96-6791. Office of Assistant Secretary for HousingFederal Housing Commissioner; Disposition of Multifamily Projects and Sale of HUD-Held Multifamily Mortgages

[Federal Register Volume 61, Number 56 (Thursday, March 21, 1996)]
[Rules and Regulations]
[Pages 11684-11703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-6791]




[[Page 11683]]

_______________________________________________________________________

Part II





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Parts 290 and 886



Disposition of Multifamily Projects and Sale of HUD-Held Multifamily 
Mortgages; Final Rule

Federal Register / Vol. 61, No. 56 / Thursday, March 21, 1996 / Rules 
and Regulations

[[Page 11684]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 290 and 886

[Docket No. FR-3715-F-02]
RIN 2502-AG30


Office of Assistant Secretary for Housing--Federal Housing 
Commissioner; Disposition of Multifamily Projects and Sale of HUD-Held 
Multifamily Mortgages

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Final rule.

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

SUMMARY: This final rule implements at 24 CFR part 290 the regulatory 
requirements under the Multifamily Housing Property Disposition Reform 
Act of 1994 that affect the management and disposition of HUD-owned 
properties and properties with HUD-held mortgages, and the sale of HUD-
held multifamily mortgages. Conforming changes are made to part 886.

EFFECTIVE DATE: April 22, 1996.

FOR FURTHER INFORMATION CONTACT: Barbara D. Hunter, Director, Program 
Management Division, Office of Multifamily Asset Management and 
Disposition, Department of Housing and Urban Development, Room 6182, 
451 7th Street SW, Washington, DC 20410. Telephone [phone]; TDD 
[phone]. (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

    The information collection requirements contained in Sec. 290.9 of 
this rule have been approved by the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520), and assigned OMB control number 2502-0204. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection displays a valid 
control number.

I. Statutory and Regulatory Background

    On August 17, 1993 (58 FR 43708), the Department published a final 
rule amending its requirements for the management and disposition of 
HUD-owned multifamily housing projects. The regulation, at 24 CFR part 
290, implemented HUD's statutory authority, contained in section 207 
(k) and (l) of the National Housing Act and in section 203 of the 
Housing and Community Development Amendments of 1978, to handle and 
dispose of such real property.
    Section 203 was amended by section 181 of the Housing and Community 
Development Act of 1987 (1987 Act), section 1010 of the Stewart B. 
McKinney Homeless Assistance Amendments Act of 1988 (1988 Act), and 
section 579 of the National Affordable Housing Act of 1990 (NAHA). A 
final rule published on August 17, 1993 implemented the NAHA 
amendments. Generally, the statutory amendments specified the type of 
assistance to be provided when the Department determines to preserve 
units as affordable low- and very low-income housing, and included 
certain projects with HUD-held mortgages within the scope of section 
203.
    In the Multifamily Housing Property Disposition Reform Act of 1994 
(MHPDRA) (Pub. L. 102-233, approved April 11, 1994), section 203 was 
completely revised. An interim rule amending 24 CFR part 290 to reflect 
the new statutory amendments was published on March 2, 1995 (60 FR 
11844) with a 60 day public comment period. The Department received no 
comments on the interim rule.

II. Changes Made by the Final Rule--Regulatory Reinvention

    Consistent with Executive Order 12866 and President Clinton's 
memorandum of March 4, 1995 to all Federal Departments and Agencies on 
regulatory reinvention, HUD has reviewed all its regulations to 
determine whether certain regulations can be eliminated, streamlined, 
or consolidated with other regulations. In keeping with the President's 
mandate to reinvent and reform regulations, the Department is taking 
advantage of the publication of this final rule to streamline part 290. 
The entire part has been re-drafted to eliminate text that only repeats 
the statutory language, or provisions that are only advisory (rather 
than binding) or non-exclusive. Instead of consisting of nine subparts, 
A through I, as did the interim rule, this final rule has only two 
subparts: subpart A--Disposition of Multifamily Projects, and subpart 
B--Sale of HUD-Held Multifamily Mortgages.
    One goal of reinventing regulations is to remove rule text that 
only repeats statutory language. To achieve this goal, rules will only 
contain legally binding requirements that are in addition to those 
contained in a statute. This will streamline regulations, avoid 
redundancy, and remove the problems that result when a rule that echoes 
the language of a statute becomes inconsistent with new statutory 
amendments. The period before a rule is amended to conform to new 
statutory language is often one of confusion and uncertainty as to 
which law applies. The final rule promulgated here does not, therefore, 
repeat any statutory language; it contains only those provisions that 
clarify the statutory procedures, or provisions that address those 
areas that give the Secretary discretion to act.
    The remaining regulatory text is further pruned to eliminate 
provisions that are only advisory (rather than binding) or non-
exclusive. An example of such a provision is the listing in 
Sec. 290.42(d)(3) of the interim rule of persons included in the 
definition of ``displaced person.'' This listing is prefaced by the 
phrase, ``This includes, but is not limited to:'', which indicates that 
it only provides examples, and is not exclusive or complete. Such lists 
of examples are more appropriate for inclusion in guidance materials 
(such as the appendix which follows this rule) than in rules.
    The consolidated statutory and regulatory procedures for the 
disposition of multifamily properties, which were contained in the 
interim rule, have been placed in an appendix to this final rule. The 
final rule will be codified in the Code of Federal Regulations; the 
appendix will not be codified. However, the appendix is available to 
the public as a single document which provides a unified overview of 
the disposition process. The user-friendly features of the interim 
rule, its tables and question-and-answer format, are retained as 
features of the appendix.
    A number of consolidating and clarifying adjustments are also made 
to the regulatory language that remains in part 290. The requirements 
for the timing of any disposition-related notifications (i.e., pre-
foreclosure notification to tenants and units of general local 
government; pre-disposition community and tenant input notification; 
state and local government right of first refusal notification) are 
combined into a single provision, at Sec. 290.11, which states that 
notifications will be made, as appropriate, (1) 60 or more days before 
HUD forecloses on a project, or (2) before, or not more than 30 days 
after, HUD acquires a project. By making it clear that notifications 
that may be made up to 30 days after acquisition may also be made 
before acquisition, the rule confirms that the notification provisions 
are meant to complement, rather than impede, the disposition process. 
For instance, in the case of a negotiated sale to a State or local 
government (including public

