2022-05252. Multi-Family Housing Preservation and Revitalization (MPR) Demonstration Program-Section 514 and Section 515 for Fiscal Year 2022

AGENCY:

Rural Housing Service, United States Department of Agriculture.

ACTION:

Notice of Solicitation of Applications (NOSA).

SUMMARY:

The Rural Housing Service (RHS) (Agency), a Rural Development agency of the United States Department of Agriculture (USDA), announces it is soliciting applications to defer existing eligible loans for the Multi-Family Housing (MFH) Preservation and Revitalization (MPR) Demonstration Program. Current RHS borrowers (stay-in owners) and/or eligible applicants applying to assume existing Section 515 Rural Rental Housing (RRH) or Section 514 Off-Farm Labor Housing (Off-FLH) loans that are closed and were obligated on or after October 1, 1991, are invited to apply for MPR deferral-only assistance for such loans. This Notice does not provide any funding or additional units of Agency Rental Assistance (RA).

DATES:

Complete applications requesting deferral-only assistance under this NOSA must be received no later than 5 p.m., Eastern Standard Time, May 16, 2022. The Agency will not consider any applications received after the closing deadlines.

ADDRESSES:

Application Submission: All materials must be submitted via CloudVault. The submission process is detailed in section III. Application and Submission Information of this Notice.

After publication in the Federal Register , this Notice will be posted on the Rural Development (RD) website, www.rd.usda.gov/​newsroom/​notices-solicitation-applications-nosas. The Agency will publish, as necessary, any revisions and amendments reflecting program modifications, in the Federal Register within the period this Notice remains open. Expenses incurred in applying for this NOSA will be borne by and be at the applicant's sole risk.

FOR FURTHER INFORMATION CONTACT:

Fallan Faulkner, Multi-Family Specialist, Multi-Family Housing, RHS, U.S Department of Agriculture, via email: [e-mail], or by phone: [phone]. Any questions on eligibility for deferral should be directed via email at: [e-mail]. Please include in the subject line “MPR NOSA Eligibility” and the name and address of the property in question.

For information regarding the Addendum: Capital Needs Assessment Process located at the end of this notice, contact: Fallan Faulkner, Multi-Family Specialist, Multi-Family Housing, RHS, U.S. Department of Agriculture, via email: [e-mail] or telephone: [phone].

SUPPLEMENTARY INFORMATION:

Authority

The Consolidated Appropriations Act, 2021 (H.R. 133) authorized USDA to conduct a demonstration program for the preservation and revitalization of the Section 514 (Off-FLH) and 515 programs authorized by the Housing Act of 1949; 7 CFR part 3560.

Rural Development: Key Priorities

The Agency encourages applicants to consider projects that will advance the following key priorities:

• Assisting Rural communities recover economically from the impacts of the COVID 19 pandemic, particularly disadvantaged communities.
• Ensuring all rural Residents have equitable access to RD programs and benefits for RD funded projects.
• Reducing climate pollution and increasing resilience to the impacts of climate change through economic support to rural communities.

For further information, visit https://www.rd.usda.gov/​priority-points.

Executive Summary

This Notice solicits applications for deferrals of any closed Section 514 (Off-FLH) or 515 Agency loan obligated on or after October 1, 1991 for the purpose of revitalization and preservation of existing properties. Under this NOSA, eligible loan payments can be deferred for 20 years. The cash flow from the deferred RHS direct loan principal and interest payment will be deposited to the RHS project's reserve account or as directed by the Agency to meet the specific project's present and future physical needs as determined by the Capital Needs Assessment (CNA) concurrently approved by the Agency. At the end of this Notice, a CNA addendum is provided with detailed instructions to assist the applicant in completing CNA reports, expected useful life tables, and forms. The deferral may also support new debt payments being incurred for repair/rehabilitation loans and/or to reduce tenant rents as determined by the Agency to be in the best interests of the tenants and Government. There are no other MPR tools or forms of assistance available under this NOSA.

I. MPR Debt Deferral Information

A. Deferral of Principal and Interest Payments

A deferral of principal and interest payments for 20 years of any closed Section 514 (Off-FLH) or Section 515 Agency loan(s) that was obligated on or after October 1, 1991. Loans obligated prior to October 1, 1991 are not eligible for deferral under this NOSA. If there are multiple loans on the account, all loans must be obligated on or after October 1, 1991 to be eligible. If the account has a loan(s) obligated prior to October 1, 1991, the account/property is not eligible for MPR. The total of all liens against the project, with the exception of Agency deferred debt, cannot exceed the Agency-approved security value of the project. All Agency debt, either in first lien position or in a subordinated lien position, must be secured by the project, except deferred debt, which is not included in the Agency's total lien position for computation of the Agency's security value in the MPR program.

(1) The deferral will assure the continued feasibility of preserving needed rental units based on criteria described in 7 CFR 3560.57(a)(3).

(2) Transfers with MPR Deferrals must be processed through the MFH Production and Preservation Division in accordance with the transfers regulations.

(3) All terms and conditions of the deferral will be described in the MPR Conditional Commitment (MPR-CC), the MPR Debt Deferral Agreement, and any associated transfer approval.

(4) A balloon payment of principal and accrued interest (deferral balloon) will be due at the end of the deferral period, or upon default pursuant to the terms contained therein. Interest will accrue at the promissory note rate. If applicable, the subsidy will be applied as set out in the Agency's Form RD 3560-9, “Multiple Family Housing Interest Credit Agreement.”

