Exhibit B to Subpart C of Part 1930 - Multiple Housing Management Handbook  

IPurpose: This exhibit prescribes the Farmers Home Administration (FmHA) or its successor agency under Public Law 103-354 regulations, policies, and procedures for management of Rural Rental Housing (RRH), Rural Cooperative Housing (RCH), and Labor Housing (LH) projects to be used by multiple housing borrowers (owners) and applicants and their management agents and site managers. Several exhibits are included to provide guidance. These regulations are intended to assist borrowers in the successful operation of FmHA or its successor agency under Public Law 103-354-financed rental and cooperative projects.

IIDefinitions:

Adjusted annual income. This is the annual income of the household members, who live or propose to live in the unit for the next 12 months. (Households with a member permanently confined to a hospital or nursing home may choose to either include annual income attributable to such person, less deductions for which the person would qualify, or exclude the annual income attributable to such person and not take any deductions for which the person would qualify.), excluding:

1$480 for each member of the family residing in the household (other than the tenant, cotenant, member, or comember or spouse of either, or foster children) who is under 18 years of age; or who is 18 years of age or older and is disabled, handicapped or a full-time student. The student must carry a subject load considered full-time by the educational institution attended. This deduction does not apply to an unborn child in the household.

2$400 for any elderly family.

3In the case of an elderly family, the total of actual medical and/or handicap assistance expenses paid in excess of 3 percent of annual family income may be deducted. If an elderly family has both medical and handicap assistance expense, the 3 percent of annual income must first be deducted from handicap assistance and any remainder then deducted from medical expenses.

aTotal medical expense includes medical expenses not covered by insurance that the tenant or member anticipates incurring over the 12 months following the effective date of the certification, using past experience as a guide.

bExamples of medical expenses are dental expenses, prescription and nonprescription medicines, medical insurance premiums including medicare, eyeglasses, hearing aids and batteries, medical related travel cost, the cost of attendant care including a live-in-resident assistant, monthly payments required on accumulated major medical bills including that portion of a household member's nursing home care paid from household income(s).

Note:

Premiums paid for nursing home insurance are not an allowable deduction unless a household member is housed at a nursing home and that person's income is included in the household income.)

cHandicap assistance includes reasonable attendant care and auxiliary apparatus expenses described as follows for each member with handicaps of the family to the extent needed to enable any family member (including such member with handicaps) to be employed:

(1) That portion of attendant care attributable to specialized medical reasons (the portion attributable to companionship is not counted).

(2) Auxiliary apparatus including but not limited to wheelchairs, oxygen equipment, reading devices for the visually impaired, and the cost of equipment added to cars and vans to permit their use by the handicapped or disabled family member proportionate to the amount of use by such persons.

4In the case of any nonelderly family, total handicap assistance expense in excess of 3 percent of annual family income may be deducted:

aFor any handicap assistance expense described in paragraph 3 c of this definition that is anticipated to occur over the 12 months following the effective date of the certification, using past experience as a guide, to the extent needed to enable any family member (including the handicapped or disabled family member) to be employed.

bThe amount of deduction may not exceed the LESSER of the amount by which total expenses for handicap assistance exceed 3 percent of annual family income, or the amount of income received by adult members from such employment.

5The amounts paid by the family for the care of minors under 13 years of age may be deducted only to the extent such expenses are not reimbursed. In the case of families assisted by American Indian housing authorities, the amount will be the greater of child care expenses; or excessive travel expenses, not to exceed $25 per family per week. Deductions for these expenses are permitted only when such care is necessary to enable a family member to further his or her education or to be gainfully employed, including the gainful employment of the disabled or handicapped family member. When the deduction is to enable gainful employment the amount may not exceed the amount of income received from such employment. When the deduction is to facilitate further education, the amount must not exceed a sum reasonably expected to cover class time and travel time to and from classes. The tenant file must contain justifying documentation. (Child support payments made on behalf of a minor child who does not reside in the unit may not be deducted as a child care expense).

Adjusted monthly income. This is the amount obtained by dividing the adjusted annual income by 12.

Annual income. Annual income is the anticipated total amount of income to be received by all members of the household (even if temporarily absent) to be in residence during 12 months following the effective date of Form FmHA or its successor agency under Public Law 103-354 1944-8, “Tenant Certification.”

1Income Included. The following are included when determining annual income:

aThe gross amount (before any deductions) of wages and salaries, overtime pay, commissions, fees, tips, and bonuses reasonably expected to be received by all members of the household.

bThe net income reasonably expected to be received from operations of a business or profession or from rental of real or personal property. Expenditures for business expansion or amortization of indebtedness are not considered in the computation of net income. Net losses will be computed as zero. Deductions from gross business or rental income to arrive at net income may be made in the same manner as outlined in Internal Revenue Service (IRS) regulations for the exhaustion, wear and tear, and obsolescence of depreciable property used in the trade or business of the adult household members under the straight line method of depreciation. An itemized schedule must be provided in support of any deductions from gross income made under the provisions of this section. The schedule should be consistent with the amount of depreciation permitted for these items for Federal income tax purposes under the straight line method of depreciation.

cInterest, dividends, and other received income as defined under net family assets in this paragraph. On contracts for sale of real estate, deeds of trust, or mortgages held by the applicant, tenant or member, only the interest portion of the monthly or annual payments received by the applicant, tenant or member is included as income.

dThe gross amount of periodic payments from Social Security (including Social Security payment received by adults on behalf of minors or by minors intended for their own support), annuities, insurance policies, retirement funds, pensions, disability or death benefits (except lump sum settlements), and other similar types of periodic receipts.

ePayments received in lieu of earnings, such as unemployment and disability compensation, worker compensation, and severance pay.

fPeriodic and determinable allowances, such as alimony and child support payments, which the applicant, tenant or member can reasonably expect to receive.

gRegularly recurring contributions or gifts received from persons not residing in the dwelling.

hAny amount of education grants or scholarships or Veterans Administration benefits expected to be received on behalf of tenant, cotenant, member, or comember, applicant, or other adult that exceeds attendance expenses for tuition, fees, books, and equipment to include materials, supplies, transportation, and miscellaneous personal expenses of the student (i.e., that portion of benefits received for “room and board”).

iAll regular pay, separation pay, special pay (except hazard duty pay for persons exposed to hostile fire), and allowances of a member of the armed forces who is head of the family or spouse, whether or not that family member lives in the unit.

jPayment received from an adoption incentive program to compensate support of a minor child legally adopted by the tenant household.

kPublic assistance.

(1) A public assistance payment that DOES NOT designate an amount specifically for rent and utilities shall be counted entirely as income.

(2) A public assistance payment, when administered “as-paid” by the public assistance agency, DOES designate a specific amount for rent and utilities and may adjust (or ratably reduce) that amount based upon what the family is currently paying for those items (only one ratable reduction will be permitted). The SUM of the ratably reduced amount for rent and utilities and the amount for subsistence and other needs shall be counted as income.

(3) Example: The public agency's published schedule shows a monthly maximum of $180 for rent and utilities for a particular size family. The public assistance agency has verified that the family will receive $220 monthly for subsistence and other needs. If the agency does not apply a ratable reduction, $400 per month ($180 + $220) will be included in annual income. If the agency applies a ratable reduction (e.g., 20 percent) annual income will be computed as shown below:

Public assistance (P.A.) rentIncome$180 maximum allowed for housing$220 basic needs+144 P.A. rent×.80 P.A. adjustment factor$364 mthly income$144 monthly P.A. rent×12 months*$4,368 annual income* Shown on line 17 f of part IV of Form FmHA or its successor agency under Public Law 103-354 1944-8.

2Income Exempted. The following are not included in annual income:

aIncome of dependent minors (including foster children) under 18 years of age except as specified under 1d of the definition of annual income in this paragraph. (Tenant, cotenant, member or comember, or spouse of either may never be considered minors.)

bIn the case of contracts for sale of real estate, mortgages or Deeds of Trust held by the tenant, cotenant, member, or comember, the principal portion of the payments received by the tenant, cotenant, member, or comember.

cThe value of the allotment provided to an eligible household under the Food Stamp Act of 1977.

dPayments received for the care of foster children.

eTemporary, nonrecurring, or sporadic income (including gifts).

fLump-sum additions to family assets such as inheritances; capital gains; insurance payments included under health, accident, hazard, or worker compensation policies, and settlements for personal or property losses.

gAmounts which are granted specifically for, or in reimbursement of, the cost of medical expenses for any household member. Medical expenses may include those expenses incurred by disabled or handicapped residents so that they may maintain independence in living (e.g., attendant care).

hAmounts of education scholarships paid directly to the student or to the educational institution, and amounts paid by the Government to a veteran for use in meeting the attendance costs of tuition, fees, books, and equipment to include materials, supplies, transportation, and miscellaneous personal expenses of the student. Any amounts of such scholarships or veterans payments, which are not used for above purposes and are available for subsistence and shelter, are considered to be income of tenant, cotenant, member, comember, or applicant.

iStudent loans.

jThe special hazard duty pay to a household member serving in the Armed Forces away from home, who is exposed to hostile fire.

kPayments received pursuant to participation in the following programs:

(1) Programs under the Domestic Volunteer Service Act of 1973 including, but not limited to, the National Older Americans Volunteer Programs of the Federal Action Agency for persons age 60 and over including the:

(i) Retired Senior Volunteer Program.

(ii) Foster Grandparent Program.

(iii) Senior Companion Program.

(iv) Older American Committee Service Program.

(2) National Volunteer Antipoverty Programs such as Volunteers in Service to America, Peace Corps, Service Learning Program and Special Volunteer Programs.

(3) Small Business Administration Programs such as the National Volunteer Program to Assist Small Business and Promote Volunteer Service to Persons with Business Experience, Service Corps of Retired Executives and Active Corps of Executives and,

(4) Title V—Community Service Employment for Older Americans which include:

(i) Senior Community Service Employment Program

(ii) National Caucus Center on Black Aged

(iii) National Urban League

(iv) Association National Pro Personas Mayors

(v) National Council on Aging

(vi) American Association of Retired Persons

(vii) National Council of Senior Citizens

(viii) Green Thumb.

(5) Payments received from a State or local low income energy assistance program.

lRelocation payments made pursuant to title II of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970.

mPayments received under the Alaska Native Claims Settlement Act.

nIncome derived from certain submarginal land of the United States that is held in trust for certain Indian tribes.

oPayments or allowances made under the Department of Health and Human Services Low-Income Home Energy Assistance Program.

pThat portion of tenant income paid from the Job Training Partnership Act, whether paid directly or through the employer.

qIncome derived from the disposition of funds of the Grand River Bank of Ottawa Indians.

rThe first $2,000 of per capital shares received from judgment funds awarded by the Indian Claims Commission or the Court of Claims, or from funds held in trust for an Indian tribe by the Secretary of Interior.

sAny funds which a Federal statute specifies must not be used as the basis for denying or reducing Federal financial assistance or benefits to which the recipient would otherwise be entitled. (Note: The Department of Housing and Urban Development (HUD) periodically publishes a notice in the Federal Register identifying the programs and benefits that qualify for this exemption.)

tIncome of a resident assistant, as defined in this paragraph.

uAmounts received under training programs funded by HUD.

vAmounts received by a disabled person (including a sight impaired person) that are disregarded for a limited time for purposes of Supplemental Security Income eligibility, and benefits because they are set aside for use under a Plan to Attain Self-Sufficiency.

wAmounts received by a participant in other public assisted programs which are specifically for or in reimbursement of out-of-pocket expenses incurred (special equipment, clothing, transportation, child care, etc.) and which are made solely to allow participation in a specific program.

xGifts, payments, or credits provided by the borrower for the same purposes as interest credit or rental assistance for the benefit of residents in accordance with an FmHA or its successor agency under Public Law 103-354 approved budget when needed to alleviate or avoid financial distress in a project for a temporary specified time period identified by FmHA or its successor agency under Public Law 103-354.

yInterest accrual to an annuity that cannot be withdrawn due to the terms of the annuity or its being under the control of others.

zPayments received after January 1, 1989, from the Agent Orange Settlement Fund or any other fund established pursuant to the settlement in the IN RE Agent Orange product liability litigation, M.D.L. No. 381 (E.D.N.Y.)

aaPayments received under the Maine Indian Claims Settlement Act of 1980 (Public Law (Pub. L.) 96-420, 94 Stat 1785).

bbEarned Income Tax Credit Refund Payments

cc Redress payments received by Japanese American internment camp survivors.

ddReparations paid by foreign governments arising out of the Holocaust.

eeDeferred periodic payments received in a lump sum from SSI and Social Security.

Borrowers. “Borrowers” means owners who may be individuals, partnerships, cooperatives, trusts, public agencies, private or public corporations, and other organizations and have received a loan or grant from FmHA or its successor agency under Public Law 103-354 for LH, RRH, RCH, or Rural Housing Site (RHS) purposes.

Caretaker. The individual(s) employed by the borrower or the management agent to handle normal interior and exterior maintenance and upkeep of the project as specified in the management plan.

Cash value of assets. Current market value less cost to convert assets to cash.

Chore service worker. An individual who provides intermittent assistance essential to the well being of household members whose services are compensated by a Federal, State, or local assistance program. A chore service worker will not be a resident of the household living unit.

Congregate Housing. Residential housing for persons or families who are elderly or have handicaps or disabilities, consisting of private apartments and central dining facilities in which a number of specific pre-established services are provided to tenants (short of those services provided by a health care facility that provides health related care and services recognized by the medicaid program). Tenants requiring additional services not provided by the facility will acquire them or provide for them within their own financial, familial, or social resources.

Domestic farm laborers. Persons who receive a substantial portion of their income as laborers on farms in the United States, Puerto Rico, or the Virgin Islands and either are citizens of the United States, or reside in the United States, Puerto Rico, or the Virgin Islands after being legally admitted for permanent residence, and may include the immediate families of such persons, including retired or disabled domestic farm laborers as defined in subpart D of part 1944 of this chapter.

Elderly (senior citizen). A person who is at least 62 years old. The term elderly (senior citizen) also means individuals with handicaps or disabilities as separately defined in this paragraph, regardless of age.

Elderly family. A household where the tenant, cotenant, member, or comember (individual) is at least 62 years old, disabled or handicapped as defined separately in this paragraph. An elderly family may include a person(s) younger than 62 years of age who is essential to the care and well being of the person who is elderly or has handicaps or disabilities. (To receive an elderly family deduction, the person who is elderly, or has disabilities or handicaps must be the tenant or cotenant or member or comember.)

Eligibility income. The calculated adjusted annual income which is compared to the income limits in Appendix 9 of HB-1-3550 (available in any Rural Development office).

Familial status. This term means one or more individuals (who have not attained the age of 18 years) being domiciled with a parent or another person having legal custody of such individual or individuals; or the designee of such parent or other person having such custody; with the written permission of such parent or other person. The protection against discrimination afforded by familial status shall apply to any person who is pregnant or is in the process of securing legal custody of any individual who has not attained the age of 18 years.

Forms Manual Insert (FMI). A type of directive which includes a sample of the form and complete instructions for its preparation, use, and distribution.

Group home. Housing that is occupied by individuals who are elderly, or have handicaps or disabilities sharing living space within a rental unit in which a group home resident assistant may be required.

Household. One or more persons who maintain or will maintain residency in one rental or cooperative unit, but not including a resident assistant or chore service worker.

Individual with disability. A person is considered disabled if the person meets the criteria or either of the following:

1The person has an inability to engage in any substantial gainful activity, but with use of auxiliary apparatus can otherwise participate in gainful activity, by reason of any medically determinable physical or mental impairment, where the disability:

aHas lasted or can be expected to last for a continuous period of not less than 12 months, or which can be expected to result in death, and

bSubstantially impedes the ability to live independently, and

cIs of such a nature that such ability could be improved by more suitable housing conditions, or

dIn the case of a sight impaired person who is at least 55 years old (within the meaning of sight impairment as determined in section 223 of the Social Security Act), is unable, because of the sight impairment, to engage in substantial gainful activity in which he/she has previously engaged with some regularity over a substantial period of time.

eReceipt of veteran's or Social Security Disability payments benefits for disability, whether service-oriented or otherwise does not automatically establish disability.

2The person has a developmental disability; a severe, chronic disability which;

aIs attributable to a mental or physical impairment or combination of mental or physical impairment; and

bWas manifested before age 22; and

cIs likely to continue indefinitely; and

dResults in substantial functional limitations in three or more of the following areas of major life activity:

(1) Self care

(2) Receptive and expressive language

(3) Learning

(4) Mobility

(5) Self-direction

(6) Capacity for independent living

(7) Economic self-sufficiency

eReflects the person's need for a combination and sequence of special, interdisciplinary or generic care, or treatment, or for other services which are of lifelong or extended duration and are individually planned and coordinated.

Individual with handicap.

1A person with a physical or mental impairment, that:

aIs expected to be of long-continued and indefinite duration; and

bSubstantially impedes the person or is of such a nature that the person's ability to live independently could be improved by more suitable housing conditions.

2The term handicap further means, with respect to a person, a physical or mental impairment which substantially limits one or more major life activities; a record of such an impairment; or being regarded as having such an impairment. THIS TERM DOES NOT INCLUDE CURRENT ILLEGAL USE OF OR ADDICTION TO A CONTROLLED SUBSTANCE. As used in this definition:

aPhysical or mental impairment includes:

(1) Any physiological disorder or condition, cosmetic disfigurement, or anatomical loss affecting one or more of the following body systems: neurological; musculoskeletal; special sense organs; respiratory, including speech organs; cardiovascular; reproductive; digestive; genito-urinary; hemic and lymphatic; skin; and endocrine; or

(2) Any mental or psychological disorder, such as mental retardation, organic brain syndrome, emotional or mental illness, and specific learning disabilities. The term “physical or mental impairment” includes, but is not limited to, such diseases and conditions as orthopedic, visual, speech and hearing impairments, cerebral palsy, autism, epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart disease, diabetes, human immunodeficiency virus (HIV) infection, acquired immunodeficiency syndrome (AIDS), mental retardation, emotional illness, drug addiction (other than addiction caused by current, illegal use of a controlled substance), and alcoholism.

bMajor life activities means functions such as caring for one's self, performing major tasks, walking, seeing, hearing, speaking, breathing, learning, and working.

cHas a record of such an impairment means has a history of, or has been misclassified as having a mental or physical impairment that substantially limits one or more major life activities.

dIs regarded as having an impairment means:

(1) Has a physical or mental impairment that does not substantially limit one or more major life activities but that is treated by another person as constituting such a limitation;

(2) Has a physical or mental impairment that substantively limits one or more major life activities only as a result of the attitudes of others toward such impairment; or

(3) Has one of the impairments defined in paragraph 2 a (1) and 2 a (2) of this definition but is treated by another person as having such an impairment.

LH. Means Farm labor housing loans and/or grants.

Limited equity. The amount of funds which have accumulated in the cooperative member's patronage capital account and as further described in subpart E of part 1944 of this chapter.

Low-income household. A household having an adjusted annual income not exceeding the maximum low-income limit stated in Appendix 9 of HB-1-3550 (available in any Rural Development office) which is periodically updated.

Management agent. The firm or individual engaged by the borrower and charged with the responsibility to manage the project in accordance with a written agreement.

Management agreement. The written agreement between the borrower and management agent setting forth the management agent's responsibilities and fees for management services.

Management fee. The compensation for providing overall management services for a Multiple Family Housing (MFH) project as described in the management plan. The fee is compensation for the time, expertise, and knowledge required to direct and oversee the present and future operation of the project. A management fee does not include the compensation paid to a site manager.

Management plan. The primary management charter constituting a comprehensive description of the detailed policies and procedures to be followed in managing a project.

Management reserve. That portion of the cooperative occupancy charge which is designated for payment of professional management services.

Member/comember. A person(s) who has executed documents pertaining to a cooperative housing type of living arrangement and has committed himself/herself to upholding the cooperative concept.

Migrant. A domestic farm laborer who works in any given local area on a seasonal basis and relocates his or her place of residence as farm work is obtained in other areas during the year.

Minor. A person who is a Dependent of the tenant, cotenant, member or comember under 18 years of age. A dependent person age 18 or older who is a full-time student is treated as a minor.

Moderate-income household. A household having an adjusted annual income within the maximum moderate-income limit stated in Appendix 9 of HB-1-3550 (available in any Rural Development office).

Net family assets.

1Net family assets include cash on hand and the value of savings, certificates of deposit, and dollars in checking accounts reported as “cash on hand.” It will be such amounts reported on the day of third party verification. This definition also includes the net cash value of real property, cash value of whole life insurance policies, IRAs, market value of bonds and other forms of capital, or personal property held as investments, irrespective of location, minus debts against them, minus cost of converting such assets to cash. Examples of conversion costs are penalties for early withdrawal, broker/legal fees assessed to sell an asset, and settlement costs for real estate transactions.

2Net family assets also include the value of equity of any business or household assets disposed of by a member of the household for less than fair market value (including disposition in trust, but not in a foreclosure or bankruptcy sale) in excess of the consideration received therefrom during the 2 years preceding the effective date of certification/recertification. In the case of a disposition as part of a divorce settlement, the disposition shall not be considered to be for less than fair market value if the household member receives important consideration not measurable in dollar terms.

3Income from net family assets which is included in annual income is determined as follows:

aIf net family assets equal $5,000 or less, annual income includes the actual income derived from the net family assets.

bIf net family assets exceed $5,000, annual income includes the greater of:

(1) Actual income derived from all net family assets, or

(2) A percentage of the cash value of such assets based on the Bank Passbook annual savings rate.

4Net family assets exclude:

aInterests in Indian trust land.

bThe value of necessary items of personal property such as furniture and automobile(s), and the debts against them.

cThe assets that are a part of the business, trade, or farming operation in the case of any member of the household who is actively engaged in such operation.

dThe value of a trust fund (i.e., for a minor or a legally incompetent household member) that has been established and the trust is not revocable by, or under the control of, any member of the household, so long as the fund continues to be held in trust.

eA vehicle specially equipped for the handicapped.

fFace value of life insurance policies.

gA cooperative member's patronage capital in the housing cooperative unit in which the family resides.

hPrepaid funerary arrangements and expenses.

iRetirement funds not accessible for withdrawal by a household member.

jAssets legally owned but not accessible or that accrue income to someone else.

kSavings accounts of dependent minors when such accounts are under the minor's social security number.

New housing. Newly constructed or substantially rehabilitated RRH, RCH, or LH project financed by FmHA or its successor agency under Public Law 103-354. For new construction rental assistance (RA) purposes, it further means before any units are occupied.

Nonprofit corporation. A corporation which is organized and operated for purposes other than making gains or profits for the corporation or its members; is legally precluded from distributing to its members any gains or profits during its existence; and in the event of its dissolution, is legally bound to transfer its net assets to a nonprofit corporation of a similar type or to a public corporation which will operate the housing for the same or similar purposes.

Occupancy charge. The amount of money charged a cooperative member to cover his/her proportionate share of the cooperative's operating costs and cash requirements.

Operational housing. A completed RRH, RCH, or LH project financed by FmHA or its successor agency under Public Law 103-354 which has been opened for occupancy and has at least been partially occupied by tenants or members.

Overage. The portion of a tenant's or member's net contribution to shelter cost that exceeds basic rent.

Pet. A commonly accepted domesticated household animal (i.e., dog, cat, bird, etc.) owned or kept by a tenant or member.

Profit basis. Applies to an individual or organizational applicant who will operate the housing at rental rates low- and moderate-income nonelderly or nonhandicapped persons, and/or elderly and persons with handicaps of any income can afford, where return on initial investment is not limited to a certain percentage per year.

Project. A project is the total number of rental or cooperative housing units that are operated under one management plan with one loan agreement/resolution.

RCH means Rural Cooperative Housing Loans.

Rental agent. The individual responsible for the leasing of the units. If other than the borrower, this individual may be hired by the borrower or the management agent as specified in the management plan.

Rental assistance (RA). RA, as used in this exhibit, is the portion of the approved shelter cost paid by FmHA or its successor agency under Public Law 103-354 to compensate for the difference between the approved shelter cost and the monthly tenant contribution as calculated according to paragraph IV of this exhibit. When the monthly gross tenant contribution is less than the approved utility allowance which is billed directly to and paid by the tenant, the owner will pay the tenant that difference according to paragraph IX A 2 of exhibit E of this subpart. RA used in cooperative housing will be calculated in the same manner.

Resident assistant. A person(s) residing in a tenant's housing unit who is essential to the well-being and care of the person(s) who are elderly or have handicaps or disabilities residing in the unit, but is not obligated for the person's financial support and would not be living in the unit except to provide the needed support services. While the resident assistant may be a family member, the resident assistant may not be a dependent of the household for tax purposes and is not subject to the eligibility requirements of a tenant or member. A resident assistant is not a chore service worker. A resident assistant may function in any type of housing affected by this subpart.

RHS means Rural Housing Site loans.

RRH means Rural Rental Housing loans.

Service agreement. A written agreement between the borrower and a service provider detailing the specific service to be provided, the cost of the service, and the length of time the service will be provided.

Service plan. A written plan describing how services will be provided to a FmHA or its successor agency under Public Law 103-354 financed project. At a minimum, the plan must specify the services to be provided, the frequency of the services, who will provide the services, how tenants will be advised of the availability of services, and the staff needed to provide the services.

Shelter cost. Consists of basic or note rate rent plus utility allowance when used. Basic or note rate rent must be shown on the project budget for the year and approved according to paragraph XII of this exhibit. Utility allowances, when required, must be determined and approved according to part 1944, subpart E, exhibit A -6, of this chapter. Any changes in rental rates or utility allowances must be processed according to exhibit C of this subpart. The shelter cost in a cooperative housing project will consist of occupancy charge plus utility allowance.

