, throughout this 
part. Other terms with definitions unique to the particular program are 
defined in Secs. 891.205, 891.305, and 891.505, as applicable.
    Adjusted income as defined in part 5, subpart F of subtitle A of 
this title.
    Affiliated entities means entities that the field office determines 
to be related to each other in such a manner that it is appropriate to 
treat them as a single entity. Such relationship shall include any 
identity of interest among such entities or their principals and the use 
by any otherwise unaffiliated entities of a single Sponsor or of 
Sponsors (or of a single Borrower or of Borrowers, as applicable) that 
have any identity of interest themselves or their principals.
    Annual income as defined in part 5, subpart F of subtitle A of this 
title. In the case of an individual residing in an intermediate care 
facility for the developmentally disabled that is assisted under title 
XIX of the Social Security Act and this part, the annual income of the 
individual shall exclude protected personal income as provided under 
that Act. For purposes of determining the total tenant payment, the 
income of such individuals shall be imputed to be the amount that the 
household would receive if assisted under title XVI of the Social 
Security Act.
    Household (eligible household) means an elderly or disabled 
household (as defined in Secs. 891.205 or 891.305, respectively), as 
applicable, that meets the project occupancy requirements approved by 
HUD and, if the household occupies an assisted unit, meets the very low-
income requirements described in Sec. 813.102 of this chapter, as 
modified by the definition of annual income in this section.
    Housing and related facilities means rental housing structures 
constructed, rehabilitated, or acquired as permanent residences for use 
by elderly or disabled households, as applicable. The term includes 
necessary community space. Except for intermediate care facilities for 
individuals with developmental disabilities, this term does not include 
nursing homes, hospitals, intermediate care facilities, or transitional 
care facilities. For the Loans for the Elderly and Persons with 
Disabilities Program, see Sec. 891.505.
    Low-income families shall have the same meaning provided in section 
3(b)(2) of the United States Housing Act of 1937 (42 U.S.C. 1437a).
    National Sponsor means a Sponsor that has one or more Section 202 or 
one or more Section 811 project(s) under reservation, construction, or 
management in two or more different HUD geographical regions.
    Operating costs means HUD-approved expenses related to the provision 
of housing and includes:
    (1) Administrative expenses, including salary and management 
expenses related to the provision of shelter and, in the case of the 
Section 202 Program, the coordination of services;

[[Page 179]]

    (2) Maintenance expenses, including routine and minor repairs and 
groundskeeping;
    (3) Security expenses;
    (4) Utilities expenses, including gas, oil, electricity, water, 
sewer, trash removal, and extermination services. The term ``operating 
costs'' excludes telephone services for households;
    (5) Taxes and insurance;
    (6) Allowances for reserves; and
    (7) Allowances for services (in the Section 202 Program only).
    Project rental assistance contract (PRAC) means the contract entered 
into by the Owner and HUD setting forth the rights and duties of the 
parties with respect to the project and the payments under the PRAC.
    Project rental assistance payment means the payment made by HUD to 
the Owner for assisted units as provided in the PRAC. The payment is the 
difference between the total tenant payment and the HUD-approved per 
unit operating expenses except for expenses related to items not 
eligible under design and cost provisions. An additional payment is made 
to a household occupying an assisted unit when the utility allowance is 
greater than the total tenant payment. A project rental assistance 
payment, known as a ``vacancy payment,'' may be made to the Owner when 
an assisted unit is vacant, in accordance with the terms of the PRAC.
    Rehabilitation means the improvement of the condition of a property 
from deteriorated or substandard to good condition. Rehabilitation may 
vary in degree from the gutting and extensive reconstruction to the cure 
of substantial accumulation of deferred maintenance. Cosmetic 
improvements alone do not qualify as rehabilitation under this 
definition. Rehabilitation may also include renovation, alteration, or 
remodeling for the conversion or adaptation of structurally sound 
property to the design and condition required for use under this part, 
or the repair or replacement of major building systems or components in 
danger of failure. Improvement of an existing structure must require 15 
percent or more of the estimated development cost to rehabilitate the 
project to a useful life of 55 years.
    Replacement Reserve Account means a project account into which 
specified funds are deposited. Such funds may be used only with the 
approval of the Secretary for repairs, replacement, and capital 
improvements to the project.
    Section 202 means section 202 of the Housing Act of 1959 (12 U.S.C. 
1701q), as amended, or the Supportive Housing for the Elderly Program 
authorized by that section.
    Section 811 means section 811 of the National Affordable Housing Act 
(42 U.S.C. 8013), as amended, or the Supportive Housing for Persons with 
Disabilities Program authorized by that section.
    Start-up expenses mean necessary costs (to plan a Section 202 or 
Section 811 project, as applicable) incurred by the Sponsor or Owner 
prior to initial closing.
    Tenant payment to Owner equals total tenant payment less utility 
allowance, if any.
    Total tenant payment means the monthly amount defined in, and 
determined in accordance with part 5, subpart F of subtitle A of this 
title.
    Utility allowance is defined in part 5, subpart F of this subtitle A 
of this title and is determined or approved by HUD.
    Very low-income families shall have the same meaning provided in 
section 3(b)(2) of the United States Housing Act of 1937 (42 U.S.C. 
1437a).

[61 FR 11956, Mar. 22, 1996, as amended at 66 FR 6225, Jan. 19, 2001; 66 
FR 8175, Jan. 30, 2001]



Sec. 891.110  Allocation of authority.

    In accordance with 24 CFR part 791, the Assistant Secretary will 
separately allocate the amounts available for capital advances for the 
development of housing for elderly households and for disabled 
households, less amounts set aside by Congress for specific types of 
projects, and for amendments of fund reservations made in prior years, 
for technical assistance, and for other contracted services.



Sec. 891.115  Notice of funding availability.

    Following an allocation of authority under Sec. 891.110, HUD shall 
publish a separate Notice of Funding Availability (NOFA) for the Section 
202 Program of

[[Page 180]]

Supportive Housing for the Elderly and for the Section 811 Program of 
Supportive Housing for Persons with Disabilities in the Federal 
Register. The NOFAs will contain specific information on how and when to 
apply for the available capital advance authority, the contents of the 
application, and the selection process.



Sec. 891.120  Project design and cost standards.

    In addition to the special project standards described in 
Secs. 891.210 and 891.310, as applicable, the following standards apply:
    (a) Property standards. Projects under this part must comply with 
HUD Minimum Property Standards, unless otherwise indicated in this part.
    (b) Accessibility requirements. Projects under this part must comply 
with the Uniform Federal Accessibility Standards (See 24 CFR 40.7 for 
availability), section 504 of the Rehabilitation Act of 1973 and HUD's 
implementing regulations (24 CFR part 8), and for new construction 
multifamily housing projects, the design and construction requirements 
of the Fair Housing Act and HUD's implementing regulations at 24 CFR 
part 100. For the Section 811 Program of Supportive Housing for Persons 
with Disabilities, see additional accessibility requirements in 
Sec. 891.310(b).
    (c) Restrictions on amenities. Projects must be modest in design. 
Amenities not eligible for HUD funding include individual unit balconies 
and decks, atriums, bowling alleys, swimming pools, saunas, jacuzzis, 
and dishwashers, trash compactors, and washers and dryers in individual 
units in supportive housing for the elderly or in independent living 
facilities for persons with disabilities. Sponsors may include certain 
excess amenities but they must pay for them from sources other than the 
section 202 or 811 capital advance. They must also pay for the 
continuing operating costs associated with any excess amenities from 
sources other than the Section 202 or 811 project rental assistance 
contract.
    (d) Smoke detectors. After October 30, 1992, each dwelling unit must 
include at least one battery-operated or hard-wired smoke detector, in 
proper working condition, on each level of the unit.



Sec. 891.125  Site and neighborhood standards.

    All sites must meet the following site and neighborhood 
requirements:
    (a) The site must be adequate in size, exposure, and contour to 
accommodate the number and type of units proposed, and adequate 
utilities (water, sewer, gas, and electricity) and streets must be 
available to service the site.
    (b) The site and neighborhood must be suitable from the standpoint 
of facilitating and furthering full compliance with the applicable 
provisions of Title VI of the Civil Rights Act of 1964, the Fair Housing 
Act, Executive Order 11063 (27 FR 11527, 3 CFR, 1958-1963 Comp., p. 
652); as amended by Executive Order 12259, (46 FR 1253, 3 CFR, 1980 
Comp., p. 307)); section 504 of the Rehabilitation Act of 1973, and 
implementing HUD regulations.
    (c) New construction sites must meet the following site and 
neighborhood requirements:
    (1) The site must not be located in an area of minority 
concentration (or minority elderly concentration under the Section 202 
Program) except as permitted under paragraph (c)(2) of this section, and 
must not be located in a racially mixed area if the project will cause a 
significant increase in the proportion of minority to nonminority 
residents (or minority elderly to nonminority elderly residents, under 
the Section 202 Program) in the area.
    (2) A project may be located in an area of minority concentration 
(or minority elderly concentration, under the Section 202 Program) only 
if:
    (i) Sufficient, comparable opportunities exist for housing for 
minority elderly households or minority disabled households, as 
applicable (or minority families, for projects funded under 
Secs. 891.655 through 891.790), in the income range to be served by the 
proposed project, outside areas of minority concentration (see paragraph 
(c)(3) of this section for further guidance on this criterion); or
    (ii) The project is necessary to meet overriding housing needs that 
cannot be met in that housing market area

[[Page 181]]

(see paragraph (c)(4) of this section for further guidance on this 
criterion).
    (3)(i) Sufficient does not require that in every locality there be 
an equal number of assisted units within and outside of areas of 
minority concentration. Rather, application of this standard should 
produce a reasonable distribution of assisted units each year which over 
a period of several years will approach an appropriate balance of 
housing opportunities within and outside areas of minority 
concentration. An appropriate balance in any jurisdiction must be 
determined in light of local conditions affecting the range of housing 
choices available for very low-income minority elderly or disabled 
households, as applicable (or low-income minority families, for projects 
funded under Secs. 891.655 through 891.790), and in relation to the 
racial mix of the locality's population.
    (ii) Units may be considered to be comparable opportunities if they 
have the same household type (elderly or disabled, as applicable) and 
tenure type (owner/renter); require approximately the same total tenant 
payment; serve the same income group; are located in the same housing 
market; and are in standard condition.
    (iii) Application of this sufficient, comparable opportunities 
standard involves assessing the overall impact of HUD-assisted housing 
on the availability of housing choices for very low-income minority 
elderly or disabled households, as applicable (or low-income minority 
families, for projects funded under Secs. 891.655 through 891.790), in 
and outside areas of minority concentration, and must take into account 
the extent to which the following factors are present, along with any 
other factor relevant to housing choice:
    (A) A significant number of assisted housing units are available 
outside areas of minority concentration.
    (B) There is significant integration of assisted housing projects 
constructed or rehabilitated in the past ten years, relative to the 
racial mix of the eligible population.
    (C) There are racially integrated neighborhoods in the locality.
    (D) Programs are operated by the locality to assist minority elderly 
or disabled households, as applicable (or minority families, for 
projects funded under Secs. 891.655 through 891.790), that wish to find 
housing outside areas of minority concentration.
    (E) Minority elderly or disabled households, as applicable (or 
minority families, for projects funded under Secs. 891.655 through 
891.790), have benefitted from local activities (e.g., acquisition and 
write-down of sites, tax relief programs for homeowners, acquisitions of 
units for use as assisted housing units) undertaken to expand choice for 
minority households (or families) outside of areas of minority 
concentration.
    (F) A significant proportion of minority elderly or disabled 
households, as applicable (or minority households, for projects funded 
under Secs. 891.655 through 891.790), have been successful in finding 
units in nonminority areas under the Section 8 Certificate and Housing 
Voucher programs.
    (G) Comparable housing opportunities have been made available 
outside areas of minority concentration through other programs.
    (4) Application of the overriding housing needs criterion, for 
example, permits approval of sites that are an integral part of an 
overall local strategy for the preservation or restoration of the 
immediate neighborhood and of sites in a neighborhood experiencing 
significant private investment that is demonstrably changing the 
economic character of the area (a ``revitalizing area''). An overriding 
housing need, however, may not serve as the basis for determining that a 
site is acceptable if the only reason the need cannot otherwise be 
feasibly met is that discrimination on the basis of race, color, creed, 
sex, or national origin renders sites outside areas of minority 
concentration unavailable, or if the use of this standard in recent 
years has had the effect of circumventing the obligation to provide 
housing choice.
    (d) The neighborhood must not be one that is seriously detrimental 
to family life or in which substandard dwellings or other undesirable 
conditions predominate, unless there is actively in progress a concerted 
program to remedy the undesirable conditions.

[[Page 182]]

    (e) The housing must be accessible to social, recreational, 
educational, commercial, and health facilities and services, and other 
municipal facilities and services that are at least equivalent to those 
typically found in neighborhoods consisting largely of unassisted, 
standard housing of similar market rents.
    (f) For the Section 811 Program of Supportive Housing for Persons 
with Disabilities, the additional site and neighborhood requirements in 
Sec. 891.320 apply.



Sec. 891.130  Prohibited relationships.

    This section shall apply to capital advances under the Section 202 
Program and the Section 811 Program, as well as to loans financed under 
Secs. 891.655 through 891.790.
    (a) Conflicts of interest. (1) Officers and Board members of either 
the Sponsor or the Owner (or Borrower, as applicable) may not have any 
financial interest in any contract with the Owner or in any firm which 
has a contract with the Owner. This restriction applies so long as the 
individual is serving on the Board and for a period of three years 
following resignation or final closing, whichever occurs later.
    (2) The following contracts between the Owner (or Borrower, as 
applicable) and the Sponsor or the Sponsor's nonprofit affiliate will 
not constitute a conflict of interest if no more than two persons 
salaried by the Sponsor or management affiliate serve as nonvoting 
directors on the Owner's board of directors:
    (i) Management contracts (including associated management fees);
    (ii) Supportive services contracts (including service fees) under 
the Supportive Housing for the Elderly Program; and
    (iii) Developer (consultant) contracts.
    (b) Identity of interest. An identity of interest between the 
Sponsor or Owner (or Borrower, as applicable) and any development team 
member or between development team members is prohibited until two years 
after final closing.



Sec. 891.135  Amount and terms of capital advances.

    (a) Amount of capital advances. The amount of capital advances 
approved shall be the amount stated in the notification of fund 
reservation, including any adjustment required by HUD before the final 
closing. The amount of the capital advance may not exceed the 
appropriate development cost limit.
    (b) Estimated development cost. The amount of the capital advance 
may not exceed the total estimated development cost of the project (as 
determined by HUD), less the incremental development cost associated 
with excess amenities and design features to be paid for by the Sponsor 
under Sec. 891.120.



Sec. 891.140  Development cost limits.

    (a) HUD shall use the development cost limits, established by Notice 
in the Federal Register and adjusted by locality, to calculate the fund 
reservation amount of the capital advance to be made available to 
individual Owners. Owners that incur actual development costs that are 
less than the amount of the initial fund reservation shall be entitled 
to retain 50 percent of the savings in a Replacement Reserve Account. 
Such percentage shall be increased to 75 percent for Owners that add 
energy efficiency features.
    (b) The Replacement Reserve Account established under paragraph (a) 
of this section may only be used for repairs, replacements, and capital 
improvements to the project.



Sec. 891.145  Owner deposit (Minimum Capital Investment).

    As a Minimum Capital Investment, the Owner must deposit in a special 
escrow account one-half of one percent (0.5%) of the HUD-approved 
capital advance, not to exceed $10,000, to assure the Owner's commitment 
to the housing. Under the Section 202 Program, if an Owner has a 
National Sponsor or a National Co-Sponsor, the Minimum Capital 
Investment shall be one-half of one percent (0.5%) of the HUD-approved 
capital advance, not to exceed $25,000.



Sec. 891.150  Operating cost standards.

    HUD shall establish operating cost standards based on the average 
annual operating cost of comparable housing for the elderly or for 
persons with disabilities in each field office, and shall adjust the 
standard annually based on appropriate indices of increases in

[[Page 183]]

housing costs such as the Consumer Price Index. The operating cost 
standards shall be developed based on the number of units. However, 
under the Section 811 Program and for projects funded under 
Secs. 891.655 through 891.790, the operating cost standard for group 
homes shall be based on the number of residents. HUD may adjust the 
operating cost standard applicable to an approved project to reflect 
such factors as differences in costs based on location within the field 
office jurisdiction. The operating cost standard will be used to 
determine the amount of the project assistance initially reserved for a 
project.



Sec. 891.155  Other Federal requirements.

    In addition to the requirements set forth in 24 CFR part 5, the 
following requirements in this Sec. 891.155 apply to the Section 202 and 
Section 811 Programs, as well as projects funded under Secs. 891.655 
through 891.790. Other requirements unique to a particular program are 
described in subparts B and C of this part, as applicable.
    (a) Affirmative fair housing marketing. (1) The affirmative fair 
housing marketing requirements of 24 CFR part 200, subpart M and the 
implementing regulations at 24 CFR part 108; and
    (2) The fair housing advertising and poster guidelines at 24 CFR 
parts 109 and 110.
    (b) Environmental. The National Environmental Policy Act of 1969, 
HUD's implementing regulations at 24 CFR part 50, including the related 
authorities described in 24 CFR 50.4. For the purposes of Executive 
Order No. 11988, Floodplain Management (42 FR 26951, 3 CFR, 1977 Comp., 
p. 117); as amended by Executive Order 12148 (44 FR 43239, 3 CFR, 1979 
Comp., p. 412)), and implementing regulations in 24 CFR part 55, all 
applications for intermediate care facilities for persons with 
developmental disabilities shall be treated as critical actions 
requiring consideration of the 500-year floodplain.
    (c) Flood insurance. The Flood Disaster Protection Act of 1973 (42 
U.S.C. 4001).
    (d) Labor standards. (1) All laborers and mechanics (other than 
volunteers under the conditions set out in 24 CFR part 70) employed by 
contractors and subcontractors in the construction (including 
rehabilitation) of housing with 12 or more units assisted under this 
part shall be paid wages at rates not less than those prevailing in the 
locality, as determined by the Secretary of Labor in accordance with the 
Davis-Bacon Act (40 U.S.C. 276a-276a-5). A group home for persons with 
disabilities is not covered by the labor standards.
    (2) Contracts involving employment of laborers and mechanics shall 
be subject to the provisions of the Contract Work Hours and Safety 
Standards Act (40 U.S.C. 327-333).
    (3) Sponsors, Owners, contractors, and subcontractors must comply 
with all related rules, regulations, and requirements.
    (e) Displacement, relocation, and real property acquisition. (1) 
Minimizing displacement. Consistent with the other goals and objectives 
of this part, Sponsors and Owners (or Borrowers, if applicable) shall 
assure that they have taken all reasonable steps to minimize the 
displacement of persons (families, individuals, businesses, nonprofit 
organizations, and farms) as a result of a project assisted under this 
part.
    (2) Relocation assistance for displaced persons. A displaced person 
must be provided relocation assistance at the levels described in, and 
in accordance with the requirements of, the Uniform Relocation 
Assistance and Real Property Acquisition Policies Act of 1970, as 
amended (URA) (42 U.S.C. 4201-4655), as implemented by 49 CFR part 24.
    (3) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (f) Intergovernmental review. The requirements for intergovernmental 
review in Executive Order No. 12372 (47 FR 30959, 3 CFR, 1982 Comp., p. 
197; as amended by Executive Order No. 12416 (48 FR 15587, 3 CFR, 1983 
Comp., p. 186)) and the implementing regulations at 24 CFR part 52 are 
applicable to this program.
    (g) Lead-based paint. The requirements of the Lead-Based Paint 
Poisoning Prevention Act (42 U.S.C. 4821-4846), the Residential Lead-
Based Paint Hazard Reduction Act of 1992 (42 U.S.C.

[[Page 184]]

4851-4856), and implementing regulations at part 35, subparts A, B, H, 
and R of this title apply to these programs.

[61 FR 11956, Mar. 22, 1996, as amended at 64 FR 50227, Sept. 15, 1999]



Sec. 891.160  Audit requirements.

    Nonprofits receiving assistance under this part are subject to the 
audit requirements in 24 CFR part 45.



Sec. 891.165  Duration of capital advance.

    The duration of the fund reservation for the capital advance is 18 
months from the date of issuance with limited exceptions up to 24 
months, as approved by HUD on a case-by-case basis.



Sec. 891.170  Repayment of capital advance.

    (a) Interest prohibition and repayment. A capital advance provided 
under this part shall bear no interest and its repayment shall not be 
required so long as the housing project remains available for very low-
income elderly families or persons with disabilities, as applicable, in 
accordance with this part. The capital advance may not be repaid to 
extinguish the requirements of this part. To ensure its interest in the 
capital advance, HUD shall require a note and mortgage, use agreement, 
capital advance agreement and regulatory agreement from the Owner in a 
form to be prescribed by HUD.
    (b) The transfer of physical and financial assets of any project 
under this part is prohibited, unless HUD gives prior written approval. 
Approval for transfer will not be granted unless HUD determines that the 
transfer to a private nonprofit corporation or consumer cooperative 
(under the Section 202 Program) or a nonprofit organization (under the 
Section 811 Program) is part of a transaction that will ensure the 
continued operation of the project for not less than 40 years (from the 
date of original closing) in a manner that will provide rental housing 
for very low-income elderly persons or persons with disabilities, as 
applicable, on terms at least as advantageous to existing and future 
tenants as the terms required by the original capital advance.



Sec. 891.175  Technical assistance.

    For purposes of the Section 202 Program and the Section 811 Program, 
the Secretary shall make available appropriate technical assistance to 
assure that applicants having limited resources, particularly minority 
applicants, are able to participate more fully in the programs.



Sec. 891.180  Physical condition standards; physical inspection requirements.

    Housing assisted under this part must be maintained and inspected in 
accordance with the requirements in 24 CFR part 5, subpart G.

[63 FR 46580, Sept. 1, 1998]



Sec. 891.185  Preemption of rent control laws.

    The Department finds that it is necessary and desirable to assist 
project owners to preserve the continued viability of each project 
assisted under this part (except subpart E) as a housing resource for 
very low-income elderly persons or persons with disabilities. The 
Department also finds that it is necessary to protect the substantial 
economic interest of the Federal Government in those projects. 
Therefore, the Department concludes that it is in the national interest 
to preempt, and it does hereby preempt, the entire field of rent 
regulation by local rent control boards or other authority acting 
pursuant to state or local law as it affects those projects. Part 246 of 
this title applies to projects covered by subpart E of this part.

[63 FR 64803, Nov. 23, 1998]



        Subpart B--Section 202 Supportive Housing for the Elderly



Sec. 891.200  Applicability.

    The requirements set forth in this subpart B apply to the Section 
202 Program of Supportive Housing for the Elderly only, and to 
applicants, Sponsors, and Owners under that program.



Sec. 891.205  Definitions.

    As used in this part in reference to the Section 202 Program, and in 
addition to the applicable definitions in Sec. 891.105:

[[Page 185]]

    Acquisition means the purchase of (or otherwise obtaining title to) 
existing housing and related facilities from the Resolution Trust 
Corporation.
    Activities of daily living (ADL) means eating, dressing, bathing, 
grooming, and household management activities, as further described 
below:
    (1) Eating--May need assistance with cooking, preparing, or serving 
food, but must be able to feed self;
    (2) Bathing--May need assistance in getting in and out of the shower 
or tub, but must be able to wash self;
    (3) Grooming--May need assistance in washing hair, but must be able 
to take care of personal appearance;
    (4) Dressing--Must be able to dress self, but may need occasional 
assistance; and
    (5) Home management activities--May need assistance in doing 
housework, grocery shopping, laundry, or getting to and from activities 
such as going to the doctor and shopping, but must be mobile. The 
mobility requirement does not exclude persons in wheelchairs or those 
requiring mobility devices.
    Congregate space (hereinafter referred to as community space) shall 
have the meaning provided in section 202 (12 U.S.C. 1701q(h)(1)). The 
term ``community spaces'' excludes offices, halls, mechanical rooms, 
laundry rooms, parking areas, dwelling units, and lobbies. Community 
space does not include commercial areas.
    Elderly person means a household composed of one or more persons at 
least one of whom is 62 years of age or more at the time of initial 
occupancy.
    Frail elderly means an elderly person who is unable to perform at 
least three activities of daily living as defined in this section. 
Owners may establish additional eligibility requirements acceptable to 
HUD based on the standards in local supportive services programs.
    Owner means a single-purpose private nonprofit organization that may 
be established by the Sponsor that will receive a capital advance and 
project rental assistance payments to develop and operate supportive 
housing for the elderly as its legal owner. Owner does not mean a public 
body or the instrumentality of any public body. The purposes of the 
Owner must include the promotion of the welfare of the elderly. The 
Owner may not be controlled by or under the direction of persons or 
firms seeking to derive profit or gain therefrom.
    Private nonprofit organization means any incorporated private 
institution or foundation:
    (1) That has tax-exempt status under section 501(c)(3) or (c)(4) of 
the Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.);
    (2) No part of the net earnings of which inures to the benefit of 
any member, founder, contributor, or individual;
    (3) That has a governing board:
    (i) The membership of which is selected in a manner to assure that 
there is significant representation of the views of the community in 
which such housing is located; and
    (ii) That is responsible for the operation of the housing assisted 
under this part; and
    (4) That is approved by HUD as to administrative and financial 
responsibility.
    Services expenses means those costs needed to provide the necessary 
services for the elderly tenants, which may include, but are not limited 
to: health related activities, continuing education, welfare, 
informational, recreational, homemaking, meal and nutritional services, 
counseling, and referral services as well as transportation as necessary 
to facilitate access to these services.
    Sponsor means any private nonprofit entity, including a consumer 
cooperative:
    (1) No part of the net earnings of which inures to the benefit of 
any private shareholder, member, founder, contributor, or individual;
    (2) That is not controlled by, or under the direction of, persons or 
firms seeking to derive profit or gain therefrom; and
    (3) That is approved by the Secretary as to administrative and 
financial capacity and responsibility. The term Sponsor does not mean a 
public body or the instrumentality of a public body.



Sec. 891.210  Special project standards.

    In addition to the applicable project standards in Sec. 891.120, 
resident units in

[[Page 186]]

Section 202 projects are limited to efficiencies or one-bedroom units. 
If a resident manager is proposed for a project, up to two bedrooms 
could be provided for the resident manager unit.



Sec. 891.215  Limits on number of units.

    (a) HUD may establish, through publication of a notice in the 
Federal Register, limits on the number of units that can be applied for 
by a Sponsor or Co-sponsor in a single geographical region and/or 
nationwide.
    (b) Affiliated entities that submit separate applications shall be 
deemed to be a single entity for purposes of these limits.
    (c) HUD may also establish, through publication of a notice in the 
Federal Register, the minimum size of a single project.



Sec. 891.220  Prohibited facilities.

    Projects may not include facilities for infirmaries, nursing 
stations, or spaces for overnight care.



Sec. 891.225  Provision of services.

    (a) In carrying out the provisions of this part, HUD shall ensure 
that housing assisted under this part provides services as described in 
section 202 (12 U.S.C. 1701q(g)(1)).
    (b)(1) HUD shall ensure that Owners have the managerial capacity to 
perform the coordination of services described in 12 U.S.C. 1701q(g)(2).
    (2) Any cost associated with this paragraph shall be an eligible 
cost under the contract for project rental assistance. Any cost 
associated with the employment of a service coordinator shall also be an 
eligible cost, except if the project is receiving congregate housing 
services assistance under section 802 of the National Affordable Housing 
Act. The HUD-approved service costs will be an eligible expense to be 
paid from project rental assistance, not to exceed $15 per unit per 
month. The balance of service costs shall be provided from other 
sources, which may include co-payment by the tenant receiving the 
service. Such co-payment shall not be included in the Total Tenant 
Payment.



Sec. 891.230  Selection preferences.

    For purposes of the Section 202 Program, the selection preferences 
in 24 CFR part 5, subpart D apply.



 Subpart C--Section 811 Supportive Housing for Persons With Disabilities



Sec. 891.300  Applicability.

    The requirements set forth in this subpart C apply to the Section 
811 Program of Supportive Housing for Persons with Disabilities only, 
and to applicants, Sponsors, and Owners under that program.



Sec. 891.305  Definitions.

    As used in this part in reference to the Section 811 Program, and in 
addition to the applicable definitions in Sec. 891.105:
    Acquisition means the purchase of (or otherwise obtaining title to) 
existing structures to be used as housing for persons with disabilities, 
including housing and related facilities from the Resolution Trust 
Corporation. Capital advances are not available in connection with 
facilities owned and operated by the Sponsor as housing for persons with 
disabilities.
    Congregate space (hereinafter referred to as community space) means 
space for multipurpose rooms, common areas, and other space necessary 
for the provision of supportive services. Community space does not 
include commercial areas.
    Disabled household means a household composed of:
    (1) One or more persons at least one of whom is an adult (18 years 
or older) who has a disability;
    (2) Two or more persons with disabilities living together, or one or 
more such persons living with another person who is determined by HUD, 
based upon a certification from an appropriate professional (e.g., a 
rehabilitation counselor, social worker, or licensed physician) to be 
important to their care or well being; or
    (3) The surviving member or members of any household described in 
paragraph (1) of this definition who were living in a unit assisted 
under this part, with the deceased member of

[[Page 187]]

the household at the time of his or her death.
    Nonprofit organization means any institution or foundation:
    (1) That has tax-exempt status under section 501(c)(3) of the 
Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.);
    (2) No part of the net earnings of which inures to the benefit of 
any Board member, founder, contributor, or individual;
    (3) That has a governing board;
    (i) The membership of which is selected in a manner to assure that 
there is significant representation of the views of the community in 
which such housing is located (including persons with disabilities); and
    (ii) That is responsible for the operation of the housing assisted 
under this part; and
    (4) That is approved by HUD as to financial responsibility.
    Owner means a single-purpose nonprofit organization established by 
the Sponsor that will receive a capital advance and project rental 
assistance payments to develop and operate, as its legal owner, 
supportive housing for persons with disabilities under this part. The 
purposes of the Owner must include the promotion of the welfare of 
persons with disabilities. The Owner may not be controlled by or under 
the direction of persons or firms seeking to derive profit or gain 
therefrom.
    Person with disabilities shall have the meaning provided in Section 
811 (42 U.S.C. 8013(k)(2)). The term ``person with disabilities'' shall 
also include the following:
    (1) A person who has a developmental disability, as defined in 
section 102(7) of the Developmental Disabilities Assistance and Bill of 
Rights Act (42 U.S.C. 6001(5)), i.e., if he or she has a severe chronic 
disability which:
    (i) Is attributable to a mental or physical impairment or 
combination of mental and physical impairments;
    (ii) Is manifested before the person attains age twenty-two;
    (iii) Is likely to continue indefinitely;
    (iv) Results in substantial functional limitation in three or more 
of the following areas of major life activity:
    (A) Self-care;
    (B) Receptive and expressive language;
    (C) Learning;
    (D) Mobility;
    (E) Self-direction;
    (F) Capacity for independent living;
    (G) Economic self-sufficiency; and
    (v) Reflects the person's need for a combination and sequence of 
special, interdisciplinary, or generic care, treatment, or other 
services which are of lifelong or extended duration and are individually 
planned and coordinated.
    (2) A person with a chronic mental illness, i.e., a severe and 
persistent mental or emotional impairment that seriously limits his or 
her ability to live independently, and which impairment could be 
improved by more suitable housing conditions.
    (3) A person infected with the human acquired immunodeficiency virus 
(HIV) and a person who suffers from alcoholism or drug addiction, 
provided they meet the definition of ``person with disabilities'' in 
Section 811 (42 U.S.C. 8013(k)(2)). A person whose sole impairment is a 
diagnosis of HIV positive or alcoholism or drug addiction (i.e., does 
not meet the qualifying criteria in section 811 (42 U.S.C. 8013(k)(2)) 
will not be eligible for occupancy in a section 811 project.
    Sponsor means any nonprofit entity:
    (1) That has tax-exempt status under section 501(c)(3) of the 
Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.);
    (2) No part of the net earnings of which inures to the benefit of 
any private shareholder, member, founder, contributor or individual;
    (3) That is not controlled by or under the direction of persons or 
firms seeking to derive profit or gain therefrom;
    (4) That has a governing board the membership of which is selected 
in a manner to assure that there is significant representation of the 
views of persons with disabilities; and
    (5) That is approved by HUD as to administrative and financial 
capacity and responsibility.