B. Eligibility Deferral Information

Any questions on eligibility for deferral should be directed via email at: [e-mail] . Please include in the subject line “MPR NOSA Eligibility” and the name and address of the property in question.

C. Project Consolidation Information

MPR deferrals may be approved for project consolidations for stay-in-owner or transfer transactions in accordance with 7 CFR part 3560 providing the following are met:

(1) All projects being consolidated must be submitted on one application and located in the same market area as defined in 7 CFR 3560.11;

(2) Projects must be of the same type, managed under one management plan and one management agreement, and in sufficient proximity to permit convenient and efficient management of the property.

D. Terms

The Agency will require a re-amortization of the existing loan(s). MPR debt deferrals authorized in conjunction with transfers or subordinations will become effective upon completion of all planned repairs and rehabilitation deemed acceptable to the RHS approval official as outlined in the MPR conditional commitment.

E. Transfers

Special conditions apply to transfers. Under the provisions of 7 CFR 3560.406, debt deferral for any eligible loans(s) as described herein may be included in the transfer underwriting under the following conditions:

1. The new owner, including all principals, sharing an identity of interest (IOI) with the selling entity in any other RHS properties, is fully compliant with all Agency requirements and conditions, unless there is an Agency approved workout agreement as specified in 7 CFR 3560.453 in place and on schedule for at least six (6) months prior to the date of application.

2. The maximum return-to-owner-(RTO) will be determined prior to applying the deferral.

II. Eligibility Information

A. Applicant Eligibility Requirements

(1) For the purpose of this Notice, “Applicant” includes the applying entity ( e.g., ABC LLP) and the entity's principals ( e.g., John Doe, General Partner of ABC LLP; XYZ, Inc., General Partner of ABC LLP; John Doe Jr., President of XYZ, Inc.). In the case of a single asset entity that is not a natural person, the Agency will rely solely on the qualifications of the natural person(s) managing/controlling the entity (whether directly or indirectly through other entities) to establish the applicant's eligibility.

(2) Eligible applicants for the MPR program include individuals, partnerships or limited partnerships, consumer cooperatives, trusts, State or local public agencies, corporations, limited liability companies, non-profit organizations, Indian tribes, associations, or other entities authorized by the Agency that own (stay in owner) or will be the owner of the project for which an application for transfer of ownership by the Agency has been submitted.

(3) Eligibility requirements include substantial and verifiable favorable experience and creditworthiness as required by the respective MFH program regulations specified in 7 CFR part 3560, with the exception that stay-in owner applicants are not required to meet the test for other credit for MPR purposes as stated in 7 CFR 3560.55(a)(2). Appropriate credit reports for the applicant, entity and principals will be submitted and considered in both the MPR and transfer processing eligibility determination as defined in Section III. Application and Submission Information B. 9. below.

B. Additional Eligibility Requirements

(1) All applicants must meet the respective (Section 515 or 514 Off-FLH) requirements for initial and/or current (continuing) borrower eligibility and program participation. Initial eligibility will be determined as of the date of the application filing deadline. The Agency reserves the right to discontinue processing any application due to material changes in the applicant's status occurring at any time after the initial eligibility determination.

(2) Eligibility also includes the continued ability of the borrower/applicant to provide acceptable management and will include an evaluation of any current outstanding deficiencies. Any outstanding violations or extended open operational findings associated with the applicant/borrower or any affiliated entity having an identity of interest (IOI) with the project ownership and which are recorded in the Agency's automated Multi-Family Information System (MFIS), may preclude further processing of any MPR applications unless there is a current, approved workout agreement in accordance with § 3560.453 in place and the plan has been satisfactorily followed for a minimum of six (6) consecutive months, as determined by the Agency.

(3) In the event of an MFH transfer, the proposed transferee must submit evidence of site control together with a copy of the borrower's written request signed by both the proposed buyer and the seller describing the general terms of the proposed transfer. Evidence may include a valid and unexpired Purchase Agreement, Letter of Intent, or other documentation acceptable to the Agency. Transfers will be processed in accordance with the guidelines of § 3560.406.

(4) All applicants are subject to the applicable requirements of the Office of Management and Budget (OMB)-approved USDA Suspension and Debarment, and Drug-Free Workplace Certifications as prescribed under Title 2 CFR parts 417 and 421.

C. Project Eligibility Requirements

(1) Project loans must have been obligated on or after October 1, 1991. Any projects with a loan(s) obligated prior to October 1, 1991, are not eligible for this MPR demonstration program.

(2) Projects must have open physical finding(s) identified by a recent physical inspection and recorded by the Agency. Furthermore, the open physical finding(s) of record must be the result of circumstances beyond owner and/or management control and/or must be uncorrected due to insufficient operating income/reserve funds necessary to address the outstanding physical need(s) of the project. Any projects with open physical findings resulting from deferred maintenance, as recorded by the Agency, are not eligible for this MPR demonstration program. Physical deficiencies identified by the Agency or another lending organization ( i.e., HUD, Housing Finance Agency, etc.) or reported by local code enforcement of imminent threats to the health and safety of tenants that have not been recorded but are documented by the applicant and provided as part of the application, may be considered when determining project eligibility.

D. Key Priority Eligibility

For an application to be deemed eligible, applicants must also meet the criterion of at least two of the Agency's three key priorities (COVID-19, Equity and Climate). To help with your understanding of the Key Priorities and how your property could qualify, please refer to the key priority eligibility information below, and then on the following website for details: https://www.rd.usda.gov/​priority-points. Please note for purposes of this NOSA, the Key Priorities as described below and on the website, are being used solely for eligibility purposes and no points will be awarded. All eligible applications will be accepted.