[[Page 11685]]
agencies), waiting until after acquisition to provide the statutorily 
required state and local government right of first refusal notification 
could delay a disposition for 90 days. Providing this notification 
earlier in the process allows for a more expeditious disposition.
    A correction is made in the table entitled ``Pre-Disposition 
Notification Requirements,'' which now appears in the appendix. In the 
interim rule, the timing for providing notice to tenants and the 
community was listed as 60 days in the table, and 30 days in the rule 
text. The time period in the table is here conformed to 30 days.
    This rule also includes two provisions, at Secs. 290.37 and 290.39, 
added to the Sale of HUD-Held Multifamily Mortgages subpart by an 
interim rule published on February 6, 1996 (61 FR 4580). These 
provisions are included in this rule to present the complete part 290 
in its current form. However, after considering comments submitted on 
these provisions, they will be republished separately as a final rule.
    As an additional matter, the Department is taking advantage of the 
publication of this rule to provide notice of section 401 of Pub. L. 
104-99 (110 Stat. 26, approved January 26, 1996), which provides that, 
``During fiscal year 1996, the Secretary of Housing and Urban 
Development may manage and dispose of multifamily properties owned by 
the Secretary, including the provision of the grants from the General 
Insurance Fund (12 U.S.C. 1735c) for the necessary costs of 
rehabilitation and other related development costs and multifamily 
mortgages held by the Secretary without regard to any other provision 
of law.''

III. Other Matters

    Any assistance made available to a purchaser under this rule, 
whether rental or other financial assistance, will be subject to 
scrutiny under section 102(d) of the HUD Reform Act, insofar as that 
statutory provision has been implemented by guidelines issued by the 
Office of Housing under 24 CFR part 12, subpart D (see, e.g., a Federal 
Register Notice published April 9, 1991 (56 FR 14436) entitled 
``Administrative Guidelines; Limitations on Combining Other Government 
Assistance with HUD Housing Assistance'').

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR Part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969. The Finding is available for public inspection between 
7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules Docket 
Clerk, Office of the General Counsel, Department of Housing and Urban 
Development, Room 10276, 451 Seventh Street SW, Washington, DC 20410.

Regulatory Flexibility Act

    The Secretary, in accordance with provisions of the Regulatory 
Flexibility Act (5 U.S.C. 605(b)), has reviewed this rule before 
publication and by approving it certifies that it will not have a 
significant economic impact on a substantial number of small entities. 
These requirements governing the management and disposition of HUD-
owned multifamily housing projects should not affect the ability of 
small entities, relative to larger entities, to bid for and acquire 
projects that HUD determines to sell.

Executive Order 12612, Federalism

    HUD has determined, in accordance with Executive Order 12612, 
Federalism, that this rule will not have a substantial, direct effect 
on the States or on the relationship between the Federal government and 
the States, or on the distribution of power or responsibilities among 
the various levels of government. While the rule would impose terms and 
conditions on States that acquire projects under this rule, that is 
clearly the intent of the authorizing legislation, and therefore no 
further review is necessary or appropriate.

Executive Order 12606, the Family

    HUD has determined that this rule will not have a significant 
impact on family formation, maintenance, and general well-being within 
the meaning of Executive Order 12606, The Family, because it does not 
affect the eligibility of families for admission into multifamily 
housing projects that are subject to this rulemaking.
    The Catalog of Federal Domestic Assistance Program number and title 
are 14.156, Lower Income Housing Assistance Program (Section 8).

List of Subjects

24 CFR Part 290

    Low and moderate income housing, Mortgage insurance.

24 CFR Part 886

    Grant programs--housing and community development, Lead poisoning, 
Rent subsidies, Reporting and recordkeeping requirements.