Site manager. The individual employed by the borrower or the management agent who lives at or near the project site and is responsible for the day-to-day operations of the project. A site manager residing at the project site may also be referred to as a resident manager. A site manager is not an “independent contractor.”

Tenant contribution. The portion of the approved shelter cost paid by the tenant household (tenant rent). For tenants not receiving HUD Section 8, this amount will be calculated according to Form FmHA or its successor agency under Public Law 103-354 1944-8. For tenants receiving HUD Section 8, this will be the amount referred to on HUD Form 50059, “Certification and Recertification of Tenant Eligibility,” (or other HUD approved Form), as family contribution. The proportion of tenant income and adjusted income paid as the tenant contribution will vary according to the type of subsidy provided to the household.

Tenant/cotenant. A person(s) who has signed a lease and is, or will be, an occupant of a unit in an RRH or LH project.

Utility allowance. A monetary allowance used by a tenant or member to pay the utility cost portion of their total shelter cost when such amounts are not otherwise included in project rents or occupancy charges.

Very low-income household. A household having an adjusted annual income within the maximum very low-income limit stated in Appendix 9 of HB-1-3550 (available in any Rural Development office).

IIIBorrower Responsibilities:

AGeneral. All borrowers are responsible for:

1Understanding the distinction between FmHA or its successor agency under Public Law 103-354 supervised credit and the credit provided by other Federal, State, or conventional loans.

2Meeting the objectives for which the loan and/or grant was made and complying with the respective program requirements.

3Understanding the unique characteristics and function of their particular type of borrower entity as provided by charter, articles of incorporation, by-laws, and/or statute.

4Assuring that a site manager or contact person is in close proximity to their MFH project.

5Complying with the provisions of their security instruments and any directive issued by FmHA or its successor agency under Public Law 103-354.

6Following the approved management plan and reporting to FmHA or its successor agency under Public Law 103-354 any changes to the management plan for prior consent, and when appropriate, reporting and obtaining FmHA or its successor agency under Public Law 103-354 prior consent to any change of management agent.

BBorrowers without a loan agreement. Unless otherwise specified, these borrowers are exempt from the requirements of this subpart, except for exhibit C of this subpart, as long as the borrower is not in default of any program requirement, security instrument, payment, or any other agreement with FmHA or its successor agency under Public Law 103-354. However, except for LH borrowers not charging for on-farm labor housing, these borrowers must provide evidence of tenant eligibility.

CBorrowers with a loan and/or grant agreement in a multiple unit project. These borrowers are responsible for meeting the requirements and conditions of their agreement/resolution and the requirements of this subpart.

DBorrowers with governing bodies. The elected or appointed officials comprising the governing body of the borrower are responsible for:

1Maintaining records of all current members and maintaining membership at the required level.

2Holding meetings as required by the organizational documents, and as otherwise necessary, to provide proper control and management of its operations, and to keep the membership informed.

3Coordinating and monitoring activities of established cooperative committees.

EBorrowers with a membership. Members of a membership type borrower are responsible for full support of the project and operation by:

1Promptly paying any dues, fees, and other required charges.

2Electing responsible officials.

3Complying with organization rules and regulations.

4Participating in annual and special meetings.

5Participating in established cooperative committees to which they have voluntarily accepted assignment.

6Carrying out duties and services necessary to maintain the cooperative property for which they have voluntarily accepted assignment.

FDelegation of responsibility and authority. The borrower may delegate or assign management responsibilities to a property manager such as a management agent, a site manager, or as appropriate, a caretaker. Delegations or assignments of duties and responsibility will be included in written documents such as management agreements and job descriptions. FmHA or its successor agency under Public Law 103-354 will hold the borrower ultimately responsible for management of the project. FmHA or its successor agency under Public Law 103-354 may require a borrower to change the plan of project management and/or make appropriate redelegations of project management responsibility to achieve program objectives.

IVRent Subsidy Opportunities: The available subsidy programs should be considered at the time of developing a project proposal and during project operation as they may be available to meet the tenants' needs. Congregate type services such as meals, limited homecare, medical, transportation, and social activities are not included in these subsidy programs. The subsidy programs are as follows:

AFmHA or its successor agency under Public Law 103-354 Interest Credit—RRH and RCH Loans. Regulations are contained in exhibit H to this subpart and include:

1Plan I—Only those borrowers who received this type of interest subsidy prior to October 27, 1980, may continue to utilize this Interest Credit Plan. Those broadly-based nonprofit corporations and consumer cooperatives may continue operating under this plan provided:

aOccupancy is limited to very-low or low-income non-elderly; very low-, low- and moderate-income person(s) who are elderly or have disabilities or handicaps.

bBudgets and rental rates are based on a 3 percent loan amortization.

2Plan II—This interest subsidy is available to broadly-based nonprofit corporations, consumer cooperatives, State or local public agencies, or to other organizations and individuals operating on a limited profit basis.

aOccupancy is limited to very-low, low-and moderate-income persons except as noted in paragraph VI D 2 i of this exhibit.

bBudgets are prepared showing two rental or occupancy charge rates, basic and note rate. The minimum (basic) rate for persons not receiving rental assistance is based on a 1 percent subsidized rate. The maximum note rate is based on the loan amortized at the interest rate shown in the promissory note.

cTenant's or member's contribution for shelter cost, calculated according to the FMI for Form FmHA or its successor agency under Public Law 103-354 1944-8, may not exceed the highest of:

(1) Thirty percent of monthly adjusted income, or

(2) Ten percent of gross monthly income, or

(3) If the household is receiving payment for public assistance from a public agency, the portion of such payments which is specifically designated by that agency to meet the household's shelter costs (see example in 1k of the definition of annual income in paragraph II of this exhibit), or

(4) The basic rent or occupancy charge when no RA is available from FmHA or its successor agency under Public Law 103-354.

dRRH borrowers whose loans were approved on or after August 1, 1968, may convert from Plan I to Plan II. When they are presently a full profit operation, they may convert to Plan II by executing a new or amended loan resolution or loan agreement and an interest credit and RA agreement according to exhibit H of this subpart.

eRRH borrowers with Plan I Section 8 interest credit agreements may change to Plan II when the 1 percent or 2 percent interest reduction is insufficient for the HUD contract rent to meet budgeting needs. The change of interest credit plan will be approved in accordance with paragraph VII B of exhibit C of this subpart (available at any FmHA or its successor agency under Public Law 103-354 office). A new Form FmHA or its successor agency under Public Law 103-354 1944-7, “Multiple Family Housing Interest Credit and Rental Assistance Agreement,” is required.

BRental assistance (RA) program—FmHA or its successor agency under Public Law 103-354. This is a subsidy program available to RRH, RCH, and LH borrowers to assist very-low and low-income tenants and members in paying their shelter cost. RA is not authorized for tenants or members whose adjusted income is initially above the low-income level. RA is not available to LH borrowers who are individual farmowners, partnerships, family corporations, or an association of farmers. RRH borrowers with loans approved on or after August 1, 1968, must be operating under, or change to, Interest Credit Plan II to receive RA. Full profit borrowers may utilize RA by converting to a limited profit operation. The provisions of the RA program are covered in detail in exhibit E of this subpart.

CHUD project based Section 8 and tenant based Section 8 Rental Certificate or Rental Voucher Program. These subsidy programs are administered by HUD or others authorized to administer the program such as State Housing Finance Agencies or the local public housing agency. Projects operating under the Memorandum of Understanding between FmHA or its successor agency under Public Law 103-354 and HUD (available at the FmHA or its successor agency under Public Law 103-354 National Office, Washington, DC 20250) will also be subject to the requirements of the Housing Assistance Payments Contract executed by the borrower. Projects accepting tenants utilizing Section 8 rental certificates or rental voucher assistance assigned by a local public housing agency will also comply with any requirements imposed by such agency. However, in all cases, tenants receiving section 8 assistance must meet the eligibility requirements specified in paragraph VI D of this exhibit. Requirements that conflict with FmHA or its successor agency under Public Law 103-354 requirements should be referred to the Servicing Official for guidance. (Generally, the most restrictive HUD or FmHA or its successor agency under Public Law 103-354 requirements or limitations will apply.)

DState provided subsidy. This is a subsidy program provided and funded by some States and available to RRH borrowers to assist tenants on approximately the same basis as the FmHA or its successor agency under Public Law 103-354 RA Program. The assistance is in accordance with a CONTRACT between the borrower and the State and concurred in by FmHA or its successor agency under Public Law 103-354.

EPrivately provided subsidy. This is a subsidy program whereby the project owner(s) or others enter into an Agreement with FmHA or its successor agency under Public Law 103-354 to provide and fund subsidy to tenants of the project on approximately the same basis as the FmHA or its successor agency under Public Law 103-354 RA Program. In some instances, the agreement may include a limit on the number of units and a Per Unit Ceiling on the amount of assistance. Privately provided subsidies are typically referred to as private rental assistance.

VManagement Operations:

AManagement plan.

1A comprehensive management program is essential to the successful operation of a project. A written plan is the primary ingredient which should describe the detailed objectives, policies and procedures in managing the project. A management plan is required to be submitted to the Agency for all projects, new and existing, except for those on-farm LH units where rent is not required. The plan should be developed in detail commensurate to project size and complexity and should be reviewed annually and updated at least triennially by the borrower. To reflect project needs and to meet current program objectives, use of an addendum is permitted when few changes are made in the update of the plan. Exhibit B-1 of this subpart outlines the requirements of the plan.

2In the case of congregate housing/group homes, the management plan should describe, in addition to the preceding general items, the specific items in paragraph V B of exhibit J of this subpart.

BIdentity of interest disclosure.

1General principles. FmHA or its successor agency under Public Law 103-354 requires that applicants/borrowers and/or management agents describe and fully justify any identity of interest, or appearance of same, that exists or will exist between the borrower, management agent, suppliers of materials and/or services, or vendors in any combination of relationship. Identity of interest will be construed as existing between the applicant/borrower and/or management entity and suppliers of materials and/or services described under but not limited to any of the following conditions:

aWhen there is any financial interest between the applicant/borrower and/or management entity and the supplying entity.

bWhen one or more of the officers, directors, stockholders or partners of the applicant/borrower or management entity is also an officer, director, stockholder, or partner of the supplying entity.

cWhen any officer, director, stockholder, or partner of the applicant/borrower and/or management entity has any financial interest whatsoever in the supplying entity.

dWhen the supplying entity advances any funds to the applicant/borrower and/or management entity.

eWhen the supplying entity provides and pays on behalf of the applicant/borrower and/or management entity the cost of any materials and/or services in connection with obligations under the management plan/management agreement.

fWhen the supplying entity takes stock or any interest in the applicant/borrower and/or management entity as part of the consideration to be paid them.

gWhen there exist or come into being any side deals, agreements, contracts or understandings entered into thereby altering, amending, or cancelling any of the management plan/management agreement documents, except as approved by FmHA or its successor agency under Public Law 103-354.

2Any individual or organization sharing an identity of interest for the project must certify by memorandum that it is a viable, ongoing trade or business qualified and properly licensed to undertake the work for which it intends to contract.

aFmHA or its successor agency under Public Law 103-354 Forms 1944-30, “Identity of Interest (IOI) Disclosure Certificate,” and FmHA or its successor agency under Public Law 103-354 1944-31, “Identity of Interest (IOI) Qualification Form,” (available in any FmHA or its successor agency under Public Law 103-354 Servicing office) will be completed and submitted as part of the management plan. Management agents will sign either form as “applicant.”

bThe initial disclosure shall be in effect for a period of 3 years and renewed every 3 years thereafter, except if there are any changes in the business practices of the applicant/borrower and/or management entity during the interim years that include identity of interest concerns, the entity must file amended Forms FmHA or its successor agency under Public Law 103-354 1944-30 and FmHA or its successor agency under Public Law 103-354 1944-31.

cThe forms provide notification to the entities of the penalty, under law, for erroneously certifying to the statements contained therein.

dDebarment actions will be instituted against entities who fail to disclose an identity of interest in accordance with the provisions of subpart M of part 1940 of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office).

CManagement agreement. The management agreement is the primary document by which the management agent is guided, evaluated, and compensated. It bears a close relationship to the management plan. A management agreement is required except in cases where the borrower (owner) fills the role of manager. Requirements of a management agreement are listed in exhibit B-2 of this subpart. Exhibit B-3 of this subpart is a sample management agreement. The two types of agreements acceptable to FmHA or its successor agency under Public Law 103-354 are described as follows:

1The owner hires a professional management agent to oversee and operate the project. The management agent may provide a site manager for on-site management and/or caretaker when justified by the size of the project. A qualifications statement by the management agent is required by the borrower and FmHA or its successor agency under Public Law 103-354. Exhibit B-4 of this subpart provides a guideline for preparing the statement.

2The owner maintains all or a part of the management role. The owner may use the services of a site manager in providing onsite management and/or services of a caretaker when justified by the size of the project. FmHA or its successor agency under Public Law 103-354 requires a qualifications statement by the owner who proposes to personally provide the management to determine management capability. Exhibit B-5 of this subpart provides a guideline for preparing the statement.

DResponsibility. The management plan and management agreement must be based on applicable provisions of local, State, and Federal statutes and the regulatory requirements of the loan used to finance the project, regardless of the management system used. The owner remains totally responsible to FmHA or its successor agency under Public Law 103-354 for the project, regardless of the authority delegated by the owner to the management agent.

ECompensation for project administration.

1General principles. Compensation for project administration is the remuneration for performance of administrative duties and responsibilities by those selected by the owner and approved by the Agency as having sufficient background and experience to manage project operations. The administrative duties and responsibilities must be set out in the management plan along with the manner in which compensation will be determined. It is the option of the project owners to determine whether to use a management agent to carry out project administrative functions in full or in agent to carry out project administrative functions in full or in part. Should a management agent be used, it is the option of the owner to decide which duties the management agent will perform and which duties will be performed by others. Whenever the owner chooses to use a management agent, a management agreement must be used. The management agreement must describe the duties and compensation for the services provided by the management agent. Any other duties and compensation for project administration not covered in by the management agreement, may also be considered as project expenditures. All project administrative expenditures must be evaluated by the Agency as being reasonable for the services provided, including the reasonableness of the expenditures for management agent services.

2Review of administrative expenses. The Agency is responsible for determining that project administrative expenses are reasonable for the services performed in administering project operations in an acceptable manner. Therefore, the Agency may use data from FmHA or its successor agency under Public Law 103-354 projects or other sources for use in making this determination. The Agency may establish guidelines for administrative expenses for use within a State or area. Administrative expenses falling within such guidelines for services typically performed under the guidelines may expect expeditious action on requests for budget approval. Administrative expenses falling outside of such guidelines for services typically performed under the guidelines may also warrant approval when justified. The management agent or owner will be primarily responsible for providing evidence that such fees are reasonable for the services performed when the administrative expenses are falling outside of any established guidelines.

3Review of management fees. The Agency is responsible for determining that the fees paid for services performed by management agents are reasonable. Therefore, the Agency may use data from FmHA or its successor agency under Public Law 103-354 projects or other sources for use in determining what fees are reasonable for the services performed in an acceptable manner by management agents. The Agency may establish guidelines for management fees for use within a State or area. Management fees falling within such guidelines for services typically performed under the guidelines may expect expeditious action on requests for approval of management agreements and budgets. Management fees falling outside of those guidelines may also warrant approval when justified. The management agent or owner will be primarily responsible for providing evidence that such fees are reasonable for the services performed when management fees are falling outside of any established guidelines. Whenever disputes arise as to whether an administrative expense is appropriate for listing under the management fee, or as to some other project expense, the Agency will seek to mutually resolve such concerns. This will be done by using the approved management agreement or management plan to determine which services are being performed by the management agent.

4Project administrative expenses.

aAcceptable administrative expenses. Those administrative expenses necessary to successfully carry out project operations may be approved provided such expenses do not duplicate any such expenses which may be included in the management fee as specified in the approved management agreement. The instructions that accompany Form FmHA or its successor agency under Public Law 103-354 1930-7, “Multiple Family Housing Project Budget,” provide further guidance on acceptable project administrative expenses. Preparation of an IRS required report for the project, if required (e.g., Schedule K-1 (IRS Form 1065), “Partner's Share of Income, Credits, Deductions, etc.” is an acceptable project expense.)

bUnacceptable administrative expenses. Those administrative expenses not necessary to successfully carry out project operations may be denied. Preparation of income tax returns for project owners are unacceptable project expenses.

5Projects with a management agent. When management agents are used, the duties and compensation of the management agent must be set out in a management agreement. All such agreements are subject to Agency review and concurrence. The amount of compensation for the services rendered is to be negotiated between the owner and the management agent but is subject to Agency concurrence with the management agreement and approval in the project budget.

6Owner-managed projects. The owner will be authorized to manage the rental project only when FmHA or its successor agency under Public Law 103-354 determines in writing that the owner (either as the individual borrower or as a part of an organizational borrower) has the necessary management capabilities.

aProjects with owners with identity-of-interest relationships to the management agent will not be considered as an owner managed project. A typical management fee may be charged as an expense to the project. The compensation must be according to the provisions of paragraph V E of this exhibit and be reasonable, earned, and not exceed the normal cost of similar services, had such services been provided by an independent management agent.

bSince cooperatives are to be organized as self-managed entities, the board of directors is not expected to have management experience. In lieu of this experience, the adviser to the board will provide management guidance during the formative years of the cooperative. Under the adviser's direction, the cooperative will become accustomed to this role and thus gain the ability to assume management responsibilities. If, after the required trial period outlined in subpart E of part 1944 of this chapter, the cooperative's board is unable to assume management responsibilities, professional management will be hired by the cooperative. We would expect the amount of compensation paid to a cooperative adviser to be less than that paid to other types of management agents in order to provide the members with some equity in the early years. (See subpart E of part 1944 of this chapter).

7Initial rent-up fees. Payment of fees for a one-time effort to achieve initial rent-up of a newly constructed rental project is permitted when it is determined necessary and documented by the FmHA or its successor agency under Public Law 103-354 loan approval official and the loan applicant. Rent-up fees should be paid on a per-unit basis only after each unit has been occupied by the initial tenant. Payment of the rent-up fee and other project management start-up expenses should generally be made from the 2 percent initial operation and maintenance fund. A person or firm, preferably the management agency, may be compensated at a rate negotiated with the applicant/borrower that represents reasonable compensation for the incurred marketing cost and project management start-up expenses.

FSite manager and/or caretaker services. The borrower is responsible for describing the plan for site management in the management plan. The plan needs to identify whether the site manager will occupy one of the project units as a revenue producing unit or as a rent free unit, or will live away from the project. The on-site services of a site manager and/or caretaker may be used when justified by the size, composition, and location of a project, whether the project is managed by a management agent or by the owner. There should be a written agreement between the owner or the management agent and the site manager to define the role and duties and compensation for the site manager and to provide a basis for evaluating the site manager's performance. FmHA or its successor agency under Public Law 103-354 may require an on-site resident manager and/or caretaker to assure that the loan objectives are met and/or to protect the tenant's or Government's interests. It is not mandatory that the site manager and/or caretaker meet tenant occupancy eligibility requirements. However, if management considers the occupied unit to be a rental unit, the rent paid will be determined according to the site manager's/caretaker's income.

1Calculation of rental rate for site manager or caretaker. The expense of providing the unit occupied by the site manager or caretaker will be included in the project budget the same as the expense for other nonrevenue producing portions of the project such as a laundry or community room. The rental rate will be determined as follows:

aWhen used as a revenue producing unit at approved rental rates, the salary paid to the site manager and/or caretaker will be included in the project operation and maintenance expenses. The same amount will be included in the annual income of the site manager and/or caretaker. The site manager and/or caretaker may be an eligible or ineligible tenant and their rent contribution will be based on their total income from all sources as shown on the tenant certification form.

bWhen the unit is used as a nonrevenue producing unit, the project cost of providing the unit will be treated the same as those of other nonrevenue producing portions of the project. Project rental rates will be established as if the unit did not exist as living quarters. Debt payment will be as if the unit were rented at basic rent. A tenant certification form will not be prepared for this situation.

2Owner occupancy. With the prior approval of the State Director, owners may occupy a unit in the project when the owner will manage the project rather than hiring a management agent or a site manager. The size, composition, and location of the project must justify the services of a site manager or caretaker, and the State Director must determine the owner is capable of performing these services. The rental rate will be included as described in paragraph V F 1 of this exhibit.

GProjects without a site manager and/or caretaker. Projects without a site manager and/or caretaker must have, at a minimum, a tenant who will serve as a contact person or have a person who is easily accessible to the project who is able to represent the project manager or owner on maintenance and management matters.

HSupplemental services. Supplemental services include laundry, vending machine, commissary store, pay telephones, or similar tenant benefit services.

1Borrower provided supplemental services.

aIncome from supplemental services and/or equipment and expense of acquisition and replacement cost shall be planned and recorded as part of the annual operating budget.

bFailure to account for all proceeds is a fraudulent act.

2Consignor provide supplemental services.

aA written contact between the borrower and consignor is required. The contract terms should follow “industry” standards for the type of service.

bComparability in all respects to conventional supplemental services contracts shall govern contract with identity of interest between the contracting parties.

cThe borrower's share of income will be shown as planned and actual income in the project operating budget.

dFailure by the contractual parties to account for all proceeds is a fraudulent act.

VI Renting Procedure:

AGeneral. Preparations for initial rent-up, occupancy and maintenance should begin at least 90 to 120 days ahead of the projected completion date of the project as described in § 1944.235 of subpart E of part 1944 of this chapter. This procedure will include a prerent-up conference between the FmHA or its successor agency under Public Law 103-354 Serving Official, the borrower, and the person(s) responsible for project management. Decisions to be made concern the advertisement of available units, affirmative marketing practices, tenant eligibility, and tenant selection criteria. It is important that this conference precede active marketing and the receipt of tenant applications.

BAccommodations in communication.

1The borrower shall take appropriate steps to ensure effective communication with applicants, tenants, members, and members of the public with handicaps and disabilities.

aThe borrower shall furnish appropriate auxiliary aids (electronic, mechanical, or personal assistance) where necessary to afford an individual with handicaps or disabilities an equal opportunity to participate in and enjoy the benefits of a MFH project receiving FmHA or its successor agency under Public Law 103-354 financial assistance.

(1)In determining what auxiliary aids are necessary, the borrower shall give primary consideration to the requests of an individual with handicaps or disabilities.

(2)The borrower is not required to provide individually prescribed devices, readers for personal use or study, or other devices of a personal nature.

bWhere a borrower communicates with applicants and tenants or members by telephone, telecommunication devices for deaf persons (TDD's) or equally effective communication systems shall be available for use.

2The borrower shall adopt and implement procedures to ensure that interested persons (including persons with impaired vision or hearing) can obtain information concerning the existence and location of accessible services, activities, and facilities in the project and community.

3This paragraph does not require a borrower to take any action that the borrower can demonstrate would result in a fundamental alteration in the nature of the project or operation or an undue financial and administrative burden. If an action would result in such undue alteration or burden, the borrower shall take any other action that would otherwise ensure that, to the maximum extent possible, individuals with handicaps or disabilities receive the benefits and services of the project.

CAffirmative Fair Housing Marketing Plan. All borrowers with five or more rental units must meet the requirements of § 1901.203(c) of subpart E of part 1901 of this chapter by preparing and submitting HUD Form 935.2, “Affirmative Fair Housing Marketing (AFHM) Plan.” Records must be maintained by the borrower reflecting efforts to fulfill the plan and will be reviewed by FmHA or its successor agency under Public Law 103-354 and updated by the borrower during compliance reviews for title VI of the Civil Rights Act of 1964. The approved plan will be posted by the borrower for public inspection at the borrower's project site, rental office, or at any other location where tenant applications are received for the project. In developing the plan, the following items should be considered:

1Direction of marketing activities. The plan should be designed to attract applications for occupancy from all potentially eligible groups of people in the housing marketing area regardless of race, color, religion, sex, age, familial status, national origin, or handicap. The plan must show which efforts will be made to reach very low-income or low-income groups who traditionally would least likely be expected to apply for such housing without special outreach efforts.

2Marketing program. The applicant or borrower should determine which methods of marketing such as radio, newspaper, TV, signs, etc., are best suited to reach those very low-income or low-income groups who are least likely to apply for occupancy in the project. Marketing should not totally rely on “word of mouth” advertising. Appropriate social agencies and networks should be contacted to assist in reaching elderly (senior citizens), persons with handicaps, etc.

aAdvertising.

(1) Frequency. The borrower should advertise availability of housing units in advance of their availability to allow time to receive and process applications, determine eligibility, and arrange for move-in of tenants or members in a smooth flow of project operation. Advertising by newsprint or electronic media should occur at least annually to promote project visibility, even if there is an adequate waiting list.

(2) Posters, brochures, etc. Any radio, TV, or newspaper advertisement, pamphlets, or brochures used must identify the project's handicap accessibility and contain the appropriate fair housing logotype or the equal housing opportunity slogan. A copy of this proposed material is to be submitted along with the HUD Form 935.2 for approval. The nondiscrimination poster entitled “And Justice For All,” the “Fair Housing” poster and the tenant grievance and appeals procedure must be displayed in the rental office. If the rental office is not on site, the items must be displayed in a common conspicuous place on the site.

b Signage.

(1) Permanent project sign. A permanent sign identifying the project is required for all MFH projects approved on or after September 13, 1977. To meet minimum requirements for an existing or new project, the sign, subject to state or local code:

(i) Must be located at the primary site entrance and be readable and recognizable from the roadside.

(ii) Must be located near the site manager's (or contact person's) office when the project has multiple sites. Portable signs will be placed where vacancies exist at other site locations of a “scattered” project.