Sec. 891.310  Special project standards.

    In addition to the applicable project standards in Sec. 891.120, the 
following special standards apply to the Section 811 Program and to 
projects funded under Secs. 891.655 through 891.790:

[[Page 188]]

    (a) Minimum group home standards. Each group home must provide a 
minimum of 290 square feet of prorated space for each resident, 
including a minimum area of 80 square feet for each resident in a shared 
bedroom (with no more than two residents occupying a shared bedroom) and 
a minimum area of 100 square feet for a single occupant bedroom; at 
least one full bathroom for every four residents; space for recreation 
at indoor and outdoor locations on the project site; and sufficient 
storage for each resident in the bedroom and other storage space 
necessary for the operation of the home. If the project involves 
acquisition (with or without rehabilitation), the structure must at 
least be in compliance with applicable State requirements. In the 
absence of such requirements, the above standards shall apply.
    (b) Additional accessibility requirements. In addition to the 
accessibility requirements in Sec. 891.120(b), the following 
requirements apply to the Section 811 Program and to projects funded 
under Secs. 891.655 through 891.790:
    (1) All entrances, common areas, units to be occupied by resident 
staff, and amenities must be readily accessible to and usable by persons 
with disabilities.
    (2) In projects for chronically mentally ill individuals, a minimum 
of 10 percent of all dwelling units in an independent living facility 
(or 10 percent of all bedrooms and bathrooms in a group home, but at 
least one of each such space), must be designed to be accessible or 
adaptable for persons with disabilities.
    (3) In projects for developmentally disabled or physically disabled 
persons, all dwelling units in an independent living facility (or all 
bedrooms and bathrooms in a group home) must be designed to be 
accessible or adaptable for persons with physical disabilities. A 
project involving acquisition and/or rehabilitation may provide a lesser 
number if:
    (i) The cost of providing full accessibility makes the project 
financially infeasible;
    (ii) Fewer than one-half of the intended occupants have mobility 
impairments; and
    (iii) The project complies with the requirements of 24 CFR 8.23.
    (4) For the purposes of paragraph (b) of this section, the following 
definitions apply:
    (i) Accessible describes a site, building, facility, or portion 
thereof that complies with the Uniform Federal Accessibility Standards 
and that can be approached, entered, and used by physically disabled 
people;
    (ii) Adaptability means the ability of certain building spaces and 
elements, such as kitchen counters, sinks, and grab bars, to be added or 
altered so as to accommodate the needs of either disabled or nondisabled 
persons, or to accommodate the needs of either disabled or nondisabled 
persons, or to accommodate the needs of persons with different types or 
degrees of disability.



Sec. 891.315  Prohibited facilities.

    This section shall apply to capital advances under the Section 811 
Program, as well as loans financed under subpart E of this part. Project 
facilities may not include infirmaries, nursing stations, spaces 
dedicated to the delivery of medical treatment or physical therapy, 
padded rooms, or space for respite care or sheltered workshops, even if 
paid for from sources other than the HUD capital advance or loan. Except 
for office space used by the Owner (or Borrower, if applicable) 
exclusively for the administration of the project, project facilities 
may not include office space.



Sec. 891.320  Site and neighborhood standards.

    In addition to the requirements in Sec. 891.125 and Sec. 891.680, if 
applicable, the following site and neighborhood requirements apply to 
the Section 811 Program:
    (a) Travel time and cost via public transportation or private 
automobile, from the neighborhood to places of employment providing a 
range of jobs for very low-income workers (or low-income workers, as 
applicable), must not be excessive.
    (b) Projects should be located in neighborhoods where other family 
housing is located. Projects should not

[[Page 189]]

be located adjacent to the following facilities, or in areas where such 
facilities are concentrated: schools or day-care centers for persons 
with disabilities, workshops, medical facilities, or other housing 
primarily serving persons with disabilities. Not more than one group 
home may be located on any one site and no such home may be located on a 
site contiguous to another site containing such a home.



Sec. 891.325  Lead-based paint requirements.

    The requirements of the Lead-Based Paint Poisoning Prevention Act 
(42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C. 4851-4856), and implementing regulations at part 
35, subparts A, B, H, and R of this title apply to the Section 811 
program and to projects funded under Secs. 891.655 through 891.790.

[64 FR 50228, Sept. 15, 1999]



                      Subpart D--Project Management



Sec. 891.400  Responsibilities of owner.

    (a) Marketing. (1) The Owner must commence and continue diligent 
marketing activities not later than 90 days before the anticipated date 
of availability of the first unit or occupancy of the group home. Market 
activities shall include the provision of notices of the availability of 
housing under the program to operators of temporary housing for the 
homeless in the same housing market.
    (2) Marketing must be done in accordance with a HUD-approved 
affirmative fair housing marketing plan and all Federal, State or local 
fair housing and equal opportunity requirements. The purpose of the plan 
and requirements is to achieve a condition in which eligible households 
of similar income levels in the same housing market area have a like 
range of housing choices available to them regardless of discriminatory 
considerations such as their race, color, creed, religion, familial 
status, disability, sex or national origin.
    (3) At the time of PRAC execution, the Owner must submit to HUD a 
list of leased and unleased assisted units (or in the case of a group 
home, leased and unleased residential spaces) with a justification for 
the unleased units or residential spaces, in order to qualify for 
vacancy payments for the unleased units or residential spaces.
    (b) Management and maintenance. The Owner is responsible for all 
management functions. These functions include selection and admission of 
tenants, required reexaminations of incomes for households occupying 
assisted units or residential spaces, collection of tenant payments, 
termination of tenancy and eviction, and all repair and maintenance 
functions (including ordinary and extraordinary maintenance and 
replacement of capital items). All functions must be performed in 
compliance with equal opportunity requirements.
    (c) Contracting for services. (1) With HUD approval, the Owner may 
contract with a private or public entity for performance of the services 
or duties required in paragraphs (a) and (b) of this section. However, 
such an arrangement does not relieve the Owner of responsibility for 
these services and duties. All such contracts are subject to the 
restrictions governing prohibited contractual relationships described in 
Sec. 891.130. (These prohibitions do not extend to management contracts 
entered into by the Owner with the Sponsor or its nonprofit affiliate.)
    (2) Consistent with the objectives of Executive Order No. 11625 (36 
FR 19967, 3 CFR, 1971-1975 Comp., p. 616; as amended by Executive Order 
No. 12007 (42 FR 42839, 3 CFR, 1977 Comp., p. 139)); Executive Order No. 
12432 (48 FR 32551, 3 CFR, 1983 Comp., p. 198); and Executive Order No. 
12138 (44 FR 29637, 3 CFR, 1979 Comp., p. 393; as amended by Executive 
Order No. 12608 (52 FR 34617, 3 CFR, 1987 Comp., p. 245)), the Owner 
will promote awareness and participation of minority and women's 
business enterprises in contracting and procurement activities.
    (d) Submission of financial and operating statements. The Owner must 
submit to HUD:
    (1) Within 60 days after the end of each fiscal year of project 
operations,

[[Page 190]]

financial statements for the project audited by an independent public 
accountant and in the form required by HUD; and
    (2) Other statements regarding project operation, financial 
conditions and occupancy as HUD may require to administer the PRAC and 
to monitor project operations.
    (e) Use of project funds. The Owner shall maintain a separate 
interest bearing project fund account in a depository or depositories 
which are members of the Federal Deposit Insurance Corporation or 
National Credit Union Share Insurance Fund and shall deposit all tenant 
payments, charges, income and revenues arising from project operation or 
ownership to this account. All project funds are to be deposited in 
Federally insured accounts. All balances shall be fully insured at all 
times, to the maximum extent possible. Project funds must be used for 
the operation of the project (including required insurance coverage), 
and to make required deposits to the replacement reserve under 
Sec. 891.405, in accordance with HUD-approved budget. Any remaining 
project funds in the project funds account (including earned interest) 
following the expiration of the fiscal year shall be deposited in a 
Federally-insured residual receipts account within 60 days following the 
end of the fiscal year. Withdrawals from this account may be made only 
for project purposes and with the approval of HUD. If there are funds 
remaining in the residual receipts account when the mortgage is 
satisfied, such funds shall be returned to HUD.
    (f) Reports. The Owner shall submit such reports as HUD may 
prescribe to demonstrate compliance with applicable civil rights and 
equal opportunity requirements. See Sec. 891.410(a).

(Approved by the Office of Management and Budget under control number 
2502-0470)



Sec. 891.405  Replacement reserve.

    (a) Establishment of reserve. The Owner shall establish and maintain 
a replacement reserve to aid in funding extraordinary maintenance and 
repair and replacement of capital items.
    (b) Deposits to reserve. The Owner shall make monthly deposits to 
the replacement reserve in an amount determined by HUD.
    (c) Level of reserve. The reserve must be built up to and maintained 
at a level determined by HUD to be sufficient to meet projected 
requirements. Should the reserve reach that level, the amount of the 
deposit to the reserve may be reduced with the approval of HUD.
    (d) Administration of reserve. Replacement reserve funds must be 
deposited with HUD or in a Federally-insured depository in an interest-
bearing account(s) whose balances(s) are fully insured at all times. All 
earnings including interest on the reserve must be added to the reserve. 
Funds may be drawn from the reserve and used only in accordance with HUD 
guidelines and with the approval of, or as directed by, HUD.



Sec. 891.410  Selection and admission of tenants.

    (a) Written procedures. The Owner shall adopt written tenant 
selection procedures that ensure nondiscrimination in the selection of 
tenants and that are consistent with the purpose of improving housing 
opportunities for very low-income elderly persons and persons with 
disabilities (as applicable); and reasonably related to program 
eligibility and an applicant's ability to perform the obligations of the 
lease. Owners shall promptly inform in writing any rejected applicant of 
the grounds for any rejection. Additionally, Owners shall maintain a 
written, chronological waiting list showing the name, race, gender, 
ethnicity, and date of each person applying for the program.
    (b) Application for admission. The Owner must accept applications 
for admission to the project in the form prescribed by HUD, and (under 
the Section 202 Program only) is obligated to confirm all information 
provided by applicant families on the application. Applicant households 
applying for assisted units (or residential spaces in a group home) must 
complete a certification of eligibility as part of the application for 
admission. Applicant households must

[[Page 191]]

meet the disclosure and verification requirements for Social Security 
Numbers, as provided by 24 CFR part 5, subpart B. Applicant families 
must sign and submit consent forms for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, as provided 
by 24 CFR part 5, subpart B. Both the Owner and the applicant household 
must complete and sign the application for admission. On request, the 
Owner must furnish copies of all applications for admission to HUD.
    (c) Determination of eligibility and selection of tenants. (1) The 
Owner is responsible for determining whether applicants are eligible for 
admission and for the selection of households. To be eligible for 
admission, an applicant must be an elderly person or a person with 
disabilities, as applicable (as defined in Secs. 891.205 and 891.305, 
respectively); must meet the disclosure and verification requirements 
for Social Security Numbers, as provided by 24 CFR part 5, subpart B; 
must sign and submit consent forms for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, as provided 
by 24 CFR part 5, subpart B; and must be a very low-income family, as 
defined in Sec. 891.105.
    (2) Under the Section 811 Program:
    (i) In order to be eligible for admission, the applicant must also 
meet any project occupancy requirements approved by HUD.
    (ii) Owners shall make selections in a nondiscriminatory manner 
without regard to considerations such as race, religion, color, sex, 
national origin, familial status, or disability. An Owner may, with the 
approval of the Secretary, limit occupancy within housing developed 
under this part 891 to persons with disabilities who have similar 
disabilities and require a similar set of supportive services in a 
supportive housing environment. However, the Owner must permit occupancy 
by any qualified person with a disability who could benefit from the 
housing and/or services provided regardless of the person's disability.
    (d) Unit assignment. If the Owner determines that the household is 
eligible and is otherwise acceptable and units (or residential spaces in 
a group home) are available, the Owner will assign the household a unit 
or residential space in a group home. If the household will occupy an 
assisted unit, the Owner will assign the household a unit of the 
appropriate size in accordance with HUD's general occupancy guidelines. 
If no suitable unit (or residential space in a group home) is available, 
the Owner will place the household on a waiting list for the project and 
notify the household when a suitable unit or residential space may 
become available. If the waiting list is so long that the applicant 
would not be likely to be admitted for the next 12 months, the Owner may 
advise the applicant that no additional applications for admission are 
being considered for that reason.
    (e) Ineligibility determination. If the Owner determines that an 
applicant is ineligible for admission or the Owner is not selecting the 
applicant for other reasons, the Owner will promptly notify the 
applicant in writing of the determination, the reasons for the 
determination, and the applicant's right to request a meeting to review 
the rejection, in accordance with HUD requirements. The review, if 
requested, may not be conducted by a member of the Owner's staff who 
made the initial decision to reject the applicant. The applicant may 
also exercise other rights (e.g., rights granted under Federal, State or 
local civil rights laws) if the applicant believes he or she is being 
discriminated against on a prohibited basis.
    (f) Records. Records on applicants and approved eligible households, 
which provide racial, ethnic, gender and place of previous residency 
data required by HUD, must be retained for three years. See 
Sec. 891.410(a).
    (g) Reexamination of household family income and composition--(1) 
Regular reexaminations. The Owner must reexamine the income and 
composition of the household at least every 12 months. Upon verification 
of the information, the Owner must make appropriate adjustments in the 
total tenant payment in accordance with part 813 of this chapter, as 
modified by Sec. 891.105, and must determine whether the household's 
unit size is still appropriate. The Owner must adjust tenant payment and

[[Page 192]]

the project rental assistance payment, and must carry out any unit 
transfer in accordance with HUD standards. At the time of reexamination 
under paragraph (g)(1) of this section, the Owner must require the 
household to meet the disclosure and verification requirements for 
Social Security Numbers, as provided by 24 CFR part 5, subpart B. For 
requirements regarding the signing and submitting of consent forms by 
families for obtaining of wage and claim information from State Wage 
Information Collection Agencies, see 24 CFR part 5, subpart B.
    (2) Interim reexaminations. The household must comply with the 
provisions in its lease regarding interim reporting of changes in 
income. If the Owner receives information concerning a change in the 
household's income or other circumstances between regularly scheduled 
reexaminations, the Owner must consult with the household and make any 
adjustments determined to be appropriate. See 24 CFR part 5, subpart B 
for the requirements for the disclosure and verification of Social 
Security Number at interim reexaminations involving new household 
members. For requirements regarding the signing and submitting of 
consent forms by families for the obtaining of wage and claim 
information from State Wage Information Collection Agencies, see 24 CFR 
part 5, subpart B. Any change in the household's income or other 
circumstances that result in an adjustment in the total tenant payment, 
tenant payment, and project rental assistance payment must be verified.
    (3) Continuation of project rental assistance payment. (i) A 
household shall remain eligible for project rental assistance payment 
until the total tenant payment equals or exceeds the gross rent (or a 
pro rata share of the gross rent in a group home). The termination of 
subsidy eligibility will not affect the household's other rights under 
its lease. Project rental assistance payment may be resumed if, as a 
result of changes in income, rent or other relevant circumstances during 
the term of the PRAC, the household meets the income eligibility 
requirements of 24 CFR part 813 (as modified in Sec. 891.105) and 
project rental assistance is available for the unit or residential space 
under the terms of the PRAC. The household will not be required to 
establish its eligibility for admission to the project under the 
remaining requirements of paragraph (c) of this section.
    (ii) A household's eligibility for project rental assistance payment 
may be terminated in accordance with HUD requirements for such reasons 
as failure to submit requested verification information, including 
information related to disclosure and verification of Social Security 
Numbers, as provided by 24 CFR part 5, subpart B or failure to sign and 
submit consent forms for the obtaining of wage and claim information 
from State Wage Information Collection Agencies (as provided by 24 CFR 
part 5, subpart B).

[61 FR 11956, Mar. 22, 1996, as amended at 65 FR 16724, Mar. 29, 2000]



Sec. 891.415  Obligations of the household or family.

    This section shall apply to capital advances under the Section 202 
Program and the Section 811 Program, as well as loans financed under 
subpart E of this part.
    (a) Requirements. The household (or family, as applicable) shall:
    (1) Pay amounts due under the lease directly to the Owner (or 
Borrower, as applicable);
    (2) Supply such certification, release of information, consent, 
completed forms or documentation as the Owner (or Borrower, as 
applicable) or HUD determines necessary, including information and 
documentation relating to the disclosure and verification of Social 
Security Numbers, as provided by 24 CFR part 5, subpart B, and the 
signing and submission of consent forms for the obtaining of wage and 
claim information from State Wage Information Collection Agencies, as 
provided by 24 CFR part 5, subpart B;
    (3) Allow the Owner (or Borrower, as applicable) to inspect the 
dwelling unit or residential space at reasonable times and after 
reasonable notice;
    (4) Notify the Owner (or Borrower, as applicable) before vacating 
the dwelling unit or residential space; and
    (5) Use the dwelling unit or residential space solely for residence 
by the household (or family, as applicable)

[[Page 193]]

and as the household's (or family's) principal place of residence.
    (b) Prohibitions. The household (or family, as applicable) shall 
not:
    (1) Assign the lease or transfer the unit or residential space; or
    (2) Occupy, or receive assistance for the occupancy of, a unit or 
residential space governed under this part 891 while occupying, or 
receiving assistance for the occupancy of, another unit assisted under 
any Federal housing assistance program, including any section 8 program.

(Approved by the Office of Management and Budget under control number 
2502-0470)



Sec. 891.420  Overcrowded and underoccupied units.

    If the Owner determines that because of change in household size, an 
assisted unit is smaller than appropriate for the eligible household to 
which it is leased, or that the assisted unit is larger than 
appropriate, project rental assistance payment with respect to the unit 
will not be reduced or terminated until the eligible household has been 
relocated to an appropriate alternate unit. If possible, the Owner will, 
as promptly as possible, offer the household an appropriate alternate 
unit. The Owner may receive vacancy payments for the vacated unit if the 
Owner complies with the requirements of Sec. 891.445.



Sec. 891.425  Lease requirements.

    This section shall apply to capital advances under the Section 202 
Program and the Section 811 Program, as well as loans financed under 
subpart E of this part.
    (a) Term of lease. The term of the lease may not be less than one 
year. Unless the lease has been terminated by appropriate action, upon 
expiration of the lease term, the household and Owner (or family and 
Borrower, as applicable) may execute a new lease for a term not less 
than one year, or may take no action. If no action is taken, the lease 
will automatically be renewed for successive terms of one month.
    (b) Termination by the household (or family, as applicable). All 
leases may contain a provision that permits the household (or family) to 
terminate the lease upon 30 days advance notice. A lease for a term that 
exceeds one year must contain such provision.
    (c) Form. The Owner (or Borrower, as applicable) shall use the lease 
form prescribed by HUD. In addition to required provisions of the lease 
form, the Owner (or Borrower) may include a provision in the lease 
permitting the Owner (or Borrower) to enter the leased premises at any 
time without advance notice when there is reasonable cause to believe 
that an emergency exists or that health or safety of a family member is 
endangered.



Sec. 891.430  Denial of admission, termination of tenancy, and modification of lease.

    (a) The provisions of part 5, subpart I, of this title apply to 
Section 202 and Section 811 capital advance projects.
    (b) The provisions of part 247 of this title apply to all decisions 
by an owner to terminate the tenancy or modify the lease of a household 
residing in a unit (or residential space in a group home).

[66 FR 28798, May 24, 2001]



Sec. 891.435  Security deposits.

    This section shall apply to capital advances under the Section 202 
Program and the Section 811 Program, as well as loans financed under 
subpart E of this part. For loans financed under subpart E of this part, 
the requirements in Sec. 891.635 also apply.
    (a) Collection of security deposits. At the time of the initial 
execution of the lease, the Owner (or Borrower, as applicable) will 
require each household (or family, as applicable) occupying an assisted 
unit or residential space in a group home to pay a security deposit in 
an amount equal to one month's tenant payment or $50, whichever is 
greater. The household (or family) is expected to pay the security 
deposit from its own resources and other available public or private 
resources. The Owner (or Borrower) may collect the security deposit on 
an installment basis.
    (b) Security deposit provisions applicable to units-- (1) 
Administration of security deposit. The Owner (or Borrower, as 
applicable) must place the security deposits in a segregated interest-
bearing account. The amount of the segregated, interest-bearing account 
maintained by the Owner (or Borrower) must at all

[[Page 194]]

times equal the total amount collected from the households (or families, 
as applicable) then in occupancy plus any accrued interest and less 
allowable administrative cost adjustments. The Owner (or Borrower) must 
comply with any applicable State and local laws concerning interest 
payments on security deposits.
    (2) Household (or family, as applicable) notification requirement. 
In order to be considered for the refund of the security deposit, a 
household (or family) must provide the Owner (or Borrower, as 
applicable) with a forwarding address or arrange to pick up the refund.
    (3) Use of security deposit. The Owner (or Borrower, as applicable), 
subject to State and local law and the requirements of paragraphs (b)(1) 
and (b)(3) of this section, may use the household's (or family's, as 
applicable) security deposit balance as reimbursement for any unpaid 
amounts that the household (or family) owes under the lease. Within 30 
days (or shorter time if required by State or local law) after receiving 
notification under paragraph (b)(2) of this section, the Owner (or 
Borrower) must:
    (i) Refund to a household (or family) that does not owe any amount 
under the lease the full amount of the household's (or family's) 
security deposit balance;
    (ii) Provide to a household (or family) owing amounts under the 
lease a list itemizing each amount, along with a statement of the 
household's (or family's) rights under State and local law. If the 
amount that the Owner (or Borrower) claims is owed by the household (or 
family) is less than the amount of the household's (or family's) 
security deposit balance, the Owner (or Borrower) must refund the excess 
balance to the household (or family). If the Owner (or Borrower) fails 
to provide the list, the household (or family) will be entitled to the 
refund of the full amount of the household's (or family's) security 
deposit balance.
    (4) Disagreements. If a disagreement arises concerning reimbursement 
of the security deposit, the household (or family, if applicable) will 
have the right to present objections to the Owner (or Borrower, if 
applicable) in an informal meeting. The Owner (or Borrower) must keep a 
record of any disagreements and meetings in a tenant file for inspection 
by HUD. The procedures of this paragraph do not preclude the household 
(or family) from exercising its rights under State or local law.
    (5) Decedent's interest in security deposit. Upon the death of a 
member of a household (or family, as applicable), the decedent's 
interest, if any, in the security deposit will be governed by State or 
local law.
    (c) Reimbursement by HUD for assisted units. If the household's (or 
family's, if applicable) security deposit balance is insufficient to 
reimburse the Owner (or Borrower, if applicable) for any amount that the 
household (or family) owes under the lease for an assisted unit or 
residential space, and the Owner (or Borrower) has provided the 
household (or family) with the list required by paragraph (b)(3)(ii) of 
this section, the Owner (or Borrower) may claim reimbursement from HUD 
for an amount not to exceed the lesser of:
    (1) The amount owed the Owner (or Borrower); or
    (2) One month's per unit operating cost (or contract rent, if 
applicable), minus the amount of the household's (or family's) security 
deposit balance. Any reimbursement under this section will be applied 
first toward any unpaid tenant payment (or rent, if applicable) due 
under the lease. No reimbursement may be claimed for any unpaid tenant 
payment (or rent) for the period after termination of the tenancy. The 
Owner (or Borrower) may be eligible for vacancy payments following a 
vacancy in accordance with the requirements of Sec. 891.445 (or 
Secs. 891.650 or 891.790, as applicable).



Sec. 891.440  Adjustment of utility allowances.

    This section shall apply to projects funded under the Section 202 
Program, to independent living complexes funded under Section 811 
Program, and to projects financed with loans under subpart E of this 
part. The Owner (or Borrower, as applicable) must submit an analysis of 
any utility allowances applicable. Such data as changes in utility rates 
and other facts affecting utility consumption should be provided as

[[Page 195]]

part of this analysis to permit appropriate adjustments in the utility 
allowances for assisted units. In addition, when utility rate changes 
would result in a cumulative increase of 10 percent or more in the most 
recently approved utility allowances, the Owner (or Borrower) must 
advise HUD and request approval of new utility allowances. Whenever a 
utility allowance for an assisted unit is adjusted, the Owner (or 
Borrower) will promptly notify affected households (or families, as 
applicable) and make a corresponding adjustment of the tenant payment 
(or rent, as applicable) and the amount of the project rental assistance 
payment (or housing or project assistance payment, as applicable).

(Approved by the Office of Management and Budget under control number 
2502-0470)



Sec. 891.445  Conditions for receipt of vacancy payments for assisted units.

    (a) General. Vacancy payments under the PRAC will not be made unless 
the conditions for receipt of these project rental assistance payments 
set forth in this section are fulfilled.
    (b) Vacancies during rent-up. For each unit (or residential space in 
a group home) that is not leased as of the effective date of the PRAC, 
the Owner is entitled to vacancy payments in the amount of 50 percent of 
the per unit operating cost (or pro rata share of the group home 
operating cost) for the first 60 days of vacancy, if the Owner:
    (1) Conducted marketing in accordance with Sec. 891.400(a) and 
otherwise complied with Sec. 891.400;
    (2) Has taken and continues to take all feasible actions to fill the 
vacancy; and
    (3) Has not rejected any eligible applicant except for good cause 
acceptable to HUD.
    (c) Vacancies after rent-up. If an eligible household vacates an 
assisted unit (or residential space in a group home) the Owner is 
entitled to vacancy payments in the amount of 50 percent of the approved 
per unit operating cost (or pro rata share of the group home operating 
cost) for the first 60 days of vacancy if the Owner:
    (1) Certifies that it did not cause the vacancy by violating the 
lease, the PRAC, or any applicable law;
    (2) Notified HUD of the vacancy or prospective vacancy and the 
reasons for the vacancy upon learning of the vacancy or prospective 
vacancy;
    (3) Has fulfilled and continues to fulfill the requirements 
specified in Sec. 891.400(a) (2) and (3) and Sec. 891.445(b) (2) and 
(3); and
    (4) For any vacancy resulting from the Owner's eviction of an 
eligible household, certifies that it has complied with Sec. 891.430.
    (d) Prohibition of double compensation for vacancies. If the Owner 
collects payments for vacancies from other sources (tenant payment, 
security deposits, payments under Sec. 891.435(c), or governmental 
payments under other programs), the Owner shall not be entitled to 
collect vacancy payments to the extent these collections from other 
sources plus the vacancy payment exceed the approved per unit operating 
cost.



Sec. 891.450  HUD review.

    HUD shall conduct periodic on-site management reviews of the Owner's 
compliance with the requirements of this part.



     Subpart E--Loans for Housing for the Elderly and Persons with 
                              Disabilities



Sec. 891.500  Purpose and policy.

    (a) Purpose. The program under subpart E of this part provides 
direct Federal loans under section 202 of the Housing Act of 1959 (42 
U.S.C. 1701q) for housing projects serving elderly or handicapped 
families and individuals. The housing projects shall provide the 
necessary services for the occupants which may include, but are not 
limited to: Health, continuing education, welfare, informational, 
recreational, homemaking, meal and nutritional services, counseling, and 
referral services, as well as transportation where necessary to 
facilitate access to these services.
    (b) General policy. A loan made under subpart E of this part shall 
be used to finance the construction or the substantial rehabilitation of 
projects for elderly or handicapped families, or for the acquisition 
with or without moderate rehabilitation of existing housing

[[Page 196]]

and related facilities for group homes for nonelderly handicapped 
individuals.
    (c) Applicability. Subpart E of this part applies to all fund 
reservations made before October 1, 1990, except for loans not initially 
closed that were converted to capital advances. Specifically, 
Sec. 891.520 through 891.650 of subpart E apply to projects for elderly 
or handicapped families that received reservations under section 202 of 
the Housing Act of 1959 (12 U.S.C. 1701q) and housing assistance under 
section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437 et 
seq). Sections 891.655 through 891.790 of subpart E apply to projects 
for nonelderly handicapped families receiving reservations under section 
202 and project assistance payments under section 202(h) of the Housing 
Act of 1959.



Sec. 891.505  Definitions.

    For the purposes of this subpart E:
    Act means section 202 of the Housing Act of 1959, as amended (12 
U.S.C. 1701q).
    Borrower means a private nonprofit corporation or a nonprofit 
consumer cooperative that may be established by the Sponsor, which will 
obtain a Section 202 loan and execute a mortgage in connection therewith 
as the legal owner of the project. ``Borrower'' does not mean a public 
body or the instrumentality of any public body. The purposes of the 
Borrower must include the promotion of the welfare of elderly and/or 
handicapped families. No part of the net earnings of the Borrower may 
inure to the benefit of any private shareholder, contributor, or 
individual, and the Borrower may not be controlled by or under the 
direction of persons or firms seeking to derive profit or gain 
therefrom. Because of the nonprofit nature of the Section 202 program, 
no officer or director, or trustee, member, stockholder or authorized 
representative of the Borrower is permitted to have any financial 
interest in any contract in connection with the rendition of services, 
the provision of goods or supplies, project management, procurement of 
furnishings and equipment, construction of the project, procurement of 
the site or other matters whatsoever.
    Elderly family means:
    (1) Families of two or more persons the head of which (or his or her 
spouse) is 62 years of age or older;
    (2) The surviving member or members of any family described in 
paragraph (1) of this definition living in a unit assisted under subpart 
E of this part with the deceased member of the family at the time of his 
or her death;
    (3) A single person who is 62 years of age or older; or
    (4) Two or more elderly persons living together, or one or more such 
persons living with another person who is determined by HUD, based upon 
a licensed physician's certificate provided by the family, to be 
essential to their care or well being.
    Handicapped family means:
    (1) Families of two or more persons the head of which (or his or her 
spouse) is handicapped;
    (2) The surviving member or members of any family described in 
paragraph (1) of this definition living in a unit assisted under subpart 
E of this part with the deceased member of the family at the time of his 
or her death;
    (3) A single handicapped person over the age of 18; or
    (4) Two or more handicapped persons living together, or one or more 
such persons living with another person who is determined by HUD, based 
upon a licensed physician's certificate provided by the family, to be 
essential to their care or well being.
    Handicapped person or individual means:
    (1) Any adult having a physical, mental, or emotional impairment 
that is expected to be of long-continued and indefinite duration, 
substantially impedes his or her ability to live independently, and is 
of a nature that such ability could be improved by more suitable housing 
conditions.
    (2) A person with a developmental disability, as defined in section 
102(7) of the Developmental Disabilities Assistance and Bill of Rights 
Act (42 U.S.C. 6001(5), i.e., a person with a severe chronic disability 
that:
    (i) Is attributable to a mental or physical impairment or 
combination of mental and physical impairments;
    (ii) Is manifested before the person attains age twenty-two;

[[Page 197]]

    (iii) Is likely to continue indefinitely;
    (iv) Results in substantial functional limitation in three or more 
of the following areas of major life activity:
    (A) Self-care;
    (B) Receptive and expressive language;
    (C) Learning;
    (D) Mobility;
    (E) Self-direction;
    (F) Capacity for independent living;
    (G) Economic self-sufficiency; and
    (v) Reflects the person's need for a combination and sequence of 
special, interdisciplinary, or generic care, treatment, or other 
services that are of lifelong or extended duration and are individually 
planned and coordinated.
    (3) A person with a chronic mental illness, i.e., if he or she has a 
severe and persistent mental or emotional impairment that seriously 
limits his or her ability to live independently, and whose impairment 
could be improved by more suitable housing conditions.
    (4) Persons infected with the human acquired immunodeficiency virus 
(HIV) who are disabled as a result of infection with the HIV are 
eligible for occupancy in section 202 projects designed for the 
physically disabled, developmentally disabled, or chronically mentally 
ill depending upon the nature of the person's disability. A person whose 
sole impairment is alcoholism or drug addition (i.e., who does not have 
a developmental disability, chronic mental illness, or physical 
disability that is the disabling condition required for eligibility in a 
particular project) will not be considered to be disabled for the 
purposes of the section 202 program.
    Housing and related facilities means rental or cooperative housing 
structures constructed or substantially rehabilitated as permanent 
residences for use by elderly or handicapped families, or acquired with 
or without moderate rehabilitation for use by nonelderly handicapped 
families as group homes. The term includes structures suitable for use 
by families residing in the project or in the area, such as cafeterias 
or dining halls, community rooms, or buildings, or other essential 
service facilities. In the case of acquisition with or without moderate 
rehabilitation, at least three years must have elapsed from the later of 
the date of completion of the project or the beginning of occupancy to 
the date of the application for a Section 202 fund reservation. Except 
for intermediate care facilities for the mentally retarded and 
individuals with related conditions, this term does not include nursing 
homes, hospitals, intermediate care facilities, or transitional care 
facilities.
    Nonelderly handicapped family means a handicapped family in which 
the head of the family (and spouse, if any) is less than 62 years of age 
at the time of the family's initial occupancy of a project.
    Section 8 Program means the housing assistance payments program that 
implements section 8 of the United States Housing Act of 1937 (42 U.S.C. 
1437f note).