    Accordingly, under the authority of 42 U.S.C. 3535(d), for the 
reasons stated in the preamble, title 24 of the Code of Federal 
Regulations is amended by adopting the amendments to part 886 of the 
interim rule published in the Federal Register of March 2, 1995 (60 FR 
11844) as final without change, and by revising part 290, to read as 
follows:

PART 290--DISPOSITION OF MULTIFAMILY PROJECTS AND SALE OF HUD-HELD 
MULTIFAMILY MORTGAGES

Subpart A--Disposition of Multifamily Projects

Sec.
290.1  Applicability.
290.3  Definitions.
290.7  Occupancy requirements.
290.9  Setting rental rates.
290.11  Notification requirements.
290.13  Negotiated sales.
290.15  Disposition plan.
290.17  Displacement of tenants and relocation assistance.
290.19  Restrictions concerning nondiscrimination against Section 8 
certificate holders and voucher holders.
290.21  Computing annual number of units eligible for substitution 
of tenant-based assistance or alternative uses.
290.23  Rebuilding.
290.25  Determination not to preserve a project or a part of a 
project.

Subpart B--Sale of HUD-Held Multifamily Mortgages

290.30  General.
290.31  Sale of current mortgages securing subsidized projects.
290.33  Sale of delinquent mortgages securing subsidized projects.
290.35  Sale of HUD-held mortgages securing unsubsidized projects.
290.37  Requirements for continuing federal rental subsidy 
contracts.
290.39  Nondiscrimination in admitting certificate and voucher 
holders.

    Authority: 12 U.S.C. 1701z-11, 1701z-12, 1713, 1715b, 1715z-1b; 
42 U.S.C. 3535(d).

Subpart A--Disposition of Multifamily Projects


Sec. 290.1  Applicability.

    The requirements of this part supplement the requirements of 12 
U.S.C. 1701z-11 for the management and disposition of multifamily 
housing projects and the sale of HUD-held multifamily mortgages. The 
goals and objectives of this part are the same as the goals and 
objectives of 12 U.S.C. 1701z-11, which shall be referred to in this 
part as ``the Statute.''


Sec. 290.3  Definitions.

    The terms Department and URA are defined in 24 CFR part 5. The 
following definitions apply to this part:
    Cooperative means a nonprofit, limited equity, or consumer 
cooperative as defined under 24 CFR part 213. It

[[Page 11686]]
may include mutual housing associations.
    HUD-owned project means a multifamily project that has been 
acquired by HUD.
    Market area means the area from which a multifamily housing project 
may reasonably be expected to draw a substantial number of its tenants, 
as determined by HUD, taking into consideration the knowledge of the 
HUD office with jurisdiction over the project of the local real estate 
market and HUD's project underwriting experience. Submarkets may be 
used in large, complex metropolitan areas.
    Multifamily housing project means a multifamily project that is or 
was insured under sections 207, 213, 220, 221(d)(3), 221(d)(4), 223(f), 
231, 236, or 608 of the National Housing Act (12 U.S.C. 1713, 1715e, 
1715k, 1715l, 1715n, 1715v, 1715z-1, or 1742-1746); or is or was 
subject to a loan under section 202 of the Housing Act of 1959 (12 
U.S.C. 1701q); or was a Real Estate Owned (REO) multifamily project 
transferred by the Government National Mortgage Association to the 
Department. Multifamily housing project does not include projects 
consisting of one to eleven units insured under section 220(d)(3)(A) of 
the National Housing Act (12 U.S.C. 1715l); or mobile home parks under 
section 207(m) of that Act (12 U.S.C. 1713); or vacant land; or 
property covered by a homeownership program approved under the 
Homeownership and Opportunity for People Everywhere (``HOPE'') program.
    Multifamily project means a project consisting of five or more 
units that has or had a mortgage (even if subordinate to other 
mortgages) insured under the National Housing Act or is or was subject 
to a loan under section 202 of the Housing Act of 1959, or a hospital, 
intermediate care facility, nursing home, group practice facility, or 
board and care facility that has or had a mortgage insured, or is or 
was subject to a loan under, these authorities. Multifamily project 
does not include projects consisting of one to eleven units insured 
under section 220(d)(3)(A) of the National Housing Act (12 U.S.C. 
1715k), which are classified as single family homes.
    Nonprofit organization means a corporation or association organized 
for purposes other than making a profit or gain for itself. 