(iii) May be of any shape.

(iv) For projects of 8 or more units, must have not less than 16 square feet of area. Smaller projects may have smaller signs.

(v) Including its supports, must be made of durable material.

(vi) Must include the project name.

(vii) Must show rental contact information including but not limited to the project's office location and a telephone number where applicant inquiries may be made.

(viii) Must show the equal housing opportunity logotype (house symbol and slogan) as shown in exhibit B-11 of this subpart, OR the slogan “Equal Housing Opportunity” OR the statement “We are pledge to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the nation. We encourage and support an affirmative advertising and marketing program in which there are no barriers to obtaining housing because of race, color, religion, sex, handicap, familial status, or national origin.” The logotype and/or slogan must be permanently affixed, clearly visible and should be at least equal to approximately 3 to 5 percent of the sign area.

(ix) May display the FmHA or its successor agency under Public Law 103-354 logotype as shown in exhibit B-12 of this subpart.

(2) Handicap accessibility signs.

(i) Parking spaces. Accessible parking spaces shall be designated as reserved for the disabled by a sign showing the international symbol of accessibility (see exhibit B-13 of this subpart). The sign should be mounted on a post at a height readily visible from an occupied vehicle. In snow areas, the sign needs to be visible above piled snow.

(ii) Handicap accessibility route. When the continuous unobstructed ingress/egress handicap accessibility route to a primary building entrance is other than the usual or obvious route, the alternate route for handicap accessibility shall be clearly marked with handicap symbols and directional signs to aid a handicapped person's ingress/egress to the building, through an accessible entrance, and to accessible common use and public and living areas.

c Community contact. Community leaders and special interest groups such as community, public interest, religious organizations, and organizations for the handicapped should be contacted in small communities without formal communication media aimed at the group or groups least likely to apply for available housing. Community contacts should also be used in reaching specific elements of the community such as the elderly or particular ethnic groups determined least likely to apply for the available housing.

d Rental staff. All staff persons responsible for renting the units must have had training provided on Federal, State, and local fair housing laws and regulations and in the requirements of fair housing marketing and in those actions necessary to carry out the marketing plan. Copies of instructions to the staff regarding fair housing must be attached to the AFHM plan according to the instructions for part 7 of HUD Form 935.2.

3 Marketing records. The borrower will be required to develop and maintain a system to provide data to indicate to what extent the borrower is carrying out the objective of the AFHM plan.

DTenant eligibility and occupancy guidelines. The rental agent of the project must be knowledgeable about the FmHA or its successor agency under Public Law 103-354 tenant eligibility and occupancy requirements as they relate to a particular project. FmHA or its successor agency under Public Law 103-354 loans require occupancy of the unit by eligible tenants. Except for migrant farmworker tenants in LH projects, tenant/applicants must occupy the housing unit they qualify for as their permanent residence on the provision they do/will not maintain a separate subsidized rental unit in a different location.

1Eligible tenants. The following tenant eligibility criteria will apply where appropriate, unless otherwise authorized such as in the case of LH as described in subpart D of part 1944 of this chapter.

aTo determine eligibility for occupancy, the applicant's eligibility income must be as defined in paragraph II and include income from net family assets as defined in paragraph II of this exhibit.

bThe adjusted annual income must meet the definition of very low-, low- or moderate-income as defined in paragraph II of this exhibit as required for that specific project for applicant selection, tenant contribution, and continued occupancy.

cTo determine eligibility for continued occupancy, the tenant's adjusted annual income must be determined at least once every 12 months. When the tenant's adjusted annual income exceeds the moderate-income limit established for the area in which the project is located, the tenant is no longer eligible and will be required to vacate the project according to the terms of the lease and paragraph VI D 6 of this exhibit. Continued occupancy by cooperative members will not be affected by this income criteria. Cooperative members, after initial certification of income eligibility, may remain members regardless of income.

dIn RRH projects operating on a Plan I basis, tenants will:

(1) Be a very low-, low-, or moderate-income person who is elderly, or has handicaps, or disabilities, or

(2) Be a very low or low-income nonelderly, nondisabled, or nonhandicapped person.

eIn RRH projects operating on a nonprofit or limited profit Plan II basis, tenants will be a very low-, low-, or moderate-income person regardless of age, disability, or handicapping condition.

fIn RRH projects operating on a full-profit basis, tenants will:

(1) Be a person of any income who is elderly, or has handicaps, or disabilities, or

(2) Be a very low-, low-, or moderate-income nonelderly, nondisabled, or nonhandicapped person.

gIn LH projects designed and operated either for year-round or seasonal occupancy, eligibility is established in subpart D of part 1944 of this chapter.

hOccupancy in RRH project units designated by FmHA or its successor agency under Public Law 103-354 as:

(1) Family housing may be occupied by any combination of elderly, disabled, or handicapped, and/or nonelderly, nondisabled, or nonhandicapped tenants including those tenants with familial status. Marketing priorities for this category should not exclude one group over another.

(2) Elderly housing must be occupied by tenants who are elderly, disabled, and/or handicapped but not at the exclusion of children if they are members of the “elderly” household, nor shall it be restricted exclusively for use by tenants who are disabled and/or handicapped.

(3) Housing which consists of specific units in a project designated as family housing and other units designated as elderly housing units should be governed by paragraphs VI D 1 h (1) and (2) of this exhibit.

(4) Congregate housing and group homes shall be occupied by persons described in the definitions for congregate housing and group home, respectively in paragraph II of this exhibit.

iTenant of member independence.

(1) RRH, RCH, and LH housing. It shall be a tenant's or member's responsibility to determine the ability to meet the legitimate and uniformly applied requirements of tenancy, thus assuming risk and responsibility of living within and upon the project premises. It shall be the owner's or representative's responsibility to respond to requests for what reasonable accommodations the tenant or member may need, otherwise the owner or its representative MAY NOT under possible penalty prescribed by Pub. Law No. 100-430, 102 stat. 1619 (1988) codified at 42 U.S.C. 3601 et seq:

(i) Judge whether individuals with handicap or disability are capable of independent living.

(ii) Require a physical examination as a condition for tenant or member selection.

(iii) Impose conditional leases requiring individuals with handicaps or disabilities to participate in supportive services.

(2) Congregate and group home housing and housing with handicap unit(s). Because the purpose of such housing is to provide specific supportive services to individuals, it is permissible for the owner or its representative to inquire only to the extent necessary in the case of congregate housing whether the project offers the services wanted by the individual and in the case of group home housing, whether the individual has a handicap or disability that would qualify the individual to occupy, or continue to occupy the housing.

(3) Legal capacity. Tenants or members in FmHA or its successor agency under Public Law 103-354 financed MFH projects must possess the legal capacity to enter into a lease agreement, except where a legal guardian (an individual) may sign when the tenant or member is otherwise eligible and is a tenant residing in a group housing project.

jFor LH projects and units in RRH projects specifically designed and designated for the elderly, disabled, and/or handicapped as defined by FmHA or its successor agency under Public Law 103-354, occupancy is limited solely to those meeting the eligibility requirements for the specific type of project (i.e., domestic farm laborers, elderly, disabled, and/or handicapped). Eligible occupants in these projects may also include other persons who are usually household members of the families of the domestic farm laborer, or persons who are elderly, or have disabilities, or handicaps. Resident assistants or chore workers will not be considered members of the tenant's household.

kA student or other seemingly temporary resident of the community who is otherwise eligible and seeks occupancy in an RRH or RCH project may be considered an eligible tenant when all of the following conditions are met:

(1)Is either of legal age in accordance with applicable State law or is otherwise legally able to enter into a binding contract under State law.

(2)The person seeking occupancy has established a household separate and distinct from the person's parents or legal guardians.

(3)The persons seeking occupancy is no longer claimed as a dependent by the person's parents or legal guardians pursuant to Internal Revenue Service regulations, and evidence is provided to this effect.

(4)The person seeking occupancy signs a written statement indicating whether or not the person's parents, legal guardians, or others provide any financial assistance and such financial assistance is considered as part of current annual income and is verified in writing by the borrower.

lA domestic farm laborer may continue occupancy of an LH project after retirement (having reached age 55) or after becoming disabled [(determined to have an impairment which is expected to be of long-continued and indefinite duration and substantially impedes the person's ability to earn a livelihood from farm labor (as certified by a licensed physician)].

mA tenant who does not personally reside in a rental unit for a period exceeding 60 consecutive days, for reasons other than health or emergency, is considered ineligible for subsidy and shall be required to pay note rate rent in Plan II projects or 125 percent of rent in Plan I projects for the period of absence exceeding 60 consecutive days.

(1)If the tenant continues to be absent from the unit, the borrower must notify the tenant by certified mail at least 30 days prior to the end of the leasing period, to occupy the living unit by the end of the lease period or the borrower will start termination proceedings.

(2)In those cases where the tenant's lease does not contain the lease clause in paragraph VIII B 4 c of this exhibit, the tenant will be advised that the lease will not be renewed, unless replaced with a lease meeting current requirements.

2Occupancy policy and guidelines.

aObjective. The objective of the occupancy policy and guidelines in FMHA financed projects is to achieve utilization of subsidized space without overcrowding or providing more space than is needed by the number of people in the household.

bPolicy.

(1)FmHA or its successor agency under Public Law 103-354 does not specify the number of persons who may live in MFH housing units of various sizes.

(2)The borrower must set reasonable occupancy standards which will assist as many people as possible without overcrowding the unit or the project and which will minimize vacancies.

(3)In setting the occupancy standards, the borrower must comply with all reasonable State and local health and safety restrictions regarding the maximum number of occupants permitted to occupy a dwelling. In the absence of State or local health safety restrictions, overcrowding shall occur when the TOTAL occupancy level in a housing unit exceeds 2 people per habitable sleeping room, except that an additional person(s) may be allowed when a habitable sleeping room provides at least 50 square feet per person. A habitable sleeping room shall not include a kitchen, bathroom, hallway, or dining area.

(4) In placing families on waiting lists and in assigning families to MFH housing, a borrower should allow families to choose whether to opt for larger or smaller units to permit families to occupy units of sufficient size, so that persons of opposite sex (other than spouses) or persons of same sex, persons of different or same generation, and unrelated or related adults may have separate bedrooms according to the particular needs of the family.

(5) Borrowers may have different standards for different projects but such standards must not result in or perpetuate patterns of occupancy which would be inconsistent with title VI of the Civil Rights Act of 1964 or the Fair Housing Act.

(6) For the purpose of determining unit size, borrowers need to include, as members of the household:

(i) All full-time members of the household.

(ii) Dependent minors who are away at school but live with the family during school recesses.

(iii) Dependent minors who are subject to a joint custody agreement but live in the unit at least 50 percent of the time.

(iv) An unborn child or a child in the process of being adopted by or granted custody of an adult.

(v) A foster child residing in the unit, or a household child temporarily residing elsewhere in foster care.

(vi) A live-in attendant.

(7) Borrowers shall not provide bedroom space for others who are not members of the household such as adult children on active military duty, permanently institutionalized family members, or visitors.

cGuidelines. These guidelines are designed to assist the borrower in implementing the occupancy policy into workable occupancy standards. The project occupancy standard should be available for review by applicant, tenant, member, and project representative upon request.

(1) In setting objective occupancy standards, the borrower should set the standards to permit the tenant to select the unit size they deem appropriate to their needs insofar as overcrowding by the household does not happen and underutilization of the unit does not occur. The occupancy standard selected should attempt to reflect ideal ranges of occupant density. In developing an ideal occupancy standard, it should be based so that:

(i) No more than two persons should be required to occupy a bedroom.

(ii) Persons of different generations, persons of the opposite sex (other than spouses), and unrelated adults should not be required to share a bedroom.

(iii) Children of the same sex may share a bedroom.

(iv) Children, with the possible exception of infants, should not be required to share a bedroom with persons of different generations, including their parents.

(2) These guidelines should result in the following ideal range of persons per housing unit:

No. of bedroomsOccupant density rangeminimum0111122243364585710

For example, if the borrower adopts these standards, households with three people generally should be accomodated in a two bedroom unit and should not receive apartments with more than three bedrooms. Nor should such households be required to live in apartments with fewer than two bedrooms. A household of three persons could be permitted to live in an apartment with fewer than two bedrooms if the household so chooses, unless it would constitute overcrowding OR there is a state or local occupancy law forbidding occupancy of the unit by three or more persons.

(3) If, because of a physical or mental handicap of a household member or a person associated with that household, a family may need a unit that is larger than the unit size suggested by the guidelines in paragraph VI D 2 c (2) of this exhibit, it may be an unlawful failure to make reasonable accommodation to deny such a family the opportunity to apply for and obtain such a unit.

dThese occupancy guidelines may serve also as general guidelines for migrant and on-farm LH. Projects developed in compliance with local and/or state design requirements will determine the appropriate occupancy standards for migrant LH. In dormitory type LH housing, there must be at least 400 cubic feet of habitable sleeping area for each person.

eWhen there are no units of appropriate size available in the project:

(1) The tenant may be admitted and/or remain, provided the unit is not overcrowded or underutilized.

(2) The tenant may receive available rental subsidy if otherwise qualified by income.

fWhen an occupied unit becomes overcrowded or underutilized and there is a waiting list for the size unit occupied:

(1) The tenant must move to another unit in the project of adequate size and accommodation when it becomes available. If the tenant then refuses to move to the available unit, or if none is available.

(2) Vacate the project within a reasonable time period established by the borrower as specified in the lease or by the end of the lease period, whichever is later.

gTo avoid prolonged vacancy and loss of revenue, management may permit temporary occupancy of specially designed handicapped accessible units by households not needing such specially designed features, under the following conditions:

(1) No household needing the specially designed features of a handicapped accessible unit is available to occupy the unit and management has made a diligent effort to reach tenants who qualify for the specially designed unit;

(2) The tenant agrees to transfer to an appropriate unit if and when it becomes available in the project once an applicant with handicaps needing the features of a handicapped accessible unit is on the waiting list and ready to move in;

(3) The responsibility to pay all costs associated with the subsequent move to the appropriate unit shall be mutually determined between the owner and the tenant. The owner's share of cost, if any, may be a project expense; and

(4) The appropriate lease clause in paragraph VIII C of this exhibit is incorporated in the tenant's lease.

hBorrowers with RRH projects specifically built and designated for the elderly prior to October 27, 1980, with only a few or no one-bedroom units, may permit occupancy of two-bedroom units by single eligible tenants if this provision is included in the project occupancy policy. The occupancy policy should reflect the needs of the local market area. This eligibility determination made by management must be included in the tenant's lease and will entitle such tenant to all benefits without need for further FmHA or its successor agency under Public Law 103-354 approval.

iWhen a unit cannot be rented under the provisions in paragraph VI D 2 g and h of this exhibit, the Servicing Official may authorize an exception according to paragraph VI D 7 of this exhibit.

jA tenant who was determined eligible and allowed to occupy under regulations in effect prior to October 1, 1986, who does not meet eligibility requirements regarding income or occupancy policy as prescribed in these regulations may be permitted continued occupancy in the same unit for the duration of their residency. This provision specifically refers to:

(1) Elderly tenants of any income level who have occupied their unit, since before October 27, 1980.

(2) Tenants who were determined eligible before October 27, 1980, but did not meet income and occupancy requirements on that date. Examples are:

(i) Individual tenants occupying a unit with separate tenant certifications whose combined income on October 27, 1980, would disqualify joint tenancy.

(ii) Tenant households whose composition did not meet the occupancy guidelines in paragraph VI D 2 c (2) of this exhibit.

(3) Tenants who became income ineligible due to changes of income and shelter cost determination on October 1, 1986. This provision did not apply to normal increase of household income which may have made them ineligible before October 1, 1986.

kFor each RRH project specifically designated for the elderly, the borrower or management may not prohibit, prevent, restrict, or discriminate against any tenant for continued occupancy or applicant for occupancy who owns or will keep a pet in their apartment unit unless the approved project pet rules are violated.

lNothing in this subpart requires that an apartment unit be made available to any individual whose tenancy would constitute a direct threat to the health and safety of other individuals or whose tenancy would result in substantial physical damage to the property of others, Except, when such threat can be removed by applying a reasonable accommodation.

3Reasonable accommodations.

aThe Fair Housing Amendment Act of 1988 requires persons to make reasonable accommodations in rules, policies, practices, or services, when such accommodations would afford a handicapped or disabled person equal opportunity to occupy or continue to occupy and enjoy a dwelling unit, including public and common use areas. For example:

(1) It would be unlawful to refuse a person with a sight impairment with a service animal to live in a dwelling unit when there is otherwise a no-pet policy in the apartment complex.

(2) It would be reasonable accommodation to grant a request by an applicant or tenant with a mobility impairment to be assigned a reserved parking space as near to that person's dwelling unit as possible, even though all other designated handicapped parking spaces are already reserved, having been assigned on a first-come, first served basis.

(3) It would be reasonable accommodation to remove a gas cooking stove and install a microwave oven when such accommodations to a tenant or member would remove a direct threat to the project, the tenant and other tenants. Other examples are changing water faucets to push or electronic activated faucets and door knobs to door handles for persons with infirmed hands.

bThe Fair Housing Amendment Act requires owners to permit, at the expense of a person with handicaps, reasonable modifications of an existing unit, occupied or to be occupied by a person with handicaps, if the proposed modifications may be necessary to afford that person full enjoyment of the dwelling unit.

(1) The borrower may, where it is reasonable to do so, condition permission for a modification on the applicant or tenant agreeing to restore the interior of the dwelling unit to the condition that existed before the modifications, reasonable wear and tear excepted. (Note: It should not, for example, be necessary to remove blocking previously installed to support bathtub handrails when restoring to “original” condition since the blocking does not affect future use.)

(2) The borrower may not increase the customarily required security deposit. However, where it is necessary to ensure with reasonable certainty that funds will be available to pay for the restorations at the end of tenancy, the borrower may negotiate as part of such a restoration agreement a provision requiring that a tenant pay into an interest bearing escrow account, over a reasonable period, an amount of money not to exceed the cost of restoration. The interest in any such account shall accrue to the tenant's benefit.

4Other items the borrower should consider in determining eligibility of applicants for admission to the project.

aAny criteria or documentation must be applied uniformly for all applicants for occupancy for the following items:

(1) Verification of income and/or employment according to paragraph VII of this exhibit. (Mandatory in all cases.)

(2) Credit reports to reflect the applicant's past record of meeting obligations. (Optional.)

(3) Prior landlord references to determine if the tenant was responsive to meeting rent payment obligations, care, and maintenance of the unit. (Optional.)

(4) The applicant's financial capability to meet other basic living expenses and the rental charge, taking into consideration any subsidy assistance that could be made available to the tenant. Where RA is not available, the borrower should inform any very-low or low-income household that would be required but unable to pay the approved rent, including utilities, that they may be eligible for a particular form of rent subsidy described in paragraph IV of this subpart. The borrower should indicate where information about other subsidies can be obtained. (Optional.)

(5) Written verification of an unborn child by a doctor or other qualified third party. (When applicable.)

bA borrower or manager should consider mitigating factors when tenants or members have had or presently have a period of hardship beyond their control, when they have had disputes with creditors, including landlords, or when they were having difficulty paying overburdened rent levels.

5Surviving or remaining members of eligible tenant household.

aSurviving members of an elderly, disabled, and/or handicapped tenant's household may continue occupancy of the unit after the death of the original tenant, even though they may not meet the definition of an elderly, disabled or handicapped person stated in paragraph II of this exhibit, provided:

(1) They are eligible occupants with respect to income and were either cotenant or member of the household and have legal capacity to sign and assume the lease,

(2) They occupied the unit with the original tenant at the time that the original tenant died, and

(3) A surviving nonelderly cotenant or comember shall not qualify for the elderly family adjustments to income.

bSurviving members of a domestic farm laborer's household may continue to occupy when they meet the definition of a domestic farm laborer as defined in paragraph II of this exhibit.

cRemaining household member(s) of a nonelderly, nondisabled and/or nonhandicapped household, who is included on the current tenant certification may continue to occupy the rental unit if they otherwise independently meet tenant eligibility requirements with respect to income and occupancy standard size and sign a succeeding tenant certification establishing their own tenancy.

dWhen tenants no longer meet the requirements of paragraph VI D 5 a, b, or c of this exhibit, the provisions for formerly eligible tenants in paragraph VI D 6 of this exhibit shall apply.

6Formerly eligible tenants. Unless authorized by paragraph VI D 2 j of this exhibit, formerly eligible tenants will be required to vacate their unit within 30 days (7 days for migrant farm labor tenants with week-to-week lease agreements) or the end of the term of their lease agreement, whichever is longer. If, however, there is not an eligible applicant on the waiting list available for occupancy, the formerly eligible tenant may remain until there is an eligible tenant on the waiting list available to occupy the unit; at which time, the requirements for notice to vacate stated in paragraph VI D 6 c of this exhibit will take effect. If vacating the unit in the time period described creates an undue hardship on the family, the Servicing Official may permit continued occupancy for a reasonable period of time. The following “formerly eligible” situations apply to this paragraph:

aTenants who no longer meet FmHA or its successor agency under Public Law 103-354 income eligibility requirements. (This includes tenants receiving RA or Section 8 assistance.)

bTenants in LH projects who no longer meet the farm labor occupation requirements, and who are neither retired nor disabled domestic farm laborers, are considered to be “formerly eligible tenants” as long as a need for housing for domestic farm laborers exists in the project's farm market area.

cTenants who no longer meet the occupancy policy for the project. These tenants must agree in writing to move to a unit of appropriate size in the project when one becomes available, or when an appropriate sized unit does not exist in the project, vacate the project at the termination of their lease. However, the tenant may remain as an ineligible tenant if the unit is not overcrowded and there are no other applicants on the waiting list for the size of unit presently occupied.

7Servicing official authority to permit an RRH or LH borrower to rent to ineligible tenants.

aThe Servicing Official may authorize the borrower in writing, upon receiving the borrower's written request with the necessary documentation, to rent vacant units to ineligible persons for temporary periods to protect the financial interest of the Government. Likewise, this provision may extend to a cooperative. This authority will be for the entire project for periods not to exceed one year. Within the period of the lease, the tenant may not be required to move for initially documented ineligibility. A copy of the authorization to rent to ineligibles will be forwarded to the State Office. The following determinations must be made by the authorizing FmHA or its successor agency under Public Law 103-354 official.

(1) There are no eligible persons on a waiting list.

(2) The borrower provided evidence that a diligent but unsuccessful effort to rent any vacant unit(s) to an eligible tenant household has been made. Such evidence may consist of advertisements in appropriate publications, posting notices in several public places, and other places where persons seeking rental housing would likely make contact; holding open houses, making appropriate contacts with public housing agencies and authorities (where they exist), State and local agencies and organizations, Chamber of Commerce, and real estate agencies.

(3) The borrower will continue with aggressive efforts to locate eligible tenants and submit to the Servicing Office, along with Form FmHA or its successor agency under Public Law 103-354 1944-29, “Project Worksheet for Interest Credit and Rental Assistance,” a report of efforts made. The required followup should be posted in the Servicing Office on Form FmHA or its successor agency under Public Law 103-354 1905-6, “Management System Card-Multifamily Housing.”

(4) To protect the security interest of the Government, the units may be rented for no more than a year after which the lease must convert to a monthly lease. The monthly lease must require that the unit be vacated when an eligible prospective tenant is available. The ineligible tenant will then be given 30 days to vacate.

(5) Tenants residing in RRH units who are ineligible, because their adjusted annual income exceeds the maximum for the RRH project, will be charged the FmHA or its successor agency under Public Law 103-354 approved note rate rental rate for the size of unit occupied in a Plan II RRH project. In projects operated under Plan I, ineligible tenants will be charged rental surcharge of 25 percent of the approved note rate rental rate.

(6) Tenants permitted to occupy but who are ineligible for reasons other than income may benefit from RA and/or interest credit.

(7) Tenants residing in off-farm LH units who are ineligible because their adjusted annual income exceeds the maximum for the area will be charged the lesser of the LH project's note rate rent or the prevailing market rent rate for the project as determined by subpart D of part 1944 of this chapter. For on-farm tenants, rent determination may be subject to local discretion with limitations as set out in subpart D of part 1944 of this chapter. Excess rent shall be remitted to the Agency for credit to the Rural Housing Insurance Fund.

bExamples of situations where the Servicing Official may authorize a borrower to rent units to ineligible persons to reduce chronic vacancy are:

(1) In housing designated as “family” housing, permitting persons or households to occupy who are not eligible because they have an above normal income.

(2) In housing designated as “elderly” housing, permitting persons or households to occupy that meet the definitional requirements of qualifying as elderly, but who otherwise have an above moderate income. This provision will not permit nonelderly persons or households to occupy housing for the elderly.

cWhen the Servicing Official determines that a borrower may rent to an ineligible tenant, the written authorization must contain the appropriate clauses which must be inserted into the ineligible tenant's lease. At a minimum it should include:

(1) The reason for ineligibility.

(2) The term of ineligible occupancy.

(3) Any conditions under which the tenant will be required to vacate the unit including moving to an appropriate size unit when warranted to comply with the established occupancy standards.

(4) The length of notice the tenant will be given to vacate.

EApplicant inquiries and waiting lists.

1When a prospective tenant or member inquires (by telephone, letter, or visit) concerning the availability of a rental or cooperative unit, the borrower or rental agent will advise the prospective applicant of their right to file an application.