Sec. 891.510  Displacement, relocation, and real property acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of subpart E of this part, Sponsors and Borrowers shall 
assure that they have taken all reasonable steps to minimize the 
displacement of persons (families, individuals, businesses, nonprofit 
organizations, and farms) as a result of a project assisted under 
subpart E of this part.
    (b) Relocation assistance for displaced persons. A displaced person 
(defined in paragraph (f) of this section) must be provided relocation 
assistance at the levels described in, and in accordance with the 
requirements of the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended (URA) (42 U.S.C. 4201-
4655), as implemented by 49 CFR part 24. A displaced person shall be 
advised of his or her rights under the Fair Housing Act (42 U.S.C. 3601-
3619). If the comparable replacement dwellings are located in areas of 
minority concentration, minority persons also must be given, if 
possible, referrals to suitable, decent, safe, and sanitary replacement 
dwellings not located in such areas.
    (c) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.

[[Page 198]]

    (d) Appeals. A person who disagrees with the Sponsor's/Borrower's 
determination concerning whether the person qualifies as a ``displaced 
person,'' or with the amount of relocation assistance for which the 
person is eligible, may file a written appeal of that determination with 
the Sponsor/Borrower. A low-income person who is dissatisfied with the 
Sponsor's/Borrower's determination on his or her appeal may submit a 
written request for review of that determination to the HUD field 
office.
    (e) Responsibility of Sponsor/Borrower. The Sponsor/Borrower shall 
certify that it will comply (i.e., provide assurance of compliance, as 
required by 49 CFR part 24) with the URA, the regulations at 49 CFR part 
24, and the requirements of this section, and shall ensure such 
compliance notwithstanding any third party's contractual obligation to 
comply with these provisions. The Sponsor/Borrower shall maintain 
records in sufficient detail to demonstrate compliance with the 
provisions of this section. The Sponsor/Borrower shall maintain data on 
the race, ethnic, gender, and handicap status of displaced persons.
    (f) Definition of a displaced person. (1) For purposes of this 
section, the term displaced person means a person (family, individual, 
business, nonprofit organization, or farm) that moves from real 
property, or moves personal property from real property, permanently, as 
a direct result of acquisition, rehabilitation, or demolition for a 
project assisted under this part. This includes any permanent, 
involuntary move for an assisted project including any permanent move 
from the real property that is made:
    (i) After notice by the Sponsor/Borrower to move permanently from 
the property if the move occurs on or after:
    (A) The date of the submission of an application to HUD that is 
later approved, if the Sponsor has control of an appropriate site; or
    (B) The date that the Sponsor obtains control of an approvable site, 
if such control is obtained after the submission of an application to 
HUD:
    (ii) Before the date described in paragraph (f)(1)(i) of this 
section, if the Sponsor, Borrower or HUD determines that the 
displacement resulted directly from acquisition, rehabilitation, or 
demolition for the project;
    (iii) By a tenant-occupant of a dwelling unit, if any one of the 
following three situations occurs;
    (A) The tenant moves after execution of the Agreement between the 
Sponsor/Borrower and HUD, and the move occurs before the tenant is 
provided written notice offering him or her the opportunity to lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the same 
building/complex upon completion of the project under reasonable terms 
and conditions. Such reasonable terms and conditions include a monthly 
rent and estimated average monthly utility costs that do not exceed the 
greater of:
    (1) The tenant's monthly rent and estimated average monthly utility 
costs before the Agreement; or
    (2) The total tenant payment, as determined under 24 CFR 813.107, if 
the tenant is low-income, or 30 percent of gross household income, if 
the tenant is not low-income; or
    (B) The tenant is required to relocate temporarily, does not return 
to the building/complex, and either:
    (1) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation; or
    (2) Other conditions of the temporary relocation are not reasonable; 
or
    (C) The tenant is required to move to another dwelling in the same 
building/complex but is not offered reimbursement for all reasonable 
out-of-pocket expenses incurred in connection with the move, or other 
conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (f)(1) of this 
section, however, a person does not qualify as a ``displaced person'' 
(and is not eligible for relocation assistance at URA levels), if:
    (i) The person has been evicted for cause based upon a serious or 
repeated violation of the terms and conditions of the lease or occupancy 
agreement, violation of applicable Federal, State, or local law, or 
other good cause, and HUD determines that the eviction was not 
undertaken for the purpose of evading the obligation to provide 
relocation assistance.

[[Page 199]]

    (ii) The person moved into the property after the submission of the 
application and, before signing a lease and commencing occupancy, was 
provided written notice of the project, its possible impact on the 
person (e.g., displacement, temporary relocation or a rent increase) and 
the fact that he or she will not qualify as a displaced person as a 
result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project;
    (3) The Sponsor/Borrower may request, at any time, a HUD 
determination of whether a displacement is or would be covered by this 
section.



Sec. 891.515  Audit requirements.

    Nonprofits receiving assistance under this part are subject to the 
audit requirements in 24 CFR part 45.

     Section 202 Projects for the Elderly or Handicapped--Section 8 
                               Assistance



Sec. 891.520  Definitions applicable to 202/8 projects.

    The following definitions apply to projects for eligible families 
receiving assistance under section 8 of the United States Housing Act of 
1937 in addition to reservations under section 202 of the Housing Act of 
1959 (202/8 projects):
    Adjusted income as defined in part 5, subpart F of subtitle A of 
this title.
    Assisted unit means a dwelling unit eligible for assistance under a 
HAP contract.
    Contract rent means the total amount of rent specified in the HAP 
contract as payable by HUD and the tenant to the Borrower for an 
assisted unit.
    Family (eligible family) means an elderly or handicapped family that 
meets the project occupancy requirements approved by HUD and, if the 
family occupies an assisted unit, meets the requirements described in 
part 813 of this chapter.
    Gross rent is defined in part 5, subpart F of subtitle A of this 
title.
    HAP contract (housing assistance payments contract) means the 
contract entered into by the Borrower and HUD setting forth the rights 
and duties of the parties with respect to the project and the payments 
under the HAP contract.
    Housing assistance payment means the payment made by HUD to the 
Borrower for assisted units as provided in the HAP contract. The payment 
is the difference between the contract rent and the tenant rent. An 
additional payment is made to a family occupying an assisted unit when 
the utility allowance is greater than the total tenant payment. A 
housing assistance payment, known as a ``vacancy payment,'' may be made 
to the Borrower when an assisted unit is vacant, in accordance with the 
terms of the HAP contract.
    Project account means a specifically identified and segregated 
account for each project that is established in accordance with 
Sec. 891.570(b) out of the amounts by which the maximum annual 
commitment exceeds the amount actually paid out under the HAP contract 
each year.
    Project occupancy requirements means that eligible populations to be 
served under the Section 202 program are qualified individuals or 
families whose head of household or spouse is elderly, physically 
handicapped, developmentally disabled, or chronically mentally ill. 
Projects are designed to meet the special needs of the particular tenant 
population that the Borrower was selected to serve. Individuals from one 
eligible group may not be accepted for occupancy in a project designed 
for a different tenant group. However, a Sponsor can propose to house 
eligible tenant groups other than the one it was selected to serve, but 
must apply to the HUD field office for permission to do so, based on a 
plan that demonstrates that it can adequately serve the proposed tenant 
group. Upon review and recommendation by the field office, HUD 
Headquarters will approve or disapprove the request.
    Rent, in the case of a unit in a cooperative project, means the 
carrying charges payable to the cooperative with respect to occupancy of 
the unit.
    Tenant rent means the monthly amount defined in, and determined in 
accordance with part 5, subpart F of subtitle A of this title.

[[Page 200]]

    Total tenant payment means the monthly amount defined in, and 
determined in accordance with part 5, subpart F of subtitle A of this 
title.
    Utility allowance is defined in part 5, subpart F of subtitle A of 
this title and is determined or approved by HUD.
    Utility reimbursement is defined in part 5, subpart F of subtitle A 
of this title.
    Vacancy payment means the housing assistance payment made to the 
Borrower by HUD for a vacant assisted unit if certain conditions are 
fulfilled, as provided in the HAP contract. The amount of the vacancy 
payment varies with the length of the vacancy period and is less after 
the first 60 days of any vacancy.

[61 FR 11956, Mar. 22, 1996, as amended at 66 FR 6225, Jan. 19, 2001; 66 
FR 8174, Jan. 30, 2001]



Sec. 891.525  Amount and terms of financing.

    (a) The amount of financing approved shall be the amount stated in 
the Notice of Section 202 Fund Reservation, including any increase 
approved by the field office prior to the final closing of a loan; 
provided, however, that the amount of financing provided shall not 
exceed the lesser of:
    (1) The dollar amounts stated in paragraphs (b) through (f) of this 
section; or
    (2) The total development cost of the project as determined by the 
field office.
    (b) For such part of the property or project attributable to 
dwelling use (excluding exterior land improvements, as defined by the 
Assistant Secretary) the maximum loan amount, depending on the number of 
bedrooms, may not exceed:
    (1) $28,032 per family unit without a bedroom.
    (2) $32,321 per family unit with one bedroom.
    (3) $38,979 per family unit with two bedrooms.
    (c) In order to compensate for the higher costs incident to 
construction of elevator type structures of sound standards of 
construction and design, the field office may increase the dollar 
limitations per family unit, as provided in paragraph (b) of this 
section, to not to exceed:
    (1) $29,500 per family unit without a bedroom.
    (2) $33,816 per family unit with one bedroom.
    (3) $41,120 per family unit with two bedrooms.
    (d) Reduced loan amount--leaseholds. In the event the loan is 
secured by a leasehold estate rather than a fee simple estate, the 
allowable cost of the property upon which the loan amount is based shall 
be reduced by the value of the leased fee.
    (e) Adjusted loan amount--rehabilitation projects. A loan amount 
that involves a project to be rehabilitated shall be subject to the 
following additional limitations:
    (1) Property held in fee. If the Borrower is the fee simple owner of 
the project not encumbered by a mortgage, the maximum loan amount shall 
not exceed 100 percent of the cost of the proposed rehabilitation.
    (2) Property subject to existing mortgage. If the Borrower owns the 
project subject to an outstanding indebtedness, which is to be 
refinanced with part of the Section 202 loan, the maximum loan amount 
shall not exceed the cost of rehabilitation plus such portion of the 
outstanding indebtedness as does not exceed the fair market value of 
such land and improvements prior to the rehabilitation, as determined by 
the field office.
    (3) Property to be acquired. If the project is to be acquired by the 
Borrower and the purchase price is to be financed with a part of the 
Section 202 loan, the maximum loan amount shall not exceed the cost of 
the rehabilitation plus such portion of the purchase price as does not 
exceed the fair market value of such land and improvements prior to the 
rehabilitation, as determined by the field office.
    (f) Increased Mortgage Limits--High Cost Areas. (1)(i) The Assistant 
Secretary may increase the dollar amount limitations in paragraphs (b) 
and (c) of this section:
    (A) By not to exceed 110 percent in any geographical area in which 
the Assistant Secretary finds that cost levels so require; and

[[Page 201]]

    (B) By not to exceed 140 percent where the Assistant Secretary 
determines it necessary on a project-by-project basis.
    (ii) In no case, however, may any such increase exceed 90 percent, 
where the Assistant Secretary determines that there is involved a 
mortgage purchased or to be purchased by the Government National 
Mortgage Association (GNMA) in implementing its Special Assistance 
Functions under section 305 of the National Housing Act (as section 305 
existed immediately before its repeal on November 30, 1983).
    (2) If the Assistant Secretary finds that because of high costs in 
Alaska, Guam, or Hawaii it is not feasible to construct dwellings 
without the sacrifice of sound standards of construction, design, and 
livability within the limitations of maximum loan amounts provided in 
this section, the principal amount of mortgages may be increased by such 
amounts as may be necessary to compensate for such costs, but not to 
exceed in any event the maximum, including high cost area increases, if 
any, otherwise applicable by more than one-half thereof.
    (g) Loan interest rate. Loans shall bear interest at a rate 
determined by HUD in accordance with this section.
    (1) Annual interest rate. Except as provided under paragraph (g)(2), 
loans shall bear interest at the rate in effect at the time the loan is 
made. The loan interest rate shall not exceed:
    (i) The average yield on the most recently issued 30-year marketable 
obligations of the United States during the 3-month period immediately 
preceding the fiscal year in which the loan is made (adjusted to the 
nearest one-eighth of one percent), plus an allowance to cover 
administrative costs and probable losses under the program; and
    (ii) Any applicable statutory ceiling on the loan interest rate 
including the allowance to cover administrative costs and probable 
losses.
    (2) Optional interest rate. The Borrower may elect an optional loan 
interest rate. To elect the optional rate, the Borrower must request 
that HUD determine the loan interest rate at the time of the Borrower's 
request for conditional or firm commitment for direct loan financing.
    (i) If the Borrower elects the optional loan interest rate, the loan 
interest rate shall not exceed:
    (A) The average yield on the most recently issued 30-year marketable 
obligations of the United States during the 3-month period immediately 
preceding the fiscal year in which the request for commitment is 
submitted (adjusted to the nearest one-eighth of one percent), plus an 
allowance to cover administrative costs and probable losses under the 
program;
    (B) The average yield on the most recently issued 30-year marketable 
obligations of the United States during the 1-month period immediately 
preceding the month in which the request for commitment is submitted 
(adjusted to the nearest one-eighth of one percent), plus an allowance 
to cover the administrative costs and probable losses under the program; 
and (C) Any applicable statutory ceiling on the loan interest rate 
including an allowance to cover administrative costs and probable losses 
under the program.
    (ii) The date of submission of a request for conditional or firm 
commitment is the date that the Borrower submits the complete and 
acceptable request to HUD. The date of the submission of a request for 
commitment will not be affected by any subsequent resubmission of the 
request by the Borrower or by any reprocessing of the request by HUD.
    (iii) The Borrower may withdraw its election of the optional 
interest rate at any time before initial loan closing. If the Borrower 
elected the optional interest rate with its request for conditional 
commitment and withdraws its election, the loan will bear interest at 
the rate determined under paragraph (g)(1) of this section, unless the 
Borrower elects an optional interest rate with its request for firm 
commitment. If the Borrower withdraws its election after the date of 
submission of its request for firm commitment, the loan will bear 
interest at the rate determined under paragraph (g)(1) of this section.
    (iv) If initial loan closing has not occurred within 18 months after 
the Notice of Section 202 Fund Reservation is issued, the Borrower's 
election of the optional rate will be cancelled and the

[[Page 202]]

loan will bear interest at the rate determined under paragraph (g)(1) of 
this section.
    (3) Allowance for administrative costs and probable losses. For the 
purpose of computing the loan interest rate under paragraphs (g) (1) and 
(2) of this section, the allowance to cover administrative costs and 
probable losses under the program is one-fourth of one percent (.25%) 
per annum for both the construction and permanent loan periods.
    (h) Announcement of interest rates. (1) HUD will annually announce 
the loan interest rate determination under paragraph (g)(1) of this 
section by publishing notice of the rate in the Federal Register. The 
Federal Register notice will include a statement explaining the basis 
for the interest rate determination.
    (2) Upon the Borrower's request, HUD will provide available current 
information concerning the determination of the interest rate under 
paragraph (g)(2) of this section.
    (i) The loan shall be secured by a first mortgage on real estate in 
fee simple or long term leasehold. The mortgage shall be repayable 
during a term not to exceed 40 years and shall be subject to such terms 
and conditions as shall be determined by the Assistant Secretary.
    (j) In order to assure HUD of the Borrower's continued commitment to 
the development, management, and operation of the project, a minimum 
capital investment is required of Section 202 Borrowers of one-half of 
one percent (0.5%) of the mortgage amount committed to be disbursed, not 
to exceed the amount of $10,000. Section 106(b) loans made pursuant to 
section 106 of the Housing Act of 1968 may not be utilized to meet the 
minimum capital investment requirement. Such minimum capital investment 
shall be placed in escrow at the initial closing of the Section 202 loan 
and shall be held by HUD or other escrow agent acceptable to the field 
office for not less than a 3-year period from the date of initial 
occupancy and may be used for operating expenses or deficits as may be 
directed by the field office. Any unexpended balance remaining in the 
minimum capital investment account at the end of the escrow period shall 
be returned to the Borrower.



Sec. 891.530  Prepayment privileges.

    (a) The prepayment (whether in whole or in part) or the assignment 
or transfer of physical and financial assets of any Section 202 project 
is prohibited, unless the Secretary gives prior written approval.
    (b) The Secretary may not grant approval unless he or she has 
determined that the prepayment or transfer of the loan is part of a 
transaction that will ensure the continued operation of the project, 
until the original maturity date of the loan, in a manner that will 
provide rental housing for the elderly and handicapped on terms at least 
as advantageous to existing and future tenants as the terms required by 
the original Section 202 loan agreement and any other loan agreements 
entered into under other provisions of law.



Sec. 891.535  Requirements for awarding construction contracts.

    (a) Awards shall be made only to responsible contractors that 
possess the potential ability to perform successfully under the terms 
and conditions of a proposed construction contract. Consideration shall 
be given to such matters as contractor integrity, compliance with public 
policy, record of past performance, and financial and technical 
resources.
    (b) Each Borrower is permitted to use either competitive bidding 
(formal advertising) in selecting a construction contractor or the 
negotiated noncompetitive method of contract award under paragraph (c) 
of this section. In competitive bidding, sealed bids are publicly 
solicited and a firm, fixed-price contract is awarded (in accordance 
with the requirements of this paragraph (b)) to the responsible bidder 
whose bid, conforming with all the material terms and conditions of the 
invitation for bids, is lowest in price. Regardless of which method a 
Borrower uses, there should be an opportunity for minority owned and 
women owned businesses to be awarded a contract.
    (1) Bids shall be solicited from an adequate number of known 
contractors a reasonable time prior to the date set forth for opening of 
bids. In addition,

[[Page 203]]

the invitation shall be publicly advertised.
    (2) The invitation for bids shall specify:
    (i) The name of the Borrower;
    (ii) A brief description of the proposed project and the proposed 
construction contract;
    (iii) A preliminary estimate of cost;
    (iv) That bids will be received at a specified place until a 
specified time at which time and place all bids will be publicly opened;
    (v) The location where the proposed forms of contract and bid 
documents, including plans and specifications, are on file and may be 
obtained on payment of a specified returnable deposit;
    (vi) That a certified check or bank draft or satisfactory bid bond 
in the amount of 5 percent of the bid shall be submitted with the bid;
    (vii) That the successful bidder will be required to provide 
assurance of completion in the form of a performance and payment bond or 
cash escrow; and
    (viii) That the Borrower reserves the right to reject any or all 
bids and to waive any informality.
    (3) The bid form, which must be submitted by all bidders, must 
specify:
    (i) The name of the project;
    (ii) The name and address of the bidder;
    (iii) That the bidder proposes to furnish all labor, materials, 
equipment and services required to construct and complete the project, 
as described in the invitation for bids (including the contents of all 
documents on file), for a specified lump-sum price;
    (iv) That the security specified in paragraph (b)(2)(vi) of this 
section accompanies the bid;
    (v) The period after the bid opening during which the bid shall not 
be withdrawn without the consent of the Borrower;
    (vi) That the bidder will, if notified of acceptance of such bid 
within a specified period after the opening, execute and deliver a 
contract in the prescribed form and furnish the required bond within ten 
days thereafter;
    (vii) That the bidder acknowledges any amendments to the invitation 
for bids; and
    (viii) That the bidder certifies that the bid is in strict 
accordance with all terms of the invitation for bids (including the 
contents of all documents on file) and that the bid is signed by a 
person authorized to bind the bidder.
    (4) Bidding shall be open to all general contractors who furnish the 
security guaranteeing their bid, as described in paragraph (b)(2)(vi) of 
this section.
    (5) All bids shall be opened publicly at the time and place stated 
in the invitation for bids, in the presence of the HUD Regional 
Administrator or his designee.
    (6) A firm, fixed-price contract award shall be made by written 
notice to the responsible bidder whose bid, conforming to the invitation 
for bids, is lowest. The contract may provide for an incentive payment 
to the contractor for an early completion.
    (c) A Sponsor or Borrower may award a negotiated, noncompetitive 
construction contract.



Sec. 891.540  Loan disbursement procedures.

    (a) Disbursements of loan proceeds shall be made directly by HUD to 
or for the account of the Borrower and may be made through an approved 
lender, mortgage servicer, title insurance company, or other agent 
satisfactory to the Borrower and HUD.
    (b) All disbursements to the Borrower shall be made on a periodic 
basis in an amount not to exceed the HUD-approved cost of portions of 
construction or rehabilitation work completed and in place (except as 
modified in paragraph (d) of this section), minus the appropriate 
holdback, as determined by the field office.
    (c) Requisitions for loan disbursements shall be submitted by the 
Borrower on forms to be prescribed by the Assistant Secretary and shall 
be accompanied by such additional information as the field office may 
require in order to approve loan disbursements under subpart E of this 
part, including but not limited to evidence of compliance with the 
Davis-Bacon Act, Department of Labor regulations, all applicable zoning, 
building, and other governmental requirements, and such evidence of 
continued priority of the

[[Page 204]]

mortgage of the Borrower as the Assistant Secretary may prescribe.
    (d) In loan disbursements for building components stored off-site, 
the term building component shall mean any manufactured or preassembled 
part of a structure as defined by HUD and that the Assistant Secretary 
has designated for off-site storage because it is of such size or weight 
that storage of the components required for timely construction progress 
at the construction site is impractical, or weather damage or other 
adverse conditions prevailing at the construction site would make 
storage at the site impractical or unduly costly. Each building 
component must be specifically identified for incorporation into the 
property as provided under paragraph (d)(1)(ii) of this section.
    (1) Storage. (i) A loan disbursement may be made for up to 90 
percent of the invoice value (to exclude costs of transportation and 
storage) of the building components stored off-site if the components 
are stored at a location approved by HUD.
    (ii) Each building component shall be adequately marked so as to be 
readily identifiable in the inventory of the off-site location. It shall 
be kept together with all other building components of the same 
manufacturer intended for use in the same project for which loan 
disbursements have been made and separate and apart from similar units 
not for use in the project.
    (iii) Storage costs, if any, shall be borne the general contractor.
    (2) Responsibility for transportation, storage and insurance of off-
site building components. The general contractor of the project shall 
have the responsibility for:
    (i) Insuring the components in the name of the Borrower while in 
transit and storage; and
    (ii) Delivering or contracting for the delivery of the components to 
the storage area and to the construction site, including payment of 
freight.
    (3) Loan disbursements. (i) Before a loan disbursement for a 
building component stored off-site is made, the Borrower shall:
    (A) Obtain a bill of sale for the component;
    (B) Provide HUD with a security agreement pledged by a first lien on 
the building components with the exception of such other liens or 
encumbrances as may be approved by HUD; and
    (C) File a financing statement in accordance with the Uniform 
Commercial Code.
    (ii) Before each loan disbursement for building components stored 
off-site is made the manufacturer and the general contractor shall 
certify to HUD that the components, in their intended use, comply with 
HUD-approved contract plan and specifications.
    (iii) Loan disbursements may be made only for components stored off-
site in a quantity required to permit uninterrupted installation at the 
site.
    (iv) At no time shall the invoice value of building components being 
stored off-site, for which advances have been insured, represent more 
than 25 percent of the total estimated construction costs for the 
insured mortgaged project as specified in the construction contract. 
Notwithstanding the preceding sentence and other regulatory requirements 
that set bonding requirements, the percentage of total estimated 
construction costs insured by advances under this section may exceed 25 
percent but not 50 percent if the mortgagor furnishes assurance of 
completion in the form of a corporate surety bond for the payment and 
performance each in the amount of 100 percent of the amount of the 
construction contract. In no event will insurance of components stored 
off-site be made in the absence of a payment and performance bond.
    (v) No single loan disbursement which is to be made shall be in an 
amount less than ten thousand ($10,000) dollars.



Sec. 891.545  Completion of project, cost certification, and HUD approvals.

    (a) The Borrower must satisfy the requirements for completion of 
construction and substantial rehabilitation and approvals by HUD before 
submission of a final requisition for disbursement of loan proceeds.
    (b) The Borrower shall submit to the field office all documentation 
required

[[Page 205]]

for final disbursement of the loan, including:
    (1) A Borrower's/Mortgagor's Certificate of Actual Cost, showing the 
actual cost to the mortgagor of the construction contract, 
architectural, legal, organizational, offsite costs, and all other items 
of eligible expense. The certificate shall not include as actual cost 
any kickbacks, rebates, trade discounts, or other similar payments to 
the mortgagor or to any of its officers, directors, or members.
    (2) A verification of the Certificate of Actual Cost by an 
independent Certified Public Accountant or independent public accountant 
acceptable to the field office.
    (3) In the case of projects not subject to competitive bidding, a 
certification of the general contractor (and of such subcontractors, 
material suppliers, and equipment lessors as the Assistant Secretary or 
field office may require), on a form prescribed by the Assistant 
Secretary, as to all actual costs paid for labor, materials, and 
subcontract work under the general contract exclusive of the builder's 
fee and kickbacks, rebates, trade discounts, or other similar payments 
to the general contractor, the mortgagor, or any of its officers, 
directors, stockholders, partners, or members.
    (c) In lieu of the requirements set forth in paragraphs (c)(1) and 
(3) of this section, a simplified form of cost certification prescribed 
by the Secretary may be completed and submitted by the Borrower for 
projects with mortgages of $500,000 or less. The simplified cost 
certification shall be verified by an independent Certified Public 
Accountant or an independent public accountant in a manner acceptable to 
the Secretary.
    (d) If the Borrower's certified costs provided in accordance with 
paragraph (c) or (d) of this section and as approved by HUD are less 
than the loan amount, the contract rents will be reduced accordingly.
    (e) If the contract rents are reduced pursuant to paragraph (e) of 
this section, the maximum annual HAP Contract commitment will be 
reduced. If contract rents are reduced based on cost certification after 
HAP Contract execution, any overpayment after the effective date of the 
Contract will be recovered from the Borrower by HUD.

(Approved by the Office of Management and Budget under control number 
2502-0044)



Sec. 891.555  Smoke detectors.

    (a) Performance requirement. After October 30, 1992, each dwelling 
unit must include at least one battery-operated or hard-wired smoke 
detector, in proper working condition, on each level of the unit. If the 
unit is occupied by hearing-impaired persons, smoke detectors must have 
an alarm system designed for hearing-impaired persons in each bedroom 
occupied by a hearing-impaired person.
    (b) Acceptability criteria. The smoke detector must be located, to 
the extent practicable, in a hallway adjacent to a bedroom, unless the 
unit is occupied by a hearing-impaired person, in which case each 
bedroom occupied by a hearing-impaired person must have an alarm system 
connected to the smoke detector installed in the hallway.



Sec. 891.560  HAP contract.

    (a) HAP contract. The housing assistance payments contract sets 
forth rights and duties of the Borrower and HUD with respect to the 
project and the housing assistance payments.
    (b) HAP contract execution. (1) Upon satisfactory completion of the 
project, the Borrower and HUD shall execute the HAP contract on the form 
prescribed by HUD.
    (2) The effective date of the HAP contract may be earlier than the 
date of execution, but no earlier than the date of HUD's issuance of the 
permission to occupy.
    (3) If the project is completed in stages, the procedures of 
paragraph (b) of this section shall apply to each stage.
    (c) Housing assistance payments to owners under the HAP contract. 
The housing assistance payments made under the HAP contract are:
    (1) Payments to the Borrower to assist eligible families leasing 
assisted units. The amount of the housing assistance payment made to the 
Borrower for an assisted unit leased to an eligible family is equal to 
the difference between the contract rent for the unit and the tenant 
rent payable by the family.

[[Page 206]]

    (2) Payments to the Borrower for vacant assisted units (vacancy 
payments). The amount of and conditions for vacancy payments are 
described in Sec. 891.650. The housing assistance payments are made 
monthly by HUD upon proper requisition by the Borrower, except payments 
for vacancies of more than 60 days, which are made semiannually by HUD 
upon requisition by the Borrower.
    (d) Payment of utility reimbursement. As applicable, a utility 
reimbursement will be paid to a family occupying an assisted unit as an 
additional housing assistance payment. The HAP contract will provide 
that the Borrower will make this payment on behalf of HUD. Funds will be 
paid to the Borrower in trust solely for the purpose of making the 
additional payment. The Borrower may pay the utility reimbursement 
jointly to the family and the utility company, or, if the family and 
utility company consent, directly to the utility company.



Sec. 891.565  Term of HAP contract.

    The term of the HAP contract for assisted units shall be 20 years. 
If the project is completed in stages, the term of the HAP contract for 
assisted units in each stage shall be 20 years. The term of the HAP 
contract for all assisted units in all stages of a project shall not 
exceed 22 years.



Sec. 891.570  Maximum annual commitment and project account.

    (a) Maximum annual commitment. The maximum annual amount that may be 
committed under the HAP contract is the total of the contract rents and 
utility allowances for all assisted units in the project.
    (b) Project account. (1) HUD will establish and maintain a 
specifically identified and segregated project account for each project. 
The project account will be established out of the amounts by which the 
maximum annual commitment exceeds the amount actually paid out under the 
HAP contract each year. HUD will make payments from this account for 
housing assistance payments as needed to cover increases in contract 
rents or decreases in tenant income and other payments for costs 
specifically approved by the Secretary.
    (2) If the HUD-approved estimate of required annual payments under 
the HAP contract for a fiscal year exceeds the maximum annual commitment 
for that fiscal year plus the current balance in the project account, 
HUD will, within a reasonable time, take such steps authorized by 
section 8(c)(6) of the United States Housing Act of 1937 (42 U.S.C. 
1437f note), as may be necessary, to assure that payments under the HAP 
contract will be adequate to cover increases in contract rents and 
decreases in tenant income.



Sec. 891.575  Leasing to eligible families.