Stockholders or trustees do not share in profits or losses. Profits are 
used to accomplish the charitable, humanitarian, or educational 
purposes of the corporation.
    Preexisting tenant means a family that resides in a unit in a 
multifamily housing project immediately before the project is acquired 
under this part by a purchaser other than the Department.
    Subsidized project means a multifamily housing project that is 
receiving, or immediately before its mortgage was foreclosed by HUD or 
the project was acquired by HUD, pursuant to this regulation, was 
receiving any of the following types of assistance:
    (1) Below market interest rate mortgage insurance under the proviso 
of section 221(d)(5) of the National Housing Act (12 U.S.C. 1715l) 
(hereinafter, a BMIR project);
    (2) Interest reduction payments made in connection with mortgages 
insured under section 236 of the National Housing Act (hereinafter, a 
236 project);
    (3) Direct loans made under section 202 of the Housing Act of 1959 
(hereinafter, a 202 project);
    (4) Assistance, to more than 50 percent of the units in the 
project, in the form of:
    (i) Rent supplement payments under section 101 of the Housing and 
Urban Development Act of 1965 (12 U.S.C. 1701s) (hereinafter, Rent 
Supp);
    (ii) Additional assistance payments under section 236(f)(2) of the 
National Housing Act (hereinafter, RAP);
    (iii) Housing assistance payments under section 23 of the United 
States Housing Act of 1937 (42 U.S.C. 1437 note) (as in effect before 
January 1, 1975) (hereinafter, Sec. 23); or
    (iv) Housing assistance payments under Section 8 of the United 
States Housing Act of 1937 (42 U.S.C. 1437f) (excluding payments of 
tenant-based Section 8 assistance) (hereinafter, project-based Section 
8 assistance).
    Sufficient habitable, affordable, rental housing is available means 
that the HUD office with jurisdiction determines that there is an 
adequate supply of habitable, affordable housing for low- and very low-
income families available in the market area. Submarkets, consisting of 
portions of units of general local government, may be used in large, 
complex metropolitan areas. Local housing markets having an adequate 
supply of standard-quality rental housing would include housing markets 
in which the supply of rental housing available and in production is 
adequate to meet the anticipated demand (e.g., the housing market is 
balanced), as well as those in which there is an excess supply of 
rental housing (e.g., the housing market is soft). Rental markets that 
do not have an adequate supply (e.g., tight markets) are characterized 
by low rental vacancy rates, low levels of production and turnover of 
rental housing, and, usually, by high levels of rent inflation. HUD 
will make the determination of whether sufficient habitable, 
affordable, rental housing is available using established market 
analysis techniques, and will consider information that demonstrates:
    (1) The rental housing vacancy rate is at a low level relative to 
the rate required for a balanced market, typically a four percent 
vacancy rate; except that a rate lower than four percent may be 
considered in unusual circumstances if it can be demonstrated that 
there is an adequate supply of affordable housing for low-income 
families;
    (2) The number of rental housing units being produced on an annual 
basis is not large enough to satisfy demand arising from the increase 
in households, or, in markets where there is little or no growth, 
evidence that the number of additional rental units being supplied is 
not sufficient to meet the demand arising from net losses to the 
available inventory and the inadequate supply of rental housing has 
inhibited growth;
    (3) The shortage of housing is resulting in rent increases that 
exceed normal increases commensurate with the costs of operating rental 
housing;
    (4) A significant number, or proportion, of the households holding 
Section 8 certificates or rental vouchers are unable to find adequate 
housing because of the shortage of rental housing, including PHA data 
showing a lower than average percentage of units under lease and a 
longer than average time required to find units.
    Unsubsidized project means a multifamily housing project that is 
not a subsidized project.
    Useful life means, generally, twenty years, but it may be more or 
less, as determined by the Department.