(1) COVID-19—the project must be located in or serving one of the top 10% of counties or county equivalents based upon the county risk score in the United States. The dashboard located at https://www.rd.usda.gov/​priority-points will be used to determine if a project is eligible to apply based upon its location. Applicants must use the dashboard to verify if the project is located within one of the top 10% of counties or county equivalents based upon the county risk score in the United States and provide documentation from the dashboard within the application to verify the location in order to be eligible.

(2) Equity—the project must be located in or servicing a community with a score of 0.75 or above on the CDC Social Vulnerability Index. The dashboard located at https://www.rd.usda.gov/​priority-points will be used to determine if a project is eligible to apply based upon its location. Applicants must use the dashboard to verify if the project is located in or servicing a community with a score of 0.75 or above on the CDC Social Vulnerability Index and provide documentation from the dashboard within the application to verify the location in order to be eligible.

(3) Climate Impacts—applicants may be eligible through one of two methods:

a. The project must be located in or serving coal, oil and gas, and power plant communities whose economic well-being ranks in the most distressed tier of the Distressed Communities Index. The dashboard located at https://www.rd.usda.gov/​priority-points will be used to determine if a project is eligible to apply based upon its location. Applicants must use the dashboard to verify if the project is located within or serving coal, oil and gas, and power plant communities and whose economic well-being ranks in the most distressed tier of the Distressed Communities Index and provide documentation from the dashboard within the application to verify the location in order to be eligible.

b. demonstrate through a written narrative how proposed climate-impact projects improve the livelihoods of community residents and meet pollution mitigation or clean energy goals.

III. Application and Submission Information

A. Submission Process

(1) All materials must be submitted via CloudVault.

(2) The process for submitting an electronic application to RHS via CloudVault is outlined below:

a. At least three business days prior to the application deadline, the applicant must email RHS a request to create a shared folder in CloudVault. The email must be sent to the following address: [e-mail]. The email must contain the following information:

(i) Subject line: MPR NOSA Submission.

(ii) Body of email: Applicant Name, Applicant Contact Information, Project State, Project Name, and Project City.

(iii) Request language: “Please create a shared CloudVault folder so that we may submit our application documents.”

(b) Once the email request to create a shared CloudVault folder has been received, a shared folder will be created within two business days. When the shared CloudVault folder is created by RHS, the system will automatically send an email to the applicant's submission email with a link to the shared folder. All required application documents in accordance with this NOSA must be loaded into the shared CloudVault folder. When the submission deadline is reached, the applicant's access to the shared CloudVault folder will be removed. Any document uploaded to the shared CloudVault folder after the application deadline will not be reviewed or considered.

B. Submission Requirements

(1) The applicant must upload a Table of Contents for the documents that have been uploaded to the shared CloudVault folder.

(2) Applications must include all applicable information requested on the MPR application form (Form Approved: OMB No. 0575-0190) to be considered complete. The application form can be found at http://www.rd.usda.gov/​programs-services/​housing-preservation-revitalization-demonstration-loans-grants. Click on the To Apply tab to access the “Fiscal Year 2022 Application for MFH Preservation and Revitalization Demonstration Program (MPR).”

(3) Responding entity's Dun and Bradstreet Data Universal Numbering System (DUNS) number, registration in the System for Award Management (SAM) prior to submitting an application pursuant to 2 CFR 25.200(b), and other supporting information to substantiate their legal authority and good standing. Applicants can receive a DUNS number at no cost by calling the dedicated toll-free DUNS Number request line at [phone] or via the internet at http://www.dnb.com/​. Additional information concerning this requirement can be obtained on the grants.gov website at http://www.grants.gov. All applicants must be registered in SAM prior to submitting an application, unless determined exempt under 2 CFR 25.110. Federal award recipients must maintain an active SAM registration during which time they have an active Federal award or an application under consideration by the Agency. The applicant must ensure that the information in the database is current, accurate, and complete. Applicants must ensure they complete the Financial Assistance General Certifications and Representations in SAM. Similarly, all recipients of Federal financial assistance are required to report information about first-tier sub-awards and executive compensation in accordance with 2 CFR part 170, so long as an entity respondent does not have an exception under 2 CFR 170.110(b), they must have the necessary processes and systems in place to comply with the reporting requirements should the responding entity receive federal assistance. See 2 CFR 170.200(b).

(4) Applicant must provide a narrative describing the transaction in detail of how the deferral-only MPR tool will benefit their transaction. List any adverse impacts or physical failures ( i.e., natural causes not foreseen, damage not reimbursable by insurance or disaster loan or grant, etc.)

(5) Applicant must complete the Form SF 424, “Application for Federal Assistance,” which can be found and completed online at the following website: https://apply07.grants.gov/​apply/​forms/​readonly/​SF424_​2_​1-V2.1.pdf.

(6) Provide evidence of site control for all transfers of ownership.