    (a) Availability of assisted units for occupancy by eligible 
families. (1) During the term of the HAP contract, a Borrower shall make 
available for occupancy by eligible families the total number of units 
for which assistance is committed under the HAP contract. For purposes 
of this section, making units available for occupancy by eligible 
families means that the Borrower:
    (i) Is conducting marketing in accordance with Sec. 891.600(a);
    (ii) Has leased or is making good faith efforts to lease the units 
to eligible and otherwise acceptable families, including taking all 
feasible actions to fill vacancies by renting to such families;
    (iii) Has not rejected any such applicant family except for reasons 
acceptable to HUD.
    (2) If the Borrower is temporarily unable to lease all units for 
which assistance is committed under the HAP contract to eligible 
families, one or more units may, with the prior approval of HUD, be 
leased to otherwise eligible families that do not meet the income 
eligibility requirements of part 813 of this chapter. Failure on the 
part of the Borrower to comply with these requirements is a violation of 
the HAP contract and grounds for all available legal remedies, including 
an action for specific performance of the HAP contract, suspension or 
debarment from HUD programs, and reduction of the number of units under 
the HAP contract as set forth in paragraph (b) of this section.
    (b) Reduction of number of units covered by the HAP contract. HUD 
may reduce the number of units covered by

[[Page 207]]

the HAP contract to the number of units available for occupancy by 
eligible families if:
    (1) The Borrower fails to comply with the requirements of paragraph 
(a) of this section; or
    (2) Notwithstanding any prior approval by HUD, HUD determines that 
the inability to lease units to eligible families is not a temporary 
problem.
    (c) Restoration. HUD will agree to an amendment of the HAP contract 
to provide for subsequent restoration of any reduction made under 
paragraph (b) of this section if:
    (1) HUD determines that the restoration is justified by demand;
    (2) The Borrower otherwise has a record of compliance with the 
Borrower's obligations under the HAP contract; and
    (3) Contract and budget authority is available.
    (d) Applicability. In accordance with section 555 of the Cranston-
Gonzalez National Affordable Housing Act of 1990, paragraphs (a) and (b) 
of this section apply to all contracts. An owner who had leased an 
assisted unit to an ineligible family consistent with the regulations in 
effect at the time will continue to lease the unit to that family. 
However, the owner must make the unit available for occupancy by an 
eligible family when the ineligible family vacates the unit.
    (e) Occupancy by families that are not elderly or handicapped. HUD 
may permit units in the project to be leased to other than elderly or 
handicapped families if:
    (1) The Borrower has made reasonable efforts to lease assisted and 
unassisted units to eligible families;
    (2) The Borrower has been granted HUD approval under paragraph (a) 
of this section; and
    (3) The Borrower is temporarily unable to achieve or maintain a 
level of occupancy sufficient to prevent financial default and 
foreclosure under the Section 202 loan documents. HUD approval under 
paragraph (e)(3) of this section will be of limited duration. HUD may 
impose terms and conditions to this approval that are consistent with 
program objectives and necessary to protect its interest in the Section 
202 loan.



Sec. 891.580  HAP contract administration.

    HUD is responsible for the administration of the HAP contract.



Sec. 891.585  Default by Borrower.

    (a) HAP contract provisions. The HAP contract will provide:
    (1) That if HUD determines that the Borrower is in default under the 
HAP contract, HUD will notify the Borrower of the actions required to be 
taken to cure the default and of the remedies to be applied by HUD 
including an action for specific performance under the HAP contract, 
reduction or suspension of housing assistance payments and recovery of 
overpayments, where appropriate; and
    (2) That if the Borrower fails to cure the default, HUD has the 
right to terminate the HAP contract or to take other corrective action.
    (b) Loan provisions. Additional provisions governing default under 
the section 202 loan are included in the regulatory agreement and other 
loan documents.



Sec. 891.590  Notice upon HAP contract expiration.

    (a) Notice required. The HAP contract will provide that the Borrower 
will, at least one year before the end of the HAP contract term, notify 
each family leasing an assisted unit of any increase in the amount the 
family will be required to pay as rent as a result of the expiration.
    (b) Service requirements. The notice under paragraph (a) of this 
section shall be accomplished by sending a letter by first class mail, 
properly stamped and addressed, to the family at its address at the 
project, with a proper return address; and serving a copy of the notice 
on any adult person answering the door at the leased dwelling unit, or 
if no adult responds, by placing the notice under or through the door, 
if possible, or else by affixing the notice to the door. Service shall 
not be considered to be effective until both required notices have been 
accomplished. The date on which the notice shall be considered to be 
received by the family shall be the date on which the Borrower mails the 
first class letter provided for in paragraph (b) of this section, or the 
date on which the notice

[[Page 208]]

provided for in paragraph (b) of this section is properly given, 
whichever is later.
    (c) Contents of notice. The notice shall advise each affected family 
that, after the expiration date of the HAP contract, the family will be 
required to bear the entire cost of the rent and that the Borrower may, 
subject to requirements and restrictions contained in the regulatory 
agreement, the lease, and State or local law, change the rent. The 
notice also shall state:
    (1) The actual (if known) or the estimated rent that will be charged 
following the expiration of the HAP contract;
    (2) The difference between the new rent and the total tenant payment 
toward rent under the HAP contract; and
    (3) The date the HAP contract will expire.
    (d) Certification to HUD. The Borrower shall give HUD a 
certification that families have been notified in accordance with this 
section and shall attach to the certification an example of the text of 
the notice.
    (e) Applicability. This section applies to all HAP contracts entered 
into under an agreement to enter into a housing assistance payments 
contract executed on or after October 1, 1981, or entered into under 
such an agreement executed before October 1, 1981 but renewed or amended 
after February 9, 1995.

(Approved by the Office of Management and Budget under control number 
2502-0371)



Sec. 891.595  HAP contract extension or renewal.

    Upon expiration of the term of the HAP contract, HUD and the 
Borrower may agree (subject to available funds) to extend the term of 
the HAP contract or to renew the HAP contract. The number of assisted 
units under the extended or renewed HAP contract shall equal the number 
of assisted units under the original HAP contract, except that:
    (a) HUD and the Borrower may agree to reduce the number of assisted 
units by the number of assisted units that are not occupied by eligible 
families at the time of the extension or renewal; and
    (b) HUD and the Borrower may agree to permit reductions in the 
number of assisted units during the term of the extended or renewed HAP 
contract as assisted units are vacated by eligible families. Nothing in 
this section shall prohibit HUD from reducing the number of units 
covered under the extended or renewed HAP contract in accordance with 
Sec. 891.575(b).



Sec. 891.600  Responsibilities of Borrower.

    (a) Marketing. (1) The Borrower must commence and continue diligent 
marketing activities not later than 90 days before the anticipated date 
of availability for occupancy of the first unit of the project. Market 
activities shall include the provision of notices of availability of 
housing under the program to operators of temporary housing for the 
homeless in the same housing market.
    (2) Marketing must be done in accordance with the HUD-approved 
affirmative fair housing marketing plan and all Federal, State, or local 
fair housing and equal opportunity requirements. The purpose of the plan 
and requirements is to achieve a condition in which eligible families of 
similar income levels in the same housing market have a like range of 
housing choices available to them regardless of discriminatory 
considerations, such as their race, color, creed, religion, familial 
status, disability, sex or national origin. Marketing must also be done 
in accordance with the communication and notice requirements of Section 
504 at 24 CFR 8.6 and 24 CFR 8.54.
    (3) At the time of HAP contract execution, the Borrower must submit 
to HUD a list of leased and unleased assisted units, with a 
justification for the unleased units, in order to qualify for vacancy 
payments for the unleased units.
    (b) Management and maintenance. The Borrower is responsible for all 
management functions. These functions include selection and admission of 
tenants, required reexaminations of incomes for families occupying 
assisted units (or residential spaces, as applicable), collection of 
rents, termination of tenancy and eviction, and all repair and 
maintenance functions (including

[[Page 209]]

ordinary and extraordinary maintenance and replacement of capital 
items). All functions must be performed in compliance with equal 
opportunity requirements.
    (c) Contracting for services. (1) With HUD approval, the Borrower 
may contract with a private or public entity for performance of the 
services or duties required in paragraphs (a) and (b) of this section. 
However, such an arrangement does not relieve the Borrower of 
responsibility for these services and duties. All such contracts are 
subject to the restrictions governing prohibited contractual 
relationships described in Secs. 891.130 and 891.505, if applicable. 
(These prohibitions do not extend to management contracts entered into 
by the Borrower with the Sponsor or its nonprofit affiliate).
    (2) Consistent with the objectives of Executive Order No. 11625 (36 
FR 19967, 3 CFR, 1971-1975 Comp., p. 616; as amended by Executive Order 
No. 12007 (42 FR 42839, 3 CFR, 1977 Comp., p. 139; unless otherwise 
noted); Executive Order No. 12432 (48 FR 32551, 3 CFR, 1983 Comp., p. 
198; unless otherwise noted); and Executive Order No. 12138 (44 FR 
29637, 3 CFR, 1979 Comp., p. 393; unless otherwise noted), the Borrower 
will promote awareness and participation of minority and women's 
business enterprises in contracting and procurement activities.
    (d) Submission of financial and operating statements. The Borrower 
must submit to HUD:
    (1) Within 60 days after the end of each fiscal year of project 
operations, financial statements for the project audited by an 
independent public accountant and in the form required by HUD; and
    (2) Other statements regarding project operation, financial 
conditions and occupancy as HUD may require to administer the housing 
assistance payments contract (HAP contract) or the project assistance 
contract (PAC), as applicable, and to monitor project operations.
    (e) Use of project funds. The Borrower shall maintain a separate 
project fund account in a depository or depositories that are members of 
the Federal Deposit Insurance Corporation or National Credit Union Share 
Insurance Fund and shall deposit all rents, charges, income and revenues 
arising from project operation or ownership to this account. All project 
funds are to be deposited in Federally-insured accounts. All balances 
shall be fully insured at all times, to the maximum extent possible. 
Project funds must be used for the operation of the project (including 
required insurance coverage), to make required principal and interest 
payments on the Section 202 loan, and to make required deposits to the 
replacement reserve under Secs. 891.605 and 891.745 (as applicable), in 
accordance with a HUD-approved budget. Any project funds in the project 
funds account (including earned interest) following the expiration of 
the fiscal year shall be deposited in a Federally-insured residual 
receipts account within 60 days following the end of the fiscal year. 
Withdrawals from this account may be made only for project purposes and 
with the approval of HUD. If there are funds remaining in the residual 
receipts account when the mortgage is satisfied, such funds shall be 
returned to HUD.
    (f) Reports. The Borrower shall submit such reports as HUD may 
prescribe to demonstrate compliance with applicable civil rights and 
equal opportunity requirements.

(Approved by the Office of Management and Budget under control number 
2502-0371)



Sec. 891.605  Replacement reserve.

    (a) Establishment of reserve. The Borrower shall establish and 
maintain a replacement reserve to aid in funding extraordinary 
maintenance, and repair and replacement of capital items.
    (b) Deposits to reserve. The Borrower shall make monthly deposits to 
the replacement reserve in an amount determined by HUD. Further 
requirements regarding the amount of the deposits for projects funded 
under Secs. 891.655 through 891.790 are provided in Sec. 891.745.
    (c) Level of reserve. The reserve must be built up to and maintained 
at a level determined by HUD to be sufficient to meet projected 
requirements. Should the reserve reach that level, the amount of the 
deposit to the reserve may be reduced with the approval of HUD.

[[Page 210]]

    (d) Administration of reserve. Replacement reserve funds must be 
deposited with HUD or in a Federally-insured depository in an interest-
bearing account(s) whose balances are fully insured at all times. All 
earnings including interest on the reserve must be added to the reserve. 
Funds may be drawn from the reserve and used only in accordance with HUD 
guidelines and with the approval of, or as directed by, HUD.



Sec. 891.610  Selection and admission of tenants.

    (a) Written procedures. The Owner shall adopt written tenant 
selection procedures that ensure nondiscrimination in the selection of 
tenants and that are consistent with the purpose of improving housing 
opportunities for very low-income elderly or handicapped persons; and 
reasonably related to program eligibility and an applicant's ability to 
perform the obligations of the lease. Owners shall promptly notify in 
writing any rejected applicant of the grounds for any rejection. 
Additionally, owners shall maintain a written, chronological waiting 
list showing the name, race, gender, ethnicity and date of each person 
applying for the program.
    (b) Application for admission. The Borrower must accept applications 
for admission to the project in the form prescribed by HUD and is 
obligated to confirm all information provided by the applicant families 
on the application. Applicant families must be requested to complete a 
release of information consent for verification of information. 
Applicants applying for assisted units must complete a certification of 
eligibility as part of the application for admission. Applicant families 
must meet the disclosure and verification requirements for Social 
Security Numbers, and sign and submit consent forms for the obtaining of 
wage and claim information from State Wage Information Collection 
Agencies, as provided by 24 CFR part 5, subpart B. Both the Borrower and 
the applicant must complete and sign the application for admission. On 
request, the Borrower must furnish copies of all applications for 
admission to HUD.
    (c) Determination of eligibility and selection of tenants. The 
Borrower is responsible for determining whether applicants are eligible 
for admission and for the selection of families. To be eligible for 
admission, an applicant must be an elderly or handicapped family as 
defined in Sec. 891.505; meet any project occupancy requirements 
approved by HUD; meet the disclosure and verification requirements for 
Social Security Numbers and sign and submit consent forms for obtaining 
of wage and claim information from State Wage Information Collection 
Agencies, as provided by 24 CFR part 5, subpart B; and, if applying for 
an assisted unit, be eligible for admission under part 813 of this 
chapter.
    (d) Unit assignment. If the Borrower determines that the family is 
eligible and is otherwise acceptable and units are available, the 
Borrower will assign the family a unit. The Borrower will assign the 
family a unit of the appropriate size in accordance with HUD's general 
occupancy guidelines. If no suitable unit is available, the Borrower 
will place the family on a waiting list for the project and notify the 
family of when a suitable unit may become available. If the waiting list 
is so long that the applicant would not be likely to be admitted within 
the next 12 months, the Borrower may advise the applicant that no 
additional applications for admission are being considered for that 
reason, except that the Borrower may not refuse to place an applicant on 
the waiting list if the applicant is otherwise eligible for assistance 
and claims that he or she qualifies for a Federal preference as provided 
in 24 CFR part 5, subpart D.
    (e) Ineligibility determination. If the Borrower determines that an 
applicant is ineligible for admission or the Borrower is not selecting 
the applicant for other reasons, the Borrower will promptly notify the 
applicant in writing of the determination, the reasons for the 
determination, and that the applicant has a right to request a meeting 
with the Borrower or managing agent to review the rejection, in 
accordance with HUD requirements. The review, if requested, may not be 
conducted by a member of the Borrower's staff who made the initial 
decision to

[[Page 211]]

reject the applicant. The applicant may also exercise other rights 
(e.g., rights granted under Federal, State, or local civil rights laws) 
if the applicant believes he or she is being discriminated against on a 
prohibited basis. The informal review provisions for the denial of a 
Federal preference are provided in Sec. 5.410(g) of this title.
    (f) Records. Records on applicants and approved eligible families, 
which provide racial, ethnic, gender, handicap status, and place of 
previous residency data required by HUD, must be retained for three 
years.
    (g) Reexamination of family income and composition. (1) Regular 
reexaminations. The Borrower must reexamine the income and composition 
of the family at least every 12 months. Upon verification of the 
information, the Borrower shall make appropriate adjustments in the 
total tenant payment in accordance with part 813 of this chapter and 
determine whether the family's unit size is still appropriate. The 
Borrower must adjust tenant rent and the housing assistance payment and 
must carry out any unit transfer in accordance with the administrative 
instructions issued by HUD. At the time of reexamination under paragraph 
(g)(1) of this section, the Borrower must require the family to meet the 
disclosure and verification requirements for Social Security Numbers, as 
provided by 24 CFR part 5, subpart B.
    (2) Interim reexaminations. The family must comply with the 
provisions in its lease regarding interim reporting of changes in 
income. If the Borrower receives information concerning a change in the 
family's income or other circumstances between regularly scheduled 
reexaminations, the Borrower must consult with the family and make any 
adjustments determined to be appropriate. Any change in the family's 
income or other circumstances that results in an adjustment in the total 
tenant payment, tenant rent and housing assistance payment must be 
verified.
    (3) Continuation of housing assistance payments. (i) A family shall 
remain eligible for housing assistance payments until the total tenant 
payment equals or exceeds the gross rent. The termination of subsidy 
eligibility will not affect the family's other rights under its lease. 
Housing assistance payments may be resumed if, as a result of changes in 
income, rent or other relevant circumstances during the term of the HAP 
contract, the family meets the income eligibility requirements of part 
813 of this chapter and housing assistance is available for the unit 
under the terms of the HAP contract. The family will not be required to 
establish its eligibility for admission to the project under the 
remaining requirements of paragraph (c) of this section.
    (ii) A family's eligibility for housing assistance payments may be 
terminated in accordance with HUD requirements for such reasons as 
failure to submit requested verification information, including 
information related to disclosure and verification of Social Security 
Numbers, or failure to sign and submit consent forms for the obtaining 
of wage and claim information from State wage information collection 
agencies, as provided by 24 CFR part 5, subpart B.

(Approved by the Office of Management and Budget under control number 
2502-0371)



Sec. 891.615  Obligations of the family.

    The obligations of the family are provided in Sec. 891.415.



Sec. 891.620  Overcrowded and underoccupied units.

    If the Borrower determines that because of change in family size, an 
assisted unit is smaller than appropriate for the eligible family to 
which it is leased, or that the assisted unit is larger than 
appropriate, housing assistance payments or project assistance payments 
(as applicable) with respect to the unit will not be reduced or 
terminated until the eligible family has been relocated to an 
appropriate alternate unit. If possible, the Borrower will, as promptly 
as possible, offer the family an appropriate alternate unit. The 
Borrower may receive vacancy payments for the vacated unit if the 
Borrower complies with the requirements of Sec. 891.650.



Sec. 891.625  Lease requirements.

    The lease requirements are provided in Sec. 891.425.

[[Page 212]]



Sec. 891.630  Denial of admission, termination of tenancy, and modification of lease.

    (a) The provisions of part 5, subpart I, of this title apply to 
Section 202 direct loan projects.
    (b) The provisions of part 247 of this title apply to all decisions 
by a Borrower to terminate the tenancy or modify the lease of a family 
residing in a unit.

[66 FR 28798, May 24, 2001]



Sec. 891.635  Security deposits.

    The general requirements for security deposits on assisted units are 
provided in Sec. 891.435. For purposes of subpart E of this part, the 
additional requirements apply:
    (a) The Borrower may require each family occupying an unassisted 
unit (or residential space in a group home) to pay a security deposit 
equal to one month's rent payable by the family.
    (b) The Borrower shall maintain a record of the amount in the 
segregated interest-bearing account that is attributable to each family 
in residence in the project. Annually for all families, and when 
computing the amount available for disbursement under 
Sec. 891.435(b)(3), the Borrower shall allocate to the family's balance 
the interest accrued on the balance during the year. Unless prohibited 
by State or local law, the Borrower may deduct for the family, from the 
accrued interest for the year, the administrative cost of computing the 
allocation to the family's balance. The amount of the administrative 
cost adjustment shall not exceed the accrued interest allocated to the 
family's balance for the year.



Sec. 891.640  Adjustment of rents.

    (a) Contract rents. (1) Adjustment based on approved budget. If the 
HAP contract provides, or has been amended to provide, that contract 
rents will be adjusted based upon a HUD-approved budget, HUD will 
calculate contract rent adjustments based on the sum of the project's 
operating costs and debt service (as calculated by HUD), with 
adjustments for vacancies, the project's nonrental income, and other 
factors that HUD deems appropriate. The calculation will be made on the 
basis of information provided by the Borrower on a form acceptable to 
the Secretary. The automatic adjustment factor described in part 888 of 
this chapter is not used to adjust contract rents under paragraph (a)(1) 
of this section, except to the extent that the amount of the replacement 
reserve deposit is adjusted under Sec. 880.602 of this chapter.
    (2) Annual and special adjustments. If the HAP contract provides 
that contract rents will be adjusted based on the application of an 
automatic adjustment factor and by special additional adjustments:
    (i) Consistent with the HAP contract, contract rents may be adjusted 
in accordance with part 888 of this chapter;
    (ii) Special additional adjustments will be granted, to the extent 
determined necessary by HUD, to reflect increases in the actual and 
necessary expenses of owning and maintaining the assisted units that 
have resulted from substantial general increases in real property taxes, 
assessments, utility rates or similar costs (i.e., assessments and 
utilities not covered by regulated rates), and that are not adequately 
compensated for by an annual adjustment. The Borrower must submit to HUD 
required supporting data, financial statements, and certifications for 
the special additional adjustment.
    (b) Rent for unassisted units. The rent payable by families 
occupying units that are not assisted under the HAP contract shall be 
equal to the contract rent computed under paragraph (a) of this section.

(Approved by the Office of Management and Budget under control number 
2502-0371)



Sec. 891.645  Adjustment of utility allowances.

    In connection with adjustments of contract rents as provided in 
Sec. 891.640(a), the requirements for the adjustment of utility 
allowances provided in Sec. 891.440 apply.



Sec. 891.650  Conditions for receipt of vacancy payments for assisted units.

    (a) General. Vacancy payments under the HAP contract will not be 
made unless the conditions for receipt of these housing assistance 
payments set forth in this section are fulfilled.

[[Page 213]]

    (b) Vacancies during rent-up. For each unit that is not leased as of 
the effective date of the HAP contract, the Borrower is entitled to 
vacancy payments in the amount of 80 percent of the contract rent for 
the first 60 days of vacancy, if the Borrower:
    (1) Complied with Sec. 891.600;
    (2) Has taken and continues to take all feasible actions to fill the 
vacancy; and
    (3) Has not rejected any eligible applicant except for good cause 
acceptable to HUD.
    (c) Vacancies after rent-up. If an eligible family vacates a unit, 
the Borrower is entitled to vacancy payments in the amount of 80 percent 
of the contract rent for the first 60 days of vacancy if the Borrower:
    (1) Certifies that it did not cause the vacancy by violating the 
lease, the HAP contract, or any applicable law;
    (2) Notified HUD of the vacancy or prospective vacancy and the 
reasons for the vacancy immediately upon learning of the vacancy or 
prospective vacancy;
    (3) Has fulfilled and continues to fulfill the requirements 
specified in Sec. 891.600(a)(2) and (3), and in paragraphs (b)(2) and 
(3) of this section; and
    (4) For any vacancy resulting from the Borrower's eviction of an 
eligible family, certifies that it has complied with Sec. 891.630.
    (d) Vacancies for longer than 60 days. If a unit continues to be 
vacant after the 60-day period specified in paragraph (b) or (c) of this 
section, the Borrower may apply to receive additional vacancy payments 
in an amount equal to the principal and interest payments required to 
amortize that portion of the debt service attributable to the vacant 
unit for up to 12 additional months for the unit if:
    (1) The unit was in decent, safe, and sanitary condition during the 
vacancy period for which payment is claimed;
    (2) The Borrower has fulfilled and continues to fulfill the 
requirements specified in paragraph (b) or (c) of this section, as 
appropriate; and
    (3) The Borrower has demonstrated to the satisfaction of HUD that:
    (i) For the period of vacancy, the project is not providing the 
Borrower with revenues at least equal to project expenses (exclusive of 
depreciation) and the amount of payments requested is not more than the 
portion of the deficiency attributable to the vacant unit; and
    (ii) The project can achieve financial soundness within a reasonable 
time.
    (e) Prohibition of double compensation for vacancies. If the 
Borrower collects payments for vacancies from other sources (tenant 
rent, security deposits, payments under Sec. 891.435(c), or governmental 
payments under other programs), the Borrower shall not be entitled to 
collect vacancy payments to the extent these collections from other 
sources plus the vacancy payment exceed contract rent.

(Approved by the Office of Management and Budget under control number 
2502-0371)

    Section 202 Projects for the Nonelderly Handicapped Families and 
                   Individuals--Section 162 Assistance



Sec. 891.655  Definitions applicable to 202/162 projects.

    The following definitions apply to projects for eligible families 
receiving project assistance payments under section 202(h) of the 
Housing Act of 1959 in addition to reservations under section 202 (202/
162 projects):
    Annual income is defined in part 813 of this chapter. In the case of 
an individual residing in an intermediate care facility for the mentally 
retarded that is assisted under Title XIX of the Social Security Act and 
subpart E of this part, the annual income of the individual shall 
exclude protected personal income as provided under that Act. For the 
purposes of determining the total tenant payment, the income of such 
individuals shall be imputed to be the amount that the family would 
receive if assisted under Title XVI of the Social Security Act.
    Assisted unit means a dwelling unit that is eligible for assistance 
under a project assistance contract (PAC).
    Contract rent means the total amount of rent specified in the PAC as 
payable by HUD and the family to the Borrower for an assisted unit or 
residential space.
    Family (eligible family) means a handicapped family (as defined in 
Sec. 891.505)

[[Page 214]]

that meets the project occupancy requirements approved by HUD and, if 
the family occupies an assisted unit, meets the low-income requirements 
described in Sec. 813.102 of this chapter, as modified by the definition 
of ``annual income'' in this section.
    Gross rent is defined in part 813 of this chapter.
    Group home means a single family residential structure designed or 
adapted for occupancy by nonelderly handicapped individuals.
    Housing for handicapped families means housing and related 
facilities occupied by handicapped families that are primarily 
nonelderly handicapped families.
    Independent living complex means a project designed for occupancy by 
nonelderly handicapped families in separate dwelling units where each 
dwelling unit includes a kitchen and a bath.
    Operating costs means expenses related to the provision of housing 
and excludes expenses related to administering, or managing the 
provision of, supportive services. Operating costs include:
    (1) Administrative expenses, including salary and management 
expenses related to the provision of shelter;
    (2) Maintenance expenses, including routine and minor repairs and 
groundskeeping;
    (3) Security expenses;
    (4) Utilities expenses, including gas, oil, electricity, water, 
sewer, trash removal, and extermination services. Operating costs 
exclude telephone services for families;
    (5) Taxes and insurance; and
    (6) Allowances for reserves.
    PAC (project assistance contract) means the contract entered into by 
the Borrower and HUD setting forth the rights and duties of the parties 
with respect to the project and the payments under the PAC.
    Project account means a specifically identified and segregated 
account for each project which is established in accordance with 
Sec. 891.715(b) out of the amounts by which the maximum annual 
commitment exceeds the amount actually paid out under the PAC each year.
    Project assistance payment means the payment made by HUD to the 
Borrower for assisted units as provided in the PAC. The payment is the 
difference between the contract rent and the tenant rent. An additional 
payment is made to a family occupying an assisted unit in an independent 
living complex when the utility allowance is greater than the total 
tenant payment. A project assistance payment, known as a ``vacancy 
payment,'' may be made to the Borrower when an assisted unit (or 
residential space in a group home) is vacant, in accordance with the 
terms of the PAC.
    Rent is defined in Sec. 891.505.
    Tenant rent means the monthly amount defined in, and determined in 
accordance with part 813 of this chapter.
    Total tenant payment means the monthly amount defined in, and 
determined in accordance with part 813 of this chapter.
    Utility allowance is defined in part 813 of this chapter and is 
determined or approved by HUD.
    Utility reimbursement is defined in part 813 of this chapter.
    Vacancy payment means the project assistance payment made to the 
Borrower by HUD for a vacant assisted unit (or residential space in a 
group home) if certain conditions are fulfilled, as provided in the PAC. 
The amount of the vacancy payment varies with the length of the vacancy 
period and is less after the first 60 days of any vacancy.



Sec. 891.660  Project standards.

    (a) Property standards. The property standards for 202/162 projects 
are provided in Sec. 891.120(a).
    (b) Minimum group home standards. The minimum group home standards 
for 202/162 projects are provided in Sec. 891.310(a).
    (c) Accessibility requirements. The accessibility requirements for 
202/162 projects are provided in Secs. 891.120(b) and 891.310(b).
    (d) Smoke detectors. The requirements for smoke detectors for 202/
162 projects are provided in Sec. 891.120(d).



Sec. 891.665  Project size limitations.

    (a) Maximum project size. Projects funded under Secs. 891.655 
through 891.790

[[Page 215]]

are subject to the following project size limitations:
    (1) Group homes may not be designed to serve more than 15 persons on 
one site;
    (2) Independent living complexes for chronically mentally ill 
individuals may not be designed to serve more than 20 persons on one 
site; and
    (3) Independent living complexes for handicapped families in the 
developmental disability or physically handicapped occupancy categories 
may not have more than 24 units nor more than 24 households on one site. 
For the purposes of this section, household has the same meaning as 
handicapped family, except that unrelated handicapped individuals 
sharing a unit (other than a handicapped person living with another 
person who is essential to the handicapped person's well-being) are 
counted as separate households. For independent living complexes for 
handicapped families in the developmental disability or physically 
handicapped occupancy categories, units with three or more bedrooms may 
only be developed to serve handicapped families of one or two parents 
with children.
    (b) Additional limitations. Based on the amount of loan authority 
appropriated for a fiscal year, HUD may have imposed additional 
limitations on the number of units or residents that may be proposed 
under an application for Section 202 loan fund reservation, as published 
in the annual notice of funding availability or the invitation for 
Section 202 fund reservation.
    (c) Exemptions. On a case-by-case basis, HUD may approve independent 
living complexes that do not comply with the project size limitations 
prescribed in paragraphs (a)(2), (a)(3), or (b) of this section. HUD may 
approve such projects if the Sponsor demonstrates:
    (1) The increased number of units is necessary for the economic 
feasibility of the project;
    (2) A project of the size proposed is compatible with other 
residential development and the population density of the area in which 
the project is to be located;
    (3) A project of the size proposed can be successfully integrated 
into the community; and
    (4) A project of the size proposed is marketable in the community.



Sec. 891.670  Cost containment and modest design standards.

    (a) Restrictions on amenities. Projects must be modest in design. 
Except as provided in paragraph (d) of this section, amenities must be 
limited to those amenities, as determined by HUD, that are generally 
provided in unassisted decent, safe, and sanitary housing for low-income 
families in the market area. Amenities not eligible for HUD funding 
include balconies, atriums, decks, bowling alleys, swimming pools, 
saunas, and jacuzzis. Dishwashers, trash compactors, and washers and 
dryers in individual units will not be funded in independent living 
complexes. The use of durable materials to control or reduce 
maintenance, repair, and replacement costs is not an excess amenity.
    (b) Unit sizes. For independent living complexes, HUD will establish 
limitations on the size of units and number of bathrooms, based on the 
number of bedrooms that are in the unit.
    (c) Special spaces and accommodations. (1) The costs of construction 
of special spaces and accommodations may not exceed 10 percent of the 
total cost of construction, except as provided in paragraph (d) of this 
section. Special spaces and accommodations include multipurpose rooms, 
game rooms, libraries, lounges, and, in independent living complexes, 
central kitchens and dining rooms.
    (2) Special spaces and accommodations exclude offices, halls, 
mechanical rooms, laundry rooms, and parking areas; dwelling units and 
lobbies in independent living complexes; and bedrooms, living rooms, 
dining and kitchen areas, shared bathrooms, and resident staff dwelling 
units in group homes.
    (d) Exceptions. HUD may approve a project that does not comply with 
the cost containment and modest design standards of paragraphs (a) 
through (c) of this section if:
    (1) The Sponsor demonstrates a willingness and ability to contribute 
the incremental development cost and continuing operating costs 
associated with

[[Page 216]]

the additional amenities or design features; or
    (2) The proposed project involves substantial rehabilitation or 
acquisition with or without moderate rehabilitation, the additional 
amenities or design features were incorporated into the existing 
structure before the submission of the application, and the total 
development cost of the project with the additional amenities or design 
features does not exceed the cost limits.



Sec. 891.675  Prohibited facilities.

    The requirements for prohibited facilities for 202/162 projects are 
provided in Sec. 891.315, except that Section 202/162 projects may not 
include commercial spaces.



Sec. 891.680  Site and neighborhood standards.

    The general requirements for site and neighborhood standards for 
202/162 projects are provided in Secs. 891.125 and 891.320. In addition 
to the requirements in Secs. 891.125 and 891.320, the following 
requirements apply to 202/162 projects:
    (a) The site must promote greater choice of housing opportunities 
and avoid undue concentration of assisted persons in areas containing a 
high proportion of low-income persons.
    (b) Projects must be located in neighborhoods where other family 
housing is located. Except as provided below, projects may not be 
located adjacent to the following facilities, or in areas where such 
facilities are concentrated: schools or day care centers for handicapped 
persons, workshops, medical facilities, or other housing primarily 
serving handicapped persons. Projects may be located adjacent to other 
housing primarily serving handicapped persons if the projects together 
do not exceed the project size limitations under Sec. 891.665(a).



Sec. 891.685  Prohibited relationships.

    The requirements for prohibited relationships for 202/162 projects 
are provided in Sec. 891.130.



Sec. 891.690  Other Federal requirements.

    In addition to the Federal requirements set forth in 24 CFR part 5, 
other Federal requirements for the 202/162 projects are provided in 
Secs. 891.155 and 891.325.



Sec. 891.695  Operating cost standards.

    The requirements for the operating cost standards are provided in 
Sec. 891.150.