Sec. 290.7  Occupancy requirements.

    (a) Multifamily housing project that is HUD-owned or for which HUD 
is mortgagee-in-possession. Occupancy in a multifamily housing project 
that is HUD-owned or for which HUD is mortgagee-in-possession shall be 
available on a basis that is comparable to the occupancy requirements 
that applied to the project immediately before HUD acquired the project 
or became mortgagee-in-possession, except that preference shall be 
given to tenants of other HUD-owned multifamily housing projects who 
are eligible for assistance in accordance with the displacement and 
relocation provisions at Sec. 290.17.
    (b) Evictions. Eviction from a HUD-owned multifamily housing 
project is governed by 24 CFR part 247, subpart B.
    (c) Threat to health and safety. Whenever HUD determines that there 
is an immediate threat to the health and

[[Page 11687]]
safety of the tenants, HUD may require the tenants to vacate the 
premises and shall provide temporary relocation benefits as provided in 
Sec. 290.17 to tenants required to vacate the premises.


Sec. 290.9  Setting rental rates.

    Because of the subsidies involved in making multifamily housing 
projects affordable, the setting of rents involves two steps: first, 
establishing the rent on a unit that will be paid to the owner, and 
second, determining the rent that the tenant pays (with the difference 
made up by a subsidy), using a number of procedures to obtain income 
verification and notify tenants of changes in rent. These procedures 
for a property owned by HUD or where HUD is mortgagee-in-possession are 
explained below.
    (a) Setting unit rents. Except as modified by this section, for a 
property where HUD is mortgagee-in-possession (MIP), HUD will set unit 
rents in accordance with the rent setting requirements of the project's 
mortgage insurance or direct loan program; or for a property owned by 
HUD, rents will be set in accordance with the rent setting requirements 
of the project's mortgage insurance or direct loan program in effect 
immediately before HUD became the owner of the project.
    (b) Setting rents payable by tenants. (1) Tenant rent. The rent the 
tenant pays will be based on the income certification and the rent 
payment requirements of the project's mortgage insurance or direct loan 
program in effect while HUD is MIP or immediately before HUD became the 
owner of the project, as affected by any of the factors in paragraphs 
(b)(2) through (b)(4) of this section. However, if a tenant does not 
certify income as required by this section, the tenant must pay the 
unit rent as determined under the rent setting requirements in 
paragraph (a) of this section.
    (2) Utility allowance. For a tenant whose rent is based on a 
percentage of adjusted income (except for rental voucher or rental 
certificate holders), if the cost of utilities (except telephone) and 
other housing services for the unit is the responsibility of the tenant 
to pay directly to the provider of the utility or service, HUD will 
deduct from the rent to be paid by the tenant to HUD a utility 
allowance, which is an amount equal to HUD's estimate of the monthly 
costs of a reasonable consumption of the utilities and other services 
for the unit for an energy-conservative household of modest 
circumstances consistent with the requirement of a safe, sanitary, and 
healthful living environment. If the utility allowance exceeds the 
percentage of the tenant's adjusted income payable as rent, HUD will 
pay the difference between the amount payable as rent and the utility 
allowance to the tenant or, with the consent of the tenant and the 
utility company, either jointly to the tenant and the utility company 
or directly to the utility company.
    (3) Rent adjustments for project viability. For a HUD-owned 
project, HUD may adjust the rent provided for in paragraphs (b)(1) or 
(b)(2) of this section if necessary or desirable to maintain the 
existing economic mix in the project, prevent undesirable turnover, or 
increase occupancy.
    (4) Tenants who are rental voucher or rental certificate holders. 
Tenants assisted with rental vouchers or certificates certify their 
income to the public housing agency (PHA) administering the assistance, 
and pay rent pursuant to the policies and procedures governing such 
assistance.
    (c) Income verification and rent notification procedures. (1) 
Income certification by tenants. (i) In subsidized projects. (A) For 
families residing in subsidized projects, when HUD becomes MIP or 
owner, HUD will request an income certification from each family as 
soon as practicable after HUD initially assumes management, unless the 
family's income has been examined by the owner or by HUD not more than 
four months before HUD's assumption of management.
    (B) For each family applying for admission to subsidized projects, 
HUD will request an income certification to determine the family's 
eligibility for a subsidized rent, and (if the rent is based on a 
percentage of adjusted income) the family's subsidized rent, in 
accordance with part 813 of this title.
    (ii) In unsubsidized projects. (A) For tenants in occupancy when 
HUD becomes mortgagee-in-possession or owner of an unsubsidized 
project, HUD may request an income certification from families who are 
not paying a subsidized rent.
    (B) For families applying for admission to such projects, HUD will 
request sufficient information for income verification to determine the 
family's ability to pay the unit rent.
    (2) Notice of increases in the amount of rent payable. Whenever HUD 
proposes an increase in rents in a HUD-owned multifamily project or a 
project where HUD is mortgagee-in-possession, HUD will provide tenants 
30 days notice of the proposed changes and an opportunity to review and 
comment on the new rent and supporting documentation. After HUD 
considers the tenants' comments and has made a decision with respect to 
its proposed rent change, HUD shall notify the tenants of its decision, 
with the reasons for the decision. A tenant in occupancy before the 
effective date of any revised rental rate must be given 30 days notice 
of the revised rate, and any change in the tenant's rent is subject to 
the terms of an existing lease. Notices to each tenant must be 
personally delivered or sent by first class mail. General notices of 
rent increases to all tenants must be posted in the project office and 
in appropriate conspicuous and accessible locations around the project.
    (3) Disclosure and verification of Social Security numbers. Any 
certifications or reexaminations of the income of tenants or 
prospective tenants in connection with tenancy under this section are 
subject to the requirements for the disclosure and verification of 
Social Security Numbers, as provided by part 200, subpart T, of this 
title.
    (4) Signing of consent forms for income verification. Any 
certifications or reexaminations of the income of tenants or 
prospective tenants in connection with tenancy under this section are 
subject to the requirements for the signing and submitting of consent 
forms for the obtaining of wage and claim information from State Wage 
Information Collection Agencies, as provided by part 200, subpart V, of 
this title.

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


Sec. 290.11  Notification requirements.

    (a) In general. HUD may combine two or more of the required 
notifications, as appropriate, to simplify the disposition process.
    (b) Timing of notifications. Disposition-related notifications 
(i.e., pre-foreclosure notification to tenants and units of general 
local government; pre-disposition community and tenant input 
notification; state and local government right of first refusal 
notification) will be made, as appropriate:
    (1) 60 or more days before HUD forecloses on a project; or
    (2) Before, or not more than 30 days after, HUD acquires a project.
    (c) Methods of notification. (1) To tenants. Pre-disposition 
notification will be delivered to each unit in the project, or sent to 
each unit by first class mail. Where HUD is mortgagee-in-possession or 
owner of a project, the notice will also be posted in the project 
office and in appropriate conspicuous and accessible locations around 
the project.
    (2) To units of general local government. Pre-disposition 
notification to a unit of general local government

[[Page 11688]]
will be sent to the chief executive officer of the unit of general 
local government by first class mail. For purposes of receiving or 
sending any notices or information under this part, the unit of general 
local government is its chief executive officer, or the person 
designated by the chief executive officer to receive or send the notice 
or information.
    (3) To the community or any other party. HUD will consult with 
tenants and their organizations, officials of units of general local 
government, and other entities as HUD determines to be appropriate, to 
identify community recipients of any required notification. Any notice 
required to be made to any party other than a tenant or a unit of 
general local government will be sent by first class mail.
    (d) Content of notifications. Notifications will, as appropriate, 
identify the project acquired or to be foreclosed by HUD; provide the 
general terms and conditions concerning the sale, future use, and 
operation of the project as proposed by HUD; indicate the time by which 
any offers must be made or any comments must be submitted; and state 
that the full disposition recommendation and analysis and other 
supporting information will be available for inspection and copying at 
the HUD Field Office.