(7) For Section 515 projects, the average physical vacancy rate for the 12 months preceding this Notice's application submission date can be no more than 10 percent for projects consisting of 16 or more revenue units and no more than 15 percent for projects less than 16 revenue units. If the applicant is seeking an exception to this requirement or there are concerns about the market, the applicant must submit an explanation as to the circumstances affecting the vacancy rate. The Agency will request additional information if the vacancy rates along with a current market study to support the need of the project and its continued financial feasibility. The Agency will request additional information if the vacancy rates exceed the percentages stated above, which may include a current market study, to assess the need of the project and its continued financial feasibility. To further demonstrate there is a continuing need for the RHS project, the Agency may request waiting lists and/or confirmation of a housing shortage by local housing agencies. The market data must show a clear need and demand for the project. The Agency will determine whether the proposal has market feasibility based on the data provided by the applicant. Any costs associated with the completion of the market data is NOT an eligible program project expense. If a project consolidation is involved, the consolidation will remain eligible so long as the average vacancy rate for each individual project meets the occupancy standard noted in this paragraph each project must meet the average vacancy rate outlined above.

(8) For Sections 514/516 Off-FLH projects, since this program is typically seasonal which affects the vacancy rate, rather than an average physical vacancy rate as noted in section (ii) above, a positive cash flow for the previous full three (3) years of operation is required unless an exception applies as described section III(A)(3), above for projects with an approved work out plan.

(9) Submit a current (no older than six months from the date of issuance) combination comprehensive credit report for both the entity and the actual individual principals, partners, members, etc. within the applicant entity, including any sub-entities, who are responsible for controlling the ownership and operations of the entity. Although a commercial credit report for a new entity may have limited information available, a combination report ties the entity and individual principal(s) together under the applicant/borrower name based on the credit report agency's ability to provide a single reporting source. However, if any of the principals in the applicant entity are not natural persons ( i.e., corporations, other limited liability companies, trusts, etc.) separate commercial credit reports must be submitted on those organizations as well. Individual personal consumer credit reports are not required if a combination report is being provided. Only Credit reports provided by accredited major credit bureaus will be accepted. In the past, the Agency has required the applicant to submit the credit report fee. In lieu of the applicant submitting the fee, the Agency will require the applicant to provide the credit report. It is the Agency's expectation that this change will create an efficiency in the application process that did not exist, which should assist with streamlining the application process for the applicant.

Failure to submit all required documents, forms and information prior to the deadline will result in an incomplete application, the application will be rejected and the applicant will be notified of appeal rights under 7 CFR part 11. Applicants are reminded that all submissions must be received by the deadline. Applications received after the deadline will not be evaluated. Upon request, RHS will provide the responding entities with a written acknowledgement of receipt.

IV. Agency Review and Selection Information

The Agency will conduct an initial screening for eligibility within 90 business days of the NOSA closing deadline. Transfer applicants must meet Agency eligibility, application, and approval process requirements outlined in HB-3-3560, Chapter 7.

Eligibility determination is not an award or commitment for federal assistance. If the application is not accepted for further processing due to being incomplete or ineligible, the applicant will be notified of appeal rights under 7 CFR part 11. Applications that are deemed eligible but are not selected for further processing ( i.e., financially infeasible, etc.) will be withdrawn from processing and the applicant will be notified of appeal rights under 7 CFR part 11.

Eligible applicants accepted for further processing that do not include a project transfer (stay-in owner) will be required to submit a CNA in accordance with 7 CFR 3560.103(c) and the addendum at the end of this NOSA. The timeframe for submitting the CNA will be included in the applicant's selection letter. The CNA will be used to underwrite the proposal to determine financial feasibility. The CNA must be approved by the Agency prior to the Agency underwriting the transaction. Stay-in owner applicants can use property reserve account funds to pay for CNA costs if approved by the servicing specialist assigned to the property. Servicing specialist assignments by property can be found at: https://www.sc.egov.usda.gov/​data/​MFH.html. A CNA is comprised of nine main sections:

• Definitions;
• Contract Addendum;
• Requirements and Statement of Work (SOW) for a CNA;
• The CNA Review Process;
• Guidance for the Multi-Family Housing (MFH) CNA Recipient Regarding Contracting for a CNA;
• Revising an Accepted CNA During Underwriting;
• Updating a CNA;
• Incorporating a Property's Rehabilitation into a CNA; and
• Repair and Replacement Schedule.

Additionally, there are seven attachments which accompany the CNA addendum identified as follows:

• Attachment A, ADDENDUM TO THE CAPITAL NEEDS ASSESSMENT CONTRACT
• Attachment B, CAPITAL NEEDS ASSESSMENT STATEMENT OF WORK
• Attachment C, FANNIE MAE PHYSICAL NEEDS ASSESSMENT GUIDANCE TO THE PROPERTY EVALUATOR
• Attachment D, CNA e-Tool Estimated Useful Life Table
• Attachment E, CAPITAL NEEDS ASSESSMENT REPORT
• Attachment F, SAMPLE CAPITAL NEEDS ASSESSMENT REVIEW REPORT
• Attachment G, CAPITAL NEEDS ASSESSMENT GUIDANCE TO THE REVIEWER

Transfer applicants must comply with the requirements of 7 CFR 3560.406 and Chapter 7 of HB-3-3560, including all Agency approval and closing conditions prior to closing the MPR debt deferral. The Agency will provide additional guidance to the applicant and request information and documents necessary to complete the underwriting and review process within 45 days of the Agency's selection letter. Since the character of each application may vary substantially depending on the type of transaction proposed, additional information may be requested as appropriate.

V. Agency Processing Information

A. Feasibility and Structure

The feasibility and structure of each proposal will be based on the Agency's underwriting and the following parameters:

(1) For applications submitted under this Notice, the Agency will conduct eligibility determinations and eligible applicants will be processed accordingly.