Sec. 891.700  Prepayment of loans.

    (a) Prepayment prohibition. The prepayment (whether in whole or in 
part) or the assignment or transfer of physical and financial assets of 
any Section 202 project is prohibited, unless the Assistant Secretary 
gives prior written approval.
    (b) HUD-approved prepayment. Approval for prepayment or transfer 
will not be granted unless HUD determines that the prepayment or 
transfer of the loan is a part of a transaction that will ensure the 
continued operation of the project until the original maturity date of 
the loan in a manner that will provide rental housing for the 
handicapped families on terms at least as advantageous to existing and 
future tenants as the terms required by the original Section 202 loan 
agreement and any other loan agreements entered into under other 
provisions of law.



Sec. 891.705  Project assistance contract.

    (a) Project assistance contract (PAC). The PAC sets forth rights and 
duties of the Borrower and HUD with respect to the project and the 
project assistance payments.
    (b) PAC execution. (1) Upon satisfactory completion of the project, 
the Borrower and HUD shall execute the PAC on the form prescribed by 
HUD.
    (2) The effective date of the PAC may be earlier than the date of 
execution, but no earlier than the date of HUD's issuance of the 
permission to occupy.
    (3) If the project is completed in stages, the procedures of 
paragraph (b) of this section shall apply to each stage.
    (c) Project assistance payments to owners under the PAC. The project 
assistance payments made under the PAC are:
    (1) Payments to the Borrower to assist eligible families leasing 
assisted units. The amount of the project assistance payment made to the 
Borrower for an assisted unit (or residential space in a group home) 
that is

[[Page 217]]

leased to an eligible family is equal to the difference between the 
contract rent for the unit (or pro rata share of the contract rent in a 
group home) and the tenant rent payable by the family.
    (2) Payments to the Borrower for vacant assisted units (``vacancy 
payments''). The amount of and conditions for vacancy payments are 
described in Sec. 891.790. HUD makes the project assistance payments 
monthly upon proper requisition by the Borrower, except payments for 
vacancies of more than 60 days, which HUD makes semiannually upon 
requisition by the Borrower.
    (d) Payment of utility reimbursement. If applicable, a utility 
reimbursement will be paid to a family occupying an assisted unit in an 
independent living complex as an additional project assistance payment. 
The PAC will provide that the Borrower will make this payment on behalf 
of HUD. Funds will be paid to the Borrower in trust solely for the 
purpose of making the additional payment. The Borrower may pay the 
utility reimbursement jointly to the family and the utility company, or, 
if the family and utility company consent, directly to the utility 
company.



Sec. 891.710  Term of PAC.

    The term of the PAC shall be 20 years. If the project is completed 
in stages, the term of the PAC for each stage shall be 20 years. The 
term of the PAC for stages of a project shall not exceed 22 years.



Sec. 891.715  Maximum annual commitment and project account.

    (a) Maximum annual commitment. The maximum annual amount that may be 
committed under the PAC is the total of the initial contract rents and 
utility allowances for all assisted units in the project.
    (b) Project account. (1) HUD will establish and maintain a 
specifically identified and segregated project account for each project. 
The project account will be established out of the amounts by which the 
maximum annual commitment exceeds the amount actually paid out under the 
PAC each year. HUD will make payments from this account for project 
assistance payments as needed to cover increases in contract rents or 
decreases in tenant income and other payments for costs specifically 
approved by the Secretary.
    (2) If the HUD-approved estimate of required annual payments under 
the PAC for a fiscal year exceeds the maximum annual commitment for that 
fiscal year plus the current balance in the project account, HUD will, 
within a reasonable time, take such steps authorized by section 
202(h)(4)(A) of the Housing Act of 1959, as may be necessary, to assure 
that payments under the PAC will be adequate to cover increases in 
contract rents and decreases in tenant income.



Sec. 891.720  Leasing to eligible families.

    (a) Availability of assisted units for occupancy by eligible 
families. During the term of the PAC, a Borrower shall make all units 
(or residential spaces in a group home) available for eligible families. 
For purposes of this section, making units or residential spaces 
available for occupancy by eligible families means that the Borrower:
    (1) Is conducting marketing in accordance with Sec. 891.740(a);
    (2) Has leased or is making good faith efforts to lease the units or 
residential spaces to eligible and otherwise acceptable families, 
including taking all feasible actions to fill vacancies by renting to 
such families; and (3) Has not rejected any such applicant family except 
for reasons acceptable to HUD. If the Borrower is temporarily unable to 
lease all units or residential spaces to eligible families, one or more 
units or residential spaces may, with the prior approval of HUD, be 
leased to otherwise eligible families that do not meet the income 
requirements of part 813 of this chapter, as modified by Sec. 891.505. 
Failure on the part of the Borrower to comply with these requirements is 
a violation of the PAC and grounds for all available legal remedies, 
including an action for specific performance of the PAC, suspension or 
debarment from HUD programs, and reduction of the number of units (or in 
the case of group homes, reduction of the number of residential spaces) 
under the PAC as set forth in paragraph (b) of this section.
    (b) Reduction of number of units covered by the PAC. HUD may reduce 
the number of units (or in the case of group

[[Page 218]]

homes, the number of residential spaces) covered by the PAC to the 
number of units or residential spaces available for occupancy by 
eligible families if:
    (1) The Borrower fails to comply with the requirements of paragraph 
(a) of this section; or
    (2) Notwithstanding any prior approval by HUD, HUD determines that 
the inability to lease units or residential spaces to eligible families 
is not a temporary problem.
    (c) Restoration. HUD will agree to an amendment of the PAC to 
provide for subsequent restoration of any reduction made under paragraph 
(b) of this section if:
    (1) HUD determines that the restoration is justified by demand;
    (2) The Borrower otherwise has a record of compliance with the 
Borrower's obligations under the PAC; and
    (3) Contract and budget authority is available.
    (d) Occupancy by families that are not handicapped. HUD may relieve 
the Borrower of the requirement that all units in the project (or 
residential spaces in a group home) must be leased to handicapped 
families if:
    (1) The Borrower has made reasonable efforts to lease to eligible 
families;
    (2) The Borrower has been granted HUD approval under paragraph (a) 
of this section; and
    (3) The Borrower is temporarily unable to achieve or maintain a 
level of occupancy sufficient to prevent financial default and 
foreclosure under the Section 202 loan documents. HUD approval under 
this paragraph will be of limited duration. HUD may impose terms and 
conditions to this approval that are consistent with program objectives 
and necessary to protect its interest in the Section 202 loan.



Sec. 891.725  PAC administration.

    HUD is responsible for the administration of the PAC.



Sec. 891.730  Default by Borrower.

    (a) PAC provisions. The PAC will provide:
    (1) That if HUD determines that the Borrower is in default under the 
PAC, HUD will notify the Borrower of the actions required to be taken to 
cure the default and of the remedies to be applied by HUD, including an 
action for specific performance under the PAC, reduction or suspension 
of project assistance payment and recovery of overpayments, as 
appropriate; and
    (2) That if the Borrower fails to cure the default, HUD has the 
right to terminate the PAC or to take other corrective action.
    (b) Loan provisions. Additional provisions governing default under 
the Section 202 loan are included in the regulatory agreement and other 
loan documents.



Sec. 891.735  Notice upon PAC expiration.

    The PAC will provide that the Borrower will, at least 90 days before 
the end of the PAC contract term, notify each family occupying an 
assisted unit (or residential space in a group home) of any increase in 
the amount the family will be required to pay as rent as a result of the 
expiration. The notice of expiration will contain such information and 
will be served in such manner as HUD may prescribe.



Sec. 891.740  Responsibilities of Borrower.

    (a) Marketing. (1) The Borrower must commence and continue diligent 
marketing activities not later than 90 days before the anticipated date 
of availability for occupancy of the group home or the anticipated date 
of availability of the first unit in an independent living complex. 
Market activities shall include the provision of notices of the 
availability of housing under the program to operators of temporary 
housing for the homeless in the same housing market.
    (2) Marketing must be done in accordance with the HUD-approved 
affirmative fair housing marketing plan and all fair housing and equal 
opportunity requirements. The purpose of the plan and requirements is to 
achieve a condition in which eligible families of similar income levels 
in the same housing market have a like range of housing choices 
available to them regardless of their race, color, creed, religion, sex, 
or national origin.
    (3) At the time of PAC execution, the Borrower must submit to HUD a 
list of leased and unleased assisted units (or

[[Page 219]]

in the case of a group home, leased and unleased residential spaces) 
with a justification for the unleased units or residential spaces, in 
order to qualify for vacancy payments for the unleased units or 
residential spaces.
    (b) Management and maintenance. The responsibilities of the Borrower 
with regard to management and maintenance are provided in 
Sec. 891.600(b).
    (c) Contracting for services. The responsibilities of the Borrower 
with regard to contracting for services are provided in Sec. 891.600(c).
    (d) Submission of financial and operating statements. The 
responsibilities of the Borrower with regard to the submission of 
financial and operating statements are provided in Sec. 891.600(d).
    (e) Use of project funds. The responsibilities of the Borrower with 
regard to the use of project funds are provided in Sec. 891.600(e).
    (f) Reports. The responsibilities of the Borrower with regard to 
reports are provided in Sec. 891.600(f).



Sec. 891.745  Replacement reserve.

    The general requirements for the replacement reserve are provided in 
Sec. 891.605. For projects funded under Secs. 891.655 through 891.790, 
the amount of the deposits for the initial year of operation shall be an 
amount equal to 0.6 percent of the cost of the total structures (for new 
construction projects), 0.4 percent of the cost of the initial mortgage 
amount (for all other projects), or such higher rate as required by HUD. 
For the purposes of this section, total structures include main 
buildings, accessory buildings, garages, and other buildings. The amount 
of the deposits will be adjusted each year by the amount of the annual 
adjustment factor as described in part 888 of this chapter.



Sec. 891.750  Selection and admission of tenants.

    (a) Application for admission. The Borrower must accept applications 
for admission to the project in the form prescribed by HUD. Applicant 
families applying for assisted units (or residential spaces in a group 
home) must complete a certification of eligibility as part of the 
application for admission. Applicant families must meet the disclosure 
and verification requirements for Social Security Numbers, and sign and 
submit consent forms for the obtaining of wage and claim information 
from State Wage Information Collection Agencies, as provided by 24 CFR 
part 5, subpart B. Both the Borrower and the applicant family must 
complete and sign the application for admission. On request, the 
Borrower must furnish copies of all applications for admission to HUD.
    (b) Determination of eligibility and selection of tenants. The 
Borrower is responsible for determining whether applicants are eligible 
for admission and for the selection of families. To be eligible for 
admission, an applicant family must be a handicapped family (as defined 
in Sec. 891.505); meet any project occupancy requirements approved by 
HUD; meet the disclosure and verification requirements for Social 
Security Numbers, as provided by 24 CFR part 5, subpart B; and be a low-
income family, as defined in Sec. 813.102 of this chapter (as modified 
by Sec. 891.505). Under certain circumstances, HUD may permit the 
leasing of units (or residential space in a group home) to ineligible 
families under Sec. 891.720.
    (1) Local residency requirements are prohibited. Local residency 
preferences may be applied in selecting tenants only to the extent that 
they are not inconsistent with affirmative fair housing marketing 
objectives and the Borrower's HUD-approved affirmative fair housing 
marketing plan. Preferences may not be based on the length of time the 
applicant has resided in the jurisdiction. With respect to any residency 
preference, persons expected to reside in the community as a result of 
current or planned employment will be treated as residents.
    (2) If the Borrower determines that the family is eligible and is 
otherwise acceptable and units (or residential spaces in a group home) 
are available, the Borrower will assign the family a unit or residential 
space in a group home. If the family will occupy an assisted unit the 
Borrower will assign the family a unit of the appropriate size in 
accordance with HUD standards. If no suitable unit (or residential space 
in a group home) is available, the Borrower will place the family on a 
waiting list

[[Page 220]]

for the project and notify the family when a suitable unit or 
residential space may become available. If the waiting list is so long 
that the applicant would not be likely to be admitted within the next 12 
months, the Borrower may advise the applicant that no additional 
applications for admission are being considered for that reason.
    (3) If the Borrower determines that an applicant is ineligible for 
admission or the Borrower is not selecting the applicant for other 
reasons, the Borrower will promptly notify the applicant in writing of 
the determination, the reasons for the determination, and that the 
applicant has a right to request a meeting to review the rejection, in 
accordance with HUD requirements. The review, if requested, may not be 
conducted by the member of the Borrower's staff who made the initial 
decision to reject the applicant. The applicant may also exercise other 
rights if the applicant believes the applicant is being discriminated 
against on the basis of race, color, creed, religion, sex, handicap, or 
national origin.
    (4) Records on applicants and approved eligible families, which 
provide racial, ethnic, gender and place of previous residency data 
required by HUD, must be maintained and retained for three years.
    (c) Reexamination of family income and composition--(1) Regular 
reexaminations. If the family occupies an assisted unit (or residential 
space in a group home), the Borrower must reexamine the income and 
composition of the family at least every 12 months. Upon verification of 
the information, the Borrower shall make appropriate adjustments in the 
total tenant payment in accordance with part 813 of this chapter, as 
modified by Sec. 891.505, and determine whether the family's unit size 
is still appropriate. The Borrower must adjust tenant rent and the 
project assistance payment and must carry out any unit transfer in 
accordance with HUD standards. At the time of the annual reexamination 
of family income and composition, the Borrower must require the family 
to meet the disclosure and verification requirements for Social Security 
Numbers, as provided by 24 CFR part 5, subpart B.
    (2) Interim reexamination. If the family occupies an assisted unit 
(or residential space in a group home) the family must comply with 
provisions in the lease regarding interim reporting of changes in 
income. If the Borrower receives information concerning a change in the 
family's income or other circumstances between regularly scheduled 
reexaminations, the Borrower must consult with the family and make any 
adjustments determined to be appropriate. Any change in the family's 
income or other circumstances that results in an adjustment in the total 
tenant payment, tenant rent, and project assistance payment must be 
verified.
    (3) Continuation of project assistance payment. (i) A family 
occupying an assisted unit (or residential space in a group home) shall 
remain eligible for project assistance payment until the total tenant 
payment equals or exceeds the gross rent (or a pro rata share of the 
gross rent in a group home). The termination of subsidy eligibility will 
not affect the family's other rights under its lease. Project assistance 
payment may be resumed if, as a result of changes in income, rent, or 
other relevant circumstances during the term of the PAC, the family 
meets the income eligibility requirements of part 813 of this chapter 
(as modified in Sec. 891.505) and project assistance is available for 
the unit or residential space under the terms of the PAC. The family 
will not be required to establish its eligibility for admission to the 
project under the remaining requirements of paragraph (b) of this 
section.
    (ii) A family's eligibility for project assistance payment may also 
be terminated in accordance with HUD requirements for such reasons as 
failure to submit requested verification information, including failure 
to meet the disclosure and verification requirements for Social Security 
Numbers, or failure to sign and submit consent forms for the obtaining 
of wage and claim information from State Wage Information Collection 
Agencies, as provided by 24 CFR part 5, subpart B.

(Approved by the Office of Management and Budget under control number 
2502-0204 and 2505-0267)

[[Page 221]]



Sec. 891.755  Obligations of the family.

    The obligations of the family are provided in Sec. 891.415.



Sec. 891.760  Overcrowded and underoccupied units.

    The requirements for overcrowded and underoccupied units are 
provided in Sec. 891.620.



Sec. 891.765  Lease requirements.

    The lease requirements are provided in Sec. 891.425.



Sec. 891.770  Denial of admission, termination of tenancy, and modification of lease.

    (a) The provisions of part 5, subpart I, of this title apply to 
Section 202 direct loan projects with Section 162 assistance for 
disabled families.
    (b) The provisions of part 247 of this title apply to all decisions 
by a Borrower to terminate the tenancy or modify the lease of a family 
residing in a unit (or residential space in a group home).

[66 FR 28798, May 24, 2001]



Sec. 891.775  Security deposits.

    The general requirements for security deposits on assisted units are 
provided in Sec. 891.435. For purposes of subpart E of this part, the 
additional requirements in Sec. 891.635 apply.



Sec. 891.780  Adjustment of rents.

    (a) Contract rents. HUD will calculate contract rent adjustments 
based on the sum of the project's operating costs and debt service (as 
calculated by HUD), with adjustments for vacancies, the project's 
nonrental income, and other factors that HUD deems appropriate. The 
calculation will be made on the basis of information provided by the 
Borrower on a form prescribed by HUD.
    (b) Rent for unassisted units. The rent payable by families 
occupying units or residential spaces that are not assisted under the 
PAC shall be equal to the contract rent computed under paragraph (a) of 
this section.



Sec. 891.785  Adjustment of utility allowances.

    In connection with adjustments of contract rents as provided in 
Sec. 891.780(a), the requirements for the adjustment of utility 
allowances provided in Sec. 891.440 apply.



Sec. 891.790  Conditions for receipt of vacancy payments for assisted units.

    (a) General. Vacancy payments under the PAC will not be made unless 
the conditions for receipt of these project assistance payments set 
forth in this section are fulfilled.
    (b) Vacancies during rent-up. For each unit (or residential space in 
a group home) that is not leased as of the effective date of the PAC, 
the Borrower is entitled to vacancy payments in the amount of 80 percent 
of the contract rent (or pro rata share of the contract rent for a group 
home) for the first 60 days of vacancy, if the Borrower:
    (1) Complied with Sec. 891.740;
    (2) Has taken and continues to take all feasible actions to fill the 
vacancy; and
    (3) Has not rejected any eligible applicant except for good cause 
acceptable to HUD.
    (c) Vacancies after rent-up. If an eligible family vacates an 
assisted unit (or residential space in a group home) the Borrower is 
entitled to vacancy payments in the amount of 80 percent of the contract 
rent (or pro rata share of the contract rent in a group home) for the 
first 60 days of vacancy if the Borrower:
    (1) Certifies that it did not cause the vacancy by violating the 
lease, the PAC, or any applicable law;
    (2) Notified HUD of the vacancy or prospective vacancy and the 
reasons for the vacancy immediately upon learning of the vacancy or 
prospective vacancy;
    (3) Has fulfilled and continues to fulfill the requirements 
specified in Sec. 891.740(a)(2) and (3), and in paragraphs (b)(2) and 
(3) of this section; and
    (4) For any vacancy resulting from the Borrower's eviction of an 
eligible family, certifies that it has complied with Sec. 891.770.
    (d) Vacancies for longer than 60 days. If an assisted unit (or 
residential space in

[[Page 222]]

a group home) continues to be vacant after the 60-day period specified 
in paragraph (b) or (c) of this section, HUD may approve additional 
vacancy payments for 60-day periods up to a total of 12 months in an 
amount equal to the principal and interest payments required to amortize 
that portion of the debt service attributable to the vacant unit (or, in 
the case of group homes, the residential space). Such payments may be 
approved if:
    (1) The unit was in decent, safe, and sanitary condition during the 
vacancy period for which payment is claimed;
    (2) The Borrower has fulfilled and continues to fulfill the 
requirements specified in paragraph (b) or (c) of this section, as 
appropriate; and
    (3) The Borrower has demonstrated to the satisfaction of HUD that:
    (i) For the period of vacancy, the project is not providing the 
Borrower with revenues at least equal to project expenses (exclusive of 
depreciation) and the amount of payments requested is not more than the 
portion of the deficiency attributable to the vacant unit (or 
residential space in a group home); and
    (ii) The project can achieve financial soundness within a reasonable 
time.
    (e) Prohibition of double compensation for vacancies. If the 
Borrower collects payments for vacancies from other sources (tenant 
rent, security deposits, payments under Sec. 891.435(c), or governmental 
payments under other programs), the Borrower shall not be entitled to 
collect vacancy payments to the extent these collections from other 
sources plus the vacancy payment exceed contract rent.

[[Page 223]]



CHAPTER IX--OFFICE OF ASSISTANT SECRETARY FOR PUBLIC AND INDIAN HOUSING, 
               DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT




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


  Editorial Note: For nomenclature changes to chapter IX, see 59 FR 
14090, Mar. 25, 1994.
Part                                                                Page
901             Public Housing Management Assessment Program         225
902             Public Housing Assessment System............         254
903             Public housing agency plans.................         283
904             Low rent housing homeownership opportunities         296
905             The Public Housing Capital Fund Program.....         341
906             Section 5(h) homeownership program (Eff. 
                    until 4-10-03)..........................         346
906             Public housing homeownership programs (Eff. 
                    4-10-03)................................         357
908             Electronic transmission of required family 
                    data for public housing, indian housing, 
                    and the section 8 rental certificate, 
                    rental voucher, and moderate 
                    rehabilitation programs.................         367
941             Public housing development..................         368
943             Public housing agency consortia and joint 
                    ventures................................         392
945             Designated housing--public housing 
                    designated for occupancy by disabled, 
                    elderly, or disabled and elderly 
                    families................................         397
954             Indian home program.........................         406
960             Admission to, and occupancy of, public 
                    housing.................................         432
963             Public Housing--Contracting with resident-
                    owned businesses........................         447
964             Tenant participation and tenant 
                    opportunities in public housing.........         450
965             PHA-owned or leased projects--general 
                    provisions..............................         467
966             Public housing lease and grievance procedure         479
968             Public housing modernization................         492

[[Page 224]]

969             PHA-owned projects--continued operation as 
                    low-income housing after completion of 
                    debt service............................         530
970             Public housing program--demolition or 
                    disposition of public housing projects..         532
971             Assessment of the reasonable revitalization 
                    potential of certain public housing 
                    required by law.........................         548
972             Conversion of public housing to tenant-based 
                    assistance..............................         554
982             Section 8 tenant based assistance: housing 
                    choice voucher program..................         555
983             Section 8 project-based certificate program.         636
984             Section 8 and public housing family self-
                    sufficiency program.....................         660
985             Section 8 management assessment program 
                    (SEMAP).................................         674
990             Annual contributions for operating subsidy..         685
1000            Native American housing activities..........         710
1001-1002

[Reserved]

1003            Community development block grants for 
                    Indian tribes and Alaska native villages         752
1004

[Reserved]

1005            Loan guarantees for Indian housing..........         788
1006            Native Hawaiian Housing Block Grant Program.         792
1007            Section 184A loan guarantees for Native 
                    Hawaiian housing........................         808
1008-1699

[Reserved]

[[Page 225]]



PART 901--PUBLIC HOUSING MANAGEMENT ASSESSMENT PROGRAM--Table of Contents




Sec.
901.1  Purpose, program scope and applicability.
901.5  Definitions.
901.10  Indicator 1, vacancy rate and unit turnaround time.
901.15  Indicator 2, modernization.
901.20  Indicator 3, rents uncollected.
901.25  Indicator 4, work orders.
901.30  Indicator 5, annual inspection of units and systems.
901.35  Indicator 6, financial management.
901.40  Indicator 7, resident services and community building.
901.45  Indicator 8, security.
901.100  Data collection.
901.105  Computing assessment score.
901.110  PHA request for exclusion or modification of an indicator or 
          component.
901.115  PHA score and status.
901.120  State/Area Office functions.
901.125  PHA right of appeal.
901.130  Incentives.
901.135  Memorandum of Agreement.
901.140  Removal from troubled status and mod-troubled status.
901.145  Improvement Plan.
901.150  PHAs troubled with respect to the program under section 14 
          (mod-troubled PHAs).
901.155  PHMAP public record.
901.200  Events or conditions that constitute substantial default.
901.205  Notice and response.
901.210  Interventions.
901.215  Contracting and funding.
901.220  Resident participation in competitive proposals to manage the 
          housing of a PHA.
901.225  Resident petitions for remedial action.
901.230  Receivership.
901.235  Technical assistance.

    Authority: 42 U.S.C. 1437d(j); 42 U.S.C. 3535(d).

    Source: 61 FR 68933, Dec. 30, 1996, unless otherwise noted.



Sec. 901.1  Purpose, program scope and applicability.

    (a) Purpose. This part establishes the Public Housing Management 
Assessment Program (PHMAP) to implement and augment section 6(j) of the 
1937 Act. PHMAP provides policies and procedures to identify public 
housing agency (PHA), resident management corporation (RMC), and 
alternative management entity (AME) management capabilities and 
deficiencies, recognize high-performing PHAs, designate criteria for 
defining troubled PHAs and PHAs that are troubled with respect to the 
program under section 14 (Public Housing Modernization Program), and 
improve the management practices of troubled PHAs and mod-troubled PHAs.
    (b) Program scope. The PHMAP reflects only one aspect of PHA 
operations, i.e., the results of its management performance in specific 
program areas. The PHMAP should not be viewed by PHAs, the Department or 
other interested parties as an all-inclusive and encompassing view of 
overall PHA operations. When viewing overall PHA operations, other 
criteria, including but not limited to, the quality of a PHA's housing 
stock, compliance issues, Fair Housing and Equal Opportunity issues, 
Board knowledge and oversight of PHA operation, etc., even though not 
covered under the PHMAP, are necessary in order to determine the 
adequacy of overall PHA operations. The PHMAP can never be designed to 
be the sole method of viewing a PHA's overall operations. A PHA should 
not manipulate the PHMAP system in the short-term in order to achieve a 
higher PHMAP score, thereby delaying or negating long-term improvement. 
Making a correct and viable long-term decision (doing the right thing) 
may hurt a PHA in the short-term (i.e., lower PHMAP score), but will 
result in improved housing stock and better overall management of a PHA 
over the long-term and a higher sustainable PHMAP score.
    (c) Applicability. (1)(i) The provisions of this part remain 
applicable to PHAs and RMC/AMEs as described in paragraph (c)(1)(ii) 
until September 30, 1999.
    (ii) The provisions of this part apply to PHAs and RMC/AMEs as noted 
in the sections of this part. The management assessment of an RMC/AME 
differs from that of a PHA. Because an RMC/AME enters into a contract 
with a PHA to perform specific management functions on a development-by-
development or program basis, and because the scope of the management 
that is undertaken varies, not every indicator that applies to a PHA 
would be applicable to each RMC/AME.

[[Page 226]]

    (2) Due to the fact that the PHA and not the RMC/AME is ultimately 
responsible to the Department under the ACC, a PHA's score will be based 
on all of the developments covered by the ACC, including those with 
management functions assumed by an RMC or AME (pursuant to a court 
ordered receivership agreement, if applicable). This is necessary 
because of the limited nature of an RMC/AME's management functions and 
the regulatory and contractual relationships among the Department, PHAs 
and RMC/AMEs.
    (3) A significant feature of RMC management is that 24 CFR 
Secs. 964.225 (d) and (h) provide that a PHA may enter into a management 
contract with an RMC, but a PHA may not contract for assumption by the 
RMC of the PHA's underlying responsibilities to the Department under the 
Annual Contributions Contract (ACC).
    (4) When a PHA's management functions have been assumed by an AME:
    (i) If the AME assumes only a portion of the PHA's management 
functions, the provisions of this part that apply to RMCs apply to the 
AME (pursuant to a court ordered receivership agreement, if applicable); 
or
    (ii) If the AME assumes all, or substantially all, of the PHA's 
management functions, the provisions of this part that apply to PHAs 
apply to the AME (pursuant to a court ordered receivership agreement, if 
applicable).
    (5) To ensure quality management results from a contract between an 
AME and a PHA, or between an AME and HUD, minimum performance criteria 
that relate to the PHMAP indicators, as applicable, should be included 
in such contract. Failure to meet the performance criteria would be a 
basis for termination of the contract. However, even in the absence of 
explicit contractual provisions, this part applies to AMEs in accordance 
with paragraph (b)(4) of this section, above.

[61 FR 68933, Dec. 30, 1996, as amended at 63 FR 46617, Sept. 1, 1998]



Sec. 901.5  Definitions.

    Actual vacancy rate is the vacancy rate calculated by dividing the 
total number of vacancy days in the fiscal year by the total number of 
unit days available in the fiscal year.
    Adjusted vacancy rate is the vacancy rate calculated after excluding 
the vacancy days that are exempted for any of the eligible reasons. It 
is calculated by dividing the total number of adjusted vacancy days in 
the fiscal year by the total number of unit days available in the fiscal 
year.
    Alternative management entity (AME) is a receiver, private 
contractor, private manager, or any other entity that is under contract 
with a PHA, or that is otherwise duly appointed or contracted (for 
example, by court order, pursuant to a court ordered receivership 
agreement, if applicable, or agency action), to manage all or part of a 
PHA's operations. Depending upon the scope of PHA management functions 
assumed by the AME, in accordance with Sec. 901.1(b)(2), the AME is 
treated as a PHA or an RMC for purposes of this part and, as 
appropriate, the terms PHA and RMC include AME.
    Assessed fiscal year is the PHA fiscal year that has been reviewed 
for management performance using the PHMAP indicators. Unless otherwise 
indicated, the assessed fiscal year is the immediate past fiscal year of 
a PHA.
    Assistant Secretary means the Assistant Secretary for Public and 
Indian Housing of the Department.
    Available units are dwelling units, (occupied or vacant) under a 
PHA's Annual Contributions Contract, that are available for occupancy, 
after excluding or adjusting for units approved for non-dwelling use, 
employee-occupied units, and vacant units approved for deprogramming 
(units approved for demolition, disposition or units that have been 
combined).
    Average number of days for non-emergency work orders to be completed 
is calculated by dividing the total of the:
    (1) Number of days in the assessed fiscal year it takes to close 
active non-emergency work orders carried over from the previous fiscal 
year;
    (2) The number of days it takes to complete non-emergency work 
orders issued and closed during the assessed fiscal year; and
    (3) The number of days all active non-emergency work orders are open 
in the assessed fiscal year, but not completed, by the total number of 
non-

[[Page 227]]

emergency work orders used in the calculation of paragraphs (1), (2) and 
(3), of this definition.
    Average turnaround time is the annual average of the total number of 
turnaround days between the latter of the legal expiration date of the 
immediate past lease or the actual move-out date of the former tenant 
(whenever that occurred, including in some previous fiscal year) and the 
date a new lease takes effect. Each time an individual unit is re-
occupied (turned around) during the fiscal year, the turnaround days for 
that unit shall be counted in the turnaround time. Average turnaround 
time is calculated by dividing the total turnaround days for all units 
re-occupied during the assessed fiscal year by the total number of units 
re-occupied during the assessed fiscal year.
    Cash reserve is the amount of cash available for operations at the 
end of an annual reporting period after all necessary expenses of a PHA 
or development have been paid or funds have been set-aside for such 
payment. The cash reserve computation takes into consideration both 
short-term accounts receivable and accounts payable.
    Confirmatory review is an on-site review for the purposes of State/
Area Office verification of the performance level of a PHA, the accuracy 
of the data certified to by a PHA, and the accuracy of the data derived 
from State/Area Office files.
    Correct means to improve performance in an indicator to a level of 
grade C or better.
    Cyclical work orders are work orders issued for the performance of 
routine maintenance work that is done in the same way at regular 
intervals. Examples of cyclical work include, but are not limited to, 
mopping hallways; picking up litter; cleaning a trash compactor; 
changing light bulbs in an entryway; etc. (Cyclical work orders should 
not be confused with preventive maintenance work orders.)
    Deficiency means any grade below C in an indicator or component.
    Down time is the number of calendar days a unit is vacant between 
the later of the legal expiration date of the immediate past lease or 
the actual move-out date of the former resident, and the date the work 
order is issued to maintenance.
    Dwelling rent refers to the resident dwelling rent charges reflected 
in the monthly rent roll(s) and excludes utility reimbursements, 
retroactive rent charges, and any other charges not specifically 
identified as dwelling rent, such as maintenance charges, excess utility 
charges and late charges.
    Dwelling rent to be collected means dwelling rent owed by residents 
in possession at the beginning of the assessed fiscal year, plus 
dwelling rent charged to residents during the assessed fiscal year.
    Dwelling rent uncollected means unpaid resident dwelling rent owed 
by any resident in possession during the assessed fiscal year, but not 
collected by the last day of the assessed fiscal year.
    Dwelling unit is a unit that is either leased or available for lease 
to eligible low-income residents.
    Effective lease date is the date when the executed lease contract 
becomes effective and rent is due and payable and all other provisions 
of the lease are enforceable.
    Emergency means physical work items that pose an immediate threat to 
life, health, safety, or property, or that are related to fire safety.
    Emergency status abated means that an emergency work order is either 
fully completed, or the emergency condition is temporarily eliminated 
and no longer poses an immediate threat. If the work cannot be 
completed, emergency status can be abated by transferring the resident 
away from the emergency situation.
    Emergency work order is a work order, from any source, that involves 
a circumstance that poses an immediate threat to life, health, safety or 
property, or that is related to fire safety.
    Employee occupied units refers to units that are occupied by 
employees who are required to live in public housing as a condition of 
their job, rather than the occupancy being subject to the normal 
resident selection process.
    HQS means Housing Quality Standards as set forth at Sec. 982.401 of 
this title, except that Sec. 982.401(j) of this title

[[Page 228]]

does not apply and instead part 35, subparts A, B, L, and R of this 
title apply.
    Improvement Plan is a document developed by a PHA, specifying the 
actions to be taken, including timetables, that may be required to 
correct deficiencies where the grade for an indicator is a grade D or E, 
and shall be required to correct deficiencies of failed indicators, 
identified as a result of the PHMAP assessment when an MOA is not 
required.
    Indicators means the major categories of PHA management functions 
that are examined under this program for assessment purposes. The list 
of individual indicators and the way they are graded is provided in 
Sec. 901.10 through Sec. 901.45.
    Lease up time is the number of calendar days between the time the 
repair of a unit is completed and a new lease takes effect.
    Local occupancy/housing codes are the minimum standards for human 
occupancy, if any, as defined by the local ordinance(s) of the 
jurisdiction in which the housing is located.
    Maintenance plan is a comprehensive annual plan of a PHA's 
maintenance operation that contains the fiscal year's estimated work 
schedule and which is supported by a staffing plan, contract schedule, 
materials and procurement plan, training, and approved budget. The plan 
should establish a strategy for meeting the goals and time frames of the 
facilities management planning and execution, capital improvements, 
utilities, and energy conservation activities.
    Major systems include, but are not limited to, structural/building 
envelopes which include roofing, walls, windows, hardware, flashing and 
caulking; mechanical systems which include heating, ventilation, air 
conditioning, plumbing, drainage, underground utilities (gas, electrical 
and water), and fuel storage tanks; electrical systems which include 
underground systems, above ground systems, elevators, emergency 
generators, door bells, electronic security devices, fire alarms, smoke 
alarms, outdoor lighting, and indoor lighting (halls, stairwells, public 
areas and exit signs); and transformers.
    Make ready time is the number of calendar days between the date the 
unit is referred to maintenance for repair by a work order and occupancy 
is notified that the unit is ready for re-occupancy.
    Memorandum of Agreement (MOA) is a binding contractual agreement 
between a PHA and HUD that is required for each PHA designated as 
troubled and/or mod-troubled. The MOA sets forth target dates, 
strategies and incentives for improving management performance; and 
provides sanctions if performance does not result.
    Move-out date is the actual date when the resident vacates the unit, 
which may or may not coincide with the legal expiration of the lease 
agreement.
    Non-emergency work order is any work order that covers a situation 
that is not an immediate threat to life, health, safety, or property, or 
that is unrelated to fire safety.
    Percent of dwelling rent uncollected is calculated by dividing the 
amount of dwelling rent uncollected by the total dwelling rent to be 
collected.
    PHA means a public housing agency. As appropriate in accordance with 
Sec. 901.1(b)(2), PHA also includes AME.
    Percentage of emergency work orders completed within 24 hours is the 
ratio of emergency work orders completed in 24 hours to the total number 
of emergency work orders. The formula for calculating this ratio is: 
total emergency work orders completed (or emergency status abated) in 24 
hours or less, divided by the total number of emergency work orders.
    PHA-generated work order is any work order that is issued in 
response to a request from within the PHA administration.
    Preventive maintenance program is a program under which certain 
maintenance procedures are systematically performed at regular intervals 
to prevent premature deterioration of buildings and systems. The program 
is developed and regularly updated by the PHA, and fully documents what 
work is to be performed and at what intervals. The program includes a 
system for tracking the performance of preventive maintenance work.
    Preventive maintenance work order is any work done on a regularly 
scheduled basis in order to prevent deterioration or breakdowns in 
individual units or major systems.