2When a prospective tenant or member files a completed application for occupancy and is determined eligible, the borrower or rental agent will place the prospect's name chronologically by date and time on the appropriate written waiting list. Exhibit B-14 of this subpart contains a sample waiting list. An application is a written document(s) prescribed by the management providing sufficient information for the rental agent to complete the steps necessary to determine eligibility.

aEligibility shall be governed by paragraph VI F of this exhibit.

bThe actual determination of eligibility will be conducted according to the application process described in paragraph VI F of this exhibit.

cPriority on the waiting list shall be determined according to paragraph VI E 3 of this exhibit. Eligibility for cooperative membership will be determined in accordance with subpart E to part 1944 of this chapter.

3Separate waiting lists by categories and/or a master waiting list with income levels identified (very low-, low- and moderate-income), and categories or priorities indicated will be maintained for rural rental, cooperative, and year-round occupancy farm labor housing. Each list must be maintained in chronological order. When there are separate lists, they must be cross-referenced for prospective tenants who fit more than one category or priority. Separate lists may be maintained for:

aIncome levels (very low-, low-, moderate-income, or ineligible).

bVarious size units.

cUnits for elderly, disabled, or handicapped persons, families, or any other combination as planned for the project according to the borrower's loan agreement or resolution and management plan.

dPersons who require the special design features of the handicapped accessible units(s) in the project such as persons confined to a wheelchair or requiring other auxiliary apparatus for mobility and/or life support. Persons on this list have priority for these units.

eHolders of Letters of Priority Entitlement issued by FmHA or its successor agency under Public Law 103-354 according to subpart E of part 1965 of this chapter will be given top of the waiting list priority within an income group for the category of unit size for which the applicant qualifies. This same priority shall also extend to persons displaced due to housing rendered uninhabitable or actually seized by legal action (for other than illegal activities).

fIn congregate housing projects, priority can be given to tenants who qualify for the services provided by the congregate facility insofar as there is available capacity in the facility to provide the services.

gIn LH projects, lists should be maintained in accordance with the priorities of occupancy established by § 1944.154 of subpart D of part 1944 of this chapter.

hIn only those projects with project based Section 8 units, priority for such units will go to applicants who, at their time of housing need, are involuntarily displaced, or living in substandard housing, or paying more than 50 percent of income for rent.

iTenant applicants that qualify the borrower for tax credit.

4For seasonal farm LH a waiting list should be chronologically compiled by date and time received as in paragraphs VI E 2 and VI E 3 of this exhibit. These lists should be maintained for the season in which the project will be operating. Prospective tenants should be advised that the waiting list will terminate on the closing date of the project in any given season. Tenant selection shall be governed according to paragraph VI H 6 of this exhibit.

aSeasonal LH management plans should identify a date when applications will be accepted for a new operating season and a waiting list compiled.

bA process should be specified in the plan for advising prospective tenants of the application process and the dates of project operation.

5A waiting list must show the racial identity of the prospective tenant. Rental housing managers may determine how the identification is to be made according to the guidance found at exhibit B-14 of this subpart, which may include the use of a code system.

6When prospective tenants are first assigned to the waiting list, they will be notified of the category(s) to be assigned to their application. Prospective tenants may inquire to determine the place of their application on the waiting list. However, to protect the privacy of all prospective tenants, the waiting list should not be shown to any prospective tenants.

7Borrowers may establish a procedure for purging the waiting list(s) periodically of prospective tenants who are no longer interested in occupancy. The borrower must inform each prospective tenant of this procedure and any actions they must take to maintain their priority position on the waiting list. When a name is removed from the waiting list by the borrower, the prospective tenant must be informed in writing at their last known address. The letter must include appeal rights under subpart L of part 1944 of this chapter.

8Expired waiting lists must be kept on file by the borrower or management agent until a compliance review has been conducted by FmHA or its successor agency under Public Law 103-354 in accordance with subpart E of part 1901 of this chapter.

FApplications, eligibility determination and notification of eligibility or rejection.

1Application status for determining eligibility. All persons desiring to apply for occupancy, whether as the initial applicant household or as a person(s) later joining an existing tenant household, will be provided the opportunity to submit a complete application. The borrower or rental agent will provide prospective tenants or members with a written list of all information required for a complete application and offer assistance in completing the application if needed.

aAfter the potential tenant or member has submitted all required forms and information but additional information is required, the borrower or rental agent must notify the applicant within 10 days of the items needed to complete a review of eligibility. The application file will be documented on the action taken.

bWhen the application is complete, and occupancy by the applicant is expected within 90 days of completing the application, eligibility will be determined, including verification of applicant information performed according to paragraph VII of this exhibit; otherwise, verification of applicant information will be initially satisfied upon sufficient review of the information to determine whether the applicant is clearly eligible or not eligible.

cApplicants determined eligible will be added to the waiting list according to paragraph VI E 2 of this exhibit, even when an operational project has few or no vacancies, and there are sufficient active applications from households determined eligible to fill expected vacancies.

dApplication fees are discouraged, but when used, any fee charged to a prospective tenant shall be limited to the cost of actual services incurred for obtaining necessary information associated with completing a tenant certification.

2Fair housing restrictions and provisions.

aIt shall be unlawful for a person to make an inquiry to determine whether an applicant for a housing unit, or anyone associated with that applicant, has a handicap or disability or to make inquiry as to the nature or severity of a handicap or disability of such a person. However,

bThe following inquiries are not prohibited, provided these inquiries are made of all applicants, whether or not they have handicaps or disabilities.

(1) Inquiry into an applicant's ability to meet the requirements of tenancy (i.e., eligibility, history of meeting financial obligations) and without being a direct threat to the health and safety of other individuals or whose tenancy would result in substantial physical damage to the property of others.

(2) Inquiry to determine whether an applicant is qualified for a housing unit or adjustment to income available only to persons with handicaps or disabilities or to a persons with a particular type of handicap or disability.

(3) Inquiry to determine whether an applicant for a housing unit is qualified for a priority available to persons with handicaps or disabilities or to persons with a particular type of handicap.

(4) Inquiring whether an applicant for a dwelling is a current illegal user of a controlled substance or has a previous conviction of the same.

(5) Inquiring whether an applicant has been convicted of the illegal manufacture or distribution of a controlled substance.

(6) Inquiring whether an applicant answering positively to F 2 b (4) or (5) of this paragraph has successfully completed a controlled substance abuse recovery program or is presently enrolled in such a program.

3Application requirements. At a minimum to be considered complete, applications must include for each prospective tenant household sufficient information, such as the following, to complete a tenant certification form:

aName and present address.

bHousehold income information, as defined under annual income, adjusted annual income, and net family assets in paragraph II of this exhibit.

cAge and number of household members.

dIndication whether applicant requests either a handicap/disability adjustment to income or a special handicapped accessible unit or both.

eApplicant's certification that the unit applied for will be the applicant household's permanent residence and it does/will not maintain a separate subsidized rental unit in a different location.

fSignature and date section.

gRace, national origin and sex designation. This designation shall be placed as the last section of the application form beneath the signature and date section.

(1) The borrower or management agent will request that each prospective tenant or member provide this information on a voluntary basis to enable monitoring or compliance with Federal laws prohibiting discrimination. When the applicant does not provide this information, the rental agent or board will complete this item based on personal observation or surname.

(2) The following disclosure notice shall appear on the tenant application form or on an amendment to the application:

“The information regarding race, national origin, and sex designation solicited on this application is requested in order to assure the Federal Government, acting through the Farmers Home Administration or its successor agency under Public Law 103-354, that Federal Laws prohibiting discrimination against tenant applicants on the basis of race, color, national origin, religion, sex, familial status, age, and handicap are complied with. You are not required to furnish this information, but are encouraged to do so. This information will not be used in evaluating your application or to discriminate against you in any way. However, if you choose not to furnish it, the owner is required to note the race/national origin and sex of individual applicants on the basis of visual observation or surname.”

hThe application form shall contain the fair housing logotype or slogan and indication of handicap accessibility on the first page of the form.

iRetired or disabled domestic farm labor applicants must meet the definition requirements of § 1944.153 of subpart D of part 1944 of this chapter.

4Notification to applicant. The applicant who has submitted a completed application will be notified in writing that he or she has been selected for immediate occupancy, placed on a waiting list, or rejected.

5Applicants determined ineligible. After due consideration of mitigating circumstances, applicants determined ineligible will be notified in writing of the specific reasons for rejection. The letter will include the following statement: “The Fair Housing Act prohibits discrimination in the sale, rental or financing of housing on the basis of race, color, religion, sex, handicap, familial status, or national origin. Federal law also prohibits discrimination on the basis of age. Complaints of discrimination may be forwarded to the Administrator, FmHA or its successor agency under Public Law 103-354, USDA Washington, DC 20250.” This statement can be placed on all materials and correspondence done by the borrower, owner, or management company.

aThe rejection letter must also outline the applicant's rights to appeal the rejection and be sent or hand-delivered according to subpart L of part 1944 of this chapter except for those clearly not eligible for occupancy according to FmHA or its successor agency under Public Law 103-354 regulations.

bWhen the rejection is based on information from a credit bureau, the source of the credit bureau report must be revealed to the applicant in accordance with the Fair Credit Reporting Act.

cAny applicant household may be rejected due to:

(1) A history of unjustified and/or chronic nonpayment of rent and/or financial obligations.

(2) A history of living or housekeeping habits that would pose a direct threat to the health and safety of other individuals or whose tenancy would result in substantial physical damage to the property of others.

(3) A history of disturbance of neighbors.

(4) A history of violations of the terms of previous rental agreements, especially those resulting in eviction from housing or termination from residential programs.

dRejection of applicants on a arbitrary basis is prohibited. Examples of such arbitrary rejections includes considering the following factors in determining a tenant's eligibility:

(1)Race, color, religion, sex, age, familial status, national origin, handicap (except in those projects or portions of projects designated for elderly, disabled and/or handicapped, where occupancy by nonelderly, nondisabled or nonhandicapped can be prohibited).

(2)Receipt of income from public assistance.

(3)Families with children of uncertain parentage.

(4)Participation in tenant organizations.

(5)Tenants or tenant family members with AIDS.

eIn the case of LH projects, no organization borrower, other than an association of farmers of family farm corporation or partnership, will block lease to, or otherwise require that an occupant work on any particular farm or for any particular owner or interest as a condition of occupancy of the housing.

fRejected applications must be kept on file by the borrower or management agent for a period of 3 years or until a compliance review has been conducted by FmHA or its successor agency under Public Law 103-354 in accordance with subpart E of part 1901 of this chapter.

GTax credit compliance. The Tax Reform Act of 1986 permits certain RRH borrowers to receive tax credits for low-income housing projects if 20 percent or more of the units are occupied by very low-income tenants whose annual gross income is 50 percent or less of the area median gross income; or 40 percent or more of the units are occupied by tenants whose annual gross income is 60 percent or less of the area median gross income.

1Eligible borrowers with projects qualified to receive tax credits will follow the tenant selection criteria of paragraph VI H of this exhibit except that tenant selection may be postponed until applicants for occupancy are available whose occupancy will allow borrowers to meet their tax credit requirements.

2Borrowers using IRS tax credits may neither terminate a tenant's occupancy nor refuse to renew a tenant's lease except for material noncompliance or other good cause as described in paragraph XIV of this exhibit. Tenants whose income increases after initial occupancy and exceeds IRS tax credit thresholds, but otherwise still meet FmHA or its successor agency under Public Law 103-354 income eligibility thresholds, remain qualified to occupy with respect to income eligibility.

HTenant and member selection.

1An eligible applicant will be selected from a waiting lists(s) identifying the category on basis of the applicant's unit size needed, income level (very low-, low-, moderate-income, or ineligible) or from a priority waiting list, as described in paragraph VI E of this exhibit, when the available size unit meets the applicant's need. The eligible applicant will further be selected on a first-come, first-served basis from the selected category or priority waiting list in the following order:

aVery low-income

bLow-income, up to 60 percent of median income, (in “tax credit” projects)

cLow-income

dModerate-income

eIneligible

2When RA is available:

aVery low-income applicants eligible for RA have a priority over all other applicants on each type of waiting list maintained by the borrower in accordance with paragraph XI of exhibit E to this subpart.

bLow-income applicants may be selected provided no very low-income applicants remain on the waiting list.

cModerate-income applicants may not be selected for occupancy when the number of unassigned RA units equals or exceeds the number of vacant units. (Borrowers unable to use RA may consider requesting a transfer of RA authority according to paragraph XV of exhibit E of this subpart).

3In only those projects when project based section 8 is available, the following applicants, as described in HUD handbook 4350.3 (available at any HUD regional or area office), will have priority over other applicants if at the time of their housing needs, they are:

ainvoluntarily displaced, or

bliving in substandard housing, or

cpaying more than 50 percent of income for rent.

4Selections are to be made from the waiting list or category maintained for the particular unit size and/or unit type in which a vacancy exists. If the applicant cannot accept the unit at that time, the reason for not accepting the living unit will be documented in the project records and confirmed with the applicant in writing. The applicant's name will then be removed from the waiting list following the notice procedure at paragraph VI E 7 of this exhibit unless the rental agent determines that hardship exists for reasons such as documented health problems or project rent exceeds 30 percent of adjusted monthly income without RA in which case the applicant's name will remain on the list in chronological order. An applicant whose name has been removed from the waiting list may reapply.

5When there are no applicant names on the waiting list for the size and/or type of vacant living unit, a name may be selected from the waiting list of another size and/or type of living unit according to the date order of the application on the master waiting list. The selected tenant will be subject to the provisions for ineligible tenants found in paragraph VI D 7 of this exhibit and the provisions of paragraph VI D 2 of this exhibit.

6In LH projects, paragraphs VI H 1 and 2 of this exhibit do not apply. Eligible LH applicants will be selected according to paragraphs VI H 4 and 5 of this exhibit and the priority stated in § 1944.154 (a) of subpart D of part 1944 of this chapter irrespective of the availability of RA. However, when FmHA or its successor agency under Public Law 103-354 concurs with the LH borrower's determination that there is a diminished need for housing for domestic farm laborers in accordance with § 1944.154 (b) of subpart D of part 1944 of this chapter, all the provisions of this paragraph are applicable to initial occupancy by applicants eligible only under the RRH program.

ITenant or member record file. A separate file must be maintained for each tenant or member. Tenants must be allowed reasonable access to their own file for review during regular project office hours. This file will include items such as application, tenant certification with attached income and adjustment(s), verification forms and calculations, lease or occupancy agreement and attachments, inspection reports for moving in and moving out, correspondence and notices to the tenant or member, and any other necessary information. The income verification, tenant and member eligibility certification and recertification information must be retained for at least 3 years while the tenant or member is living in the unit and for 3 years after the tenant or member has moved out.

JMarketing incentives: Marketing incentives, as described in the management plan, may be used anytime as a means of maintaining occupancy levels and revenue needed to carry out the objectives of the housing and the projections of the annual project budget.

1When a need is documented, marketing incentives will be included in annual project operations as reflected in the project budget, Form FmHA or its successor agency under Public Law 103-354 1930-7. The incentives will be governed by the guidance at paragraph III B 3 c of exhibit F of subpart B of part 1965 of this chapter (available at any FmHA or its successor agency under Public Law 103-354 office).

2FmHA or its successor agency under Public Law 103-354 approval of marketing incentives.

aWhen marketing incentives will enhance program objectives during a “soft” market and FmHA or its successor agency under Public Law 103-354 is otherwise not aware of any loan servicing difficulties of major concern, cost effective incentives may be approved by the FmHA or its successor agency under Public Law 103-354 Servicing Official as part of normal project budget approval.

bWhen major loan servicing difficulties exist, cost effective marketing incentives may be approved as part of a servicing plan according to the provisions of exhibit F of subpart B of part 1965 of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office).

VIICertification and Verification of Tenant or Member Income and/or Employment Information and Corrective Actions.

The borrower/management agent shall obtain tenant or member authorization to verify income and/or employment information needed to establish eligibility before pursuing verifications.The Borrower/management agent shall seek verification of income and/or employment information disclosed from third party sources without further involvement of the members of the tenant household. This borrower/management agent shall seek to verify employment for all FMH program recipients. The borrower/management agent shall also seek to verify income for all MFH program recipients, except those residents of LH farm borrowers who are living in housing provided on a nonrental basis. The applicable employment and/or income verifications must normally be verified by the borrower or management agent before the person is determined eligible. Exceptions may be made for those unusual cases described herein. Information for the determination of eligibility is valid for not more than 90 days before the effective date of the tenant certification. Should verifications reveal discrepancies from the information provided, the borrower or management agent will seek prompt resolution using the principles set out in this subpart.

AVerification of income from employment. Verification of income from employment, authorized by the tenant or member/applicant, must be obtained from the employer in writing and filed in the “Tenant or Member Record File.” Form FmHA or its successor agency under Public Law 103-354 1910-5, “Request for Verification of Employment,” or comparable form, will be used for this purpose. (A reproducible copy of Form FmHA or its successor agency under Public Law 103-354 1910-5 is available in any FmHA or its successor agency under Public Law 103-354 office.)

BVerification of income from other sources. Any income from other than employment (e.g., social security, Veterans Administration, public assistance) must be verified in writing by the income source. Verification of income must be documented and filed in the “Tenant or Member Record File.” When it is not immediately possible to obtain the written verification from the income source, the income may be temporarily verified by actually examining the income checks, check stubs, or other reliable data the person possesses which indicates gross income.

CVerification of income and/or employment for LH tenants.

1Verification of income from all sources. Income verification is required for domestic farm laborers, including migrant farm-workers, except for those farmworkers where their housing is provided rent free on a farm as part of their employment compensation for farm labor performed on the farm where they live and work. All domestic farmworkers, where income verification is required, must have a substantial portion of income from farm labor as defined in § 1944.153 of subpart D of part 1944 of this chapter. When the tenants do not have easily verifiable income, the borrower may forecast income expected to be received by the tenant during occupancy for determining eligibility and subsidy assistance.

2Farm labor employment verification. Farm labor employment verification is required for all domestic farm laborers, whether they are year-round, seasonal, or migrant farmworkers, or farmworkers living in rent-free housing on the farm where they work. Such employment verification is in addition to the income verification requirements described in paragraph VII C 1 of this exhibit.

3Third party verification.

aThird party verification of income and employment, as applicable, is required whenever it is possible or available.

bWhen third party verification of income and employment is not possible or available, for reasons such as refusal or lack of third party availability or cooperation, the borrower may “self-certify” the farmworker applicant using any available documents or records the applicant may have or information the applicant can provide. In the absence of available income and employment documents, records, or information, the borrower may forecast income as described in paragraph VIIC1 of this exhibit.

4Tenant record file. Verifications of any type must be documented and filed in the “Tenant Record File” or in the borrower loan docket, as appropriate.

DSample of tenant or member income and/or employment verification.

1The Servicing Office staff is required to make a sample of tenant or member income verifications and adjustments to income; in the case of LH tenants, employment verifications for use in evaluating the adequacy of such verifications. This will normally be performed during a scheduled supervisory visit.

2The sample will follow the process set out in exhibit F-1 of this subpart. The sample can be derived from information on the certification forms that will be submitted to the Servicing Office in accordance with paragraph VII F of this exhibit and may include verification of information from third party sources. At least six tenant households will be sampled (or 100 percent of all tenant households for projects having six or fewer units) during any sampling.

3The sample should be representative of very low-, low-, and moderate-income persons in the project, including those receiving subsidy assistance, those paying in excess of the level cited in paragraph IVA2c (1), (2), or (3) of this exhibit for the costs of rent or occupancy charge and utilities, and those paying the note rate rent.

4The Servicing Office staff will conduct the sample (and document the selection method) at any time he/she may be knowledgeable of discrepancies in income and/or employment verifications.

5If the sample discloses discrepancies of amounts in excess of $40 monthly or $480 annually, the Servicing Officer will be required to notify the borrower/management agent to resolve the issues. Should resolution not be satisfactorily approved, the Servicing Officer will be required to investigate further and report to the State Director along with a recommendation for further action. Such further actions may include those authorized under FmHA or its successor agency under Public Law 103-354 Instructions 2012-B or 1940-M (available in any FmHA or its successor agency under Public Law 103-354 office) or subpart N of part 1951 of this chapter.

EUse of HUD certification form for Section 8 or Section 8 Rental Certificate or Rental Voucher Recipients. HUD Form 50059, or another HUD form approved by HUD for this purpose, may be used in lieu of Form FmHA or its successor agency under Public Law 103-354 1944-8 for the tenants receiving project based Section 8 or tenant based Rental Certificate or Rental Voucher assistance. However, the tenant's income cannot exceed FmHA or its successor agency under Public Law 103-354 limits for the type of housing project involved if it has been calculated according to the formula contained in Form FmHA or its successor agency under Public Law 103-354 1944-8.

FCertifications and corrective actions.

1To be current, the tenant or member certification Form FmHA or its successor agency under Public Law 103-354 1944-8 (or for section 8, the appropriate HUD form) must be submitted in such manner that it is received in the FmHA or its successor agency under Public Law 103-354 Servicing Office by the close of business (COB) of the due date as follows:

aNew tenant or member move-in certification due date.

(1) Move in on the 2nd through the 23rd. The certification is due for receipt in the Servicing Office on or before the first of the next month for all new tenants or members permitted to move in for occupancy from the 2nd through the 23rd day of a month for overage charges to be avoided (Example: A change is reported on July 2nd, the effective date is August 1, and the Servicing Office must receive the certification by COB on August 1). If the due date falls on a non-working day, overage will not be charged if the tenant certification is received in the Servicing Office on the next working day.

(2) Move in from 24th through the 1st of next month. The certification is due for receipt in the Servicing Office on or before the tenth of the month in which it is effective in order to avoid overage charges (Example #1: Move-in is June 24th, effective date is July 1st and the Servicing Office must receive the certification by COB July 10th. Example #2: Move-in is July 1st, effective date is July 1st and the Servicing Office must receive by COB July 10th). If the due date falls on a nonworking day, overage will not be charged if the tenant certification is received in the Servicing Office on the next working day.

b Certification due dates for renewals. Tenant certifications represent the contractual basis for delivery of benefits to tenants. Therefore, any certification being renewed must be received by Servicing Officials on or before the effective date in order to avoid overage charges. The effective date is the first day of the month following expiration of the current certification. Certifications expire on the last day of the month, 12 months from the effective date (Example: The last certification was effective on July 1 and its ending period date was 12 months later on June 30, therefore, the renewed certification effective date is July 1). If the due date falls on a nonworking day, overage will not be charged if the tenant certification is received in the Servicing Office on the next working day.

cTenant reported changes and corrective actions. Changes to unexpired tenant certifications represent adjustments to the existing contractual basis for delivery of benefits to tenants. Therefore, overage may not be invoked as a penalty for any late reporting, since overage is merely an offset to arrive at the proper subsidy benefits a tenant is entitled to receive. Tenants are responsible for reporting any changes in household gross income, adjustments to household income or changes in household size (as set out in paragraph VIIF3a of this exhibit) no later than 30 days after the change occurred. Landlords must recertify tenant households in accordance with the provisions of paragraph VIIF3b of this exhibit. When recertification is required, landlords must promptly seek to verify employment and/or income with third-party sources in accordance with the provisions of paragraphs VII A, B, C, and F 10 of this exhibit. Once verification is obtained from third-party sources, landlords are expected to forward such certifications to the Servicing Office in accordance with the timeframes set out herein.

(1) Reporting 2nd through 23rd. If the third-party verifications are received from the 2nd through the 23rd day of the month, the recertification is due for receipt in the Servicing Office on or before the first day of the next month. If the due date falls on a nonworking day, it will be considered on time if received in the Servicing Office on the next working day.

(2) Reporting 24th through the 1st of the next month. If the third-party verifications are received from the 24th through the 1st of the next month, the recertification is due for receipt in the Servicing Office on or before the COB on the tenth of the month. If the due date falls on a nonworking day, it will be considered on time if received in the Servicing Office on the next working day.

(3) Effective date of changed net tenant contribution. The effective date of a tenant's changed net tenant contribution will be the first day of the month following third-party verification of changes or the first day of the following month (generally 30 days later) permitted according to the tenant notice requirements of State or local law.

(4) Corrective actions on tenant problems.

(i) Should the tenant be found to not comply with the 30-day reporting requirements, the landlord may initiate actions as set out in the lease and the Agency may initiate action to ensure appropriate corrective action is taken.

(ii) If the landlord chooses to pursue termination, the landlord need not further pursue recovery of any improper benefits from the tenant but shall instead forward a report on the circumstances to the Agency for its consideration on whether to initiate an appropriate servicing action.

(iii) If the landlord chooses to permit the continued occupancy by the tenant the landlord must take steps to pursue corrective actions, taking into consideration any rights the tenant may have under the grievance procedures in subpart L of part 1944 of this chapter.

(iv) In processing corrective actions where existing certifications have not expired, overage may not be charged for failure to report changes in a timely manner and the note rate rent will not be charged. Processing corrective actions will use the corrected accurate information to establish the proper rent levels, subsidies, and any overage charges using the same principles as would apply had the change been promptly processed.

(v) Upon determining any resulting differences, the landlord may initiate actions to seek recovery from the tenant of any improper benefits derived from inappropriate rent levels or inappropriate subsidies. Such recovery efforts will normally not extend over a 3-month period, but may not ever extend over a 12-month period.

(vi) The Servicing Office may be consulted if guidance is needed on processing corrective actions when payments are affected.

(vii) When appropriate, the Agency may pursue servicing initiatives which may include seeking corrective action by the landlord or using the authorities set out in subpart N of part 1951 of this chapter or FmHA or its successor agency under Public Law 103-354 Instruction 2012-B (available in any FmHA or its successor agency under Public Law 103-354 office).

(5) Corrective actions on landlord problems. Should the landlord be found to not comply with the above reporting dates, the Agency may initiate action to ensure that the proper rent levels were assessed, the proper payments were remitted to the Government, and that any remittances involving any improperly paid Government subsidies are recovered by the Government. Such initiations may involve seeking corrected payment remittances, or the use of authorities set out in subpart N of part 1951 of this chapter as cited in paragraph VII F 1 c (4) of this exhibit.

dModifications.