(2) Applications marked as any of the following will be prioritized for the initial review and processing. Priority projects will have an initial review completed within 30-60 business days of the NOSA closing deadline:

a. “Deferral needed as part of a pending transfer”

b. “stay-in owner transaction with third-party funding that will expire within 120 days”

c. “project with urgent health/safety/accessibility issues to address”

d. “projects with an average physical vacancy rate of no more than 5% for the 12 months preceding this Notice's application submission date with a demonstrated waiting list”

e. “projects that meet all three of the Agency's key priorities (COVID-19, Equity and Climate)”.

(3) Upon completion of RHS underwriting, MPR debt deferral offers will be presented to successful applicants as a conditional commitment (CC) and the Letter of Conditions (LOC). These documents will outline the borrower's requirement for executing and recording an Agency-approved Restrictive-Use Covenant (RUC) for a period equivalent to the remaining term of any non-deferred existing loan or the remaining term of any existing RUC, whichever ends later.

(4) Stay-in-owner applicants that have secured third party funding that will add new hard debt in an amount more than the amount approved to be deferred, will require an appraisal to ensure the property remains secure before the transaction will be approved.

(5) Transfer applicants requesting MPR debt deferral will be presented an opportunity to accept or reject the offered terms and conditions for such deferral in the MPR CC. Additional transfer requirements will be outlined in a Transfer Letter of Conditions.

(6) If no offer is made or if the applicant fails to accept or reject the offer presented, the application will be rejected, and appeal rights will be given.

(7) Closing of MPR offers will occur within six months of the accepted MPR CC unless extended in writing by the Agency.

(8) Applicants will be informed of any proposals that are determined to be financially infeasible. Any proposal denied by the Agency will be returned to the applicant, and the applicant will be given appeal rights pursuant to 7 CFR part 11.

(9) Any MPR applications not approved one year from the selection notice date will be withdrawn, unless an extension is approved by the Agency. Applicants may reapply for federal assistance under future Notices as they may be made available.

B. Third Party Funding Sources

If third party funding sources have not yet been committed, the Agency may issue a conditional approval contingent upon receipt of firm funding commitments consistent with the terms used in the PAT attached to the Conditional Commitment to underwrite the transaction. Agency approval will be withdrawn if a satisfactory firm commitment is not received as the transaction cannot close until a firm commitment is provided. Any changes to the proposed sources that cause substantial material changes will require re-evaluation of the transaction by the National Office Underwriter and, in some cases, may cause approval to be rescinded and/or a new concurrence to be issued.

VI. Other Information

A. Paperwork Reduction Act

The information collection requirements contained in this Notice have received approval from the Office of Management and Budget (OMB) under Control Number 0575-0190.

B. Non-Discrimination Statement

In accordance with Federal civil rights laws and U.S. Department of Agriculture (USDA) civil rights regulations and policies, the USDA, its Mission Areas, agencies, staff offices, employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, gender identity (including gender expression), sexual orientation, disability, age, marital status, family/parental status, income derived from a public assistance program, political beliefs, or reprisal or retaliation for prior civil rights activity, in any program or activity conducted or funded by USDA (not all bases apply to all programs). Remedies and complaint filing deadlines vary by program or incident.

Program information may be made available in languages other than English. Persons with disabilities who require alternative means of communication to obtain program information ( e.g., Braille, large print, audiotape, American Sign Language) should contact the responsible Mission Area, agency, or staff office; the USDA TARGET Center at [phone] (voice and TTY); or the Federal Relay Service at [phone].

To file a program discrimination complaint, a complainant should complete a Form AD-3027, USDA Program Discrimination Complaint Form, which can be obtained online at https://www.ocio.usda.gov/​document/​ad-3027, from any USDA office, by calling [phone], or by writing a letter addressed to USDA. The letter must contain the complainant's name, address, telephone number, and a written description of the alleged discriminatory action in sufficient detail to inform the Assistant Secretary for Civil Rights (ASCR) about the nature and date of an alleged civil rights violation. The completed AD-3027 form or letter must be submitted to USDA by:

(1) Mail: U.S. Department of Agriculture, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 20250-9410; or

(2) Fax: [phone] or [phone]; or

(3) Email: [e-mail] .

Addendum: Capital Needs Assessment Process

A Capital Needs Assessment (CNA) provides a repair schedule for the property in its present condition, indicating repairs and replacements necessary for a property to function properly and efficiently over a span of 20 years.

The purpose of this Addendum is to provide clarification and guidance on the Rural Development CNA process. The document includes general instructions used in completing CNA reports, specific instructions on how to use the expected useful life tables, and a set of applicable forms including the Terms of Reference form; Systems and Conditions forms; and Evaluator's Summary forms.

1. Definitions

The following definitions are provided to clarify terms used in conjunction with the CNA process:

CNA Recipient: This will be who enters into the contract with the CNA Provider. The Recipient can be either the property owner or applicant/transferee.

“As-Is” CNA: This type of CNA is prepared for an existing MFH property and reports the physical condition including all Section 504 Accessibility and Health and Safety items of the property based on that moment in time. This CNA can be useful for many program purposes other than the MPR Demonstration program such as: An ownership transfer, determining whether to offer pre-payment aversion incentive and evaluating or resizing the reserve account. The “as-is” report will include all major repairs and likely some minor repairs that are typically associated with the major work: Each major component, system, equipment item, etc. inside and outside; building(s); property; access and amenities in their present condition. A schedule of those items showing the anticipated repair or replacement timeframe and the associated hard costs for the ensuing 20-year term of the CNA serves as the basis or starting point in evaluating the underwriting that will be necessary to determine the feasibility and future viability of the property to continue serving the needs of eligible tenants.