[[Page 229]]

    Reduced actual vacancy rate within the previous three years is a 
comparison of the vacancy rate in the PHMAP assessment year (the 
immediate past fiscal year) with the vacancy rate of that fiscal year 
which is two years previous to the assessment year. It is calculated by 
subtracting the vacancy rate in the assessment year from the vacancy 
rate in the earlier year. If a PHA elects to certify to the reduction of 
the vacancy rate within the previous three years, the PHA shall retain 
justifying documentation to support its certification for HUD post 
review.
    Reduced the average time it took to complete non-emergency work 
orders during the previous three years is a comparison of the average 
time it took to complete non-emergency work orders in the PHMAP 
assessment year (the immediate past fiscal year) with the average time 
it took to complete non-emergency work orders of that fiscal year which 
is two years previous to the assessment year. It is calculated by 
subtracting the average time it took to complete non-emergency work 
orders in the PHMAP assessment year from the average time it took to 
complete non-emergency work orders in the earlier year. If a PHA elects 
to certify to the reduction of the average time it took to complete non-
emergency work orders during the previous three years, the PHA shall 
retain justifying documentation to support its certification for HUD 
post review.
    Resident-generated work order is a work order issued by a PHA in 
response to a request from a lease holder or family member of a lease 
holder.
    Resident management corporation (RMC) means the entity that proposes 
to enter into, or that enters into, a management contract with a PHA in 
accordance with 24 CFR 964.120. As appropriate in accordance with 
Sec. 901.1(b)(2), RMC also includes AME.
    Routine operating expenses are all expenses which are normal, 
recurring fiscal year expenditures. Routine expenses exclude those 
expenditures that are not normal fiscal year expenditures and those that 
clearly represent work of such a substantial nature that the expense is 
clearly not a routine occurrence.
    Standards equivalent to HQS are housing/occupancy inspection 
standards that are equal to HUD's Section 8 HQS.
    Substantial default means a PHA is determined by the Department to 
be in violation of statutory, regulatory or contractual provisions or 
requirements, whether or not these violations would constitute a 
substantial default or a substantial breach under explicit provisions of 
the relevant Annual Contributions Contract (ACC) or a Memorandum of 
Agreement.
    Unit days available are the number of days that the available units 
were available for occupancy in a PHA fiscal year. Unit days available 
are calculated by adding the number of days that each unit was available 
for occupancy in the year.
    Units approved for non-dwelling use refers to units approved for 
non-dwelling status for use in the provision of social services, 
charitable purposes, public safety activities and resident services, or 
used in the support of economic self-sufficiency and anti-drug 
activities.
    Units vacant due to circumstances and actions beyond the PHA's 
control are dwelling units that are vacant due to circumstances and 
actions that prohibit the PHA from occupying, selling, demolishing, 
rehabilitating, reconstructing, consolidating or modernizing the units. 
For purposes of this definition, circumstances and actions beyond the 
PHA's control are limited to:
    (1) Litigation. The effect of court litigation such as a court order 
or settlement agreement that is legally enforceable. An example would be 
units that are required to remain vacant because of fire/police 
investigations, coroner's seal, or as part of a court-ordered or HUD-
approved desegregation effort.
    (2) Laws. Federal or State laws of general applicability, or their 
implementing regulations. This category does not include units vacant 
only because they do not meet minimum housing and building code 
standards pertaining to construction or habitability under Federal, 
State, or local laws or regulations, except when these code violations 
are caused for reasons beyond the control of the PHA, rather than as a 
result of management and/or

[[Page 230]]

maintenance failures by the PHA. Examples of exempted units under this 
category are: vacant units that are documented to be uninhabitable for 
reasons beyond the PHA's control due to high/unsafe levels of hazardous/
toxic materials (e.g., lead-based paint or asbestos), by order of the 
local health department or directive of the Environmental Protection 
Agency, where the conditions causing the order are beyond the control of 
the PHA, and units kept vacant because they became structurally unsound 
(e.g., buildings damaged by shrinking/swelling subsoil or similar 
situations). Other examples are vacant units in which resident property 
has been abandoned, but only if State law requires the property to be 
left in the unit for some period of time, and only for the period stated 
in the law and vacant units required to remain vacant because of fire/
police investigations, coroner's seal, or court order.
    (3) Changing market conditions. Example of units in this category 
are small PHAs that are located in areas experiencing population loss or 
economic dislocations that face a lack of demand in the foreseeable 
future, even after the PHA has taken aggressive marketing and outreach 
measures. Where a PHA claims extraordinary market conditions, the PHA 
will be expected to document the market conditions to which it refers 
(the examples of changing population base and competing projects are the 
simplest), the explicit efforts that the PHA has made to address those 
conditions, the likelihood that those conditions will be mitigated or 
eliminated in the near term, and why the market conditions are such that 
the PHA is prevented from occupying, selling, demolishing, 
rehabilitating, reconstructing, consolidating or modernizing the vacant 
units. In order to justify the adjustment, the PHA will need to document 
the specific market conditions that exist and document marketing and 
outreach efforts. The PHA will need to describe when the downturn in 
market conditions occurred, the location(s) of the unit(s) effected, the 
likelihood that these circumstances will be mitigated or eliminated in 
the near term and why the market conditions are such that they are 
preventing the PHA from occupying, selling, demolishing, rehabilitating, 
reconstructing, consolidating, or modernizing the vacant units.
    (4) Natural disasters. These are vacant units that are documented to 
be uninhabitable because of damaged suffered as a result of natural 
disasters such as floods, earthquakes, hurricanes, tornadoes, etc. In 
the case of a ``natural disaster'' claim, the PHA would be expected to 
point to a proclamation by the President or the Governor that the county 
or other local area in question has, in fact, been declared a disaster 
area.
    (5) Insufficient funding. Lack of funding for otherwise approvable 
applications made for Comprehensive Improvement Assistance Program 
(CIAP) funds (only PHAs with less than 250 units are eligible to apply 
and compete for CIAP funds). This definition will cease to be used if 
CIAP is replaced by a formula grant.
    (6) Casualty Losses. Vacant units that have sustained casualty 
damage and are pending resolution of insurance claims or settlements, 
but only until the insurance claim is adjusted, i.e., funds to repair 
the unit are received. The vacancy days exempted are those included in 
the period of time between the casualty loss and the receipt of funds 
from the insurer to cover the loss in whole or in part.
    Vacancy day is a day when an available unit is not under lease by an 
eligible low-income resident. The maximum number of vacancy days for any 
unit is the number of days in the year, regardless of the total amount 
of time the unit has been vacant. Vacancy days are calculated by adding 
the total number of days vacant from all available units that were 
vacant for any reason during the PHA's fiscal year.
    Vacant unit is an available unit that is not under lease to an 
eligible low-income family.
    Vacant unit turnaround work order is a work order issued that 
directs a vacant unit to be made ready to lease to a new resident and 
reflects all work items to prepare the unit for occupancy.

[[Page 231]]

    Vacant unit undergoing modernization as defined in 24 CFR 
Sec. 990.102. In addition, the following apply when computing time 
periods for a vacant unit undergoing modernization:
    (1) If a unit is vacant prior to being included in a HUD-approved 
modernization budget, those vacancy days that had accumulated prior to 
the unit being included in the modernization budget must be included as 
non-exempted vacancy days in the calculation.
    (2) The calculation of turnaround time for newly modernized units 
starts when the unit in turned over to the PHA from the contractor and 
ends when the lease is effective for the new or returning resident. 
Thus, the total turnaround time would be the sum of the pre-
modernization vacancy time, and the post-modernization vacancy time.
    (3) Unit-by-unit documentation, showing when a vacant unit was 
included in a HUD-approved modernization budget, when it was released to 
the PHA by the contractor, and when a new lease is effective for the new 
or returning resident, must be maintained by the PHA.
    (4) Units remaining vacant more than two FFYs after the FFY in which 
the modernization funds are approved, may no longer be exempted from the 
calculation of the adjusted vacancy rate if the construction contract 
has not been let. These units may be exempted again, but only after a 
contract is let.
    Vacant units approved for deprogramming exist when a PHA's 
application for the demolition and/or disposition of public housing 
units has received written approval from HUD; or when a PHA's 
application to combine/convert has received written approval from HUD.
    Work order is a directive, containing one or more tasks issued to a 
PHA employee or contractor to perform one or more tasks on PHA property. 
This directive describes the location and the type of work to be 
performed; the date and time of receipt; date and time issued to the 
person or entity performing the work; the date and time the work is 
satisfactorily completed; the parts used to complete the repairs and the 
cost of the parts; whether the damage was caused by the resident; and 
the charges to the resident for resident-caused damage. The work order 
is entered into a log which indicates at all times the status of all 
work orders as to type (emergency, non-emergency), when issued, and when 
completed.
    Work order completed during the immediate past fiscal year is any 
work order that is completed during the PHA's fiscal year regardless of 
when it may have been received.
    Work order deferred for modernization is any work order that is 
combined with similar work items and completed within the current PHMAP 
assessment year, or will be completed in the following year if there are 
less than three months remaining before the end of the PHA fiscal year 
when the work order was generated, under the PHA's modernization program 
or other PHA capital improvements program.

[61 FR 68933, Dec. 30, 1996, as amended at 64 FR 50228, Sept. 15, 1999]



Sec. 901.10  Indicator #1, vacancy rate and unit turnaround time.

    This indicator examines the vacancy rate, a PHA's progress in 
reducing vacancies, and unit turnaround time. Implicit in this indicator 
is the adequacy of the PHA's system to track the duration of vacancies 
and unit turnaround, including down time, make ready time, and lease up 
time. This indicator has a weight of x2.
    (a) For the calculation of the actual and adjusted vacancy rate 
(and, if applicable, unit turnaround time), the following three 
categories of units (as defined in the rule at Sec. 901.5), that are not 
considered available for occupancy, will be completely excluded from the 
computation:
    (1) Units approved for non-dwelling use.
    (2) Employee occupied units.
    (3) Vacant units approved for deprogramming (i.e., demolition, 
disposition or units that have been combined).
    (b) For the calculation of the adjusted vacancy rate and turnaround 
time, the vacancy days for units in the following categories (fully 
defined in the rule at Sec. 901.5) shall be exempted:

[[Page 232]]

    (1) Vacant units undergoing modernization as defined in Sec. 901.5.
    (i) Only vacancy days associated with a vacant unit that meets the 
conditions of being a unit undergoing modernization will be exempted 
when calculating the adjusted vacancy rate or, if necessary, the unit 
turnaround time. Neither vacancy days associated with a vacant unit 
prior to that unit meeting the conditions of being a unit undergoing 
modernization nor vacancy days associated with a vacant unit after 
construction work has been completed or after the time period for 
placing the vacant unit under construction has expired shall be 
exempted.
    (ii) A PHA must maintain the following documentation to support its 
determination of vacancy days associated with a vacant unit that meets 
the conditions of being a unit undergoing modernization:
    (A) The date on which the unit met the conditions of being a vacant 
unit undergoing modernization: and
    (B) The date on which construction work was completed or the time 
period for placing the vacant unit under construction expired.
    (2) Units vacant due to circumstances and actions beyond the PHA's 
control as defined in Sec. 901.5. Such circumstances and actions may 
include:
    (i) Litigation, such as a court order or settlement agreement that 
is legally enforceable.
    (ii) Federal or, when not preempted by Federal requirements, State 
law of general applicability or their implementing regulations.
    (iii) Changing market conditions.
    (iv) Natural disasters.
    (v) Insufficient funding for otherwise approvable applications made 
for CIAP funds. This definition will cease to be used if CIAP is 
replaced by a formula grant.
    (vi) Vacant units that have sustained casualty damage and are 
pending resolution of insurance claims or settlements, but only until 
the insurance claim is adjusted. A PHA must maintain at least the 
following documentation to support its determination of vacancy days 
associated with units vacant due to circumstances and actions beyond the 
PHA's control:
    (A) The date on which the unit met the conditions of being a unit 
vacant due to circumstances and actions beyond the PHA's control;
    (B) Documentation identifying the specific conditions that 
distinguish the unit as a unit vacant due to circumstances and actions 
beyond the PHA's control as defined in Sec. 901.5;
    (C) The actions taken by the PHA to eliminate or mitigate these 
conditions; and
    (D) The date on which the unit ceased to meet such conditions and 
became an available unit.
    (E) This supporting documentation is subject to review and may be 
requested for verification purposes at any time by HUD.
    (c) Component 1, vacancy percentage and progress in 
reducing vacancies. A PHA may choose whether to use the actual vacancy 
rate, the adjusted vacancy rate or a reduction in the actual vacancy 
rate within the past three years. This component has a weight of x2.
    (1) Grade A: The PHA is in one of the following categories:
    (i) An actual vacancy rate of 3% or less; or
    (ii) An adjusted vacancy rate of 2% or less.
    (2) Grade B: The PHA is in one of the following categories:
    (i) An actual vacancy rate of greater than 3% and less than or equal 
to 5%; or
    (ii) An adjusted vacancy rate of greater than 2% and less than or 
equal to 3%.
    (3) Grade C: The PHA is in one of the following categories:
    (i) An actual vacancy rate of greater than 5% and less than or equal 
to 7%; or
    (ii) An adjusted vacancy rate of greater than 3% and less than or 
equal to 4%; or
    (iii) The PHA has reduced its actual vacancy rate by at least 15 
percentage points within the past three years and has an adjusted 
vacancy rate of greater than 4% and less than or equal to 5%.
    (4) Grade D: The PHA is in one of the following categories:
    (i) An actual vacancy rate of greater than 7% and less than or equal 
to 9%; or

[[Page 233]]

    (ii) An adjusted vacancy rate of greater than 4% and less than or 
equal to 5%; or
    (iii) The PHA has reduced its actual vacancy rate by at least 10 
percentage points within the past three years and has an adjusted 
vacancy rate of greater than 5% and less than or equal to 6%.
    (5) Grade E: The PHA is in one of the following categories:
    (i) An actual vacancy rate of greater than 9% and less than or equal 
to 10%; or
    (ii) An adjusted vacancy rate of greater than 5% and less than or 
equal to 6%; or
    (iii) The PHA has reduced its actual vacancy rate by at least five 
percentage points within the past three years and has an adjusted 
vacancy rate of greater than 6% and less than or equal to 7%.
    (6) Grade F: The PHA is in one of the following categories:
    (i) An actual vacancy rate greater than 10%; or
    (ii) An adjusted vacancy rate greater than 7%; or
    (iii) An adjusted vacancy rate of greater than 6% and less than or 
equal to 7% and the PHA has not reduced its actual vacancy rate by at 
least five percentage points within the past three years.
    (d) Component 2, unit turnaround time. This component is to 
be completed only by PHAs scoring below a grade C on component 
1. This component has a weight of x1.
    (1) Grade A: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is less than or equal to 
20 calendar days.
    (2) Grade B: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 20 
calendar days and less than or equal to 25 calendar days.
    (3) Grade C: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 25 
calendar days and less than or equal to 30 calendar days.
    (4) Grade D: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 30 
calendar days and less than or equal to 40 calendar days.
    (5) Grade E: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 40 
calendar days and less than or equal to 50 calendar days.
    (6) Grade F: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 50 
calendar days.



Sec. 901.15  Indicator #2, modernization.

    This indicator is automatically excluded if a PHA does not have a 
modernization program. This indicator examines the amount of unexpended 
funds over three Federal fiscal years (FFY) old, the timeliness of fund 
obligation, the adequacy of contract administration, the quality of the 
physical work, and the adequacy of budget controls. All components apply 
to both the Comprehensive Grant Program (CGP), the Comprehensive 
Improvement Assistance Program (CIAP) and lead based paint risk 
assessment funding (1992-1995), and any successor program(s) to the CGP 
or the CIAP. Only components 3, 4 and 5 apply 
to funding under the Hope VI Program and the Vacancy Reduction Program 
for the assessment of this indicator. This indicator has a weight of 
x1.5.
    (a) Component 1, unexpended funds over three Federal fiscal 
years (FFYs) old. This component has a weight of x1.
    (1) Grade A: The PHA has no unexpended funds over three FFYs old or 
is able to demonstrate one of the following:
    (i) The unexpended funds are leftover funds and will be recaptured 
after audit;
    (ii) There are no unexpended funds past the original HUD-approved 
implementation schedule deadline that allowed longer than three FFYs; or

[[Page 234]]

    (iii) The PHA has extended the time within 30 calendar days after 
the expenditure deadline and the time extension is based on reasons 
outside of the PHA's control, such as need to use leftover funds, 
unforeseen delays in contracting or contract administration, litigation, 
material shortages, or other non-PHA institutional delay.
    (2) Grade F: The PHA has unexpended funds over three FFYs old and is 
unable to demonstrate any of the above three conditions; or the PHA 
requests HUD approval of a time extension based on reasons within the 
PHA's control.
    (b) Component 2, timeliness of fund obligation. This 
component has a weight of x2.
    (1) Grade A: The PHA has no unobligated funds over two FFYs old or 
is able to demonstrate one of the following:
    (i) There are no unobligated funds past the original HUD-approved 
implementation schedule deadline that allowed longer than two FFYs; or
    (ii) The PHA has extended the time within 30 calendar days after the 
obligation deadline and the time extension is based on reasons outside 
of the PHA's control, such as need to use leftover funds, unforeseen 
delays in contracting or contract administration, litigation, material 
shortages, or other non-PHA institutional delay.
    (2) Grade F: The PHA has unobligated funds over two FFYs old and is 
unable to demonstrate any of the above two conditions; or the PHA 
requests HUD approval of a time extension based on reasons within the 
PHA's control.
    (c) Component 3, adequacy of contract administration. For 
the purposes of this component, the term ``findings'' means a violation 
of a statute, regulation, Annual Contributions Contract or other HUD 
requirement in the area of contract administration. This component has a 
weight of x1.5.
    (1) Grade A: Based on HUD's latest on-site inspection and/or audit, 
where a written report was provided to the PHA at least 75 calendar days 
before the end of the PHA's fiscal year, there were no findings related 
to contract administration or the PHA has corrected all such findings.
    (2) Grade C: Based on HUD's latest on-site inspection and/or audit, 
where a written report was provided to the PHA at least 75 calendar days 
before the end of the PHA's fiscal year, there were findings related to 
contract administration and the PHA is in the process of correcting all 
such findings.
    (3) Grade F: Based on HUD's latest on-site inspection and/or audit, 
where a written report was provided to the PHA at least 75 calendar days 
before the end of the PHA's fiscal year, there were findings related to 
contract administration and the PHA has failed to initiate corrective 
actions for all such findings or those actions which have been initiated 
have not resulted in progress toward remedying all of the findings.
    (d) Component 4, quality of the physical work. For the 
purposes of this component, the term ``findings'' means a violation of a 
statute, regulation, Annual Contributions Contract or other HUD 
requirement in the area of physical work quality. This component has a 
weight of x3.
    (1) Grade A: Based on HUD's latest on-site inspection, where a 
written report was provided to the PHA at least 75 calendar days before 
the end of the PHA's fiscal year, there were no findings related to the 
quality of the physical work or the PHA has corrected all such findings.
    (2) Grade C: Based on HUD's latest on-site inspection, where a 
written report was provided to the PHA at least 75 calendar days before 
the end of the PHA's fiscal year, there were findings related to the 
quality of the physical work and the PHA is in the process of correcting 
all such findings.
    (3) Grade F: Based on HUD's latest on-site inspection, where a 
written report was provided to the PHA at least 75 calendar days before 
the end of the PHA's fiscal year, there were findings related to the 
quality of the physical work and the PHA has failed to initiate 
corrective actions for all such findings or those actions which have 
been initiated have not resulted in progress toward remedying all of the 
findings.
    (e) Component 5, adequacy of budget controls. This 
component has a weight of x1.

[[Page 235]]

    (1) Grade A: The CGP PHA has expended modernization funds only on 
work in HUD-approved CGP Annual Statements, CGP Five-Year Action Plan, 
excluding emergencies, or CIAP Budgets, or has obtained prior HUD 
approval for required budget revisions. The CIAP PHA has expended 
modernization funds only on work in HUD-approved CIAP Budgets or related 
to originally approved work or has obtained prior HUD approval for 
required budget revisions.
    (2) Grade F: The CGP PHA has expended modernization funds on work 
that was not in HUD-approved CGP Annual Statements, CGP Five-Year Action 
Plan, excluding emergencies, or CIAP Budgets, and did not obtain prior 
HUD approval for required budget revisions. The CIAP PHA has expended 
modernization funds on work that was not in HUD-approved CIAP Budgets or 
was unrelated to originally approved work and did not obtain prior HUD 
approval for required budget revisions.



Sec. 901.20  Indicator #3, rents uncollected.

    This indicator examines the PHA's ability to collect dwelling rent 
owed by residents in possession during the immediate past fiscal year by 
measuring the balance of dwelling rents uncollected as a percentage of 
total dwelling rents to be collected. This indicator has a weight of 
x1.5.
    (a) Grade A: The percent of dwelling rent uncollected in the 
immediate past fiscal year is less than or equal to 2% of total dwelling 
rent to be collected.
    (b) Grade B: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 2% and less than or equal to 
4% of total dwelling rent to be collected.
    (c) Grade C: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 4% and less than or equal to 
6% of total dwelling rent to be collected.
    (d) Grade D: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 6% and less than or equal to 
8% of total dwelling rent to be collected.
    (e) Grade E: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 8% and less than or equal to 
10% of total dwelling rent to be collected.
    (f) Grade F: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 10% of total dwelling rent to 
be collected.



Sec. 901.25  Indicator #4, work orders.

    This indicator examines the average number of days it takes for a 
work order to be completed, and any progress a PHA has made during the 
preceding three years to reduce the period of time required to complete 
maintenance work orders. Implicit in this indicator is the adequacy of 
the PHA's work order system in terms of how a PHA accounts for and 
controls its work orders, and its timeliness in preparing/issuing work 
orders. This indicator has a weight of x1.
    (a) Component 1, emergency work orders completed within 24 
hours or less. All emergency work orders should be tracked. This 
component has a weight of x1.
    (1) Grade A: At least 99% of emergency work orders were completed or 
the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (2) Grade B: At least 98% of emergency work orders were completed or 
the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (3) Grade C: At least 97% of emergency work orders were completed or 
the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (4) Grade D: At least 96% of emergency work orders were completed or 
the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (5) Grade E: At least 95% of emergency work orders were completed or 
the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (6) Grade F: Less than 95% of emergency work orders were completed 
or the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (b) Component 2, average number of days for non-emergency 
work orders to be

[[Page 236]]

completed. All non-emergency work orders that were active during the 
assessed fiscal year should be tracked (including preventive maintenance 
work orders), except non-emergency work orders from the date they are 
deferred for modernization, issued to prepare a vacant unit for re-
rental, or issued for the performance of cyclical maintenance. This 
component has a weight of x2.
    (1) Grade A: All non-emergency work orders are completed within an 
average of 25 calendar days.
    (2) Grade B: All non-emergency work orders are completed within an 
average of greater than 25 calendar days and less than or equal to 30 
calendar days.
    (3) Grade C: The PHA is in one of the following categories:
    (i) All non-emergency work orders are completed within an average of 
greater than 30 calendar days and less than or equal to 40 calendar 
days; or
    (ii) The PHA has reduced the average time it takes to complete non-
emergency work orders by at least 15 days during the past three years.
    (4) Grade D: The PHA is in one of the following categories:
    (i) All non-emergency work orders are completed within an average of 
greater than 40 calendar days and less than or equal to 50 calendar 
days; or
    (ii) The PHA has reduced the average time it takes to complete non 
emergency work orders by at least 10 days during the past three years.
    (5) Grade E: The PHA is in one of the following categories:
    (i) All non-emergency work orders are completed within an average of 
greater than 50 calendar days and less than or equal to 60 calendar 
days; or
    (ii) The PHA has reduced the average time it takes to complete non-
emergency work orders by at least 5 days during the past three years.
    (6) Grade F: The PHA is in one of the following categories:
    (i) All non-emergency work orders are completed within an average of 
greater than 60 calendar days; or
    (ii) The PHA has not reduced the average time it takes to complete 
non-emergency work orders by at least 5 days during the past three 
years.



Sec. 901.30  Indicator #5, annual inspection of units and systems.

    This indicator examines the percentage of units that a PHA inspects 
on an annual basis in order to determine short-term maintenance needs 
and long-term modernization needs. Implicit in this indicator is the 
adequacy of the PHA's inspection program in terms of the quality of a 
PHA's inspections, and how a PHA tracks both inspections and needed 
repairs. All occupied units are required to be inspected. This indicator 
has a weight of x1.
    (a) Units in the following categories are exempted and not included 
in the calculation of the total number of units, and the number and 
percentage of units inspected. Systems that are a part of individual 
dwelling units that are exempted, or a part of a building where all of 
the dwelling units in the building are exempted, are also exempted from 
the calculation of this indicator:
    (1) Occupied units where the PHA has made two documented attempts to 
inspect, but only if the PHA can document that appropriate legal action 
(up to and including eviction of the legal or illegal occupant(s)), has 
been taken under provisions of the lease to ensure that the unit can be 
subsequently inspected.
    (2) Units vacant for the full immediate past fiscal year for the 
following reasons, as defined at Sec. 901.5:
    (i) Vacant units undergoing modernization; and
    (ii) Vacant units that are documented to be uninhabitable for 
reasons beyond a PHA's control due to:
    (A) High/unsafe levels of hazardous/toxic materials;
    (B) By order of the local health department or a directive of the 
Environmental Protection Agency;
    (C) Natural disasters; and
    (D) Units kept vacant because they became structurally unsound.
    (b) Component 1, annual inspection of units. This component 
refers to an inspection using either the local housing and/or occupancy 
code, or HUD HQS if there is no local code or the local code is less 
stringent that HQS. This component has a weight of x1.