(1) Modifications will likely result from changes to project rents or utility allowances or when the tenant household moves to a different unit within the project. In such cases the landlord may revise the unexpired tenant certification form by notating the changes in rents or utility allowances and recomputing the net tenant contribution when necessary.

(2) Unexpired tenant certification forms showing modification(s) which do not result from changes in income or adjustments to income or change of household size or composition need not be submitted to the Agency. Such modifications do not affect the certification effective dates or expiration dates of the certification form being modified, therefore, the certification expiration date will remain unchanged (and overage is not applicable). (Example: Certification with a July, 19xx effective date is in effect for a 12-month period, and any mid-term modification will not alter the July 1, 19xx effective date).

(3) Form FmHA or its successor agency under Public Law 103-354 1951-29, “Multiple Family Housing—Changes To Tenant Status,” or similar reporting format, will be prepared and submitted to report the modifications, impact on rental assistance, move-outs, 60-day absences, and expired tenant certifications.

2When the Servicing Office does not have a certification in the office as required in F 1 of this paragraph, the tenant or member is ineligible for RA and interest credit for that month and overage for the month will be charged to the project account. This does not apply to modification of a certification as described in paragraph VII F 1 d of this exhibit or in a situation as described at paragraph XIV A 5 b (2)(vi) of this exhibit.

aIf a formal eviction process has started, the provisions of paragraph VII F 6 d of this exhibit will be followed.

bIf the late certification was due to noncooperation by the tenant or member (noncooperation does not include situations beyond the control of the tenant member, such as delays by third-party sources in completing income or employment verifications), overage must be paid and is a project expense; however, the borrower or management agent may attempt to recover the charge by billing the person note rate rent (overage) for the month. If the error was due to the borrower's or management's action, the cost of overage will be a project expense and it will not be charged to the person.

cOverage charges due to negligent management may not be considered cause for a rent increase. The costs should be deducted from return on owner investment or from management agent fees and may be cause for requiring different management.

3Reporting changes.

aTenant reporting. Tenants must report changes in household income (gross income) or adjustments to household income. In addition, any change in household size must be promptly reported to the landlord. Changes to household income may result from changes in hours worked, salary rates, social security, pensions, public assistance payments, the sale of assets, interest income, the amount of net family assets exceeding $5,000, imputed income, or other sources of income. Changes in adjustments to income may result from changes in household members other than the tenant or cotenant (e.g., changes in the number of minors, disabled, handicapped or full-time students 18 or older), changes in the tenant or cotenant (e.g., changes in the elderly, disabled, or handicapped status), changes in medical care expenses, and changes in child care expenses.

bLandlord reporting. Landlords must recertify tenant households whenever permanent changes to gross household income or permanent adjustments to household income result in an increase of $40 or more per month or $480 or more per year. Landlords must recertify tenant households whenever changes to permanent household income or permanent adjustments to household income result in a decrease of $20 or more per month or $240 or more per year. If the permanent gross income of a tenant household does not exceed $20 a month or $240 annually, and the tenant requests certification, the borrower will process the recertification. In addition, landlords must recertify changes in household size or composition.

4The current certification form will be revised by correcting entries and being initialed by the tenant or member and the owner's representative when there are project changes such as:

aChanged rental or occupancy rates and/or utility allowances.

bTenant or member relocation within the project.

cAddition or removal of household RA.

5Form FmHA or its successor agency under Public Law 103-354 1944-8 must be processed as follows:

aBorrowers or their representatives may sign Form FmHA or its successor agency under Public Law 103-354 1944-8 up to 60 days prior to the effective date.

bBorrowers or their representatives should submit Form FmHA or its successor agency under Public Law 103-354 1944-8 to the FmHA or its successor agency under Public Law 103-354 Servicing Office during the 30 day period preceding the effective date. Borrowers should not delay submitting certifications until Form FmHA or its successor agency under Public Law 103-354 1944-29 is submitted. Borrowers should avoid submitting certifications just before or on the first day of a month to reduce impact on first of month account servicing at the Servicing Office, and to minimize late delivery and the charge of overage.

cThe FmHA or its successor agency under Public Law 103-354 Servicing Office date stamps each Form FmHA or its successor agency under Public Law 103-354 1944-8 when received, reviews each form submitted and determines that the information is complete, and correctly computed based on the information provided on the form (see Guide Letter 1930-1 for use in noting exceptions).

dThe FmHA or its successor agency under Public Law 103-354 approved tenant certifications and recertifications have an effective period of 12 months. The effective period begins on the effective date which is always the first day of a month.

6Each tenant or member must be recertified within 12 months of the previous certification. Tenants receiving Section 8 assistance will be certified according to HUD regulations.

aIt is the tenant's or member's responsibility to provide income information and sign the certification form as a condition for continued occupancy. Failure to do so will cause a charge for overage/surcharge during those months such information was not provided, and it may result in termination of occupancy.

bThe borrower's responsibility is to:

(1) Notify the tenant or member that a current certification and income verification is required before the due date and explain the procedure necessary to accomplish recertification. Normally, this initial written notice will be sent 75 to 90 days prior to the expiration date of the current certification; then

(2) Obtain verification of income from tenant or member records and/or directly from tenant or member employers and process the appropriate tenant recertification; and

(3) Submit the signed recertification to be received by the Servicing Office by the due date stipulated in paragraph VII F 1.

(c)The borrower must provide a second written notice to the tenant or member 30 days prior to the due date if they have not responded. The second notice must advise the tenant or member that without a current certification, the person will be required to pay note rate rent or occupancy charge (i.e., the person pays overage) and that termination proceedings may be started as of the due date since an annual recertification is required for continued occupancy. [Note: In any event, the borrower is required to pay the overage amount to FmHA or its successor agency under Public Law 103-354 according to § 1951.506(a)(5)(iii) of subpart K to part 1951 of this chapter.] If the tenant or member has RA, the person must be advised that without a current certification, the person's RA will be canceled and possibly may not be immediately available for reinstatement should a proper certification be provided at a later date.

dWhen a notice of termination has been served on a tenant or member for failure to recertify, the borrower must provide a copy of the termination notice to the Servicing Office prepared according to paragraph XIVB of this exhibit. If the Servicing Official does not receive a new certification on such person(s), the Servicing Official will annotate the project master list with an E beside the “Expiration Date of Tenant Certification” on Form FmHA or its successor agency under Public Law 103-354 1944-29 for the appropriate tenant(s) or member(s). The Servicing Official will continue to authorize interest credit and waiver of overages while the termination is being actively pursued until resolution of the termination. The payment of RA will be suspended during the termination process. Upon conclusion of the termination process the RA will either be reinstated or given to another tenant or member.

7The borrower must submit Form FmHA or its successor agency under Public Law 103-354 1944-29 to the Servicing Office with each payment, report of overage, or request for RA as required in paragraph XIIIC2f(1) of this exhibit. The calculations on part II of the form must be for tenants or members in residence on the first day of the month preceding the payment due date. All calculations will be made as if the tenant or member was in residence for the full month. Adjustments Will Not Be Made to the Borrower's Subsidy, RA Request, Payment, or Overage Charges for Persons Moving in or Out After the First of the Month. (See Guide Letter 1930-1 for any necessary Servicing Official's response after review of Form FmHA or its successor agency under Public Law 103-354 1944-29.)

8Paragraph VIII B 4 b of this exhibit is a required lease or occupancy agreement provision requiring tenants or members to notify the management of any change in gross household income or adjustments to income, or size or composition of household. Upon receipt of such notice, the borrower must promptly obtain a new certification form and income verification and submit it to the Servicing Office when there is a permanent change in size or composition of the household, or a permanent increase of $40 or more per month ($480 per year) or a permanent decrease of $20 or more per month ($240 per year) in gross household income or adjustment to income.

9When a borrower/agent believes that an applicant/tenant or member certification or income verification is inaccurate, they may provide the information including the tenant's or member's social security number to the Servicing Office requesting a further verification through the appropriate State employment agency. The Servicing Office will forward the request to the State Director for submission to the State Agency that keeps records on the incomes of wage earners. The State Director will develop a method of obtaining the information from the State Agency. Any reasonable cost for information provided by a State shall be a project expense.

10Landlords may use the following emergency certification/recertification procedure in the unusual cases described herein, but must otherwise meet the FmHA or its successor agency under Public Law 103-354 submission requirements stated in paragraph VII F 1 of this exhibit:

aWhen a tenant or member applicant needs to initially occupy before income verification is complete, or when a borrower has been unable to initiate recertification on time, an “estimated” verification may be performed and the certification and the lease or occupancy agreement completed and marked “subject to verification of income.” Temporary verification may also be obtained through contacts with individuals who may be knowledgeable of the person's income. When no other verifiable source is available, a written, dated, and signed statement, certifying that the disclosed annual gross income of the household is accurate to the best knowledge of the tenant or member, may be accepted. After normal verification is completed, any needed adjustment in tenant or member contribution can be made and recorded on the certification and when appropriate, the lease or occupancy agreement.

bWhen a tenant or member decides to continue occupancy after giving indication of vacating the project and insufficient time remains to complete the verification of income or when an employer fails to return a verification of income on time, the procedure of F 10 a of this paragraph may be followed.

cWhen a delay is caused by circumstances beyond the control of the tenant or landlord, such as when delays are encountered in receiving verification of income, employment, etc., from third party sources, the procedure of F 10 a of this paragraph may be followed.

GMid-month tenant or member certification. The certification effective date for a tenant or member starting occupancy on a day other than the first day of the month shall be the first day of the following month. Certification shall be completed according to paragraph VII F of this exhibit.

HResolution of suspected inaccurate information. Should forms, interviews, unit inspections, complaints, or other information bring into question the accuracy or reasonableness of information relied upon to qualify the residents for occupancy or benefits, it should be further explored and resolved by the owner and/or management agent. Should the matter remain unsolved, the borrower or management agent may forward a report to the Agency along with a recommendation for further action. The Agency may evaluate such material to determine whether further action is warranted. Such actions may include those authorized under FmHA or its successor agency under Public Law 103-354 Instructions 2012-B, 1940-M, or subpart N of part 1951 of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office).

VIIILease Agreements, Occupancy Agreements, Rules, and Other Tenant Information: A lease agreement is a written contract between a tenant and landlord assuring the tenant quiet, peaceful enjoyment and exclusive possession of a specific dwelling unit in return for payment of rent and reasonable use and protection of the property. The contract between a cooperative member and the cooperative is called an occupancy agreement. Should the provisions of any lease or occupancy agreement be in violation of any State or local law, it may be modified to the extent needed to comply with the law; however, the change should be as consistent as possible with the provisions set out herein.

AForm of lease or occupancy agreement. Each State Director is encouraged to prepare a sample lease form complying with individual State laws and FmHA or its successor agency under Public Law 103-354 requirements. Occupancy agreements for cooperatives are to be prepared in accordance with applicable State laws and subpart E of part 1944 of this chapter. The State Director may incorporate clauses which meet a specific need in compliance with State law. Any sample lease must be reviewed and approved by the OGC before being provided to borrowers as a guide for preparing an acceptable project lease.

1All leases will be in writing. Initial leases for units for which tenants are eligible must cover a period of 1 year. If the tenant is not subject to termination of occupancy according to paragraph XIV A of this exhibit, a renewal lease, or an addendum of lease extension, shall cover a period of 1 year. Leases for LH may be for shorter periods where occupancy is typically seasonal. Leases for all tenants signed after notification of intent to prepay, but prior to prepayment, may be for a term which ends on the date of prepayment. Leases for tenants who entered a project with a Letter of Priority Entitlement and who are temporarily occupying a unit for which they are not occupancy eligible, will have the clause in paragraph VIII C 1 of this exhibit inserted to deal with their obligation to move when an eligible unit becomes available.

2Leases and occupancy agreements must contain an appropriate escalation clause permitting changes in basic and/or note rate rents or occupancy charges prior to the expiration of the document. Such changes would normally be necessary due to changing utility and other operating costs. Any changes must be approved by FmHA or its successor agency under Public Law 103-354 according to exhibit C of this subpart. Leases must specify that no increases in tenant contribution to rent will take place due to prepayment of the FmHA or its successor agency under Public Law 103-354 loan during the term of the lease. Leases must also state that should any Federal subsidies paid to the borrower on behalf of tenants be suspended or canceled, due to a monetary or nonmonetary default by the borrower, the monetary payment made by the tenant to the borrower (or, when applicable, the monetary payment received by the tenant from the borrower) shall not change over that which would have been required had the subsidy remained in place.

3Pursuant to the Fair Housing Amendments Act of 1988, no provision may be incorporated into a lease that would prohibit:

aOccupancy by families with children under 18 years of age. As applied to housing designated as elderly, those residing with the elderly household who are under 18 years of age may not be excluded under the terms of the lease.

bOccupancy by a person with a handicap who is willing and able to make reasonable modifications to an apartment unit, at the tenant's expense, to afford such person full enjoyment of the apartment. The owner may include in the lease, where reasonable, permission to occupy the apartment on the condition the tenant agrees to restore the interior of the apartment to the condition that existed before any modifications, reasonable wear and tear excepted.

4In areas where there is a concentration of non-English speaking individuals in the project or in the community, leases or occupancy agreements and the established rules and regulations for the project written in both plain English and the appropriate non-English language must be available to the tenants or members. The tenant or member should have the opportunity to examine and execute either form of lease or occupancy agreement.

5 The form of lease or occupancy agreement to be used by the borrower and any modifications of the same must be approved by the FmHA or its successor agency under Public Law 103-354 Servicing Official. When submitting a lease or occupancy agreement form for FmHA or its successor agency under Public Law 103-354 approval, it must be accompanied by a letter from a practicing attorney licensed in the State regarding its legal sufficiency and compliance with State law and FmHA or its successor agency under Public Law 103-354 regulations.

6 A copy of a properly completed and approved exhibit A-6 of subpart E of part 1944 (when the tenant or member will pay utilities) and a copy of the established rules and regulations for the project will be provided to the tenant or member as attachments to the lease or occupancy agreement.

7 A copy of a properly completed and signed Form FmHA or its successor agency under Public Law 103-354 1944-8 or HUD Form 50059 or other HUD approved form for those tenants receiving HUD section 8 tenant subsidy will be used to calculate each tenant's contribution and will be provided to the tenant as an attachment to the lease.

BRequired lease or occupancy agreement clauses. The following clauses will be required in leases used in connection with FmHA or its successor agency under Public Law 103-354-financed housing projects. Only clauses in paragraphs VIII B 1, VIII B 4 b, VIII B 4 d, VIII B 4 e, VIII B 5, and VIII B 7 of this exhibit are applicable to cooperative occupancy agreements.

1 All lease and occupancy agreements must include a statement indicating that the project is financed by FmHA or its successor agency under Public Law 103-354 and is subject to nondiscrimination provisions of title VI of the Civil Rights Act of 1964, title VIII of the Fair Housing Act, section 504 of the Rehabilitation Act of 1973, and the Age Discrimination Act of 1975; and that all complaints are to be directed to the Administrator, FmHA or its successor agency under Public Law 103-354, USDA, Washington, DC 20250. However, complaints of Fair Housing violations may be sent directly to the Secretary of Housing and Urban Development, Washington, DC 20410.

2 All lease agreements must specify that should the unit become overcrowded or underutilized or should the tenant no longer meet the eligibility requirements of the project during the term of the lease agreement, he/she will be required to vacate the unit at the end of the lease term unless eligibility can be established following specified steps, such as moving to an appropriate size unit, or an exception is granted by management.

3 All lease agreements must contain a provision that a tenant household's tenancy still exists during the time that the tenant household's personal possessions remain in the apartment unit after the tenant household has personally ceased occupancy with the intent to vacate and leave the project, until such time the personal possessions have been removed voluntarily or by legal means, subject to the provision of State or local law in such matters.

4 All leases used in FmHA or its successor agency under Public Law 103-354-financed RRH projects must include the following clauses except for persons who are elderly, disabled, or handicapped living in a full profit plan project unless otherwise noted. (Cooperative occupancy agreements must include the clauses contained in paragraphs VIII B 4 b, VIII B 4 d, and VIII B 4 e of this exhibit.)

a “I understand that I will no longer be eligible for occupancy in this project if my income exceeds the maximum allowable adjusted income as defined periodically by the Farmers Home Administration or its successor agency under Public Law 103-354 for the (State/Territory).”

b “I agree I must immediately notify the [landlord or cooperative] when there is a change in my gross income or adjustment to income, or when there is a change in the number of persons living in the household. I understand my rent or benefits may be affected as a result of this information. I also understand that failure to report such changes may result in my losing benefits to which I may be entitled or may result in the [landlord or cooperative] taking corrective action if benefits were mistakenly received. I understand the corrective action the [landlord or cooperative] may take includes the initiation of a demand for repayment of any benefits or rental subsidies improperly received, initiation of a notice to cancel any rental assistance or section 8 assistance being received for the balance of my certification period, initiation of a notice to increase my monthly rent to $__ per month (note rate rent for Plan II projects or 125 percent of rent in Plan I projects), or initiation or a notice of termination. I understand that one or more of these remedies may be initiated at the option of the [landlord or cooperative].”

c “I understand that I must promptly notify the lessor of any extended absences and that if I do not personally reside in the unit for a period exceeding 60 consecutive days, for reasons other than health or emergency, my net monthly tenant contribution shall be raised to $__ per month (note rate rent for Plan II projects or 125 percent of rent in Plan I projects) for the period of my absence exceeding 60 consecutive days. I also understand that should any rental assistance be suspended or reassigned to other eligible tenants, I am not assured that it will still be available to me upon my return. I also understand that if my absence continues, that as landlord, you may take the appropriate steps to terminate my tenancy.”

d“I understand that should I receive occupancy benefits to which I am not entitled due to my/our failure to provide information or due to incorrect information provided by me or on my behalf by others, or for any other household member, I may be required to make restitution and I agree to repay any amount of benefits to which I was not entitled.”

e“I understand that income certification is a requirement of occupancy and I agree to promptly provide any certifications and income verifications required by the owner or cooperative board to permit determination of eligibility and, when applicable, the monthly tenant or member contribution to be charged.”

5Leases and occupancy agreements used by borrowers participating in the FmHA or its successor agency under Public Law 103-354 RA program will contain the following clauses. (These clauses can be made an addendum to the lease and they must be signed by the lessor and lessee):

“I understand and agree that as long as I receive rental assistance, my gross monthly contribution (as determined on the latest Form FmHA or its successor agency under Public Law 103-354 1944-8, which must be attached to this lease) for rent or occupancy charge and utilities will be $__. If I pay any or all utilities directly (not including telephone or cable TV), a utility allowance of $__ will be deducted from my gross monthly contribution and my resulting net monthly contribution will be $__. If my net monthly contribution would be less than zero, the lessor will pay me $__.

I also understand and agree that my monthly contribution under this lease or occupancy agreement may be raised or lowered, based on changes in the household income or adjustments to income, failure to submit information necessary to certify income, changes in the number and age of persons living in the household, and on the escalation clause in this contract. Should I no longer receive rental assistance as a result of these changes, or the rental assistance agreement executed by the [owner or cooperative] and FmHA or its successor agency under Public Law 103-354 expires, I understand and agree that my monthly contribution may be adjusted to no less than $__ (basic) nor more than $__ (note rate) during the remaining term of this [lease or occupancy agreement], except that based on the escalation clause in this contract these rates may be changed by a Farmers Home Administration or its successor agency under Public Law 103-354 approved rent or occupancy charge change.”

[Note No. 1: Eligible borrowers with LH loans and grants, Plan I direct RRH or insured RRH loans approved before August 1, 1968, may omit the words “no less than $__ (Basic) nor more than” from the last sentence of the above statement.]

“I understand that every effort will be made to provide rental assistance so long as I remain eligible and the rental assistance agreement between the [owner or cooperative] and FmHA or its successor agency under Public Law 103-354 remains in effect. However, should this assistance be terminated I may arrange to terminate this contract, giving proper notice as set forth elsewhere in this [lease or occupancy agreement].”

[Note No. 2: The following additional clause is needed by those borrowers with Plan I direct or insured RRH loans approved before August 1, 1968.]

“I further agree that should I be permitted to occupy when my income exceeds maximum limits, I shall pay a 25 percent rental rate surcharge in addition to my rental rate of $__.”

6For leases with tenants occupying units in which borrowers are operating under Plan I either with or without interest credit approved on or after August 1, 1968:

“I understand and agree that my rent rate of $__ (includes) (excludes) my cost of utilities. I further understand and agree that should I be permitted to occupy when my income exceeds maximum limits, I shall pay a 25 percent rental rate surcharge in addition to my rental rate.”

7For leases or occupancy agreements in projects which borrowers are operating under Plan II Interest Credit Only:

“I understand and agree that my gross monthly contribution as determined on the latest Form FmHA or its successor agency under Public Law 103-354 1944-8, which must be attached to this contract, for [rent or occupancy charge] and utilities will be $__.

If I pay any or all utilities directly (not including telephone or cable TV), a utility allowance of $__ will be deducted from my gross monthly [rent or occupancy charge] except that I will pay not less than the basic rent nor more than the note rate [rent or occupancy charge] stated below. My net monthly [rent or occupancy charge] will be $__. I understand that should I receive rental subsidy benefits (interest credit) to which I am not entitled, I may be required to make restitution and I agree to pay any amount of benefit to which I was not entitled. I also understand and agree that my monthly tenant [rent or occupancy charge] under this [lease or occupancy agreement] may be raised or lowered based on changes in the household income, failure to submit information necessary to certify income, changes in the number and age of persons living in the household, and on the escalation clause in this contract. My [rent or occupancy charge] will not, however, be less than $__ (basic) nor more than $__ (note rate) during the term of this contract, except that based on the escalation clause in this [lease or occupancy agreement], these rental rates or occupancy charges may be changed by a Farmers Home Administration or its successor agency under Public Law 103-354 approved [rent or occupancy charge] change.”

8Leases used by borrowers with LH loans and/or grants will use the following additional clauses:

a“I understand that the project is operated and maintained for the purpose of providing housing for domestic farm laborers and their immediate families. I do hereby certify that a substantial portion of my immediate family income is and will be derived from farm labor. I further understand that domestic farm labor means persons who receive a substantial portion of their income as laborers on farms in the United States and either are citizens of the United States, or reside in the United States, Puerto Rico, or the Virgin Islands, after being legally admitted for permanent residence therein, and may include the immediate families of such persons. Laborers on farms may include laborers engaged in handling agricultural commodities while in the unprocessed stage. It also includes labor for the production of aquatic organisms under a controlled or selected environment.”

b“I agree that if my household income ceases to be substantially from farm labor for reasons other than disability or retirement, I will vacate my dwelling after proper notification by the owner.”

9All leases, including all renewal leases, shall contain the following clause:

“It is understood that the use, attempted use, or possession, manufacture, sale, or distribution of an illegal controlled substance (as defined by local, State, or federal law) while in or on any part of this apartment complex or cooperative is an illegal act. It is further understood that such action is a material lease violation. Such violations (hereafter called a “drug violation”) may be evidenced upon the admission to or conviction of a drug violation.

The landlord may require any lessee or other adult member of the tenant household occupying the unit (or other adult or nonadult person outside the tenant household who is using the unit) who commits a drug violation to vacate the leased unit permanently, within timeframes set by the landlord, and not thereafter enter upon the landlord's premises or the lessee unit without the landlord's prior consent as a condition for continued occupancy by members of the tenant household. The landlord may deny consent for entry unless the person agrees to not commit a drug violation in the future and is either actively participating in a counseling or recovery program, complying with court orders related to a drug violation, or completed a counseling or recovery program.

The landlord may require any lessee to show evidence that any nonadult member of the tenant household occupying the unit, who committed a drug violation, agrees to not commit a drug violation in the future, and to show evidence that the person is either actively seeking or receiving assistance through a counseling or recovery program, complying with court orders related to a drug violation, completed a counseling or recovery program within timeframes specified by the landlord as a condition for continued occupancy in the unit. Should a further drug violation be committed by any nonadult person occupying the unit the landlord may require the person to be severed from tenancy as a condition for continued occupancy by the lessee.

If a person vacating the unit, as a result of the above policies, is one of the lessees, the person shall be severed from the tenancy and the lease shall continue among any other remaining lessees and the landlord. The landlord may also, at the option of the landlord, permit another adult member of the household to be a lessee.

Should any of the above provisions governing a drug violation be found to violate any of the laws of the land the remaining enforceable provisions shall remain in effect. The provisions set out above do not supplant any rights of tenants afforded by law.

CSpecial lease clause.

1Handicapped accessible units occupied by those not needing specially designed features. A clause should be used in addition to the required clauses in the special situation where management temporarily assigns a nonhandicapped households to occupy a handicapped accessible unit specially designed for handicapped households under the conditions of paragraph VI D 2 g of this exhibit. Any agreements between the landlord and the tenant concerning who bears the costs of moving to another suitably sized vacant unit should be documented.

“I/we acknowledge that I/we am/are occupying a designated handicapped accessible unit. I/we acknowledge that priority for such units is given to those needing special physical design features. I/we acknowledge that I/we am/are permitted to occupy the unit until management issues a notice that a priority applicant is on the waiting list and that I/we must move to another suitably sized vacant unit in the project. Upon receiving this notice, I/we agree to move at [my/our own] [shared (as agreed)] [project] expense within 30 calendar days to the suitably sized vacant unit within the project, if one is available. I/we further understand my/our rental rate will change, when appropriate, to the rental rate for the unit I/we move to and this lease will be modified accordingly.”