“Post Rehabilitation” CNA: This type of CNA builds on the findings of the accepted “as-is” CNA and is typically prepared for a project that will be funded for major rehabilitation. The Post Rehabilitation CNA is adjusted to reflect the work intended to be performed during the rehabilitation. The assessment must be developed from the rehabilitation project plans and any construction contract documents to reflect the full extent of the planned rehabilitation.

Life Cycle Cost Analysis (LCCA): A LCCA is an expanded version of a CNA and is defined at 7 CFR 3560.11. The LCCA will determine the initial purchase cost, the operation and maintenance cost, the “estimated useful life”, and the replacement cost of an item selected for the project. The LCCA provides the borrower with the information on repair or replacement costs and timeframes over a 20-year period. It also provides information that will assist with a more informed component selection and can provide the borrower with a more complete financial plan based on the predictive maintenance needs associated with those components. If the newly constructed project has already been completed without any previous LCCA requirements, either an “as-is” CNA or LCCA can be provided to establish program mandated reserve deposits. An Architect or Engineer is the best qualified person(s) to prepare this report.

Consolidation: In some circumstances, RD may permit two or more properties to be consolidated as defined in 7 CFR 3560.410 when it is in the best interests of the Government. The CNA Recipient must consult with the RD loan official before engaging the CNA Provider in any case where the CNA intends to encompass more than a single (one) existing RD property to determine if a consolidated CNA may be acceptable for RD underwriting.

2. Contract Addendum

RD uses a Contract Addendum to supplement the basic CNA Agreement or “Contract”, between the CNA Recipient and CNA Provider, with additional details and conditions. It can be found in Attachment A, Addendum to Capital Needs Assessment Contract and must accompany all contracts executed between the CNA Recipient and CNA Provider for CNAs used in RD transactions. If any conflicts arise between the “Contract” and “Contract Addendum”, the “Contract Addendum” will supersede.

The Contract Addendum identifies the responsibilities and requirements for both the CNA Recipient and the CNA Provider. To assure proper completion of the contract documents the following key provisions must be completed:

a. The Contract Addendum will include the contract base amount for the CNA Provider's cost for services on page A-2, and provisions for additional services to establish the total price for the CNA.

b. Item I e, will require an itemized listing for any additional anticipated services and their unit costs including future updates and revisions that may be required before the CNA is accepted by RD. Note: Any cost for updating a CNA must be included, in the “additional services” subpart, of the original CNA Contract.

c. The selection criteria boxes in II a, will identify the type of CNA being provided.

d. In III a, the required language for the blank on “report format” is: “ USDA RD CNA Template, current RD version, in Microsoft Excel format”. This format will import directly into the RD underwriting template for loan underwriting purposes.

3. Requirements and Statement of Work (SOW) for a CNA

Minimum requirements for a CNA acceptable to RD can be found in Attachment B, Capital Needs Assessment Statement of Work. This is supplemented by Attachment C, Fannie Mae Physical Needs Assessment Guidance to the Property Evaluator. To resolve any inconsistency in the two documents, Attachment B, the CNA SOW, will in all cases prevail over Attachment C, Fannie Mae Physical Needs Assessment Guidance to the Property Evaluator. (For example, on page C-2 of Attachment C, Fannie Mae defines the “term” as “term of the mortgage and two years beyond”. For USDA, the “term” will be 20 years, as defined in the CNA SOW.)

Attachment B includes the required qualifications for the CNA Provider, the required SOW for a CNA assignment, and general distribution and review instructions to the CNA Provider. The CNA Providers must be able to report the current physical condition of the property and not base their findings on the financial condition of either the property or the CNA Recipient.

Attachment C is a three-part document RD has permission to use as reference to the CNA process throughout the RD MFH program efforts. The three key components of this Attachment are: (1) Guidance to the property evaluator; (2) expected useful life tables; and (3) a set of forms.

An acceptable CNA must appropriately address within the report and narrative all Accessibility Laws and Requirements that apply to Section 515 and Sections 514/516 MFH properties. The CNA Provider must assess how the property meets the requirements of accessibility to persons with disabilities in accordance the Uniform Federal Accessibility Standards (UFAS) and Section 504 Accessibility Requirements. It is the responsibility of the Provider to inspect and verify whether all accessibility features are compliant.

4. The CNA Review Process

A CNA used by RD will be reviewed by the designated RD CNA Reviewer with experience in construction, rehabilitation, and repair of MFH properties, especially as it relates to repair and replacement.

A CNA report must be obtained by the CNA Recipient from an independent third-party CNA Provider that has no identity of interest with the property owner, management agent, applicant/transferee or any other principle or affiliate defined in 7 CFR 3560.11. The CNA Recipient will contract with the CNA Provider and is therefore the client of the provider. However, the CNA Recipient must consult with RD, before contracting with a CNA Provider to review Guidance Regarding Contracting for a CNA. The RD CNA Reviewer will evaluate a proposed agreement or engagement letter between the CNA Recipient and the CNA Provider using Attachment G, Capital Needs Assessment Guidance to the Reviewer, prior to reviewing any CNA report. Unacceptable CNA proposals, contracts or reports will be returned to the CNA Recipient for appropriate corrections before they will be used for any underwriting determinations.