Sec. 290.13  Negotiated sales.

    When HUD conducts a negotiated sale involving the disposition of a 
project to a person or entity without a public offering, the following 
provisions apply:
    (a) HUD may negotiate the sale of any project to an agency of the 
federal, State, or local government.
    (b) When HUD determines that a purchaser can demonstrate the 
capacity to own and operate a project in accordance with standards set 
by HUD, and/or a competitive offering will not generate offers of equal 
merit from qualified purchasers, HUD may approve a negotiated sale of a 
subsidized project to:
    (1) A resident organization wishing to convert the project to a 
nonprofit or limited equity cooperative;
    (2) A cooperative (e.g., nonprofit limited equity, consumer 
cooperative, mutual housing organization) with demonstrated experience 
in the operation of nonprofit (and preferably low-income) housing;
    (3) A nonprofit entity that will continue to operate the project as 
low-income housing and whose governing board is composed of project 
residents;
    (4) A State or local governmental entity with the demonstrated 
capacity to acquire, manage, and maintain the project as housing 
available to and affordable by low-income residents;
    (5) A State or local governmental or nonprofit entity with the 
demonstrated capacity to acquire, manage, and maintain the project as a 
shelter for the homeless or other public purpose, generally when the 
project is vacant or has minimal occupancy and is not needed in the 
area for continued use as rental housing for the elderly or families; 
or
    (6) Other nonprofit organizations.


Sec. 290.15  Disposition plan.

    (a) In general. Before disposing of a HUD-owned multifamily housing 
project, HUD will develop an initial and a final disposition plan for 
the project that specifies the minimum terms and conditions for the 
disposition of the project, the sales price that is acceptable to HUD, 
and the assistance that HUD plans to make available to a prospective 
purchaser.
    (b) Environmental requirements. HUD will perform, and include in 
the final disposition plan, the environmental reviews required by 24 
CFR part 50.


Sec. 290.17  Displacement of tenants and relocation assistance.

    (a) Scope of section. This section applies to all HUD-owned 
multifamily housing projects and all multifamily housing projects 
subject to HUD-held mortgages. When HUD is not the mortgagee-in-
possession or owner, the owner of the project shall comply with this 
section, if HUD has authorized the demolition of, repairs to, or 
conversion of the use of the multifamily housing project.
    (b) Minimizing displacement. Consistent with the other goals and 
objectives of this part, all reasonable steps shall be taken to 
minimize the displacement of persons (families, individuals, 
businesses, and nonprofit organizations) from a project covered by this 
part. If displacement or temporary relocation will occur in connection 
with the disposition of a project, HUD may require the purchaser of the 
project to provide assistance in accordance with this section.
    (c) Relocation assistance at non-URA levels. Whenever the 
displacement of a residential tenant (family or individual) occurs in 
connection with the management or disposition of a multifamily housing 
project, but is not subject to paragraph (d) of this section (e.g., 
occurs as a direct result of HUD repair or demolition of all or a part 
of a HUD-owned multifamily housing project or as a direct result of the 
foreclosure of a HUD-held mortgage on a multifamily housing project or 
sale of a HUD-owned project without federal financial assistance), the 
displaced tenant shall be eligible for the following relocation 
assistance:
    (1) Advance written notice of the expected displacement shall be 
provided at least 60 days before displacement, describe the assistance 
and the procedures for obtaining the assistance, and contain the name, 
address and phone number of an official responsible for providing the 
assistance;
    (2) Other advisory services, as appropriate, including counseling, 
referrals to suitable (and where appropriate, accessible), decent, 
safe, and sanitary replacement housing, and fair housing-related 
advisory services;
    (3) Payment for actual reasonable moving expenses, as determined by 
HUD; and
    (4) Such other federal, State or local assistance as may be 
available.
    (d) Relocation assistance at URA levels. (1) General. The 
requirements of this paragraph apply to any displacement that results 
whenever assistance under 24 CFR part 886, subpart C, (or other federal 
financial assistance, as defined in 49 CFR 24.2(j)) is provided in 
connection with the purchase, demolition, or rehabilitation of a 
multifamily property by a third party. A displaced person (defined in 
paragraph (d)(3) of this section) must be provided relocation 
assistance at the levels described in, and in accordance with the 
requirements of, the URA, implementing regulations at 49 CFR part 24, 
and this section.
    (2) Definition of ``initiation of negotiations''. Under the URA, 
for purposes of determining the method for computing the replacement 
housing assistance to be provided to a residential tenant displaced as 
a direct result of privately undertaken rehabilitation, demolition, or 
acquisition of the real property, the term ``initiation of 
negotiations'' means the transfer of title to the purchaser.
    (3) Definition of displaced person. The term ``displaced person'' 
means any person (family, individual, business, or nonprofit 
organization) that moves from the real property, or moves personal 
property from the real property, permanently, as a direct result of 
acquisition, rehabilitation or demolition for a federally assisted 
project. However, a person does not qualify as a ``displaced person'' 
if:
    (i) The person is excluded under 49 CFR 24.2(g)(2);
    (ii) The person has been evicted for a serious or repeated 
violation of the terms and conditions of the lease or occupancy 
agreement, violation of