2Prepayment subject to restrictive-use covenants. Upon FmHA or its successor agency under Public Law 103-354 approval and acceptance of a prepayment, subject to restrictive-use covenants, the landlord will ensure all existing tenant leases and renewals of such leases are amended to include the following provisions:

“As a condition of the Government's approval of a request to accept early payment on notes owed, the tenant household is protected, to the extent herein disclosed, against involuntary displacement (except for good cause) and against having the tenant household contribution level (rent) materially increased until [insert a date 20 years from the date of the last FmHA or its successor agency under Public Law 103-354 loan or servicing action making the loan subject to prepayment restrictions, or insert “the tenant household decides to move” depending on the restrictive-use provision accepted by the owner (see § 1965.215(e)(5) of subpart E of part 1965 of this chapter)]. Specifically, the tenant household contribution level (rent) must be consistent with those necessary to maintain the project for low- and moderate-income tenants. Those tenant households whose tenant household contribution level (rent) did not exceed 30 percent of their monthly adjusted income at the time the prepayment was accepted, may have their tenant household contribution level (rent) raised to the lesser of 30 percent of their monthly adjusted income or 10 percent of their gross monthly income per year. Those tenant households whose tenant household contribution level (rent) exceeded 30 percent of their monthly adjusted income at the time the prepayment was accepted, may have their tenant household contribution level (rent) raised to the lesser of the latest U.S. Consumer Price Index or 10 percent per year.”

DOther lease provisions. All leases or occupancy agreements must contain provisions covering:

1Names of the parties to the contract and all individuals to reside in the unit and the identification of the unit.

2The amount and due date of monthly contributions.

3Any penalty for late payment of monthly contributions according to paragraph IX B of this exhibit.

4The utilities and quantities thereof and the services and equipment to be furnished to the tenant or member by the management or cooperative and the tenant's or member's responsibility to pay utility charges promptly when due.

5The process by which contribution and eligibility for occupancy shall be determined and redetermined including:

aThe frequency of such contribution and eligibility determinations.

bThe information which the tenant or member shall supply to permit such determinations: Usually, income verification; names and ages of household members; in congregate facilities, only that essential information about the person's request for provided service(s) to determine whether the project provides the services requested by the applicant/tenant and/or to determine how to best serve the applicant's/tenant's/member's request with reasonable accommodation, referral services, etc. In the case of a group home, the information may also include an assessment by a professional medical examiner or practitioner, social service caseworker, representative of an advocacy group, member of the clergy, etc., that the tenant/applicant provides to support the application or recertification for housing and services.

cThe standards by which rents or occupancy charge, eligibility, and appropriate dwelling unit size shall be determined.

dTenant's household agreement to move to a unit of appropriate size if the household size changes.

eThe circumstances under which a tenant or member may request a redetermination of tenant contribution.

fThe effect of misrepresentation by the tenant or member of the facts upon which contributions or eligibility determinations are based.

gThe time at which shelter cost change, contribution changes, or notice of ineligibility shall become effective.

6The limitation upon the tenant or member of the right to the use and occupancy of the dwellings. Limitations may not be discriminatory in nature.

7The responsibilities of the tenant or member in the maintenance of the dwelling and the obligation for intentional or negligent failure to do so.

8Agreement of management or cooperative to accept a tenant or member contribution without regard to any other charges owed by tenant or member to management or cooperative and to seek separate legal remedy for the collection of any other charges which may accrue to management from tenant(s) or member(s).

9The responsibility of management to maintain the buildings and any common areas in a decent, safe, and sanitary condition in accordance with local housing codes and FmHA or its successor agency under Public Law 103-354 regulations, and its liabilities for failure to do so.

10The responsibility of management or cooperative to provide the tenant or member with a written statement of the condition of the dwelling unit (when the tenant or member initially enters into occupancy and when vacating the dwelling unit), and the conditions under which the tenant or member may participate in the inspection of the premises which is the basis for such statement.

11The circumstances under which management or the cooperative may enter the premises during the tenant's or member's possession thereof, including a periodic inspection of the dwelling unit as a part of a preventive maintenance program.

12Responsibility of tenant or member to advise management or the cooperative of any planned absence for an extended period, usually 2 weeks or more.

13Agreement that tenant or member may not let or sublet all or any part of the premises without the consent of management or cooperative and FmHA or its successor agency under Public Law 103-354.

14Understanding that should the RRH project be sold to a buyer approved by FmHA or its successor agency under Public Law 103-354, the lease will be transferred to the new owner.

15The formalities that shall be observed by management or the cooperative and the tenant or member in giving notice one to the other as may be called for under the terms of the lease or occupancy agreement.

16The circumstances under which management or the cooperative may terminate the lease or occupancy agreement, all limited to good cause, and the length of notice required for the tenant or member to exercise the right to terminate.

17The procedure for handling tenant's or member's abandoned property as provided by State law.

18Disposition of lease or occupancy agreement if building becomes uninhabitable because of fire or other disaster. Right of owner or cooperative to repair or rehabilitate the building within a certain period or terminate the lease or occupancy agreement.

19The agreement that any tenant or member grievance or appeal from management's or cooperative's decision shall be resolved in accordance with procedures consistent with FmHA or its successor agency under Public Law 103-354 regulations covering such procedures which are posted in the rental office or at the cooperative.

20That the lease may be terminated by the tenant, with 30 days notice, prior to expiration of its term for “good cause” such as moving to another location for employment, loss of job, severe illness, death of spouse, or other reasons customary or mandatory in the community, or after notification by RRH borrower of intent to prepay. The prior notice on which a cooperative member may cancel an occupancy agreement for “good cause” shall be 4 months.

21The usual signature clause attesting that the lease or occupancy agreement has been executed by the parties.

EProhibited lease or occupancy agreement clauses. Clauses in the classifications listed below shall not be included in any lease or occupancy agreement.

1Confession of judgment. Prior consent by tenant or member to any lawsuit the landlord or board may bring against the tenant or member in connection with the lease or occupancy agreement and to a judgment in favor of the landlord or board.

2Distraint for rental or occupancy charge or other charges. Authorization to the landlord or cooperative board to take property of the tenant or member and hold it as a pledge until the tenant or member performs any obligation which the landlord has determined the tenant or member has failed to perform.

3Exculpatory clause. Agreement by tenant or member not to hold the landlord or landlord's agents or cooperative board liable for any acts or omissions whether intentional or negligent on the part of the landlord or the landlord's authorized representative or agents or the cooperative board.

4Waiver of legal notice by tenant or member prior to actions for eviction or money judgments. Agreement by tenant or member that the landlord or board may institute suit without any notice to the tenant or member that the suit had been filed.

5Waiver of legal proceedings. Authorization to the landlord or board to evict the tenant or member or hold or sell the tenant's or member's possessions whenever the landlord or board determines that a breach or default has occurred.

6Waiver of jury trail. Authorization to the landlord's or board's lawyer to appear in court for the tenant or member and to waive the tenant's or member's right to trail by jury.

7Waiver of right to appeal judicial error in legal proceedings. Authorization to the landlord's or board's lawyer to waive the tenant's or member's right to appeal on the ground of judicial error in any suit or the tenant's or member's right to file a suit in equity to prevent the execution of a judgment.

8Tenant or member chargeable with costs or legal actions regardless of outcome. Agreement by the tenant or member to pay attorney's fees or other legal costs whenever the landlord or board decides to take action against the tenant or member even though the court finds in favor of the tenant or member. (Omission of this clause does not mean that the tenant or member, as a party to a lawsuit, may not be obligated to pay attorney's fees or other costs if the tenant or member loses the suit.)

FModification of lease or occupancy agreement and notification to tenants or members. The landlord or board may modify the terms and conditions of the lease or occupancy agreement with FmHA or its successor agency under Public Law 103-354 prior consent, effective at the end of the initial term or a successive term, by serving an appropriate notice on the tenant or members, together with the tender of a revised lease or occupancy agreement or an addendum revising the existing lease or occupancy agreement. This notice and tender shall be delivered to the tenant or member either by first-class mail, properly stamped and addressed or hand-delivered to the premises to an adult member of the household. The date on which the notice shall be deemed to be received by the tenant or member shall be the date on which the first-class letter is mailed or the date on which the copy of the notice is delivered to the premises. The notice must be received at least 30 days prior to the last date on which the tenant or member has the right to terminate the occupancy without executing the revised lease or occupancy agreement. The notice must advise the tenants or members that they may appeal modifications to the lease or occupancy agreement in accordance with subpart L of part 1944 of this chapter if the modification will result in a denial, substantial reduction, or termination of benefits being received. The same notification will be applicable to any changes in the rules and regulations for the project.

GOccupancy rules and informative material. Occupancy rules establish the basis for the management-tenant or member relationship. Occupancy rules and regulations must be provided and explained by the project management to enable the tenant or member to understand the purposes, objectives, and standards of the project. The rules will be approved by the FmHA or its successor agency under Public Law 103-354 State Director or designee, generally together with the project management plan, management agreement, and lease or occupancy agreement form.

1All rules for occupancy and rent or occupancy charge structures will be in writing posted conspicuously in the borrower's and/or manager's offices and provided to each tenant or member with the lease or occupancy agreement.

2Proposed changes of any rules for occupancy must be made available to each tenant or member at least 30 days in advance of implementation, and tenants or members must be advised that they may appeal changes in accordance with FmHA or its successor agency under Public Law 103-354 tenant grievance and appeals procedure subpart L of part 1944 of this chapter.

3Landlords or cooperatives may not place unreasonable restrictions on residents desiring to use federally financed community rooms for their enjoyment. No rule may infringe on the rights of the rental tenants to organize an association of tenants. Such associations may be organized to bargain with management, as well as to act socially and/or provide for the welfare of its members. The project management person or organization should be available and willing to work with a tenant organization. Examples of unreasonable restrictions include rules requiring management representatives to be present in order to use community rooms, rules barring tenant or cooperative organizational meetings from using the rooms, or rules requiring management representatives to be present at any resident organizational meeting held in community rooms.

4Rules may be promulgated that prohibit activities which are detrimental to management, tenants and members. Such activities include threats to the health or safety of other tenants or members or the employees of the borrower, interference with the quiet enjoyment of the premises by other tenants or members, or damage to the physical structure of the project.

5The borrower may choose to provide rules for nonelderly projects that either permit or exclude pets except that no rules may be promulgated that would prohibit the occupancy of a household member who requires the services of a service animal to achieve the normal function of that household member.

6For each RRH project or portion of a project specifically designated for the elderly, the borrower must have established project rules permitting elderly, handicapped, or disabled tenants to keep commonly accepted household pets. These pet rules are to be governed by the following guidelines:

aPet rules must not:

(1) Prohibit, prevent, restrict, or discriminate against any tenant who owns or keeps a pet in their apartment unit, with respect to continued occupancy in the project unless the approved project pet rules are violated.

(2) Prohibit, prevent, restrict, or discriminate against any applicant who owns a pet with respect to obtaining occupancy in the project.

(3) Charge an extra monthly rental charge for pets.

bBorrowers with operational projects must consult with the tenants of the project when revising pet rules and retain documentation on how the consultation process was conducted.

c.Borrowers with new projects will establish pet rules prior to occupancy, but may revise those rules based on tenant comments and suggestions received after rent-up begins.

dPet rules will be approved by FmHA or its successor agency under Public Law 103-354 as part of, or an amendment to, the project lease. FmHA or its successor agency under Public Law 103-354 approval will be granted when the rules meet the provisions and intent of this subparagraph.

ePet rules will be reasonable and will be written to consider at the least the following factors:

(1) Density of project units.

(2) Pet size.

(3) Type of pet.

(4) Potential financial obligations of tenants who own or keep pets.

(5) Standards of pet care.

(6) Pet exercise areas.

(7) State and local animal laws or ordinances.

(8) Liability insurance.

fPet rules must allow the borrower or project manager authorization to remove from the project any pet whose conduct or condition is duly determined to constitute a nuisance or threat to the health or safety of other tenants or members in the project or persons in the surrounding community.

7Initial rules will be attached to the lease or occupancy agreement. Approval by FmHA or its successor agency under Public Law 103-354 for changers and additions may be requested as needed.

8The following items illustrate areas that are among those which should be addressed in rules or informative materials developed by management and provided to all tenants or members prior to move-in:

aExplanation of rights and responsibilities under the lease or occupancy agreement. Where a non-English language is common to a project area, a lease or occupancy agreement written in that language should also be provided.

bRent payment or occupancy charge policies and procedures should be fully explained.

cPolicy on periodic inspection of units.

dResponding to tenant or member complaints.

eMaintenance request procedure.

fProject services and facilities available to tenants or members.

gOffice location, hours, and emergency telephone numbers.

hMap showing location of community facilities including schools, health care, libraries, parks, etc.

iRestrictions on storage and prohibition against abandoning vehicles in the project area.

jA rental project newsletter or other printed material distributed to potential tenants or the public. If a newsletter or other printed material is desired, it must contain an appropriate nondiscrimination statement, or fair housing slogan or logotype.

kCommunity and public transportation schedules.

9Tenant or member may be permitted to have a guest(s) visit their household. However, the landlord reserves the right to request a recorded declaration of domicile or proof of domicile if it is suspected that the guest is an unauthorized household occupant. Such suspicion may arise whenever an adult person(s) is making reoccurring visits or one continuous visit of 14 days and/or nights in a 45-day period without prior notification of the management. Should the tenant or person in question not provide the requested information needed to confirm other domicile, or should the facts be sufficient to evidence domicile in the project, then the landlord may consider such person(s) a member of the tenant household and may enforce any lease covenants shown to be broken and/or require recertification.

10No provisions may be incorporated into occupancy rules that would discriminate against or otherwise deny equal opportunity to any person (whether the tenant or a person associated with the tenant) in the terms, conditions, or privileges of rental of a dwelling unit, or in the provision for services or facilities in connection wherewith, because of race, color, religion, sex, familial status, National origin, or handicap.

11The borrower must establish and enforce rules to ensure there are reasonable accommodations to persons who are handicapped or disabled.

HSecurity deposits.

1Security deposits are encouraged and they should be used when it is reasonable and customary for the area for assurance of rental payment or charges for damages. The amount of security deposits must be reflected in the borrower's management plan and may not be changed without the written consent of the FmHA or its successor agency under Public Law 103-354 Servicing Official. When security deposits are used, they should not exceed an amount equal to the net tenant contribution for one month or basic rent, whichever is greater. Families receiving a HUD rental subsidy will pay security deposits according to HUD requirements. In an elderly project, the amount of additional security deposit for pets must be reasonable and not designed to prohibit or discourage tenancy but in no case should it exceed the basic rent of the project. Where a service animal is necessary for the normal function of a household member, an additional security deposit for the animal may not be charged. A membership fee, equal to one month's occupancy charge, will be required from members of a cooperative.

2Security deposits for persons eligible for RA or Section 8 assistance shall be administered in a manner to prevent hardship on the household. If such tenants or members cannot pay the full amount initially, they may be given terms that may ordinarily:

aFor RRH projects, not exceed a downpayment of 30 percent of adjusted monthly income plus $15 per month or that amount needed monthly to complete the security deposit within 3 months, whichever is greater (landlords may provide payment over longer terms if desired). For RCH projects, not exceed an initial payment of $25 plus the amount needed monthly to complete the membership fee within 3 months (longer terms may be permitted if desired by the project). Should installments not be met, the total security deposit charge may become due and payable in full.

bFor low-income farmworkers in an LH project, not exceed $25 downpayment and $15 per month until an equivalent of one month's project rent is reached. In the case of migrants who will occupy the units for a short period of time, exception to this policy by FmHA or its successor agency under Public Law 103-354 may be made upon written request from the borrower when it is shown that such deposits need to be raised to protect the interest of the government and it will not create a hardship on the tenants.

3Security deposits or membership fees shall be handled in accordance with any State or local laws governing security deposits. Both security deposits and membership fees shall be deposited in a separate account when required by State or local law, and such funds must be held in a Federally insured institution, and shall be handled in accordance with any State or local laws governing such deposits. Funds in the security deposit account shall only be used for authorized purposes as intended and represented by the project management in the management plan, and until so used, shall be held by the borrower in trust for the respective tenants. Funds in the membership fee account shall only be used for authorized purposes, until so used, shall be held by the borrower in trust for the respective members.

4Borrowers may assess fair and reasonable charges to the security deposit or membership fee for damage and loss caused or allowed by the tenant or member. An itemized accounting for such charges must be presented to the tenant or member after the move-out inspection provided for in paragraph X E 2 of this exhibit, unless the tenant or member has abandoned the property and his/her whereabouts are unknown and cannot be ascertained after reasonable inquiry.

5The owner may not increase, for persons with handicaps, any customarily required security or membership fee deposit for restoration made to earlier modifications that permitted the handicapped person's full enjoyment of the dwelling unit. However, where it is necessary in order to ensure with reasonable certainty that funds will be available to pay for the restoration(s) at the end of the occupancy, the borrower may negotiate as part of such a restoration agreement, a provision requiring that the tenant or member pay into an interest bearing escrow account, over a reasonable period, a reasonable amount of money not to exceed the cost of the restoration(s). The interest in any such account shall accrue to the benefit of the tenant or member.

ILeases for Section 8 and Section 8 Rental Certificate or Rental Voucher tenants/members. Guidance on leases for such tenants/members is set out herein; however, the use of any addendum necessary to meet the requirements of FmHA or its successor agency under Public Law 103-354, HUD, or other provider of subsidy or assistance as needed to comply with the requirements of any such other program, may be used as needed. Whenever conflicts or disputes arise, the servicing office may forward a request for guidance to the State Director, along with any recommendation. The State Director may take those actions necessary to resolve the issue with the advice and consent of the Office of the General Counsel.

1Borrowers/Management agents are encouraged to use HUD approved lease agreements. Evidence of HUD's approval should be contained in the borrower casefile.

2The HUD approved lease must include modifications of addenda that meet the conditions or requirements of paragraphs VIII A, B1, B2, and B3 of this subpart.

3An FmHA or its successor agency under Public Law 103-354-approved lease may also be used when acceptable by HUD and the local housing authority when this option proves more practical.

IXRent or Occupancy Charge Collection and Account Servicing: Rents or occupancy charges should be due on the first day of each month of the lease period. The time and place of on-site collection and/or the correct address for payment by mail should be well publicized and consideration should be given to an after-hours depository if needed.

AReceipts. A form of serially-numbered receipts should be selected for use and the collection agent held accountable for every receipt. Optional collection services may be considered when they are available.

BDelinquencies. A system to identify and detect unpaid rents or occupancy charges within the project should be instituted in the management plan and made known to tenants in their lease. The borrower may adopt the late rental payment penalty and grace period prescribed by State law; otherwise, they may not exceed a grace period of 10 days from the rental or occupancy charge due date and not have the late payment penalty exceed the highest of:

1An amount up to $10 after the grace period, or

2An amount equal to 5 percent of the tenant's gross tenant contribution (GTC) (found at line 30 of Form 1944-8) after the grace period,

3Any late payment policy established should address unusual situations such as tenants receiving income from Social Security, pension and retirement type funds that tenants receive routinely in the few days following the first day of a month. A 5-day grace period following the usual receipt date of such payment could be permitted.

4The plan should also address any provisions for waivers of late payment penalty, if appropriate

CRecapture of improperly advanced RA and interest credit. Recapture of improperly advanced RA and interest credit will be processed in accordance with subpart N of part 1951 of this chapter.

DProject late fees on Predetermined Amortization Schedule System (PASS) accounts.

1Project late fees are charged on PASS account loan payments not received by FmHA or its successor agency under Public Law 103-354 by close of business of the 10th day of the month as further described in § 1951.510(c)(2) of subpart K of part 1951 of this chapter.

2A borrower may request in writing a waiver of a late fee according to § 1951.510(c)(2) of subpart K of part 1951 of this chapter. Borrowers may appeal a denial of a request for a late fee waiver under the Agency's uniform appeal procedures set out in subpart B of part 1900 of this chapter.

3Late fee waivers are determined to be a benefit to the borrower entity and must be reported to IRS by the FmHA or its successor agency under Public Law 103-354 Finance Office.

4If the cause of the late fee is an FmHA or its successor agency under Public Law 103-354 accounting system error, the FmHA or its successor agency under Public Law 103-354 may suspend sending monthly billings to the borrower until the error is corrected. If delinquency persists after correcting the error, late fees will be charged. Late fees charged as a result of FmHA or its successor agency under Public Law 103-354 error will be administratively corrected and not reported to IRS by the FmHA or its successor agency under Public Law 103-354 Finance Office.

5Except for cooperatives, project late fees are not a project expense. Borrowers shall record a line item entry on Form FmHA or its successor agency under Public Law 103-354 1930-7 showing late fees, offset by an equal transfer-in of the borrower's own funds or a reduction of the borrower's return to owner.

XMaintenance: Maintenance is the process by which a project is kept up in all respects and includes land, buildings, and equipment. Maintenance responsibilities will be included in the management plan. Proper maintenance will help to keep a good image for the project, help to minimize vacancies, and help to preserve the project. Plans and policies for inspections, effective maintenance and repair are to be established at the outset and modified periodically as needed. The following types of maintenance are necessary:

ARoutine maintenance. Routine maintenance and repairs will be those cost items and services included in the annual budgets to be paid out of the operations and maintenance expense account. It includes regular maintenance tasks of the project that can be prescheduled or planned for, based on equipment availability and property characteristics tasks performed on a regular basis to maintain the appearance of the project and to prevent an accumulation of debris and subsequent deterioration.

BResponsive maintenance. This includes all maintenance tasks performed in response to either requests for service from tenants or members or unplanned breakdowns. An essential part of any maintenance system is to plan for requests coming from the dwelling units and for emergencies occurring in the systems serving the apartments. The project manager or the cooperative's board of directors should develop a plan to focus on: who receives the requests, how they are handled, how specific employees or members are assigned to the tasks, and what kind of records are kept. The capacity of the project manager or board to respond to requests and emergencies is one of the true tests of a successful maintenance program.

CPreventive maintenance. This is similar to inspection type maintenance. Regular checking and servicing of equipment and systems is done as required by service information. Preventive maintenance of mechanical systems, building exteriors, elevators, and heating and cooling systems in projects require specially trained personnel. The project manager should establish biweekly or monthly schedules in which the routine oiling, adjusting, replacing of filters, and the like is done based on manufacturer's manuals and specifications.

DLong-term maintenance and replacement (curable depreciation). These are major expense items which normally do not occur on an annual basis and cannot be afforded from an annual budget income. These expenses include items such as repaving the parking lot or repainting an entire building or project; replacement of furnishings and equipment, including such items as stoves, refrigerators, carpets, water heaters, furnaces, etc., whenever such replacements are beyond the capacity of the project to pay out of the normal operating budget. The borrower may request permission to use reserve funds to pay for these expenses when they occur. However, use of funds out of the reserve account must be preapproved by FmHA or its successor agency under Public Law 103-354.

EInspection maintenance. These are maintenance inspections performed periodically to discover problems before crisis situations develop. The following inspections of each apartment should be made at appropriate times:

1Move-in inspection. Before move-in occurs, the management and the applicant accepted for occupancy should together inspect the unit to be occupied and agree upon any needed repairs. A written inspection report shall be prepared and a copy retained in the tenant's or member's file. Any of the identified deficiencies not corrected prior to occupancy should be noted on the lease or occupancy agreement or inspection move-in report and signed by the tenant or member and borrower's or cooperative's representative.

2Move-out inspection. An inspection should be scheduled with the tenant or member when the management becomes aware that the tenant or member is moving out or has vacated the unit. Whenever possible, the inspection should be performed after the furniture has been moved out and before any portion of the security deposit or membership fee is returned to the tenant or member. Any repairs or costs to be charged to the tenant or member will be according to the terms of the lease or occupancy agreement, local law, and regulations governing security deposits or membership fees in paragraph VIII H of this exhibit.

3Periodic inspection. An inspection of this type should be made at least annually. The borrower should make provisions in the lease or occupancy agreement for periodic inspection of the units as a part of a preventive maintenance program.

XIRent or Occupancy Charge and/or Utility Allowance Changes: It may be necessary as operating costs and/or revenues fluctuate to consider a change of rental or occupancy charge rates and/or utility allowance to keep the project viable. Before any change of rates or utility allowances may occur, prior written consent of FmHA or its successor agency under Public Law 103-354 is required. The procedure to request and implement a rental or occupancy charge and/or utility allowance change is specifically covered in exhibit C of this subpart.

XIIBorrower Project Budgets:

ABudget development and preparation. Borrowers are responsible for developing project budgets using past actual experiences in developing realistic forecasts of projected project operations. The budgets must reflect realistic income sources, uses and amounts of funds, and allow realistic vacancy and contingency factors. Generated funds must be sufficient to pay the forecasted operating costs and authorized expenditures of the project including reserves and return on investment, leaving adequate cash on hand as a normal course of business. When the income from typical project operations (operational income) is not sufficient to meet the normal project cash requirements, the borrower is responsible for reducing expenditures, seeking FmHA or its successor agency under Public Law 103-354 consent for authorized withdrawals from the reserve account, and/or providing other funds (nonoperational funds) to meet project budget requirements.

1Budgets will be prepared according to the instructions contained in Form FmHA or its successor agency under Public Law 103-354 1930-7.

2Borrowers are required to develop a project budget annually.

3Budgets will cover a 12-month period selected by the borrower that is to be the project fiscal year of operation.

4Separate budgets will be developed for each project when the borrower owns more than one MFH project.

5The priority order of planned and actual budget expenditures will be:

aCritical operating and maintenance expenses.

bFmHA or its successor agency under Public Law 103-354 debt service.

cReserve account requirements.

dOther authorized expenditures.

eReturn on owner's investment.