The CNA Reviewer will also review the cost of the CNA contract. The proposed fee for the CNA must be approved as an eligible housing project expense under 7 CFR 3560.103 (c) for the agreement to be acceptable and paid using project funds. In most cases, the CNA service contract amount has not exceeded $3,500 based on the Agency's most recent cost analysis.

Borrowers and applicants are encouraged to obtain multiple bids in all cases. However, there is no Agency requirement to select the “low bidder” under this UL and the CNA Recipient may select a CNA Provider that will provide the best value, based on qualifications, as well as price after reviewing references and past work.

If the CNA is funded by the property's reserve account, a minimum of two bids is required if the CNA service contract amount is estimated to exceed $5,000 as specified in HB-2-3560, Chapter 4, Paragraph 4.17 B. If the CNA contract under this UL is funded by another source, or will be under $5,000, a single bid is acceptable.

If the proposed agreement is acceptable, the reviewer will advise the appropriate RD servicing official, who will in turn inform the CNA Recipient. If the proposed agreement is unacceptable, the reviewer will notify the servicing official, who will notify the CNA Recipient and the CNA Provider in writing and identify actions necessary to make the proposed CNA agreement acceptable to RD. Upon receipt of a satisfactory agreement, the RD CNA Reviewer should advise the appropriate RD servicing official or underwriting official to accept the proposal.

The CNA Reviewer will review the preliminary CNA report submitted to RD by the CNA Provider using Attachment G and write the preliminary CNA review report. During the CNA review process, the CNA Reviewer and underwriter will consult with the servicing field office most familiar with the property for their input and knowledge of the property. Any differences of opinion that exist regarding the findings must be mutually addressed by RD staff. If corrections are needed, the loan official will notify the CNA Recipient, in writing, of any revisions necessary to make the CNA report acceptable to RD. The CNA Reviewer will review the final CNA report and deliver it to the loan official. The final report must be signed by both the CNA Reviewer and the loan official (underwriter). Upon signature by both, this report becomes the “accepted” CNA indicating the actual condition of the property at the time of the CNA inspection—a “snapshot” in time—and will be marked “Current Property Condition” for indefinite retention in the borrower case file.

A CNA Provider should be fully aware of the intended use for the CNA because it can impact the calculations necessary to perform adequate accessibility assessments and can impact the acceptability of the report by RD. Unacceptable reports will not be used for any RD underwriting purposes even though they may otherwise be acceptable to the CNA Recipient or another third-party lender or participant in the transaction being proposed.

5. Guidance Regarding Contracting for a CNA

CNA Recipients are responsible for choosing the CNA Provider they wish to contract with, and for delivering an acceptable CNA to Rural Development. RD in no way guarantees the performance any Provider nor the acceptability of the Provider's work.

CNA Recipients are advised to request an information package from several CNA Providers and to evaluate the information before selecting a provider. At a minimum, the information package should include a list of qualifications, a list of references, a client list, and a sample CNA report. However, the CNA Recipient may request any additional information they feel necessary to evaluate potential candidates and select a suitable provider for this service. Consideration for the type of CNA required should be part of the CNA Recipient's selection criteria and inserted into the contract language as well. The necessary skill set to perform the “as-is” versus the Post Rehabilitation CNA or a LCCA needs to be considered carefully. Knowledge of the accessibility laws and standards and the ability to read and understand plans and specifications should also be among the critical skill elements to consider.

Attachment A, Contract Addendum must be submitted to RD with the contract and signed by the CNA Recipient and CNA Provider. The proposed agreement with the CNA Recipient and CNA Provider must meet RD's qualification requirements for both the provider and the CNA SOW, as specified in Attachment B, Capital Needs Assessment Statement of Work. RD must review the proposed agreement between the CNA Recipient and the CNA Provider, and concur only if all of the RD requirements and conditions are met. (See the previous Section 3 of this UL, The CNA Review Process. )

Please note: It is in the CNA Recipient's best interest to furnish the CNA Provider with the most current and up-to-date property information for a more comprehensive and thorough CNA report. RD recommends that the CNA Recipient conduct a pre-inspection meeting with the Owner, Property Manager, maintenance persons familiar with the property, CNA Provider, and Agency Representatives at the site. This meeting will allow a forum to discuss specific details about the property that may not be readily apparent to all parties involved during the review process, as well as making some physical observations on-site. Certain issues that may not be evident to the CNA Provider due to weather conditions at the time of review should also be discussed and included in the report. Additionally, other issues that may need to be addressed include environmental hazards, structural defects, and complex accessibility issues. It is imperative that the Agency be fully aware of the current physical condition of the property at the time the CNA is prepared. An Agency representative must make every effort to attend the CNA Providers on-site inspection of the property unless the Agency has performed a physical inspection of the property within the previous 12 months.

This pre-inspection meeting also allows the CNA Provider to discuss with the CNA Recipient total number of units to be inspected, as well as identifying any specific units that will be inspected in detail. The minimum number of inspected units required by the Agency for an acceptable CNA is 50 percent. However, inspecting a larger number of units generally provides more accurate information to identify the specific line items to be addressed over the “term” being covered by the CNA report. CNA Recipients are encouraged to negotiate with the CNA Provider to achieve inspection of all units whenever possible. The ultimate goal for the CNA Recipient and CNA Provider, as well as the Agency, is to produce the most accurate “baseline or snapshot” of current physical property conditions for use as a tool in projecting future reserve account needs.