[[Page 11689]]
applicable federal, State, or local law, or other good cause, and HUD 
determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance;
    (iii) The person moves into the property after transfer of title to 
the purchaser; or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for an assisted 
project.
    (e) Temporary relocation (URA and non-URA relocation assistance). 
Residential tenants, who will not be required to move permanently, but 
who must relocate temporarily (e.g., to permit property repairs), shall 
be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses 
incurred in connection with the temporary relocation, including the 
cost of moving to and from the temporary housing and any increase in 
monthly rent or utility costs. The party responsible for this 
requirement may, at its option, perform the services involved in 
temporarily relocating the tenants or pay for such services directly; 
and
    (2) Appropriate advisory services, including reasonable advance 
written notice of the date and approximate duration of the temporary 
relocation; the suitable (and where appropriate, accessible), decent, 
safe, and sanitary housing to be made available for the temporary 
period; the terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex following completion of the repairs; and the right to financial 
assistance provided under paragraph (e)(1) of this section.
    (f) Appeals. If a person disagrees with the purchaser's 
determination concerning the person's eligibility for relocation 
assistance or the amount of the assistance for which the person is 
eligible, the person may file a written appeal of that determination 
with the owner or purchaser. A person who is dissatisfied with the 
purchaser's determination on his or her appeal may submit a written 
request for review of that decision to the HUD Field Office responsible 
for administering the URA in the area.


Sec. 290.19  Restrictions concerning nondiscrimination against Section 
8 certificate holders and voucher holders.

    The purchaser of any multifamily housing project shall not refuse 
unreasonably to lease a dwelling unit offered for rent, offer to sell 
cooperative stock, or otherwise discriminate in the terms of tenancy or 
cooperative purchase and sale because any tenant or purchaser is the 
holder of a Certificate of Family Participation or a Voucher under 
Section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437f), 
or any successor legislation. This provision is limited in its 
application, for tenants or applicants with Section 8 Certificates or 
their equivalent (other than Vouchers), to those units which rent for 
an amount not greater than the Section 8 Fair Market Rent, as 
determined by HUD. The purchaser's agreement to this condition must be 
contained in any contract of sale and also may be contained in any 
regulatory agreement, use agreement, or deed entered into in connection 
with the disposition.


Sec. 290.21  Computing annual number of units eligible for substitution 
of tenant-based assistance or alternative uses.

    (a) Substitution of tenant-based Section 8 assistance to low-income 
families instead of project-based assistance to units. The number of 
units eligible, as permitted by the Statute, for this form of 
substitution within the 10 percent limit will be estimated at the 
beginning of each fiscal year, taking into consideration the aggregate 
number of subsidized project units disposed of by HUD in the 
immediately preceding fiscal year and the disposition activity planned 
for the current fiscal year.
    (b) Alternate uses. The number of units eligible for alternate uses 
in any fiscal year, as permitted by the Statute, will be determined at 
the beginning of the fiscal year as the applicable percentages (i.e., 
either 10 percent or 5 percent) of the estimated total number of units 
to be disposed of in the fiscal year, taking into consideration the 
total number of units in multifamily housing projects disposed of by 
the Department in the immediately preceding fiscal year, and the extent 
of the disposition activity planned in the current fiscal year.


Sec. 290.23  Rebuilding.

    HUD may provide project-based assistance to support the rebuilding 
of a HUD-owned multifamily housing project only. The required 
determination that rebuilding the project would be less expensive than 
substantial rehabilitation means that the costs to HUD for rebuilding 
are such that the monthly debt service needed to amortize the cost of 
relocating tenants, demolition, site preparation, rebuilding, operating 
expenses, and a reasonable return to the purchaser cannot be provided 
with rents that are within 120 percent of the most recently published 
Section 8 Fair Market Rents for Existing Housing (24 CFR part 888, 
subpart A), and would be less expensive than rehabilitation.


Sec. 290.25  Determination not to preserve a project or a part of a 
project.

    HUD may determine to demolish, or otherwise dispose of, a HUD-owned 
multifamily housing project, or any portion of such a project, or to 
foreclose a HUD-held mortgage on a multifamily housing project, without 
ensuring its continued availability as affordable rental or cooperative 
housing for low- and very low-income families under appropriate 
circumstances which may include one or more those listed in paragraphs 
(a) through (g) of this section. If HUD decides not to preserve an 
occupied multifamily housing project at a foreclosure sale or sale of a 
HUD-owned project, tenants must be provided relocation assistance as 
described in Sec. 290.17.
    (a) The costs to HUD of rehabilitation are such that the monthly 
debt service needed to amortize the cost of rehabilitation, operating 
expenses, and a reasonable return to the purchaser cannot be provided 
with rents that are, for subsidized and formerly subsidized projects, 
within 120 percent of the most recently published Section 8 Fair Market 
Rents for Existing Housing (24 CFR part 888, subpart A) or, for 
unsubsidized and formerly unsubsidized projects, within rents 
obtainable in the market.
    (b) Construction is substantially incomplete.
    (c) Preservation is not feasible because of environmental factors 
that cannot be mitigated by HUD or the purchaser. For example, when the 
project is located on a site that cannot be made to comply with the 
Section 8 Site and Neighborhood standards in 24 CFR 886.307(k) because 
of factors that adversely affect the health, safety and general welfare 
of residents such as air pollution; smoke; mud slides; fire or 
explosion hazards. Preservation may also be infeasible because of 
significantly deteriorated surrounding neighborhood conditions with 
inadequate police or fire protection; high crime rates; drug 
infestation; or lack of public community services needed to support a 
safe and healthy living environment for residents.
    (d) HUD determines the project is unfit for rehabilitation.
    (e) Rehabilitation would cost more than constructing comparable new 
housing.
    (f) A reduction in the number of units in the project will enhance 
long-term project viability, for example, demolition of a building to 
provide