[[Page 237]]

    (1) Grade A: The PHA inspected 100% of its units and, if repairs 
were necessary for local code or HQS compliance, either completed the 
repairs during the inspection; issued work orders for the repairs; or 
referred similar work items to the current year's modernization program, 
or to next year's modernization program if there are less than three 
months remaining before the end of the PHA fiscal year when the 
inspection was completed.
    (2) Grade B: The PHA inspected less than 100% but at least 97% of 
its units and, if repairs were necessary for local code or HQS 
compliance, either completed the repairs during the inspection; issued 
work orders for the repairs; or referred similar work items to the 
current year's modernization program, or to next year's modernization 
program if there are less than three months remaining before the end of 
the PHA fiscal year when the inspection was completed.
    (3) Grade C: The PHA inspected less than 97% but at least 95% of its 
units and, if repairs were necessary for local code or HQS compliance, 
either completed the repairs during the inspection; issued work orders 
for the repairs; or referred similar work items to the current year's 
modernization program, or to next year's modernization program if there 
are less than three months remaining before the end of the PHA fiscal 
year when the inspection was completed.
    (4) Grade D: The PHA inspected less than 95% but at least 93% of its 
units and, if repairs were necessary for local code or HQS compliance, 
either completed the repairs during the inspection; issued work orders 
for the repairs; or referred similar work items to the current year's 
modernization program, or to next year's modernization program if there 
are less than three months remaining before the end of the PHA fiscal 
year when the inspection was completed.
    (5) Grade E: The PHA inspected less than 93% but at least 90% of its 
units and, if repairs were necessary for local code or HQS compliance, 
either completed the repairs during the inspection; issued work orders 
for the repairs; or referred similar work items to the current year's 
modernization program, or to next year's modernization program if there 
are less than three months remaining before the end of the PHA fiscal 
year when the inspection was completed.
    (6) Grade F: The PHA has failed to inspect at least 90% of its 
units; or failed to correct deficiencies during the inspection or issue 
work orders for the repairs; or failed to refer similar work items to 
the current year's modernization program, or to next year's 
modernization program if there are less than three months remaining 
before the end of the PHA fiscal year when the inspection was completed.
    (c) Component 2, annual inspection of systems. This 
component examines the inspection of buildings and sites according to 
the PHA's maintenance plan, including performing the required 
maintenance on structures and systems in accordance with manufacturer's 
specifications and established local/PHA standards, or issuing work 
orders for maintenance/repairs, or including identified deficiencies in 
this year's modernization program, or in next year's modernization 
program if there are less than three months remaining before the end of 
the PHA fiscal year when the inspection was performed. This component 
has a weight of x1.
    (1) Grade A: The PHA inspected all major systems at 100% of its 
buildings and sites, according to its maintenance plan. The inspection 
included performing the required maintenance on structures and systems 
in accordance with manufacturer's specifications and established local/
PHA standards, or issuing work orders for maintenance/repairs, or 
including identified deficiencies in the current year's modernization 
program, or in next year's modernization program if there are less than 
three months remaining before the end of the PHA fiscal year when the 
inspection was performed.
    (2) Grade B: The PHA inspected all major systems of at least a 
minimum of 90% but less than 100% of its buildings and sites, according 
to its maintenance plan. The inspection included performing the required 
maintenance

[[Page 238]]

on structures and systems in accordance with manufacturer's 
specifications and established local/PHA standards, or issuing work 
orders for maintenance/ repairs, or including identified deficiencies in 
the current year's modernization program, or in next year's 
modernization program if there are less than three months remaining 
before the end of the PHA fiscal year when the inspection was performed.
    (3) Grade C: The PHA inspected all major systems of at least a 
minimum of 80% but less than 90% of its buildings and sites, according 
to its maintenance plan. The inspection included performing the required 
maintenance on structures and systems in accordance with manufacturer's 
specifications and established local/PHA standards, or issuing work 
orders for maintenance/ repairs, or including identified deficiencies in 
the current year's modernization program, or in next year's 
modernization program if there are less than three months remaining 
before the end of the PHA fiscal year when the inspection was performed.
    (4) Grade D: The PHA inspected all major systems of at least a 
minimum of 70% but less than 80% of its buildings and sites, according 
to its maintenance plan. The inspection included performing the required 
maintenance on structures and systems in accordance with manufacturer's 
specifications and established local/PHA standards, or issuing work 
orders for maintenance/ repairs, or including identified deficiencies in 
the current year's modernization program, or in next year's 
modernization program if there are less than three months remaining 
before the end of the PHA fiscal year when the inspection was performed.
    (5) Grade E: The PHA inspected all major systems of at least a 
minimum of 60% but less than 70% of its buildings and sites, according 
to its maintenance plan. The inspection included performing the required 
maintenance on structures and systems in accordance with manufacturer's 
specifications and established local/PHA standards, or issuing work 
orders for maintenance/ repairs, or including identified deficiencies in 
the current year's modernization program, or in next year's 
modernization program if there are less than three months remaining 
before the end of the PHA fiscal year when the inspection was performed.
    (6) Grade F: The PHA failed to inspect all major systems of at least 
60% of its buildings and sites and perform the required maintenance on 
these systems in accordance with manufacturers specifications and 
established local/PHA standards, or did not issue work orders for 
maintenance/repairs, or did not include identified deficiencies in the 
current year's modernization program, or in next year's modernization 
program if there are less than three months remaining before the end of 
the PHA fiscal year when the inspection was performed.



Sec. 901.35  Indicator #6, financial management.

    This indicator examines the amount of cash reserves available for 
operations and, for PHAs scoring below a grade C on cash reserves, 
energy/ utility consumption expenses. This indicator has a weight of x1.
    (a) Component 1, cash reserves. This component has a weight 
of x2.
    (a) Grade A: Cash reserves available for operations are greater than 
or equal to 15% of total actual routine expenditures, or the PHA has 
cash reserves of $3 million or more.
    (2) Grade B: Cash reserves available for operations are greater than 
or equal to 12.5%, but less than 15% of total actual routine 
expenditures.
    (3) Grade C: Cash reserves available for operations are greater than 
or equal to 10%, but less than 12.5% of total actual routine 
expenditures.
    (4) Grade D: Cash reserves available for operations are greater than 
or equal to 7.5%, but less than 10% of total actual routine 
expenditures.
    (5) Grade E: Cash reserves are greater than or equal to 5%, but less 
than 7.5% of total actual routine expenditures.
    (6) Grade F: Cash reserves available for operations are less than 5% 
of total actual routine expenditures.
    (b) Component 2, energy consumption. Either option A or 
option B of this component is to be completed only by

[[Page 239]]

PHAs that score below a grade C on component 1. Regardless of a 
PHA's score on component 1, it will not be scored on component 
2 if all its units have tenant paid utilities. Annual energy/
utility consumption expenses includes water and sewage usage. This 
component has a weight of x1.
    (1) Option A, annual energy/utility consumption expenses.
    (i) Grade A: Annual energy/utility consumption expenses, as compared 
to the average of the three years' rolling base consumption expenses, 
have not increased.
    (ii) Grade B: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have not increased by more than 3%.
    (iii) Grade C: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have increased by more than 3% and less than or equal to 5%.
    (iv) Grade D: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have increased by more than 5% and less than or equal to 7%.
    (v) Grade E: Annual energy/utility consumption expenses, as compared 
to the average of the three years' rolling base consumption expenses, 
have increased by more than 7% and less than or equal to 9%.
    (vi) Grade F: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have increased by more than 9%.
    (2) Option B, energy audit.
    (i) Grade A: The PHA has completed or updated its energy audit 
within the past five years and has implemented all of the 
recommendations that were cost effective.
    (ii) Grade C: The PHA has completed or updated its energy audit 
within the past five years, has developed an implementation plan and is 
on schedule with the implementation plan, based on available funds. The 
implementation plan identifies at a minimum, the items from the audit, 
the estimated cost, the planned funding source, and the anticipated date 
of completion for each item.
    (iii) Grade F: The PHA has not completed or updated its energy audit 
within the past five years, or has not developed an implementation plan 
or is not on schedule with its implementation plan, or has not 
implemented all of the recommendations that were cost effective, based 
on available funds.



Sec. 901.40  Indicator #7, resident services and community building.

    This indicator examines the PHA's efforts to deliver quality 
customer services and to encourage partnerships with residents, resident 
organizations, and the local community, including non-PHA service 
providers, that help improve management operations at the PHA; and to 
encourage programs that promote individual responsibility, self 
improvement and community involvement among residents and assist them to 
achieve economic uplift and develop self-sufficiency. Also, if 
applicable, this indicator examines PHA performance under any special 
HUD grant(s) administered by the PHA. PHAs can get credit for 
performance under non-HUD funded programs if they choose to be assessed 
for these programs. PHAs with fewer than 250 units or with 100% elderly 
developments will not be assessed under this indicator unless they 
request to be assessed at the time of PHMAP certification submission. 
This indicator has a weight of x1.
    (a) Component #1, economic uplift and self-improvement. PHAs will be 
assessed for all the programs that the PHA has HUD funding to implement. 
Also, PHAs can get credit for implementation of programs through 
partnerships with non-PHA providers, even if the programs are not funded 
by HUD or the PHA, if they choose to be assessed for them. PHAs must 
select either to be assessed for all or none of the non-HUD funded 
programs. This component has a weight of x1.
    (1) Grade A: The PHA Board of Commissioners, by resolution, has 
adopted one or more economic uplift and self-improvement programs, 
examples include but are not limited to, the Section 3 program, 
homeownership, PHA

[[Page 240]]

support for resident education, training, child-care, job-placement 
programs, Head Start, etc., and the PHA can document that it has 
implemented these programs in developments covering at least 90% of its 
family occupied units, either directly or through partnerships with non-
PHA providers, and the PHA monitors performance under the programs and 
issues reports concerning progress, including residents receiving 
services and residents employed, under these programs.
    (2) Grade C: The PHA Board of Commissioners, by resolution, has 
adopted one or more economic uplift and self-improvement programs, 
including but not limited to, the programs described in grade A, above, 
and the PHA can document that it has implemented these programs in 
developments covering at least 60% of its family occupied units, either 
directly or through partnerships with non-PHA providers, and the PHA 
staff monitors performance under the programs and issues reports to the 
Board concerning progress, including residents receiving services and 
residents employed, under these programs.
    (3) Grade F: The PHA Board of Commissioners, by resolution, has not 
adopted one or more economic uplift and self-improvement programs, 
including but not limited to, the programs described in grade A, above, 
or the PHA has not implemented these programs in developments covering 
at least 60% of its family occupied units, either directly or through 
partnerships with non-PHA providers.
    (b) Component #2, resident organization. This component has a weight 
of x1.
    (1) Grade A: The PHA can document formal recognition of, a system of 
communication and collaboration with, and support for resident councils 
where these exist, and where no resident council exists, the PHA can 
document its encouragement for the formation of such councils.
    (2) Grade F: The PHA cannot document formal recognition of, or a 
system of communication and collaboration with, or document its support 
for resident councils where these exist, or where no resident council 
exists, the PHA cannot document its encouragement for the formation of 
such councils.
    (c) Component #3, resident involvement. Implicit in this component 
is the need to ensure a PHA's delivery of quality customer services to 
residents. This component has a weight of x1.
    (1) Grade A: The PHA Board of Commissioners, by resolution, provides 
for resident representation on the Board and committees, and the PHA has 
implemented measures that ensure the opportunity for regular resident 
input into plans and the evaluation for ongoing quality of life and 
housing management conditions, including but not limited to, 
modernization and development programs, screening and other occupancy 
matters, relocation, the operating budget, resident programs, security 
and maintenance programs.
    (2) Grade C: The PHA Board of Commissioners, by resolution, provides 
for resident representation on the Board and committees, and the PHA has 
implemented measures that ensure the opportunity for regular resident 
input into plans and the evaluation for ongoing quality of life and 
housing management conditions in the modernization and development 
programs and at least three of the remaining six areas described in 
grade A, above.
    (3) Grade F: The PHA Board of Commissioners, by resolution, did not 
provide for resident representation on the Board and committees, or the 
PHA has not implemented measures that ensure the opportunity for regular 
resident input into plans and the evaluation for ongoing quality of life 
and housing management conditions in the modernization and development 
programs and at least three of the remaining six areas described in 
grade A, above.
    (d) Component 4, resident programs management. This 
component examines a PHA's management of HUD funded resident programs. 
However, PHAs can also get credit for performance under non-HUD funded 
programs if they choose to be assessed for them. PHAs must select either 
to be assessed for all or none of the non-HUD funded programs. This 
component has a weight of x1.
    (1) Grade A: If the PHA has any HUD funded special programs that 
benefit the residents, including but not limited

[[Page 241]]

to, the Family Investment Center (FIC), Youth Sports (YS), Food Banks, 
Health Clinics, Youth Apprenticeship Program (YAP), Family Self-
Sufficiency (FSS), or a Resident Management (RM) or Tenant Opportunity 
Programs (TOP) where the PHA is the contract administrator, the PHA can 
document that it is meeting at least 90% of its goals under the 
implementation plan for any and all of these programs.
    (2) Grade C: If the PHA has any HUD-funded special programs that 
benefit the residents, including but not limited to, the programs 
described in grade A, above, the PHA can document that it is meeting at 
least 60% of its goals under the implementation plan for any and all of 
these programs.
    (3) Grade F: If the PHA has any HUD-funded special programs that 
benefit the residents, including but not limited to, the programs 
described in grade A, above, the PHA cannot document that it is meeting 
at least 60% of its goals under the implementation plan for all of these 
programs.



Sec. 901.45  Indicator #8, security.

    This indicator evaluates the PHAs performance in tracking crime 
related problems in their developments, reporting incidence of crime to 
local law enforcement agencies, the adoption and implementation of tough 
applicant screening and resident eviction policies and procedures, and, 
as applicable, PHA performance under any HUD drug prevention or crime 
reduction grant(s). PHAs can get credit for performance under non-HUD 
funded programs if they choose to be assessed for these programs. PHAs 
with fewer than 250 units will not be assessed under this indicator 
unless they request to be assessed at the time of PHMAP certification 
submission. This indicator has a weight of x1.
    (a) Component 1, Tracking and Reporting Crime Related 
Problems. This component has a weight of x1.
    (1) Grade A: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures and can document that it (1) tracks 
crime and crime-related problems in at least 90% of its developments, 
and (2) has a cooperative system for tracking and reporting incidents of 
crime to local police authorities to improve law enforcement and crime 
prevention.
    (2) Grade C: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures and can document that it (1) tracks 
crime and crime-related problems in at least 60% of its developments, 
and (2) reports incidents of crime to local police authorities to 
improve law enforcement and crime prevention.
    (3) Grade F: The PHA Board, by resolution, has not adopted policies 
and the PHA has not implemented procedures or cannot document that it 
(1) tracks crime and crime-related problems in at least 60% of its 
developments, or (2) reports incidents of crime to local police 
authorities to improve law enforcement and crime prevention.
    (b) Component 2, Screening of Applicants. This component 
has a weight of x1.
    (1) Grade A: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures and can document that it successfully 
screens out and denies admission to a public housing applicant who:
    (i) Has a recent history of criminal activity involving crimes to 
persons or property and/or other criminal acts that would adversely 
affect the health, safety or welfare of other residents or PHA 
personnel;
    (ii) Was evicted, because of drug-related criminal activity, from 
housing assisted under the U.S. Housing Act of 1937, for a minimum of a 
three year period beginning on the date of such eviction, unless the 
applicant has successfully completed, since the eviction, a 
rehabilitation program approved by the public housing agency;
    (iii) The PHA has reasonable cause to believe is illegally using a 
controlled substance; or
    (iv) The PHA has reasonable cause to believe abuses alcohol in a way 
that causes behavior that may interfere with the health, safety, or 
right to peaceful enjoyment of the premises by other residents or PHA 
personnel.
    (2) Grade C: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures, but cannot document results in 
successfully screening out and denying admission to a public housing 
applicant who

[[Page 242]]

meets the criteria as described in grade A, above.
    (3) Grade F: The PHA has not adopted policies or has not implemented 
procedures that result in screening out and denying admission to a 
public housing applicant who meets the criteria as described in grade A, 
above, or the screening procedures do not result in the denial of 
admission to a public housing applicant who meets the criteria as 
described in grade A, above.
    (c) Component 3, Lease Enforcement. This component has a 
weight of x1.
    (1) Grade A: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures and can document that it 
appropriately evicts any public housing resident who:
    (i) The PHA has reasonable cause to believe engages in any criminal 
activity that threatens the health, safety, or right to peaceful 
enjoyment of the premises by other residents or PHA personnel;
    (ii) The PHA has reasonable cause to believe engages in any drug-
related criminal activity (as defined at section 6(l) of the 1937 Act 
(42 U.S.C. 1437d(l)) on or off the PHA's property; or
    (iii) The PHA has reasonable cause to believe abuses alcohol in such 
a way that causes behavior that may interfere with the health, safety, 
or right to peaceful enjoyment of the premises by other residents or PHA 
personnel.
    (2) Grade C: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures, but cannot document results in 
appropriately evicting any public housing resident who meets the 
criteria as described in grade A, above.
    (3) Grade F: The PHA has not adopted policies or has not implemented 
procedures that document results in the eviction of any public housing 
resident who meets the criteria as described in grade A, above, or the 
eviction procedures do not result in the eviction of public housing 
residents who meet the criteria as described in grade A, above.
    (d) Component 4, Grant Program Goals. This component 
examines a PHA's management of HUD-funded drug prevention or crime 
reduction programs. However, PHAs can also get credit for performance 
under non-HUD funded programs if they choose to be assessed for them. 
PHAs must select either to be assessed for all or none of the non-HUD 
funded programs. This component has a weight of x1.
    (1) Grade A: If the PHA has any special drug prevention program or 
crime reduction program funded by any HUD funds, the PHA can document 
that the goals are related to drug and crime rates, and it is meeting at 
least 90% of its goals under the implementation plan for any and all of 
these programs.
    (2) Grade C: If the PHA has any special drug prevention program or 
crime reduction program funded by any HUD funds, the PHA can document 
that the goals are related to drug and crime rates, and it is meeting at 
least 60% of its goals under the implementation plan for any and all of 
these programs.
    (3) Grade F: If the PHA has any special drug prevention program or 
crime reduction program funded by any HUD funds, the PHA does not have a 
system for documenting or cannot document that the goals are related to 
drug and crime rates, or cannot document that it is meeting 60% or more 
of its goals under the implementation plan for any and all of these 
programs.



Sec. 901.100  Data collection.

    (a) Information on some of the indicators will be derived by the 
State/Area Office from existing reporting and data forms.
    (b) A PHA shall provide certification as to data on indicators not 
collected according to paragraph (a) of this section, by submitting a 
certified questionnaire within 60 calendar days after the end of the 
fiscal year covered by the certification:
    (1) The certification shall be approved by PHA Board resolution, and 
signed and attested to by the Executive Director.
    (2) PHAs shall maintain documentation for three years verifying all 
certified indicators for HUD on-site review.
    (3) A PHA may include along with its certification submission, 
rather than through an exclusion or modification request, any 
information bearing on the accuracy or completeness of the data used by 
HUD (corrected data, late reports, previously omitted required reports, 
etc.) in grading an indicator.

[[Page 243]]

HUD will consider this assertion in grading the affected indicator.
    (4) If a PHA does not submit its certification, or submits its 
certification late, appropriate sanctions may be imposed, including a 
presumptive rating of failure in all of the PHMAP indicators, which may 
result in troubled and mod-troubled designations.
    (5) A PHA that cannot provide justifying documentation to HUD during 
the conduct of a confirmatory review, or other verification review(s), 
for any indicator(s) or component(s) certified to, shall receive a 
failing grade in that indicator(s) or component(s), and its overall 
PHMAP score shall be lowered.
    (6) If the data for any indicator(s) or component(s) that a PHA 
certified to cannot be verified by HUD during the conduct of a 
confirmatory review, or any other verification review(s), the State/Area 
Office shall change a PHA's grade for any indicator(s) or component(s), 
and its overall PHMAP score, as appropriate, to reflect the verified 
data obtained during the conduct of such review.
    (7) A PHA that cannot provide justifying documentation to the 
independent auditor for the indicator(s) or component(s) that the PHA 
certified to, as reflected in the audit report, shall receive a grade of 
F for that indicator(s) or component(s), and its overall PHMAP score 
shall be lowered.
    (8) A PHA's PHMAP score for individual indicators or components, or 
its overall PHMAP score, may be changed by the State/Area Office 
pursuant to the data included in the independent audit report, as 
applicable.
    (9) A PHA's certification and supporting documentation will be post-
reviewed by HUD during the next on-site review as determined by risk 
management, but is subject to verification at any time. Appropriate 
sanctions for intentional false certification will be imposed, including 
suspension or debarment of the signatories, the loss of high performer 
designation, a lower grade for individual indicators and a lower PHMAP 
total weighted score.
    (c) For those developments of a PHA where management functions have 
been assumed by an RMC, the PHA's certification shall identify the 
development and the management functions assumed by the RMC. The PHA 
shall obtain a certified questionnaire from the RMC as to the management 
functions undertaken by the RMC. The PHA shall submit the RMC's 
certified questionnaire along with its own. The RMC's certification 
shall be approved by its Executive Director or Chief Executive Officer 
of whatever title.



Sec. 901.105  Computing assessment score.

    (a) Grades within indicators and components have the following point 
values:
    (1) Grade A = 10.0 points;
    (2) Grade B = 8.5 points;
    (3) Grade C = 7.0 points;
    (4) Grade D = 5.0 points;
    (5) Grade E = 3.0 point; and
    (6) Grade F = 0.0 points.
    (b) If indicators or components are designated as having additional 
weight (e.g., x1.5 or x2), the points in each grade will be multiplied 
times the additional weight.
    (c) Indicators will be graded individually. Components within an 
indicator will be graded individually, and then will be used to 
determine a single grade for the indicator, by dividing the total number 
of component points by the total number of component weights and 
rounding off to two decimal places. The total number of component 
weights for this purpose includes a one for components that are 
unweighted (i.e., they are weighted x1, rather than x1.5 or x2).
    (d) Adjustment for physical condition and neighborhood environment. 
The overall PHMAP score will be adjusted by adding additional points 
that reflect the adjustment to be given to the differences in the 
difficulty of managing developments that result from physical condition 
and neighborhood environment:
    (1) Adjustments shall apply to the following three indicators only:
    (i) Indicator 1, vacancy rate and unit turnaround;
    (ii) Indicator 4, work orders; and
    (iii) Indicator 5, annual inspection and condition of units 
and systems.
    (2) Definitions of physical condition and neighborhood environment 
are:
    (i) Physical condition: refers to units located in developments over 
ten years

[[Page 244]]

old that require major capital investment in order to meet local codes 
or minimum HQS standards, whichever is applicable. This excludes 
developments that have been comprehensively modernized.
    (ii) Neighborhood environment: refers to units located within 
developments where the immediate surrounding neighborhood (that is a 
majority of the census tracts or census block groups on all sides of the 
development) has at least 51% of families with incomes below the poverty 
rate as documented by the latest census data.
    (3) Any PHA with 5% or more of its units subject to either or both 
of the above conditions shall, if they so choose, be issued an adjusted 
PHMAP score in addition to the regular score based solely upon the 
certification of the PHA. The adjusted score shall be calculated as 
follows:

------------------------------------------------------------------------
     Percent of units subject to physical condition and/or        Extra
                   neighborhood  environment                      points
------------------------------------------------------------------------
At least 5% but less than 10%..................................       .5
At least 10% but less than 20%.................................       .6
At least 20% but less than 30%.................................       .7
At least 30% but less than 40%.................................       .8
At least 40% but less than 50%.................................       .9
At least 50%...................................................      1.0
------------------------------------------------------------------------

    (i) These extra points will be added to the score (grade) of the 
indicator(s) to which these conditions may apply. A PHA is required to 
certify on form HUD-50072, PHMAP Certification, the extent to which the 
conditions apply, and to which of the indicators the extra scoring 
points should be added.
    (ii) Units in developments that have received substantial 
rehabilitation within the past ten years are not eligible to be included 
in the calculation of total PHA units due to physical condition only.
    (iii) A PHA that receives a grade of A under indicators 4 
and/or 5 may not claim the additional adjustment for indicator 
1 based on physical condition of its developments, but may 
claim additional adjustment based on neighborhood environment.
    (iv) A PHA that receives the maximum potential weighted points on 
indicators 1, 4 and/or 5 may not claim any 
additional adjustment for physical condition and/or neighborhood 
environment for the respective indicator(s).
    (v) A PHA's score for indicators 1, 4 and/or 
5, after any adjustment(s) for physical condition and/or 
neighborhood environment, may not exceed the maximum potential weighted 
points assigned to the respective indicator(s).
    (4) If only certain units or developments received substantial 
rehabilitation, the additional adjustment shall be prorated to exclude 
the units or developments with substantial rehabilitation.
    (5) The Date of Full Availability (DOFA) shall apply to scattered 
site units, where the age of units and buildings vary, to determine 
whether the units have received substantial rehabilitation within the 
past ten years and are eligible for a adjusted score for the physical 
condition factor.
    (6) PHAs shall maintain supporting documentation to show how they 
arrived at the number and percentage of units out of their total 
inventory that are subject to adjustment.
    (i) If the basis was neighborhood environment, the PHA shall have on 
file the appropriate maps showing the census tracts or census block 
groups surrounding the development(s) in question with supporting census 
data showing the level of poverty. Units that fall into this category 
but which have already been removed from consideration for other reasons 
(permitted exemptions and modifications and/or exclusions) shall not be 
counted in this calculation.
    (ii) For the physical condition factor, a PHA would have to maintain 
documentation showing the age and condition of the units and the record 
of capital improvements, indicating that these particular units have not 
received modernization funds.
    (iii) PHAs shall also document that in all cases, units that were 
exempted for other reasons were not included in the calculation.



Sec. 901.110  PHA request for exclusion or modification of an indicator or component.

    (a) A PHA shall have the right to request the exclusion or 
modification of any indicator or component in its management assessment, 
thereby excluding

[[Page 245]]

or modifying the impact of those indicator's or component's grades in 
its PHMAP total weighted score.
    (b) Exclusion and modification requests shall be submitted by a PHA 
at the time of its PHMAP certification submission to the State/Area 
Office along with supporting documentary justification, rather than 
during the appeal process.
    (c) Requests for exclusions and modifications that do not include 
supporting documentary justification will not be considered.
    (d) Indicator 2, modernization, shall be automatically 
excluded by the State/Area Office if a PHA does not have an open 
modernization program.
    (e) Indicator 7, resident services and community building, 
shall be automatically excluded by the State/Area Office for PHAs with 
fewer than 250 units, or with 100% elderly developments, unless they 
request to be assessed at the time of the PHMAP certification 
submission.
    (f) Indicator 8, security, shall be automatically excluded 
by the State/Area Office for PHAs with fewer than 250 units unless they 
request to be assessed at the time of the PHMAP certification 
submission.



Sec. 901.115  PHA score and status.

    (a) PHAs that achieve a total weighted score of 90% or greater shall 
be designated high performers. A PHA shall not be designated as a high 
performer if it scores below a grade of C for any indicator. High 
performers will be afforded incentives that include relief from 
reporting and other requirements, as described in Sec. 901.130.
    (b) PHAs that achieve a total weighted score of 90% or greater on 
its overall PHMAP score and on indicator 2, modernization, 
shall be designated mod-high performers.
    (c) PHAs that achieve a total weighted score of less than 90% but 
not less than 60% shall be designated standard. Standard performers will 
be afforded incentives that include relief from reporting and other 
requirements, as described in Sec. 901.130.
    (d) PHAs that achieve a total weighted score of less than 60% shall 
be designated as troubled.
    (e) PHAs that achieve 60% of the maximum calculation for indicator 
2, modernization, shall be designated as mod-troubled.
    (f) Each PHA shall post a notice of its final PHMAP score and status 
in appropriate conspicuous and accessible locations in its offices 
within two weeks of receipt of its final score and status. In addition, 
HUD will publish every PHA's score and status in the Federal Register.
    (g) A PHA that cannot provide justifying documentation to HUD during 
the conduct of a confirmatory review, or other verification review(s), 
for any indicator(s) or component(s) certified to, shall receive a 
failing grade in that indicator(s) or component(s), and its overall 
PHMAP score shall be lowered.
    (h) If the data for any indicator(s) or component(s) that a PHA 
certified to cannot be verified by HUD during the conduct of a 
confirmatory review, or any other verification review(s), the State/Area 
Office shall change a PHA's grade for any indicator(s) or component(s), 
and its overall PHMAP score, as appropriate, to reflect the verified 
data obtained during the conduct of such review.
    (i) A PHA that cannot provide justifying documentation to the 
independent auditor for the indicator(s) or component(s) that the PHA 
certified to, as reflected in the audit report, will receive a grade of 
F for that indicator(s), and its overall PHMAP score will be lowered.
    (j) A PHA's PHMAP score for individual an indicator(s), component(s) 
or its overall PHMAP score may be changed by the State/Area Office 
pursuant to the data included in the independent audit report, as 
applicable.
    (k) In exceptional circumstances, even though a PHA has satisfied 
all of the indicators for high or standard performer designation, the 
State/Area Office may conduct any review as necessary, including a 
confirmatory review, and deny or rescind incentives or high performer 
status, as described in paragraphs (a) and (b) of this section in the 
case of a PHA that:
    (1) Is operating under a special agreement with HUD;

[[Page 246]]

    (2) Is involved in litigation that bears directly upon the 
management of a PHA;
    (3) Is operating under a court order;
    (4) Demonstrates substantial evidence of fraud or misconduct, 
including evidence that the PHA's certification of indicators is not 
supported by the facts, resulting from such sources as a confirmatory 
review, routine reports and reviews, an Office of Inspector General 
investigation/audit, an independent auditor's audit or an investigation 
by any appropriate legal authority; or
    (5) Demonstrates substantial noncompliance in one or more areas 
(including areas not assessed by the PHMAP). Areas of substantial 
noncompliance include, but are not limited to, noncompliance with 
statutes (e.g., Fair Housing and Equal Opportunity statutes); 
regulations (e.g., 24 CFR Sec. 85); or the Annual Contributions Contract 
(ACC) (e.g., the ACC, form HUD-53012A, Section 4, Mission of the PHA). 
Substantial noncompliance would cast doubt on the PHA's capacity to 
preserve and protect its public housing developments and operate them 
consistent with Federal law and regulations.
    (l) When a State/Area Office Public Housing Director acts for any of 
the reasons stated in paragraph (k) of this section, the State/Area 
Office will send written notification to the PHA with a specific 
explanation of the reasons. An information copy will be forwarded to the 
Assistant Secretary for Public and Indian Housing.
    (m) A PHA may appeal denial of high performer status in accordance 
with Sec. 901.125.



Sec. 901.120  State/Area Office functions.

    (a) The State/Area Office will assess each PHA within its 
jurisdiction on an annual basis:
    (1) The State/Area Office will make determinations for high-
performing, standard, troubled PHAs and mod-troubled PHAs in accordance 
with a PHA's PHMAP weighted score.
    (2) The State/Area Office will also make determinations for 
exclusion and modification requests.
    (b) Each State/Area Office will notify each PHA of the PHA's grade 
and the grade of the RMC (if any) assuming management functions at any 
of the PHA's developments, in each indicator; the PHA's management 
assessment total weighted score and status, and if applicable; its 
adjustment for physical condition and neighborhood environment; any 
determinations concerning exclusion and modification requests; and any 
deadline date by which appeals must be received. PHA notification should 
include offers of pertinent technical assistance in problem areas, 
suggestions for means of improving problem areas, and areas of relief 
and incentives as a result of high performer status. The PHA must notify 
the RMC (if any) in writing, immediately upon receipt of the State/Area 
Office notification, of the RMC's grades.
    (c) An on-site confirmatory review may be conducted of a PHA by HUD. 
The purpose of the on-site confirmatory review is to verify those 
indicators for which a PHA provides certification, as well as the 
accuracy of the information received in the State/Area Office pertaining 
to the remaining indicators.
    (1) Whenever practicable, a confirmatory review should be conducted 
by HUD prior to the issuance of a PHA's initial notification letter. The 
results of the confirmatory review shall be included in the PHA's 
initial notification letter.
    (2) If, in an exceptional circumstance, a confirmatory review is 
conducted after the State/Area Office issues the initial notification 
letter, the State/Area Office shall explain the results of the 
confirmatory review in writing, correct the PHA's total weighted score, 
as appropriate, and reissue the initial notification letter to the PHA.
    (3) The State/Area Office shall conduct a confirmatory review of a 
PHA with 100 or more units under management that scores less than 60% 
for its total weighted score, or less than 60% on indicator 2, 
modernization, before initially designating the PHA as troubled or mod-
troubled. The results of the confirmatory review shall be included in 
the PHA's initial notification letter.
    (4) The State/Area Office shall conduct a confirmatory review on a 
yearly

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basis of all troubled and mod-troubled PHAs.
    (5) The State/Area Office shall conduct a confirmatory review of a 
PHA with 100 or more units under management prior to the removal of 
troubled or mod-troubled designation.
    (6) Independent confirmatory reviews (team members from other State/ 
Area Offices) shall be conducted of troubled PHAs with 1250 or more 
units under management prior to the removal of troubled designation.
    (d) A PHA that cannot provide justifying documentation to HUD during 
the conduct of a confirmatory review, or other verification review(s), 
for any indicator(s) or component(s) certified to, shall receive a 
failing grade in that indicator(s) or component(s), and its overall 
PHMAP score shall be lowered by the State/Area Office. The State/Area 
Office shall explain to the PHA the reason(s) for the change(s) in 
writing, correct the PHA's grade for an individual component(s) and/or 
indicator(s) and total weighted score, as appropriate, and reissue the 
initial notification letter to the PHA.
    (e) If the data for any indicator(s) or component(s) that a PHA 
certified to cannot be verified by HUD during the conduct of a 
confirmatory review, or any other verification review(s), the State/Area 
Office shall change a PHA's grade for any indicator(s) or component(s), 
and its overall PHMAP score, as appropriate, to reflect the verified 
data obtained during the conduct of such review. The State/Area Office 
shall explain to the PHA the reason(s) for the change(s) in writing, 
correct the PHA's grade for an individual component(s) and/or 
indicator(s) and total weighted score, as appropriate, and reissue the 
initial notification letter to the PHA.
    (f) A PHA that cannot provide justifying documentation to the 
independent auditor for the indicator(s) or component(s) that the PHA 
certified to, as reflected in the audit report, will receive a grade of 
F for that indicator(s), and its overall PHMAP score will be lowered by 
the State/Area Office. The State/Area Office shall explain to the PHA 
the reason(s) for the change(s) in writing, correct the PHA's grade for 
an individual component(s) and/or indicator(s) and total weighted score, 
as appropriate, and reissue the initial notification letter to the PHA.
    (g) A PHA's PHMAP score for an individual indicator(s), component(s) 
or its overall PHMAP score may be changed by the Area/State Office 
pursuant to the data included in the independent audit report, as 
applicable. The State/Area Office shall explain to the PHA the reason(s) 
for the change(s) in writing, correct the PHA's grade for an individual 
component(s) and/or indicator(s) and total weighted score, as 
appropriate, and reissue the initial notification letter to the PHA.
    (h) Determinations on appeals and on petitions to remove troubled or 
mod-troubled status will be made by the State/Area Office.
    (i) Determinations of intentional false certifications will be made 
by the State/Area Office. State/Area Offices shall consult with the 
local Office of Inspector General for guidance in cases of 
determinations of intentional false certification.
    (j) In exceptional circumstances, the State/Area Office may deny or 
rescind a PHA's status as a standard or high performer, in accordance 
with Sec. 901.115(i), so that it will not be entitled to any of the 
areas of relief and incentives.
    (k) The State/Area Office will maintain PHMAP files for public 
inspection in accordance with Sec. 901.155.