6Project funds may not be used for borrower organizational expenses, except in the case of a cooperative or a nonprofit organization.

7When tenants pay their own utilities, an updated or current exhibit A-6 to subpart E of part 1944 of this chapter is to accompany each budget submitted to FmHA or its successor agency under Public Law 103-354 for approval with justification to either retain or change the utility allowance(s).

8When planned expenses appear to be excessive (such as when expenses at any subtotal level on the budget exceed 5 percent of that shown for typical costs for the area) for the area based on current cost data, the FmHA or its successor agency under Public Law 103-354 budget approval official may require justification prior to any approval action. Such justifications may include evidence that the cost is in line with what others charge for the same or similar services (i.e., cost estimates from others, summaries of rental housing revenues and expenditures from Agency or third-party sources, etc.). Such evidence may also be verified by the Agency at its option. When differences cannot be mutually resolved, the request for budget approval may be denied and the borrower or the borrower's designated representative will be advised of any applicable appeal rights in accordance with subpart B of part 1900 of this chapter. Any unapproved expenditure actually paid which is clearly in excess of a fair and equitable amount may be required to be repaid to the project from any authorized return on owner's investment or from nonproject sources, such that tenant rents will not be increased.

BReturn on investments authorized by borrower's RRH loan agreement/resolution.

1 Limited profit borrowers may take the return authorized for the project's current budget year without further FmHA or its successor agency under Public Law 103-354 approval under the following conditions. (Note: This does not require delaying taking a return on owner's investment pending submission, review and/or action on any required audit by Agency officials):

aPayment may be only once a year based on the project's financial condition as of the end of the project fiscal year. Borrowers are encouraged to draw the return on investment in the days or weeks immediately following the close of the fiscal year. The return on owner's investment must be taken within 9 months of the last day earned, except when the circumstances described in paragraph XII B 2 a of this exhibit are applicable.

bPayment must have been approved as part of the borrower's annual budget on Form FmHA or its successor agency under Public Law 103-354 1930-7.

cThe project must produce income at approved monthly rental rates during that year, which is used to pay for the project expenses in accordance with the approved budget and, when appropriate, an approved servicing plan.

dThe balance in the reserve account must be on schedule less any authorized withdrawals not requiring immediate redeposit. The amount of reduction of the annual reserve requirement approved as part of a servicing plan will be considered like an authorized withdrawal not requiring redeposit.

ePayment of the return may not produce a negative ending year unrestricted cash balance on Form FmHA or its successor agency under Public Law 103-354 1930-7.

2If income is not adequate in any given fiscal year to cover payment of the return to owner, FmHA or its successor agency under Public Law 103-354 may authorize a well-documented request that the return be paid, provided:

aThe return can be paid from excess funds available at the end of the following fiscal year of operation, as long as it does not result in a rent increase and the reserve account is current less authorized withdrawals. (Noncash losses of the borrower entity do not qualify to be recouped in following years.) This option is authorized only for the year immediately following the year in which the return was not paid. The prior year's return on owner's investment may be taken first, and any residual left to apply to the current year's return on owner's investment at the borrower's option.

bRelease of reserve funds at the end of the current budget year with Servicing Official approval, if the principles set out in paragraphs XII B 1 b, c, and d of this exhibit are met, and further provided that:

(1) The reserve account will not be reduced below the amount required to be accumulated by that time considering any previously authorized withdrawals or adjustments; and,

(2) During the next 12 months, the amount in the reserve account will not likely fall below that required to be accumulated by the end of such 12-month period.

(3) This option is authorized only for the year immediately following the year in which the return was not paid. This does not apply to the return on investment waived while a special market rent budget is in effect.

3Borrowers operating under a servicing (workout) plan and/or using special servicing market rate rents that call for less than full debt service payment to FmHA or its successor agency under Public Law 103-354 shall forego and cannot recoup the annual return to owner for the budget year that such plans or rents are in place.

4When the provisions of paragraph XII B 1, 2 of this exhibit are not met only because the payment was not earlier approved on Form FmHA or its successor agency under Public Law 103-354 1930-7, and the conditions are such that approval can now be made, an adjusted form may be submitted to seek approval of the return on owner's investment.

5Should the return to owner be suspected or discovered as being improperly taken, the Agency may initiate appropriate servicing actions, including using the authorities set out in subpart N of part 1951 of this chapter and/or FmHA or its successor agency under Public Law 103-354 Instructions 2012-B and/or 1940-M (available at any FmHA or its successor agency under Public Law 103-354 office).

CAdvancement (loan) of funds to a RRH project by the owner, member of the organization, or agent of the owner.

1Prior written approval by the Servicing Office is required. Such advances may be authorized when justified by unusual short-term conditions. When conditions are not short-term in nature, a servicing plan may be developed and advances may be approved in accordance with the provisions set out in subpart B of part 1965 of this chapter. Justification will be based on the following:

aA review of the documented circumstances and the project operating budget before any funds are advanced (loaned). The financial position of the project must not be jeopardized.

bFunds are not immediately available from any of the following sources:

(1) Reserve funds

(2) Initial operating capital

(3) An imminent rent increase

2The funds will be applied to ordinary project operating and maintenance expenses.

3Interest may be charged or paid on the loan from project income; however, interest must be reasonable. The proposal may be denied if FmHA or its successor agency under Public Law 103-354 financing can be provided to resolve the problem in a more cost effective manner.

4No lien in connection with the loan will be filed against the property securing the FmHA or its successor agency under Public Law 103-354 loan or against project income. The advance may show as an unsecured project liability on financial statements prepared for year-end reports until such time as it is authorized to be repaid.

5The payback of the advance (loan) may be permitted by the Servicing Official provided the terms and conditions were mutually agreed to by the borrower and FmHA or its successor agency under Public Law 103-354 at the time of the advance and the financial position of the project will not be jeopardized. Payback should only be permitted on the advance when the FmHA or its successor agency under Public Law 103-354 debt is current and the reserve requirements are being maintained at the authorized levels.

DSpecial budget planning.

1Budgets must be prepared according to the special servicing guidelines of subpart B of part 1965 of this chapter when a project is experiencing abnormal vacancy or is otherwise detrimentally impacted by economic reversal in the community.

2The borrower is responsible for obtaining FmHA or its successor agency under Public Law 103-354 approval of budget revisions that reflect significant change to approved operating cost levels that occur during the budget year. Minor revisions to an approved FmHA or its successor agency under Public Law 103-354 budget to reflect changes of 5 percent or less in any subtotal area of the budget need not be subject to FmHA or its successor agency under Public Law 103-354 approval unless specifically required as an approval condition. Other minor revisions of a few line items may be entered on the current approved budget as “pencil” changes and initialed by the borrower and approved by FmHA or its successor agency under Public Law 103-354. Major changes involving many budget line items will warrant a new budget being prepared and approved by FmHA or its successor agency under Public Law 103-354.

3When revisions to approved budgets are required, the Agency action should normally be obtained within 30 days. Should action be delayed, the borrower or management should notify the Agency of any changes which they deem as being essential and in the project's best interest provided such changes do not involve the use of reserve funds, a rent change, or added secured debt, and proceed to meet the needs of the project. In such cases, the borrower may request, and the Agency may grant, postapproval of the actions when shown to be in the best interest of the project.

XIIIAccounting and Reporting Requirements and Financial Management Analysis:

AGeneral. FmHA or its successor agency under Public Law 103-354 anticipates that RRH, RCH, and LH borrowers will account for all project income and expenses through a bookkeeping or accounting system as a normal business practice appropriately reflecting the complexity of project operations. The degree of sophistication will also reflect such factors as the type of borrower; the size, location, and type of project and the type of financial management information needed to provide adequate guidance and supervision to assure program objectives are being met.

1Separate accountability. Separate accountability of funds is required and may be accomplished by bookkeeping entry for each required account for each project owned by the same borrower. The policies set out herein are aimed at facilitating efficient accounting of services by one borrower. Commingling of the funds of two or more different borrowers is prohibited to guard against the failure of one borrower threatening the financial resources of other borrowers (i.e., ensuring that a bankruptcy does not result in freezing bank accounts of several borrowers due to the failure of one borrower to fulfill its responsibilities).

aMultiple projects owned by one borrower.

(1) The principle of separate accountability permits a borrower's approved accounting system to combine project funds in one or more bank accounts for two or more projects owned by the same borrower. The principle is met as long as the accounting system segregates and tracks each project's funds separately. This means for example, that a Housing Authority, or any other borrower owning two or more projects, can maintain one bank account for:

(i) All project accounts, or

(ii) The same type of account, such as general operating account or tax and insurance account, for two or more projects.

(2) When the borrower seeks approval of its accounting and funds tracking system according to § 1930.122(a)(2) of this subpart, it must demonstrate to FmHA or its successor agency under Public Law 103-354 that the funds tracking system will segregate and maintain separate recordkeeping accountability for separate projects. Such demonstration must include a certification issued by a Certified Public Accountant (CPA) stating the system will function to meet this principle of separate accountability.

bMultiple projects owned by multiple borrowers. When a management agent is handling funds for multiple borrowers, the principles of separate accountability within a bank account does not extend across multiple borrowers, thus a separate general operating bank account is required for each separate borrower.

cCentral funds collection and disbursement system. When a management agent is handling multiple bank accounts for multiple borrowers, a central funds collection and disbursement accounting system may be maintained. This would permit systems under which a management agent could track funds going into and out of the bank accounts of more than one borrower. This practice would facilitate the hiring and paying of firms providing services to multiple borrowers. A central funds collection and disbursement accounting system would permit billings to be prorated between projects and permit funds to be withdrawn from many bank accounts to facilitate payment by one check to a firm providing services to multiple borrowers.

dProrating. The accounting system and/or management plan must document how funds are prorated for revenue and expenses which are not clearly identifiable as being associated with a particular project (e.g., how interest earned on a general operating account or reserve account serving two or more projects owned by a single borrower will be prorated between projects, etc.) Where this documentation is not present for some unusual reason, and the Agency and the borrower become involved in a dispute over this issue which cannot be mutually resolved, the Agency will consider proration by the number of units in the respective projects to be an appropriate guide for prorating the funds involved.

eTenant security deposit concerns. When tenant security deposits are being accounted for, the provisions of state and local laws must be met. This may dictate that such accounts be held in a separate bank account or otherwise separately identified and may require such funds be held in trust for the tenant. The manner in which tenant security deposits must be kept must also be documented in the accounting system and/or management plan. Where this documentation is not provided for some unusual reason, resolution of any disputes must be done according to State and local law.

2Borrowers with loan agreements or resolutions. Borrowers with loan agreements or resolutions are subject to the following conditions:

aAll RRH, RCH, and LH projects with loan agreements or resolutions approved on or after October 27, 1980, are required to comply with the provisions of paragraph XIII of this exhibit.

bAll RRH, RCH, and LH projects with loan agreements or resolutions approved prior to October 27, 1980, will be guided by the recordkeeping and reporting requirements of their respective loan agreement or resolution.

(1) They are encouraged, however, to adopt the provisions of this paragraph by amending their existing loan agreement or resolution.

(2) The State Director may require adoption of these provisions when deemed necessary as a loan servicing action.

cAny amendment to an existing loan agreement, or resolution, requires concurrence of all parties and written consent of the Servicing Office staff who may, when deemed necessary, obtain advice from the State Director or the OGC prior to enactment of the amendment.

3Individual LH Borrowers. Individual farm borrowers with nonrental LH units will be considered in general compliance with this paragraph by virtue of completing the recordkeeping and reporting requirements of their farm and home planning with FmHA or its successor agency under Public Law 103-354 as outlined in subpart D of part 1944 of this chapter.

4Borrowers without loan agreements or resolutions. Borrowers without loan agreements or resolutions are required to maintain information in sufficient detail to provide the necessary assurance that program objectives are being met. As necessary to protect the integrity of the program, the State Director may require the borrower to establish a system capable of accounting for project operations and reporting.

BAccounting System. A bookkeeping and accounting system provides the financial information needed to effectively plan, control, and evaluate project activity, whether required by FmHA or its successor agency under Public Law 103-354 or not. The type of system should be determined prior to loan closing, but may be revised with FmHA or its successor agency under Public Law 103-354 approval to meet program objectives. The Agency may also prescribe the system to be used. Form FmHA or its successor agency under Public Law 103-354 1930-5, “Bookkeeping System—Small Borrower,” can be adapted to the bookkeeping needs of small MFH borrowers. Bookkeeping for MFH operations may be maintained using a cash or accrual method of accounting.

1Type of borrower accounts. As used in this paragraph, the term account is used interchangeably to mean either a ledger (or bookkeeping account) or an actual banking account, or an actual securities account provided any securities account meets the conditions set out herein. Depending upon the complexity of the accounting system being used, these accounts may be further subdivided into subsidiary ledgers or accounts to assist the borrower in providing the information needed for project financial analysis or reporting requirements. Regardless of the number or types of accounts established, or whether a bookkeeping and accounting system is required, the borrower must meet the following:

aAll project funds shall be held only in domestic bank accounts insured by an agency of the Federal Government, or backed by collateral provided by the bank, or held in securities meeting the conditions set out herein.

bAll funds in any account shall be used only for authorized purposes as described in their loan agreement or resolution and this exhibit.

cAll funds received and held in any account, except the tenant security deposit, membership fee, and management reserve (patronage capital), shall be held in trust by the borrower for the loan obligation until used and serve as security for the FmHA or its successor agency under Public Law 103-354 loan or grant.

dAll project funds will be accounted for by adequate and clear accounting methods or practices that otherwise maintain proprietary identity of said funds for each borrower.

eEach borrower will maintain at least one demand deposit or checking account. However, it is not necessary for each bookkeeping account within one project to be maintained as a checking account.

fIn no case shall project fund accounts be pledged as collateral for non-FmHA or its successor agency under Public Law 103-354 debts.

2Accounts. All RRH, RCH, and LH borrowers will maintain, as a minimum, the accounts required by their loan agreement or resolution. The following accounts are standard for all RRH and RCH loans approved after October 27, 1980, and for those who have amended their previous loan agreements or resolutions to adopt these accounts, or those required by a servicing plan. The following listing of accounts also identifies the order of funding of each of the listed accounts through available project revenues each month:

aGeneral operating account. This account records all project income and disbursements exclusive of tenant security deposits. Excess project cash held in this account may be combined with other project funds described in this paragraph in temporary (immediate call) interest bearing accounts when separate bookkeeping records are maintained for the individual project accounts. This account may be further subdivided as folllows:

(1) Initial operating capital.

(i) The initial operating capital must be in the form of cash as set forth in § 1944.211(a)(6) of subpart E of part 1944 of this chapter.

(ii) The borrower will have deposited the required initial operating cash into the general operating account by the time of the FmHA or its successor agency under Public Law 103-354 loan closing or when interim financing funds are obtained, whichever occurs first. These funds will blend with other revenue that accrues to the account to cover budgeted expenditures including payment of return to owner.

(iii) After 2, but before 5 full (12 month) borrower fiscal years of project operation, the borrower may request (in writing) the State Director's authorization to make a one-time withdrawal of the initial operating capital, or a part of it. The one-time withdrawal can never exceed the initial operating capital as described in the loan agreement or loan resolution. The withdrawal can be approved provided that:

(A) The project has achieved at least a 95 percent occupancy level at time of the withdrawal request or achieved a 95 percent occupancy level for a 12-month period preceding the request and show strong prospects of retaining at least a 95 percent occupancy level in the immediate future.

(B) The withdrawal will not affect the financial integrity of the project. After withdrawal, 10 percent of projected project expenses should remain in the general operating account in excess of current liabilities then outstanding. The reserve account must be on schedule less authorized withdrawals. The borrower must demonstrate that all prudent maintenance is being planned and performed, and payment of necessary project expenses are not being deferred.

(C) The State Director determines that the withdrawal will not necessitate a rent increase during the year of withdrawal or during the next year of operation, except that rent increases needed because of normal increases of operation and maintenance expenses unrelated to the withdrawal may be approved; and

(D) The State Director has reviewed and approved any required borrower reports before the initial operating capital is withdrawn. Promptness is expected but actual withdrawal of funds could occur in the sixth year.

(2) Deposits. All income and revenue from the housing project shall, upon receipt, be immediately deposited in the general operating account. This will include rent or occupancy charge receipts, housing subsidy payments (including HUD section 8 and FmHA or its successor agency under Public Law 103-354 RA payments), laundry revenue, or any other project income including interest earned on project accounts. The borrower may also deposit other funds at any time which are to be used for purposes authorized by this section, including transfers from the reserve account.

(3) Disbursements. The borrower shall pay or fund the actual, reasonable, and necessary monthly project expenses out of the general operating account. Current expenses may include the initial purchase and installation of furnishings and equipment with any other funds deposited in the general operating account which are not proceeds of the loan or income or revenue from the project. (However, nonprofit borrowers are permitted to use loan funds specified for initial operating capital purposes as authorized in subparts D and E of part 1944 of this chapter.) Other authorized disbursements are FmHA or its successor agency under Public Law 103-354 approved installments of debt service; real estate tax and insurance escrow as provided in paragraph XIII B 2 b of this exhibit; reserve, and return on investment as provided in paragraph XIII B 2 c of this exhibit. In RRH accounts, any balance remaining in a general operating account, except as authorized, above, may be retained in this account or transferred to the reserve account. In RCH accounts, any balance in excess of three months of average operating expenses remaining in a general operating account will be transferred into the cooperative's patronage capital account at the end of the fiscal year.

(4) Unauthorized disbursements. Except for cooperatives, late fees charged the borrower according to subpart K of part 1951 of this chapter, may not be paid from project income. When late fees are deducted by FmHA or its successor agency under Public Law 103-354 from payments made from project income, the project general operating account must be reimbursed from nonproject income of the owner or management agent or deducted from the owner's return on investment.

bReal estate tax and insurance escrow account. According to the borrower's management plan, project funds for periodic payment(s) of real estate taxes and real property insurance may be deposited in a real estate tax and insurance escrow account or held in the general operating account as cash on hand. The escrow account may be an interest bearing account. Deposits to the account should be in monthly increments of one-twelfth of the annual anticipated real estate tax and insurance payments. Any interest earned shall accrue to the project as project operational cash income.

c. Reserve account. The reserve account is a required account subject to the requirements set out in this paragraph. The borrower will initiate monthly deposits in this project account, preferably an interest bearing account, starting the same month the first loan payment is due FmHA or its successor agency under Public Law 103-354. As projects age, the required reserve account level may be adjusted to meet anticipated “life-cycle” needs, including equipment and facility replacement costs, by amending the loan agreement/resolution. All RRH, RCH, and LH borrowers operating projects (i.e., all LH borrowers exclusive of those on-farm type LH borrowers) are required to establish a reserve account. Effective as of July 26, 1994, reserve funds will be required to be placed in a supervised account. The provisions of subpart A of part 1902 of this chapter apply. Reserve funds on deposit just prior to this date in instruments which are subject to monetary penalties for early withdrawal may be temporarily held for the time needed to avoid such penalties.

(1) Monthly installments. Immediately after paying each installment for the orderly retirement of the FmHA or its successor agency under Public Law 103-354 loan, as provided in the borrower's promissory note, required reserve installments shall be transferred to the Reserve Account at least at the monthly rate stipulated by the borrower's loan agreement or resolution starting with the date the first payment is due to the Agency. Monthly transfers will continue until the account reaches the total amount specified in the loan agreement or resolution. Monthly transfers shall be resumed the month following withdrawals that decrease the reserve account balance below its required level until it is restored to the specified total minimum sum.

(2) Reserve account principles. Reserve account funds are governed by the following principles:

(i) Primary use. The reserve account is primarily used to meet the major capital expense needs of a project. It is expected that the reserve account should rarely have to be used to meet any noncapital expense need of a project; however, the Servicing Official may approve such uses when warranted in unusual circumstances (e.g., a cash income shortfall, using the notice of approval at exhibit B-9 of this subpart).

(ii) Investment vehicles and institutions. Reserve account funds not immediately needed to pay for expenses for authorized purposes may be held as set out herein. Reserve account funds may be held in the form of a checking, savings, negotiable order of withdrawal, or similar account at a Federally insured domestic institution such as a bank, savings and loan, or credit union. Reserve account funds may be held in the form of readily marketable obligations of the United States Treasury Department (e.g., U.S. Treasury bonds, U.S. Savings bonds, zero coupon bonds, etc.) at a Federally insured domestic institution or at an insured domestic institution authorized to sell securities. Reserve account funds may also be held in the form of an account (the account may be a tax exempt account or a taxable account) established at an insured domestic institution authorized to sell securities (the institution may or may not charge brokerage fees), provided the accounts so established meet the remaining conditions set out herein and are not used in a speculative manner.

(iii) Limitations on investments in securities. Any securities must be backed by the United States (U.S.) Government or an Agency of the U.S. Government, or be triple A (AAA) rated Government National Mortgage Association collateralized tax-emempt bonds or be AAA rated prerefunded bonds. Prerefunded bonds are bonds that originally may have been issued as general obligation or revenue bonds but are now secured, until the call date or maturity, by an “escrow fund” consisting entirely of direct U.S. Government obligations that are sufficient for paying the bondholders.

(iv) Reporting actual costs of securities. In order to assure that required amounts have been paid into the reserve account, the actual costs of securities (which in many cases may not be the face value) must be shown on the project books. In addition, details of these transactions should be disclosed in footnotes to financial information provided to the Agency.

(v) Security sales. When the Agency approves withdrawals from the reserve account and the funds are invested in securities, borrowers must, to the extent that securities are available, assure that securities are sold in an amount which results in proceeds sufficient to cover the disbursement.

(vi) Forecasting security sales. Since the sale or redemption of any securities may result in cash proceeds of less than the amount invested, borrowers should take steps to minimize the risk of loss from converting securities to cash. Needed reserve account withdrawals should be forecasted well in advance to permit Agency approval of anticipated needs such that security sales can be arranged to be sold in favorable market conditions. When sales of securities take place the proceeds will normally be held in a reserve fund at a domestic bank, savings and loan, credit union, or similar institution insured by an Agency of the Federal Government until such time as withdrawals are actually needed for the purposes authorized. Should unusual circumstances require the sale of securities in unfavorable market conditions the borrower will not be required to reimburse the project for any losses incurred.

(vii) Knowledge required of securities investors. Those investing in securities must be knowledgeable of common industry practices prior to investing in securities. Knowledge of the various fees that may be associated with the purchase and sale of securities and the maintenance of security accounts must be considered when making security investments (e.g., front end loads or fees, back end loads or fees, maintenance fees, etc.). Such fees may be paid by the general operating account or by the reserve account. However, the Agency must give its prior consent before reserve account funds may be used.

(viii) Financial advisor limitations. Project proceeds may not be permitted to be used to pay for the services of a financial advisor to assist in the selecting of securities for investments, since the securities permitted are relatively limited and must meet the requirements set out herein. However, normal brokerage fees may be paid to secure and sell securities. It is recognized that financial advice may also be provided as part of the normal brokerage fee service package to consummate the purchase and sale of securities. Separate financial advisor services fees, apart from normal brokerage fees, are prohibited, however.

(3) Reserve account tracking. Any deposit and withdrawal from the reserve account should be recorded on a withdrawal format for tracking and reconciliation of the account similar to that found in exhibit B-10 of this exhibit.

(4) Excess reserve. Any amount in the reserve account which exceeds the total sum specified in the loan agreement or resolution may be transferred to the general operating account for the authorized purposes only when it is agreed between the borrower and FmHA or its successor agency under Public Law 103-354 to be in excess of the requirement and there is a specific need for the excess funds. However, the FmHA or its successor agency under Public Law 103-354 Servicing Official may direct the excess sum to be retained in the reserve account or applied as an extra payment on the loan.

(5) Reserve account use. Funds in the reserve account may be used for purposes in accordance with this paragraph. The borrower will request withdrawal of reserve funds in a written or confirmed manner before they are needed. Annual budgets are to include realistic routine income and expense levels to avoid the need to use the reserve for routine expenses (operating shortfalls), not caused by emergencies or very unusual servicing situations; but when needed, use of reserve funds may be permitted with Agency approval. The Servicing Official will take prompt action on a request for reserve withdrawal (normally within 5 working days of the request) and provide written authorization to the borrower for any authorized withdrawal of funds by the use of a letter in the form of exhibit B-9 of this subpart (or other similar letter containing at least the information shown on exhibit B-9 of this subpart) before the borrower actually withdraws any funds. Any conditions for approval (e.g., a copy of paid invoices, inspections, etc.) will be indicated in the letter. Although the prior consent of the Government is required for the use of reserve funds, the Servicing Official may post approve the use of reserve funds if they were used for authorized purposes and their expenditure would have been approved had a request for approval been submitted prior to the withdrawal. The borrower must provide documented evidence showing the actual amount and use of funds before the post-approval action. Authorized purposes are:

(i) To meet payments due on the loan obligations in the event the amount for debt service is not sufficient for that purpose.

(ii) To pay cost of repairs or replacements to the housing, furnishings or equipment or shortfalls of current expenses. Withdrawal for planned authorized purposes should be approved in advance during the annual budget approval process.

(iii) To make improvements to the housing project without creating new living units or to retrofit units to make them accessible to the physically handicapped.

(iv) For other purposes desired by the borrower, which in the judgement of the Government will promote the loan purposes, strengthen the security, or facilitate, improve, or maintain the project and the orderly collection of the loan without jeopardizing the loan or impairing the adequacy of the security. Reserve funds may also be used to facilitate payment of fees associated with the buying or selling of securities or maintaining a securities account.