6. Revising an Accepted CNA During Underwriting (Applies to RD Actions)

During transaction underwriting and analysis, presentation of the information contained in the “accepted” CNA may need to be revised by RD to address financing and other programmatic issues. The loan underwriter and the CNA Reviewer will work together to determine if revisions are necessary to meet the financial and physical needs of the property, and established RD underwriting or servicing standards and principals. These may involve shifting individual repair line items reported in the CNA, moving work from year to year, or other adjustments that will improve cash flow. The revised underwriting CNA will be used to establish reserve funding schedules as well as operating budget preparation and analysis and will be maintained by RD as supporting documentation for the loan underwriting.

The initial CNA, prepared by the CNA Provider, will be maintained as an independent third-party record of the current condition of the property at the beginning of the 20-year cycle.

Original CNAs will be maintained in the case file, clearly marked as either “Current Property Condition” (“As-is”), “Post Rehabilitation Condition”, or “Revised Underwriting/Replacement Schedule”, as applicable. Note: The CNA Provider is not the appropriate party to “revise” a CNA which has already been approved by the CNA Recipient and concurred with by the Agency. The CNA Provider's independent opinion was the basis of the “As is” or “Post Rehabilitation” CNA. The CNA developed for underwriting may only be revised by RD staff during the underwriting process or as part of a post-closing servicing action.

7. Updating a CNA (Applies to “As-is” and “Post-Rehabilitation” That Have Not Been Accepted by RD)

A completed CNA more than a year old at the time of the RD CNA review and approval must be “updated' prior to RD approval. Likewise, if at the time of underwriting the CNA is more than a year old (but less than two years old), it must be updated before the transaction can be approved.

To update a CNA, the CNA Provider must review property changes (repairs, improvements, or failures) that have occurred since the date of the original CNA site visit with the CNA Recipient, review costs and quantities, and submit an updated CNA for approval. However, if the site visit for the CNA occurred more than two years prior to the loan underwriting, the CNA Provider should perform a new site visit to verify the current project condition.

Once the CNA has been updated, the CNA Provider will include a statement noting “This is an updated CNA of the earlier CNA dated ___,” at the beginning of the CNA's Narrative section. The CNA Provider should reprint the CNA with a new date for the updated CNA, and provide a new electronic copy to the CNA Recipient and RD.

If the CNA age exceeds 2years at the time of the RD CNA review and approval, the CNA Provider will need to repeat the site visit process to re-evaluate the condition of the property. The original report can remain the basis of the findings.

8. Incorporating a Property's Rehabilitation Into a CNA

A CNA provides a repair schedule for the property in its present condition, indicating repairs and replacements necessary for a property to function properly and efficiently over a span of 20 years. It is not an estimate of existing rehabilitation needs, or an estimate of rehabilitation costs. If any rehabilitation of a MFH development is planned as part of the proposed transaction, a rehabilitation repair list (also called a “Scope of Work”) must be developed independently based on the CNA repair schedule. This rehabilitation repair list may be developed by the CNA Recipient, a project Architect, or an outside party (such as the CNA Provider, when qualified) hired by the CNA Recipient.

The CNA Recipient must not use repair line-item costs taken from the CNA to develop the rehabilitation cost estimates for the rehabilitation loan, as these costs will not be accurate. The repair costs in a CNA are based on estimated costs for the property. Typically, these costs include the labor, materials, overhead and profit, but do not include applicable “soft costs”. For example, for CNA purposes, the probable cost is to send a repairman out, remove an appliance, and put a new one in its place. For rehabilitation cost estimates, the CNA Recipient typically intends to hire a general contractor to oversee and supervise the rehabilitation work, which is then considered a “soft cost”. The cost of rehabilitation includes the costs for that general contractor, the general contractor's requirements, the cost of a project Architect (if one is used), tenant relocation (if needed), and interim financing (if used), which are considered “soft costs” attributed to the rehabilitation costs for the project.

If a “Post Rehabilitation” CNA is required and authorized by RD, a copy of the rehabilitation repair list or SOW must be provided to the CNA Provider. The CNA Provider will prepare a “Post Rehabilitation” CNA indicating what repairs are planned for the property in the coming 20 years based on conditions after the rehabilitation is completed. Items to be replaced during rehabilitation that will need to be replaced again within the 20 years, such as appliances, will be included in the “Post Rehabilitation” CNA. Items that will not need replacement during the coming 20 years, such as a new roof, will not need to be calculated in the “Post Rehabilitation” CNA. The line item should not be removed from the CNA, but the cost data should be zeroed out. Appropriate comments should be included in the CNA report to acknowledge the SOW or rehabilitation/repairs that were considered.

9. Repair and Replacement Schedule

A CNA is not a formal repair and replacement schedule and cannot be used as an exact replacement schedule. A CNA is an estimate of the anticipated replacement needs for the property over time, and the associated replacement costs. The goal of a CNA is to estimate the replacement times based on the Expected Useful Life (EUL) to assure funds are available to replace equipment as it is needed. Hopefully, materials will be well maintained and last longer than estimated in the CNA. However, the CNA cannot be used to mandate replacement times for the identified building components. The RD underwriter may find it necessary to adjust the proposed replacement schedule during the course of the underwriting to allow for an adequate Annual Deposit to Replacement Reserves (ADRR) payment that will sustain the property over a 20-year period and keep rents below the maximum rents that are allowed.

Joaquin Altoro,

Administrator, Rural Housing Service.