Sec. 901.125  PHA right of appeal.

    (a) A PHA has the right to appeal its PHMAP score to the State/Area 
Office, including a troubled designation or a mod-troubled designation. 
A PHA may appeal its management assessment rating on the basis of data 
errors (any dispute over the accuracy, calculation, or interpretation of 
data employed in the grading process that would affect a PHA's PHMAP 
score), the denial of exclusion or modification requests when their 
denial affects a PHA's total weighted score, the denial of an adjustment 
based on the physical condition and neighborhood environment of a PHA's 
developments, or a determination of intentional false certification:
    (1) A PHA may appeal its management assessment rating to the State/

[[Page 248]]

Area Office only for the reasons stated in paragraph (a) of this 
section:
    (i) A PHA may not appeal its PHMAP score to the State/Area Office 
unless it has submitted its certification to the State/Area Office.
    (ii) A PHA may not appeal its PHMAP score to the State/Area Office 
if the reason the PHA received a deficient grade in any indicator or 
component was due to the fact the PHA did not submit a required report 
in a timely manner or without an approved time extension.
    (iii) A PHA may not appeal its PHMAP score to the State/Area Office 
if the reason the PHA received a failing grade in any indicator or 
component was due to the fact that the PHA did not provide justifying 
documentation to the independent auditor for any indicator(s) or 
component(s) the PHA certified to.
    (2) The appeal shall be submitted to the State/Area Office and shall 
include supporting documentary justification of the reasons for the 
appeal.
    (3) The State/Area Office will make determinations on initial 
appeals and will transmit the determination of the appeal to the PHA in 
a notification letter that will also include the date and place for 
submitting any further appeal.
    (4) Appeals submitted to the State/Area Office without appropriate 
documentation will not be considered and will be returned to the PHA.
    (b) Appeals of rescission of high performer designation shall be 
made directly to the Assistant Secretary for Public and Indian Housing.
    (c) A PHA may appeal the denial of an initial appeal by the State/
Area Office to the Assistant Secretary for Public and Indian Housing for 
the following reasons:
    (1) Initial appeals denying high performer designation;
    (2) Initial appeals denying the removal of troubled designation;
    (3) Initial appeals denying the removal of mod-troubled designation;
    (4) The denial of an appeal of a determination of intentional false 
certification;
    (5) Data errors;
    (6) The denial of exclusion or modification requests when their 
denial affects a PHA's total weighted score;
    (7) The denial of an adjustment based on the physical condition and 
neighborhood environment of a PHA's developments;
    (8) The refusal of a petition in accordance with Sec. 901.140 to 
remove troubled or mod-troubled designations.
    (d) A PHA may appeal its management assessment rating to the 
Assistant Secretary for Public and Indian Housing only for the reasons 
stated in paragraph (c) of this section.
    (e) A PHA may not appeal its PHMAP score to the Assistant Secretary 
unless it has submitted its certification to the State/Area Office.
    (f) Appeals submitted to the Assistant Secretary for Public and 
Indian Housing without appropriate documentation will not be considered 
and will be returned to the PHA.
    (g) The date and place by which any appeal must be submitted will be 
specified in the letter from the State/Area Office notifying the PHA of 
any determination or action. For example, the State/Area Office initial 
notification letter or denial of initial appeal letter will specify the 
date and place by which appeals must be received. The date specified 
will be the 15th calendar day after the letter is mailed, not counting 
the day the letter is mailed. If the 15th day falls on a weekend or 
holiday, the date specified will be the next day that is not on a 
weekend or a holiday. Any appeal not received by the specified time and 
place will not be considered.



Sec. 901.130  Incentives.

    (a) A PHA that is designated high performer or standard performer 
will be relieved of specific HUD requirements, effective upon 
notification of high or standard performer designation.
    (b) A PHA shall not be designated a mod-high performer and be 
entitled to the applicable incentives unless it has been designated an 
overall high performer.
    (c) High-performing PHAs, and RMCs that receive a grade of A on each 
of the indicators for which they are assessed,

[[Page 249]]

will receive a Certificate of Commendation from the Department as well 
as special public recognition.
    (d) Representatives of high-performing PHAs may be requested to 
serve on Departmental working groups that will advise the Department in 
such areas as troubled PHAs and performance standards for all PHAs.
    (e) State/Area Offices may award incentives to PHAs on an individual 
basis for a specific reason(s), such as a PHA making the right decision 
that impacts long-term overall management or the quality of a PHA's 
housing stock, with prior concurrence from the Assistant Secretary.
    (f) Relief from any standard procedural requirements does not mean 
that a PHA is relieved from compliance with the provisions of Federal 
law and regulations or other handbook requirements. For example, 
although a high or standard performer may be relieved of requirements 
for prior HUD approval for certain types of contracts for services, it 
must still comply with all other Federal and State requirements that 
remain in effect, such as those for competitive bidding or competitive 
negotiation (see 24 CFR 85.36):
    (1) PHAs will still be subject to regular independent auditor (IA) 
audits.
    (2) Office of Inspector General (OIG) audits or investigations will 
continue to be conducted as circumstances may warrant.
    (g) In exceptional circumstances, the State/Area Office will have 
discretion to subject a PHA to any requirement that would otherwise be 
omitted under the specified relief, in accordance with Sec. 901.115(i).



Sec. 901.135  Memorandum of Agreement.

    (a) After consulting the independent assessment team and reviewing 
the report identified in section 6(j)(2)(b) of the 1937 Act, a 
Memorandum of Agreement (MOA), a binding contractual agreement between 
HUD and a PHA, shall be required for each PHA designated as troubled 
and/or mod-troubled. The scope of the MOA may vary depending upon the 
extent of the problems present in the PHA, but shall include:
    (1) Baseline data, which should be raw data but may be the PHA's 
score in each of the indicators identified as a problem, or other 
relevant areas identified as problematic;
    (2) Annual and quarterly performance targets, which may be the 
attainment of a higher grade within an indicator that is a problem, or 
the description of a goal to be achieved, for example, the reduction of 
rents uncollected to 6% or less by the end of the MOA annual period;
    (3) Strategies to be used by the PHA in achieving the performance 
targets within the time period of the MOA;
    (4) Technical assistance to the PHA provided or facilitated by the 
Department, for example, the training of PHA employees in specific 
management areas or assistance in the resolution of outstanding HUD 
monitoring findings;
    (5) The PHA's commitment to take all actions within its control to 
achieve the targets;
    (6) Incentives for meeting such targets, such as the removal of 
troubled or mod-troubled designation and Departmental recognition for 
the most improved PHAs;
    (7) The consequences of failing to meet the targets, including such 
sanctions as the imposition of budgetary limitations, declaration of 
substantial default and subsequent actions, limited denial of 
participation, suspension, debarment, or the imposition of operating 
funding and modernization thresholds; and
    (8) A description of the involvement of local public and private 
entities, including PHA resident leaders, in carrying out the agreement 
and rectifying the PHA's problems. A PHA shall have primary 
responsibility for obtaining active local public and private entity 
participation, including the involvement of public housing resident 
leaders, in assisting PHA improvement efforts. Local public and private 
entity participation should be premised upon the participant's knowledge 
of the PHA, ability to contribute technical expertise with regard to the 
PHA's specific problem areas and authority to make preliminary/tentative 
commitments of support, financial or otherwise.
    (b) A MOA shall be executed by:
    (1) The PHA Board Chairperson and accompanied by a Board resolution, 
or

[[Page 250]]

a receiver (pursuant to a court ordered receivership agreement, if 
applicable) or other AME acting in lieu of the PHA Board;
    (2) The PHA Executive Director, or a designated receiver (pursuant 
to a court ordered receivership agreement, if applicable) or other AME-
designated Chief Executive Officer;
    (3) The Director, State/Area Office of Public Housing, except as 
stated in (d) of this section; and
    (4) The appointing authorities of the Board of Commissioners, unless 
exempted by the State/Area Office.
    (c) The Department encourages the inclusion of the resident 
leadership in MOA negotiations and the execution of the MOA.
    (d) Upon designation of a large PHA (1250 or more units under 
management) as troubled, the State/Area Office shall make a referral to 
HUD Headquarters for appropriate recovery intervention and the execution 
of an MOA by the Assistant Secretary for Public and Indian Housing.
    (e) A PHA will monitor MOA implementation to ensure that performance 
targets are met in terms of quantity, timeliness and quality.



Sec. 901.140  Removal from troubled status and mod-troubled status.

    (a) A PHA has the right to petition the State/Area Office for the 
removal of a designation as troubled or mod-troubled.
    (b) A PHA may appeal any refusal to remove troubled and mod-troubled 
designation to the Assistant Secretary for Public and Indian Housing in 
accordance with Sec. 901.125.
    (c) A PHA with fewer that 1250 units under management will be 
removed from troubled status by the State/Area Office upon a 
determination by the State/Area Office that the PHA's assessment 
reflects an improvement to a level sufficient to remove the PHA from 
troubled status, or mod-troubled, i.e., a total weighted management 
assessment score of 60% or more, and upon the conduct of a confirmatory 
review for PHAs with 100 or more units under management.
    (d) A PHA with 1250 units or more under management will be removed 
from troubled status by the Assistant Secretary for Public and Indian 
Housing upon a recommendation by the State/Area Office when a PHA's 
assessment reflects an improvement to a level sufficient to remove the 
PHA from troubled or mod-troubled status, i.e., a total weighted 
management assessment score of 60% or more, and upon the conduct of an 
independent confirmatory review (team members from other State/Area 
Offices).



Sec. 901.145  Improvement Plan.

    (a) After receipt of the State/Area Office notification letter in 
accordance with Sec. 901.120(b) or receipt of a final resolution of an 
appeal in accordance with Sec. 901.125 or, in the case of an RMC, 
notification of its indicator grades from a PHA, a PHA or RMC shall 
correct any deficiency indicated in its management assessment within 90 
calendar days.
    (b) A PHA shall notify the State/Area Office of its action to 
correct a deficiency. A PHA shall also forward to the State/Area Office 
an RMC's report of its action to correct a deficiency.
    (c) If the State/Area Office determines that a PHA or RMC has not 
corrected a deficiency as required within 90 calendar days after receipt 
of its final notification letter, the State/Area Office may require a 
PHA, or a RMC through the PHA, to prepare and submit to the State/Area 
Office an Improvement Plan within an additional 30 calendar days:
    (1) The State/Area Office shall require a PHA or RMC to submit an 
Improvement Plan, which includes the information stated in (d) of this 
section, for each indicator that a PHA or RMC scored a grade of F.
    (2) The State/Area Office may require, on a risk management basis, a 
PHA or RMC to submit an Improvement Plan, which includes the information 
stated in paragraph (d) of this section, for each indicator that a PHA 
scored a grade D or E, as well as other performance and/or compliance 
deficiencies as may be identified as a result of an on-site review of 
the PHA's operations.
    (d) An Improvement Plan shall:
    (1) Identify baseline data, which should be raw data but may be the 
PHA's score in each of the indicators identified as a problem in a PHA's 
or

[[Page 251]]

RMC's management assessment, or other relevant areas identified as 
problematic;
    (2) Describe the procedures that will be followed to correct each 
deficiency; and
    (3) Provide a timetable for the correction of each deficiency.
    (e) The State/Area Office will approve or deny a PHA's or RMC's 
Improvement Plan, and notify the PHA of its decision. A PHA must notify 
the RMC in writing, immediately upon receipt of the State/Area Office 
notification, of the State/Area Office approval or denial of the RMC's 
Improvement Plan.
    (f) An Improvement Plan that is not approved will be returned to the 
PHA with recommendations from the State/Area Office for revising the 
Improvement Plan to obtain approval. A revised Improvement Plan shall be 
resubmitted by the PHA or RMC within 30 calendar days of its receipt of 
the State/Area Office recommendations.
    (g) If a PHA or RMC fails to submit an acceptable Improvement Plan, 
or to correct deficiencies within the time specified in an Improvement 
Plan or such extensions as may be granted by HUD, the State/Area Office 
will notify the PHA of its or the RMC's noncompliance. The PHA, or the 
RMC through the PHA, will provide HUD its reasons for lack of progress 
in submitting or carrying out the Improvement Plan within 30 calendar 
days of its receipt of the noncompliance notification. HUD will advise 
the PHA as to the acceptability of its reasons for lack of progress and, 
if unacceptable, will notify the PHA that it will be subject to 
sanctions provided for in the ACC and HUD regulations.



Sec. 901.150  PHAs troubled with respect to the program under section 14 (mod-troubled PHAs).

    (a) PHAs that achieve a total weighted score of less than 60% on 
indicator 2, modernization, may be designated as mod-troubled.
    (b) PHAs designated as mod-troubled may be subject, under the 
Comprehensive Grant Program, to a reduction of formula allocation or 
other sanctions (24 CFR Sec. 968, Subpart C) or under the Comprehensive 
Improvement Assistance Program to disapproval of new funding or other 
sanctions (24 CFR Sec. 968, Subpart B).



Sec. 901.155  PHMAP public record.

    The State/Area Office will maintain PHMAP files, including 
certifications, the records of exclusion and modification requests, 
appeals, and designations of status based on physical condition and 
neighborhood environment, as open records, available for public 
inspection for three years consistent with the Freedom of Information 
Act (5 U.S.C. 552) and in accordance with any procedures established by 
the State/Area Office to minimize disruption of normal office 
operations.



Sec. 901.200  Events or conditions that constitute substantial default.

    (a) The Department may determine that events have occurred or that 
conditions exist that constitute a substantial default if a PHA is 
determined to be in violation of Federal statutes, including but not 
limited to, the 1937 Act, or in violation of regulations implementing 
such statutory requirements, whether or not such violations would 
constitute a substantial breach or default under provisions of the 
relevant ACC.
    (b) The Department may determine that a PHA's failure to satisfy the 
terms of a Memorandum of Agreement entered into in accordance with 
Sec. 901.135 of this part, or to make reasonable progress to meet time 
frames included in a Memorandum of Agreement, are events or conditions 
that constitute a substantial default.
    (c) The Department shall determine that a PHA that has been 
designated as troubled and does not show significant improvement (10 
percentage point increase) in its PHMAP score within one year after 
final notification of its PHMAP score are events or conditions that 
constitute a substantial default:
    (1) A PHA shall be notified of such a determination in accordance 
with Sec. 901.205(c).
    (2) A PHA may waive, in writing, receipt of explicit notice from the 
Department as to a finding of substantial default, and voluntarily 
consent to a determination of substantial default. The PHA must concur 
on the existence of substantial default conditions which

[[Page 252]]

can be remedied by technical assistance, and the PHA shall provide the 
Department with written assurances that all deficiencies will be 
addressed by the PHA. The Department will then immediately proceed with 
interventions as provided in Sec. 901.210.
    (d) The Department may declare a substantial breach or default under 
the ACC, in accordance with its terms and conditions.
    (e) The Department may determine that the events or conditions 
constituting a substantial default are limited to a portion of a PHA's 
public housing operations, designated either by program, by operational 
area, or by development(s).



Sec. 901.205  Notice and response.

    (a) If information from an annual assessment, as described in 
Sec. 901.100, a management review or audit, or any other credible source 
indicates that there may exist events or conditions constituting a 
substantial breach or default, the Department shall advise a PHA of such 
information. The Department is authorized to protect the confidentiality 
of the source(s) of such information in appropriate cases. Before taking 
further action, except in cases of apparent fraud or criminality, and/or 
in cases where emergency conditions exist posing an imminent threat to 
the life, health, or safety of residents, the Department shall afford 
the PHA a timely opportunity to initiate corrective action, including 
the remedies and procedures available to PHAs designated as ``troubled 
PHAs,'' or to demonstrate that the information is incorrect.
    (b) In any situation determined to be an emergency, or in any case 
where the events or conditions precipitating the intervention are 
determined to be the result of criminal or fraudulent activity, the 
Assistant Secretary is authorized to intercede to protect the residents' 
and the Department's interests by causing the proposed interventions to 
be implemented without further appeals or delays.
    (c) Upon a determination or finding that events have occurred or 
that conditions exist that constitute a substantial default, the 
Assistant Secretary shall provide written notification of such 
determination or finding to the affected PHA. Written notification shall 
be transmitted to the Executive Director, the Chairperson of the Board, 
and the appointing authority(s) of the Board, and shall include, but 
need not necessarily be limited to:
    (1) Identification of the specific covenants, conditions, and/or 
agreements under which the PHA is determined to be in noncompliance;
    (2) Identification of the specific events, occurrences, or 
conditions that constitute the determined noncompliance;
    (3) Citation of the communications and opportunities to effect 
remedies afforded pursuant to paragraph (a) of this section;
    (4) Notification to the PHA of a specific time period, to be not 
less than 10 calendar days, except in cases of apparent fraud or other 
criminal behavior, and/or under emergency conditions as described in 
paragraph (a) of this section, nor more than 30 calendar days, during 
which the PHA shall be required to demonstrate that the determination or 
finding is not substantively accurate; and
    (5) Notification to the PHA that, absent a satisfactory response in 
accordance with paragraph (d) of this section, the Department will take 
control of the PHA, using any or all of the interventions specified in 
Sec. 901.210, and determined to be appropriate to remedy the 
noncompliance, citing Sec. 901.210, and any additional authority for 
such action.
    (d) Upon receipt of the notification described in paragraph (c) of 
this section, the PHA must demonstrate, within the time period permitted 
in the notification, factual error in the Department's description of 
events, occurrences, or conditions, or show that the events, 
occurrences, or conditions do not constitute noncompliance with the 
statute, regulation, or covenants or conditions to which the PHA is 
cited in the notification.



Sec. 901.210  Interventions.

    (a) Interventions under this part (including an assumption of 
operating responsibilities) may be limited to one or more of a PHA's 
specific operational

[[Page 253]]

areas (e.g., maintenance, modernization, occupancy, or financial 
management) or to a single development or a group of developments. Under 
this limited intervention procedure, the Department could select, or 
participate in the selection of, an AME to assume management 
responsibility for a specific development, a group of developments in a 
geographical area, or a specific operational area, while permitting the 
PHA to retain responsibility for all programs, operational areas, and 
developments not so designated.
    (b) Upon determining that a substantial default exists under this 
part, the Department may initiate any interventions deemed necessary to 
maintain decent, safe, and sanitary dwellings for residents. Such 
intervention may include:
    (1) Providing technical assistance for existing PHA management 
staff;
    (2) Selecting or participating in the selection of an AME to provide 
technical assistance or other services up to and including contract 
management of all or any part of the public housing developments 
administered by a PHA;
    (3) Assuming possession and operational responsibility for all or 
any part of the public housing administered by a PHA; and
    (4) The provision of intervention and assistance necessary to remedy 
emergency conditions.
    (c) HUD may take the actions described in this part sequentially or 
simultaneously in any combination.



Sec. 901.215  Contracting and funding.

    (a) Upon a declaration of substantial default or breach, and 
subsequent assumption of possession and operational responsibility, the 
Department may enter into agreements, arrangements, and/or contracts for 
or on behalf of a PHA, or to act as the PHA, and to expend or authorize 
expenditure of PHA funds, irrespective of the source of such funds, to 
remedy the events or conditions constituting the substantial default.
    (b) In entering into contracts or other agreements for or on behalf 
of a PHA, the Department shall comply with requirements for competitive 
procurement consistent with 24 CFR 85.36, except that, upon 
determination of public exigency or emergency that will not permit a 
delay, the Department can enter into contracts or agreements on a 
noncompetitive basis, consistent with the standards of 24 CFR 
85.36(d)(4).



Sec. 901.220  Resident participation in competitive proposals to manage the housing of a PHA.

    (a) When a competitive proposal to manage the housing of a PHA in 
substantial default is solicited in a Request for Proposals (RFP) 
pursuant to section 6(j)(3)(A)(i) of the 37 Act, the RFP, in addition to 
publishing the selection criteria, will:
    (1) Include a requirement for residents to notify the Department if 
they want to be involved in the selection process; and
    (2) Include a requirement for the PHA that is the subject of the RFP 
to post a notice and a copy of the RFP in a prominent location on the 
premises of each housing development that would be subject to the 
management chosen under the RFP, for the purposes of notifying affected 
residents that:
    (i) Invites residents to participate in the selection process; and
    (ii) Provides information, to be specified in the RFP, on how to 
notify the Department of their interest.
    (b) Residents must notify the Department by the RFP's application 
due date of their interest in participating in the selection process. In 
order to participate, the total number of residents that notify the 
Department must equal at least 20 percent of the residents, or the 
notification of interest must be from an organization or organizations 
of residents whose membership must equal at least 20 percent of the 
PHA's residents.
    (c) If the required percentage of residents notify the Department, a 
minimum of one resident may be invited to serve as an advisory member on 
the evaluation panel that will review the applications in accordance 
with applicable procurement procedures. Resident advisory members are 
subject to all applicable confidentiality and disclosure restrictions.

[[Page 254]]



Sec. 901.225  Resident petitions for remedial action.

    The total number of residents that petition the Department to take 
remedial action pursuant to sections 6(j)(3)(A)(i) through (iv) of the 
1937 Act must equal at least 20 percent of the residents, or the 
petition must be from an organization or organizations of residents 
whose membership must equal at least 20 percent of the PHA's residents.



Sec. 901.230  Receivership.

    (a) Upon a determination that a substantial default has occurred and 
without regard to the availability of alternate remedies, the Department 
may petition the court for the appointment of a receiver to conduct the 
affairs of the PHA in a manner consistent with statutory, regulatory, 
and contractual obligations of the PHA and in accordance with such 
additional terms and conditions that the court may provide. The court 
shall have authority to grant appropriate temporary or preliminary 
relief pending final disposition of any petition by HUD.
    (b) The appointment of a receiver pursuant to this section may be 
terminated upon the petition to the court by the PHA, the receiver, or 
the Department, and upon a finding by the court that the circumstances 
or conditions that constituted substantial default by the PHA no longer 
exist and that the operations of the PHA will be conducted in accordance 
with applicable statutes and regulations, and contractual covenants and 
conditions to which the PHA and its public housing programs are subject.



Sec. 901.235  Technical assistance.

    (a) The Department may provide technical assistance to a PHA that is 
in substantial default.
    (b) The Department may provide technical assistance to a troubled or 
non-troubled PHA if the assistance will enable the PHA to achieve 
satisfactory performance on any PHMAP indicator. The Department may 
provide such assistance if a PHA demonstrates a commitment to undertake 
improvements appropriate with the given circumstances, and executes an 
Improvement Plan in accordance with Sec. 901.145.
    (c) The Department may provide technical assistance to a PHA if 
without abatement of prevailing or chronic conditions, the PHA can be 
projected to be designated as troubled by its next PHMAP assessment.
    (d) The Department may provide technical assistance to a PHA that is 
in substantial default of the ACC.
    (e) The Department may provide technical assistance to a PHA whose 
troubled designation has been removed and where such assistance is 
necessary to prevent the PHA from being designated as troubled within 
the next two years.



PART 902--PUBLIC HOUSING ASSESSMENT SYSTEM--Table of Contents




                      Subpart A--General Provisions

Sec.
902.1  Purpose and general description.
902.3  Scope.
902.5  Applicability.
902.7  Definitions.

            Subpart B--PHAS Indicator #1: Physical Condition

902.20  Physical condition assessment.
902.23  Physical condition standards for public housing--decent, safe, 
          and sanitary housing in good repair (DSS/GR).
902.24  Physical inspection of PHA properties.
902.25  Physical condition scoring and thresholds.
902.26  Physical Inspection Report.
902.27  Physical condition portion of total PHAS points.

            Subpart C--PHAS Indicator #2: Financial Condition

902.30  Financial condition assessment.
902.33  Financial reporting requirements.
902.35  Financial condition scoring and thresholds.
902.37  Financial condition portion of total PHAS points.

           Subpart D--PHAS Indicator #3: Management Operations

902.40  Management operations assessment.
902.43  Management operations performance standards.
902.45  Management operations scoring and thresholds.
902.47  Management operations portion of total PHAS points.

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     Subpart E--PHAS Indicator #4: Resident Service and Satisfaction

902.50  Resident service and satisfaction assessment.
902.51  Updating of public housing unit address information.
902.52  Distribution of survey to residents.
902.53  Resident service and satisfaction scoring and thresholds.
902.55  Resident service and satisfaction portion of total PHAS points.

                         Subpart F--PHAS Scoring

902.60  Data collection.
902.63  PHAS scoring.
902.67  Score and designation status.
902.68  Technical review of results of PHAS Indicators 1 or 
          4.
902.69  PHA right of petition and appeal.

                 Subpart G--PHAS Incentives and Remedies

902.71  Incentives for high performers.
902.73  Referral to an Area HUB/Program Center.
902.75  Referral to a Troubled Agency Recovery Center (TARC).
902.77  Referral to the Departmental Enforcement Center (DEC).
902.79  Substantial default.
902.83  Interventions.
902.85  Resident petitions for remedial action.

    Authority: 42 U.S.C. 1437d(j), 42 U.S.C. 3535(d).

    Source: 65 FR 1738, Jan. 11, 2000, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 902.1  Purpose and general description.

    (a) Purpose. The purpose of the Public Housing Assessment System 
(PHAS) is to improve the delivery of services in public housing and 
enhance trust in the public housing system among public housing agencies 
(PHAs), public housing residents, HUD and the general public by 
providing a management tool for effectively and fairly measuring the 
performance of a public housing agency in essential housing operations, 
including rewards for high performers and consequences for poor 
performers.
    (b) Responsible office for PHAS assessments. The Real Estate 
Assessment Center (REAC) is responsible for assessing and scoring the 
performance of PHAs.
    (c) PHAS indicators of a PHA's performance. REAC will assess and 
score a PHA's performance based on the following four indicators:
    (1) PHAS Indicator 1--the physical condition of a PHA's 
properties (addressed in subpart B of this part);
    (2) PHAS Indicator 2--the financial condition of a PHA 
(addressed in subpart C of this part);
    (3) PHAS Indicator 3--the management operations of a PHA 
(addressed in subpart D of this part); and
    (4) PHAS Indicator 4--the resident service and satisfaction 
feedback on a PHA's operations (addressed in subpart E of this part).
    (d) Assessment tools. REAC will make use of uniform and objective 
protocols for the physical inspection of properties and the financial 
assessment of the PHA, and will gather relevant data from the PHA and 
the PHA's public housing residents to assess management operations and 
resident services and satisfaction, respectively. On the basis of this 
data, REAC will assess and score the results, advise PHAs of their 
scores and identify low scoring and failing PHAs so that these PHAs will 
receive the appropriate attention and assistance.
    (e) Limitation of change of PHA's fiscal year. To allow for a period 
of consistent assessment of the PHAS indicators, a PHA is not permitted 
to change its fiscal year for the first three full fiscal years 
following October 1, 1998, unless such change is approved by HUD.



Sec. 902.3  Scope.

    The PHAS is a strategic measure of a PHA's essential housing 
operations. The PHAS, however, does not evaluate a PHA's compliance with 
or response to every Department-wide or program specific requirement or 
objective. Although not specifically referenced in this part, PHAs 
remain responsible for complying with such requirements as fair housing 
and equal opportunity requirements, requirements under section 504 of 
the Rehabilitation Act of 1973 (29 U.S.C. 794) and requirements of 
programs under which the PHA is receiving assistance. A PHA's adherence

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to these requirements will be monitored in accordance with the 
applicable program regulations and the PHA's Annual Contributions 
Contract (ACC).



Sec. 902.5  Applicability.

    (a) PHAs, RMCs, AMEs.  (1) Scoring of RMCs and AMEs. This part 
applies to PHAs, Resident Management Corporations (RMCs) and Alternate 
Management Entities (AMEs), as described in this section. As described 
in this section, this part is also applicable to RMCs that receive 
direct funding from HUD in accordance with section 20 of the 1937 Act 
(DF-RMCs).
    (i) RMCs and DF-RMCs will be assessed and issued their own numeric 
scores under the PHAS based on the public housing developments or 
portions of public housing developments that they manage and the 
responsibilities they assume which can be scored under PHAS. References 
in this part to PHAs include RMCs and this part is applicable to RMCs 
unless stated otherwise. References in this part to RMCs include DF-RMCs 
and this part is applicable to DF-RMCs unless otherwise stated.
    (ii) AMEs are not issued PHAS scores. The performance of the AME 
contributes to the PHAS score of the PHA or PHAs for which they assumed 
management responsibilities.
    (2) PHA ultimate responsible entity under ACC, except where DF-RMC 
assumes management operations. (i) Because the PHA and not the RMC/AME 
is ultimately responsible to HUD under the ACC, the PHAS score of a PHA 
will be based on all of the developments covered by the ACC, including 
those with management operations assumed by an RMC or AME (including a 
court ordered receivership agreement, if applicable).
    (ii) A PHA's PHAS score will not be based on developments managed by 
a DF-RMC.
    (b) Implementation of PHAS. The regulations in this part are 
applicable to PHAs with fiscal years ending on and after June 30, 2000, 
unless HUD, through Federal Register, notice revises the implementation 
date to later date.
    (1) For PHAs that are not issued PHAS scores. Under certain 
circumstances, PHAs may not be issued PHAS scores. For these PHAs, in 
lieu of a PHAS score, HUD will issue the following:
    (i) PHAS Advisory Score. A PHA will be issued a PHAS advisory score 
for all PHAS indicators--Indicators 1 (Physical), 2 
(Financial), 3 (Management Operations), and 4 
(Resident Service and Satisfaction). The PHA must comply with the 
requirements of this part so that HUD may issue the advisory score. 
Physical inspections required to be conducted by PHAs under the 
Management Operations Indicator will be conducted using HUD uniform 
physical inspection protocol, unless HUD provides, through Federal 
Register notice, that PHAs may use HUD's Housing Quality Standards.
    (ii) Management Assessment Score. A PHA will receive an assessment 
score on the basis of HUD's assessment of the PHA's management 
operations in accordance with subpart D of this part.

[65 FR 36044, June 6, 2000]



Sec. 902.7  Definitions.

    As used in this part:
    Act means the U.S. Housing Act of 1937 (42 U.S.C. 1437 et seq.)
    Adjustment for physical condition (development age) and neighborhood 
environment is a total of three additional points added to PHAS 
Indicator 1 (Physical Condition). The three additional points, 
however, shall not result in a total point value exceeding the total 
points available for PHAS Indicator 1 (established in subpart B 
of this part).
    Alternative management entity (AME) is a receiver, private 
contractor, private manager, or any other entity that is under contract 
with a PHA, under a Regulatory and Operating Agreement with a PHA, or 
that is otherwise duly appointed or contracted (for example, by court 
order or agency action), to manage all or part of a PHA's operations.
    Assessed fiscal year is the PHA fisca