(v) To pay a return on investment at the end of the borrower's project operating year, provided that after such disbursements the amount in the reserve account will not be less than that required by the loan agreement or resolution to be accumulated by that time (taking into consideration the provisions of any approved servicing plan which may be authorizing a temporary adjustment to these provisions), minus any authorized withdrawals, and provided that the amount in the reserve account will likely not fall below that required to be accumulated during the next 12 months.

(A) In the case of borrowers operating on a limited profit basis, to pay a return on the borrower's initial investment as identified in the loan agreement or resolution.

(B) In the case of borrowers operating on a full profit basis, to pay an annual return as specified in the borrower's loan agreement or resolution.

(6) Exhibit B-10 of this subpart may be used by the borrower and FmHA or its successor agency under Public Law 103-354 to record deposits and withdrawals in the reserve account and to perform reconciliation of the account to determine the current account balance.

dManagement reserve account (patronage capital account). Any funds in excess of three months of average operating expenses remaining in the general operating account of an RCH project at the end of the fiscal year will be transferred and maintained in a lump sum in an interest bearing patronage capital account and will be handled according to any state laws governing patronage capital. That amount will then be equally assigned, by bookkeeping entry only, to each member. The patronage capital funds will be held by the cooperative in trust for the respective member until that member terminates membership in the cooperative, provided the member has paid all charges and costs due the cooperative. The patronage capital funds will not be used for any other purpose.

eSecurity deposit or membership fee account (when applicable). Upon receipt, all security deposit or membership fee funds collected shall be recorded in a bookkeeping account that is kept separate from the project bookkeeping accounts. These funds shall be deposited in a separate bank account that is kept separate from any project funds and will be handled according to any state or local laws governing security deposits. Funds in the security or membership fee deposit account shall be used only for authorized purposes as intended and represented by the project management plan. They shall be held by the borrower or borrower's management agent in trust for the respective tenants or members until so used. Any amount of the security deposit account which is retained by the borrower as a result of lease or occupancy agreement violations shall be transferred to the general operating account and treated as income of the housing.

(1) The owner will follow all State and local requirements governing the handling and disposition of security or membership fee deposits.

(2) In no case will interest earned on security or membership fee deposits accrue to project management or the owner of a rental project. Any interest earned but not returned to the tenants, or in the case of a cooperative, interest earned on membership fees but not returned to members will, accrue to the project's general operating account for disposition as outlined in the management plan.

CBorrower reporting requirements. It is the objective of FmHA or its successor agency under Public Law 103-354 that borrowers will maintain accounts and records necessary to conduct their operation successfully and from which they may accurately report operational results to FmHA or its successor agency under Public Law 103-354 for review, and otherwise comply with the terms of their loan agreements with the Agency. Certain reports are necessary to verify compliance with FmHA or its successor agency under Public Law 103-354 requirements and to aid the borrower in carrying out the objectives of the loan. Some reports must be submitted with the FmHA or its successor agency under Public Law 103-354 payments and others submitted to FmHA or its successor agency under Public Law 103-354 either monthly, quarterly, or annually. Exhibits B-6, B-7, and B-8 of this subpart are to be used as a guide for determining when reports are due and the number of copies required. Borrower accounts and records will be kept or made available in a location within reasonable access for inspection, review and copying by representatives of FmHA or its successor agency under Public Law 103-354 or other agencies of the U.S. Department of Agriculture authorized by the Department.

1Accounting methods and records.

aMethod of accounting and financial statements. Borrowers may choose a cash or accrual method of accounting, bookkeeping and budget preparation as described in their project management plan. Balance sheets or statements of financial condition may be prepared reflecting the same accounting method, except that the accrual method of reporting financial condition will be used where the borrower is required to submit an annual audit.

bApproval requirement. Before loan closing or start of construction, whichever is first, each borrower shall incorporate a description of its method of accounting, bookkeeping, budget preparation, and reporting of financial condition and, when applicable, plans for auditing in the project management plan that must be approved by FmHA or its successor agency under Public Law 103-354.

cRecords. Form FmHA or its successor agency under Public Law 103-354 1930-5 may be used by small organizations as a method of recording and maintaining accounting transactions. Automated systems may be used if they meet the conditions of paragraph XVI of this exhibit.

dRecord retention. Each borrower shall retain all financial records, books, and supporting material for at least 3 years after the issuance of the audit reports and financial statements. Upon request, this material will be made available to FmHA or its successor agency under Public Law 103-354, the Office of Inspector General (OIG), the Comptroller General, or to their representatives.

2Management reports and review processes. The objective of management reports and review processes is to furnish the management and FmHA or its successor agency under Public Law 103-354 with a means of evaluating prior decisions and to serve as a basis for planning future operations and financial conditions. Timely reports and their review furnish necessary information to make sound management decisions. All reports will relate only to the FmHA or its successor agency under Public Law 103-354 financed project and borrower entity. Separate reports will be prepared and submitted for each project owned by the same borrower. Forms necessary in making the required reports may be requested from FmHA or its successor agency under Public Law 103-354. The various review processes described in this paragraph are illustrated at paragraph XIII C 3 of this exhibit.

aAnnual budget and utility allowance.

(1) Objective. It is the objective of FmHA or its successor agency under Public Law 103-354 that project budgets and/or utility allowances be prepared, reviewed, and approved in such manner and timing that the approved budget and/or utility allowance, including any authorized changes to same, become effective on the beginning of a fiscal year of project operation.

(2) Documents.

(i) The annual project budget will be prepared on Form FmHA or its successor agency under Public Law 103-354 1930-7 by the borrower or its agent following the instructions on the form. It will reflect budget planning for a 12 month fiscal year. Figures in the “actual” column will reflect at least 9 months of actual fiscal year activity and no more than 3 months of estimated activity for the balance of the same fiscal year based on recent actual experience.

(ii) The housing allowance for utilities and other public services will be prepared on exhibit A-6 of subpart E of part 1944 of this chapter. The exhibit A-6 will be prepared by the borrower or its agent following instructions attached to exhibit A-6 of subpart E of part 1944 of this chapter.

(3) Supporting data. Any data, justification or other documentation required by the instructions for preparation of Form FmHA or its successor agency under Public Law 103-354 1930-7 and exhibit A-6 of subpart E of part 1944 of this chapter, or otherwise required by the Servicing Official on an individual case basis, shall be attached to the respective document when submitted to the Servicing Office.

(4) Due date. The borrower can submit the necessary documents as soon as 9 months of current fiscal year actuals are available, but in sufficient time to meet the objective stated at C 2 a (1) of this paragraph. The Servicing Official needs 15 to 30 days to review project budgets and utility allowances when no changes of rents, occupancy charges, or utility allowances are needed. When such changes are needed, the borrower needs to submit documents to allow sufficient time for review and proper notice of change to tenants or members.

(5) FmHA or its successor agency under Public Law 103-354 review. Form FmHA or its successor agency under Public Law 103-354 1930-7 and exhibit A-6 of subpart E of part 1944 of this chapter and any attachment will be reviewed by the Servicing Office as part of the rental or occupancy charge/utility allowance change review and/or annual review process.

bRental or occupancy charge budget and/or utility allowance change.

(1) Objective. It is the objective of FmHA or its successor agency under Public Law 103-354 that changes to project rental or occupancy charges and/or utility allowances be incorporated into the annual budget review and planning process in such manner and timing that authorized changes become effective at the beginning of a fiscal year of project operation.

(2) Documents. When a rental or occupancy charge and/or utility allowance change is proposed, the borrower or its agent will prepare and submit Form FmHA or its successor agency under Public Law 103-354 1930-7 and exhibit A-6 of subpart E of part 1944 of this chapter and any supporting attachments following the instructions for either document.

(3) Standards and timing.

(i) The policies and procedures governing rental or occupancy charge and/or utility allowance change are contained in exhibit C of this subpart, (available in the “Borrower Handbook” or any FmHA or its successor agency under Public Law 103-354 office).

(ii) To meet the projected effective date of change, the necessary documents need to be received by the Servicing Official at least 75 days ahead to allow FmHA or its successor agency under Public Law 103-354 review and allow for a 60-day notice to tenants or members of an impending change. The “actual” column of Form FmHA or its successor agency under Public Law 103-354 1930-7 shall contain actual data for the fiscal year to date plus the projection of expected data for the remainder of the fiscal year. This projection should cover a period not exceeding 90 days. The same supporting data standards of paragraph XIII C 2 a (3) of this exhibit will apply.

(iii) Should the borrower need to request a rental or occupancy charge and/or utility allowance change at some time other than described at paragraph XIII C 2 b(3)(ii) of this exhibit (e.g., mid-fiscal year), the Form FmHA or its successor agency under Public Law 103-354 1930-7 shall reflect the project's financial needs for the next 12 months of operation and the “actual” column shall reflect the most recent 12 months of actual data. The previous fiscal year's audit report, or Form FmHA or its successor agency under Public Law 103-354 1930-8, as appropriate, shall be submitted with the change request if it was not previously submitted to the Servicing Office.

(4) FmHA or its successor agency under Public Law 103-354 review. Exhibit C of this subpart shall govern FmHA or its successor agency under Public Law 103-354 review of the borrower's request for rental or occupancy charge and/or utility allowance change.

cQuarterly report.

(1) Objective. The objective of FmHA or its successor agency under Public Law 103-354 is for quarterly reports to provide a monitoring means for borrowers and FmHA or its successor agency under Public Law 103-354 to mutually check a borrower's progress in achieving program objectives and when applicable, meeting servicing goals. The Servicing Official may require monthly reports rather than quarterly reports when warranted in unusual situations.

(2) Document. Form FmHA or its successor agency under Public Law 103-354 1930-7 will be used by borrowers to prepare the quarterly report.

(3) Standards.

(i) For quarterly reports, Form FmHA or its successor agency under Public Law 103-354 1930-7 will be completed following the instructions on the form for preparation of a quarterly report. The quarterly report shall be required upon commencement of any of the following situations:

(A) Start-up of initial occupancy after completion of new construction or substantial rehabilitation.

(B) Reamortization, transfer of an existing project loan or a 100-percent membership change.

(C) Failure to make a scheduled loan payment, failure to maintain required transfers to the reserve account, or failure to maintain reserve accounts at authorized current levels.

(ii) For monthly reports, Form FmHA or its successor agency under Public Law 103-354 1930-7 will be completed following the instructions on the form for preparing a monthly report. The monthly report may be invoked:

(A) When determined essential by the Servicing Official as part of a servicing plan made in accordance with exhibit F of subpart B of part 1965 of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office).

(B) When there are factors such as apparent violations of policy or reporting practices, audit findings, sudden increases of vacancy and/or accounts payable or receivables, or other evidence of weak financial condition.

(4) Frequency and discontinuance of quarterly and monthly reports.

(i) Reports shall be prepared and submitted at least through the first year of operation for any situation described in paragraph XIII C 2 c (3) of this exhibit and each quarter or month thereafter for new or existing projects until discontinuance is authorized by the Servicing Official. The Servicing Official will evaluate the following in reaching a decision to discontinue:

(A) The project has been operated and maintained in a satisfactory manner during the most recent 6 months of the required reporting period.

(B) An adequate accounting system is functioning properly, is kept current, and the most recent required annual financial reports are complete and have been submitted to the Servicing Office.

(C) Project loan payments to FmHA or its successor agency under Public Law 103-354 are on schedule.

(D) The project reserve account is ahead or on schedule, allowing for authorized expenditures or authorized reduction in funding as set forth in an approved servicing plan or budget.

(E) The annual review has been completed by the Servicing Office and the annual audit, or verification of review when appropriate, has been found acceptable.

(F) The Servicing Official has inspected the project, reviewed project operations, and found them acceptable. If a determination is made to discontinue, a letter shall be sent to the borrower or its agent with a copy sent to the State Director.

(ii) The reporting and audit requirements of paragraphs XIII C 2 c(4)(i) (B) and (E) do not apply when the most recent 6 continuous months of successful operation occur before the first audit and/or annual review is due.

(5) Due date. Quarterly (or monthly) reports shall be due in the FmHA or its successor agency under Public Law 103-354 Servicing Office by the 20th day of the month immediately following the close of the respective reporting period.

(6) FmHA or its successor agency under Public Law 103-354 review.

(i) The Servicing Official will review the reports for year-to-date status of project operations. When reports reveal actual data that exceeds acceptable tolerance from a forecasted budget Subtotal item, or vacancies and accounts receivable and/or payable are increasing, the Servicing Official will initiate verbal and/or written dialogue with the borrower for further resolution of problems or to otherwise achieve acceptable progress.

(ii) The Servicing Official will complete the FmHA or its successor agency under Public Law 103-354 review and forward the borrower's report and any related documentation to the State Director by the 30th day of the month following close of the reporting period.

(iii) If the borrower fails to submit its report by the due date, this fact will be reported to the State Director by the 30th day of the month following the close of the reporting period; otherwise, the Servicing Office will complete its review of a submitted report no later than 10 calendar days following receipt of the borrower's report.

dAnnual audit reports and verifications of review.

(1) Documents and general standards.

(i) Annual audit report. An audit report will be in the format as prepared by a CPA or Licensed Public Accountant (LPA), provided the LPA was licensed on or before December 31, 1970.

(A) All audits are to be performed in accordance with generally accepted government auditing standards or GAGAS, as set forth in “Government Auditing Standards” (1988 Revision), established by the Comptroller General of the United States, and any subsequent revisions (this publication is commonly referred to as the “Yellow Book” or “Government Accounting Office Standards”). In addition, the audits are also to be performed in accordance with applicable portions of various Office of Management and Budget (OMB) Circulars, Departmental Regulations, parts 3015 and 3016 of chapter XXX of title 7, and the FmHA or its successor agency under Public Law 103-354 Audit Program as specified in separate sections of this subpart.

(B) An audit report is required for any project with 25 or more units unless the State Director or Servicing Official determines that a project with 24 or fewer units requires an audit for reasons of good cause. Such reasons include, but are not limited to, situations where project records are incomplete or inaccurate, or it appears that the borrower has not adequately accounted for project funds, or where the borrower's operation consists of multiple projects where each is 24 or fewer units (with subsidy reports prepared for each project). (Note: The State Director or Servicing Official may require that the accounts of RHS borrowers be audited if the loan exceeds the 2-year repayment term.)

(C) The project audit report should cover the borrower entity and the expense for preparation of the audit report may include the auditor's preparation of any IRS required borrower entity reports (i.e., Schedule K-1 (IRS Form 1065), “Partner's Share of Income, Credits, Deductions, etc.”).

(D) The CPA or LPA auditor who prepares the audit report may not be an individual or organization that is associated with the borrower in any manner, other than the performance of the audit review and preparation of the project audit report and required IRS reports, that creates an identity of interest or possible conflict of interest (as described in paragraph V B of this exhibit. For example, the CPA or LPA auditor may not be an employee of the borrower or an employee of any officer of the organization, nor be an employee of any member, stockholder, partner, principal, or have any ownership or other interest in the borrower organization.

(E) The State Director or Servicing Official may authorize the initial audit report to cover a period up to 18 months for new projects whose first operating year does not exceed 6 months.

(F) The State Director may also make an exception to the CPA or LPA audit requirement for not more than one successive year in a specific case providing: the borrower submits a written request; the FmHA or its successor agency under Public Law 103-354 approved budget for the project includes a typical and reasonable fee for the audit but the negotiated cost of an audit would increase the monthly per unit rental rate by more than $4.00; and the required reports, including a CPA or LPA prepared audit, were properly submitted for the prior year's project operations.

(ii) Verification of review. Form FmHA or its successor agency under Public Law 103-354 1930-8 will be prepared by a competent person qualified by education and/or experience who has no identity of interest or possible conflict of interest with the borrower or its principals. However, in the case of a nonprofit institution, the verification of review may be made by a committee of the membership but may not include any officer, director, or employee of the borrower.

(A) Form FmHA or its successor agency under Public Law 103-354 1930-8 will be used for the verification of review of project accounts and the review verifier will also review the actual data on Form FmHA or its successor agency under Public Law 103-354 1930-7 for projects with 24 or fewer units unless the requirements of paragraph XIII C 2 d(1)(i)(A) of this exhibit are invoked by the State Director or Servicing Official.

(B) The State Director or Servicing Official may authorize the initial verification of review to cover a period up to 18 months for a new project whose first operating year was less than 6 months.

(iii) Project operating budget actuals. An annual report of actuals for the full operating year will be submitted by the borrower, or its agent, using Form FmHA or its successor agency under Public Law 103-354 1930-7. The report will reflect the actual income and expenses for the project for the borrower's 12-month operating year. The report will be submitted with the annual audit report or Form FmHA or its successor agency under Public Law 103-354 1930-8, as appropriate.

(iv) Form FmHA or its successor agency under Public Law 103-354 1930-10, “Annual Multiple Family Housing Project Review.” When the annual audit report or verification of review is received, parts II C and D of Form FmHA or its successor agency under Public Law 103-354 1930-10 may be prefilled to the extent possible to record previous year status as reported in the audit report or verification of review. The Form FmHA or its successor agency under Public Law 103-354 1930-10 will be completed later as described in § 1930.123 (e)(2) and (i) of this subpart.

(v) Fraud, abuse, and illegal acts. If the review verifier becomes aware of any indication of fraud, abuse, or illegal acts in FmHA or its successor agency under Public Law 103-354 financed projects, prompt written notice shall be given to the appropriate Servicing Official.

(2) Specific standards.

(i) State and local governments and Indian tribes. These organizations are to be audited in accordance with this subpart, 7 CFR part 3015, and OMB Circular A-128, with copies of the audit being forwarded by the borrower to the Servicing Official and the appropriate Federal cognizant agency, if applicable. For guidance in meeting these requirements, the auditor may refer to the American Institute of Certified Public Accountants Audit and Accounting Guide for “Audits of State and Local Governmental Units.” The term Federal financial assistance used herein shall mean Federal loan and/or grant funds received by the borrower, but not rental subsidies.

(A) Cognizant agency. (1) “Cognizant agency” means the Federal agency assigned by OMB Circular A-128. Within the U.S. Department of Agriculture (USDA), the USDA OIG shall fulfill cognizant agency responsibilities.

(2) Cognizant agency assignments. Smaller borrowers not assigned a cognizant agency by OMB should contact the Federal agency that provided the most funds. When USDA is designated as the cognizant agency or when it has been determined by the borrower that FmHA or its successor agency under Public Law 103-354 provided the major portion of Federal financial assistance, the appropriate USDA OIG Regional Inspector General shall be contacted.

(B) Audit standards. It is not intended that audits required by this subpart be separate and apart from audits performed in accordance with State and local laws. To the extent feasible, the audit work should be done in conjunction with those audits.

(1) State and local governments and Indian tribes that receive $100,000 or more a year in Federal financial assistance shall have an audit made in accordance with OMB Circular A-128.

(2) State and local governments and Indian tribes that receive between $25,000 and $100,000 a year in Federal financial assistance shall have an audit made in accordance with OMB Circular A-128 or in accordance with the FmHA or its successor agency under Public Law 103-354 Audit Program. This is an option of the State and local government or Indian tribe. If the election is made to have an audit performed in accordance with the FmHA or its successor agency under Public Law 103-354 Audit Program, the audit shall be in accordance with paragraph XIII C 2 d(2)(iii) of this exhibit.

(3) State and local governments and Indian tribes that receive less than $25,000 a year in Federal financial assistance shall be exempt from compliance with OMB Circular A-128 and the FmHA or its successor agency under Public Law 103-354 Audit Program. These State and local governments and Indian tribes shall be governed by audit standards prescribed by State and local law or regulation.

(4) Public hospitals and public colleges and universities may be excluded from OMB Circular A-128 audit standards. If such entities are excluded, audits shall be made in accordance with paragraph XIII C 2 d(2)(ii) of this exhibit.

(5) Indications of fraud, abuse, and illegal acts shall be referred to FmHA or its successor agency under Public Law 103-354 for processing in accordance with paragraph XIII C 2 d(1)(v) of this exhibit.

(ii) Nonprofit institutions. These organizations are to be audited in accordance with this subpart, 7 CFR part 3015, and OMB Circular A-133, with copies of the audit being forwarded by the borrower to the Servicing Office and the appropriate Federal cognizant agency, if applicable. The term Federal financial assistance used herein shall mean Federal loan and/or grant funds received by the borrower, but not rental subsidies.

(A) Cognizant agency. See paragraph XIII C 2 d(2)(i)(A) of this exhibit.

(B) Audit standards.

(1) Nonprofit institutions that receive $100,000 or more a year in Federal financial assistance shall have an audit made in accordance with the provisions of OMB Circular A-133. However, nonprofit institutions receiving $100,000 or more but receiving awards under only one program have the option of having an audit of their institution prepared in accordance with the provisions of the OMB Circular A-133 or having an audit made of the one program in accordance with paragraph XIII C 2 d(2)(iii) of this exhibit. For prior or subsequent years, when an institution has only loan guarantees or outstanding loans that were made previously, the institution will be required to conduct audits for those programs in accordance with paragraph XIII C 2 d(2)(iii) of this exhibit.

(2) Nonprofit institutions that receive at lease $25,000 but less than $100,000 a year in Federal financial assistance shall have an audit made in accordance with OMB Circular A-133 or in accordance with the FmHA or its successor agency under Public Law 103-354 Audit Program. If the election is made to have an audit performed in accordance with the FmHA or its successor agency under Public Law 103-354 Audit Program, the audit shall be performed in accordance with paragraph XIII C 2 d(2)(iii) of this exhibit.

(3) Nonprofit institutions receiving less than $25,000 a year in Federal financial assistance are exempt from Federal audit standards, but records must be available for review by appropriate officials of FmHA or its successor agency under Public Law 103-354.

(C) Fraud, waste, and abuse. Indications of fraud, abuse, and illegal acts shall be processed in accordance with paragraph XIII C 2 d(1)(v) of this exhibit.

(iii) FmHA or its successor agency under Public Law 103-354 Audit Program. For-profit organizations and other entities referred to this paragraph by paragraphs XIII C 2 d(2)(i) and/or (ii) of this exhibit, audits will be performed under the guidance of the audit guide entitled “U.S. Department of Agriculture, Farmers Home Administration or its successor agency under Public Law 103-354-Audit Program” (available in any FmHA or its successor agency under Public Law 103-354 office).

(3) Due date. (i) Annual audit reports and verifications of review, as appropriate, and Form FmHA or its successor agency under Public Law 103-354 1930-7 with 12 months of project operation actuals are due in the Servicing Office no later than 90 days following the close of the project fiscal year.

(ii) If the audit or verification of review and Form FmHA or its successor agency under Public Law 103-354 1930-7 with 12 months of project operation actuals cannot be submitted by the due date, and the owner presents a request for extension supported by evidence that delay is at the request of the auditor, and the request has a reasonable explanation of why an extension of the due date is needed, the Servicing Official may authorize up to a 30-day extension of the due date.

(iii) If an explanation is not forthcoming from the auditor, or the explanation received is without good reason, or the Servicing Official otherwise suspects fiscal difficulty, the Servicing Official may request the borrower to submit to the Servicing Office for review, the project bank statements for the general operating, reserve, and investment accounts covering the most recent 60-day period.

(iv) If the borrower fails to submit the requested bank statements by the date stipulated by the Servicing Official, the Servicing Official will immediately refer the matter to the OIG.

(4) FmHA or its successor agency under Public Law 103-354 review. An audit report or verification of review and Form FmHA or its successor agency under Public Law 103-354 1930-7 with 12 months of project operation actuals will be reviewed by the Servicing Official within 60 days following receipt of the audit report or verification of review. From this annual audit review process, the Servicing Official will initiate action on findings and concerns needing immediate attention. Those findings and concerns not needing immediate action will be considered in the next budget planning and annual review process at the end of the fiscal year for implementation in the following fiscal year of project operation.

eMiscellaneous management reports. These reports include, but are not limited to, the following items that provide additional or unique information that augment or otherwise support other management reports described in this section:

(1) Documents and formats. (i) Minutes of annual meetings. Written record of annual meeting of organizational borrowers who, by their organizational charter, are required to maintain such written records.

(ii) Energy audit. Prepared according to the guidance of exhibit D of this subpart. Energy audits, including implementation plans for energy conservation, are prepared and submitted on multi-year cycles.

(iii) Miscellaneous items. These include other written or electronically stored data or information such as financial or income/expense data, justification statements, or other technical or informative material that stands alone or supports other managements reports described in this section, whether volunteered by the borrower or requested by the Servicing Official.

(2) Due date. Annual minutes and miscellaneous items are due along with the report they are attached to as supporting documentation. New energy audits are due with the next submission of Form FmHA or its successor agency under Public Law 103-354 1930-7 following expiration of the old energy audit.

(3) FmHA or its successor agency under Public Law 103-354 review. FmHA or its successor agency under Public Law 103-354 review of miscellaneous management reports will coincide with review of the management report that each is attached to as documentation.

fProject worksheets.

(1) Submit Form FmHA or its successor agency under Public Law 103-354 1944-29, with the payment to the Servicing Office. This form must be submitted each month to report overage, occupancy surcharge, and/or request RA, even if a loan payment is not submitted. This form reflects occupancy in the project as of the first day of the month preceding the payment due date. The form will be retained indefinitely.

(2) For LH projects, Form FmHA or its successor agency under Public Law 103-354 1944-29 will be submitted monthly for the LH tenants who receive RA. Otherwise, the Form FmHA or its successor agency under Public Law 103-354 1944-29 covering all LH tenants will be submitted to FmHA or its successor agency under Public Law 103-354 at least once annually with the annual reports. The form will be retained indefinitely.

(3) Illustration of MFH budget planning, annual review, and annual audit review cycles.

Items on hand during fiscal yearLast quarter of fiscal yearFirst quarter of next FYSecond quarterManagement Reports/items in borrower casefile