[[Page 11690]]
space for a playground, open space, or combining one-bedroom units to 
create larger units for families.
    (g) Continued preservation of the project as rental or cooperative 
housing is not compatible with State or local land use plans for the 
area in which the project is located.

Subpart B--Sale of HUD-Held Multifamily Mortgages


Sec. 290.30  General.

    (a) Except as otherwise provided in Sec. 290.32(a)(2), HUD will 
sell HUD-held multifamily mortgages on a competitive basis. HUD retains 
full discretion to offer any qualifying mortgage for sale and to 
withhold or withdraw any offered mortgage from sale. However, when a 
qualifying mortgage is offered for sale, the procedures set out in this 
subpart will govern the sale.
    (b) References in subpart B of this part to mortgages securing 
subsidized projects include HUD-held purchase money mortgages on 
subsidized projects.


Sec. 290.31  Sale of current mortgages securing subsidized projects.

    HUD will sell current mortgages securing subsidized projects, as 
follows:
    (a) Current mortgages with FHA mortgage insurance will be sold 
either:
    (1) On a competitive basis to FHA-approved mortgagees; or
    (2) On a negotiated basis, to State or local governments, or to a 
group of investors that includes an agency of a State or local 
government if, in addition to meeting the requirements of the Statute, 
the sales price is the best price that HUD can obtain from an agency of 
a State or local government while maintaining occupancy for the tenant 
group originally intended to be served by the subsidized housing 
program.
    (b) Current mortgages without FHA mortgage insurance will be sold 
if HUD can offer protections equivalent to those listed for an insured 
sale in paragraph (a) of this section.


Sec. 290.33  Sale of delinquent mortgages securing subsidized projects.

    Delinquent mortgages securing subsidized projects will be sold only 
if, as part of the sales transaction:
    (a) The mortgages are restructured; and
    (b) Either FHA mortgage insurance or equivalent protections are 
provided.


Sec. 290.35  Sale of HUD-held mortgages securing unsubsidized projects.

    HUD's policy for selling HUD-held mortgages securing unsubsidized 
projects is as follows:
    (a) Current mortgages may be sold with or without FHA mortgage 
insurance.
    (b) Delinquent mortgages may be sold without FHA mortgage 
insurance. However, delinquent mortgages will not be sold if:
    (1) HUD believes that foreclosure is unavoidable; and
    (2) The project securing the mortgage is occupied by very low-
income tenants who are not receiving housing assistance and would be 
likely to pay rent in excess of 30 percent of their adjusted monthly 
income if HUD sold the mortgage.


Sec. 290.37  Requirements for continuing federal rental subsidy 
contracts.

    For any mortgage that, at the time HUD offers the mortgage for sale 
without FHA mortgage insurance, is delinquent and secures a subsidized 
project or unsubsidized project that receives any of the forms of 
assistance enumerated in paragraphs (4)(i) to (4)(iv) of the 
``subsidized project'' definition in Sec. 290.3:
    (a) The mortgage purchaser and its successors and assigns shall 
require the mortgagor to record a covenant running with the land as 
part of any loan restructuring or of a final compromise of the mortgage 
debt and shall include a covenant in any foreclosure deed executed in 
connection with the mortgage. The covenant shall continue in effect 
until the last federal project-based rental assistance contract expires 
by its own terms. The covenant shall provide that, except where 
otherwise approved by HUD, a project purchaser shall agree to assume 
the obligations of any outstanding:
    (1) Project-based federal rental subsidy contract; and
    (2) Tenant-based Section 8 housing assistance payments contract 
with a public housing agency and the related lease.
    (b) In the event of foreclosure of the mortgage sold by HUD, the 
mortgage purchaser and its successors and assigns shall not foreclose 
in a manner that interferes with any lease related to federal project-
based assistance or any lease related to tenant-based, Section 8 
housing assistance payments.


Sec. 290.39  Nondiscrimination in admitting certificate and voucher 
holders.

    (a) Nondiscrimination requirement. For any mortgage described in 
paragraphs (c) or (d) of this section that HUD sells without FHA 
mortgage insurance, the project owner shall not unreasonably refuse to 
lease a dwelling unit offered for rent, offer to sell cooperative 
stock, or otherwise discriminate in the terms of tenancy or cooperative 
purchase and sale because any tenant or purchaser is a certificate or 
voucher holder under 24 CFR part 982.
    (b) Inapplicability to current mortgages securing unsubsidized 
projects that receive no project based-assistance. The 
nondiscrimination requirements of this section do not apply to any 
mortgage that is current under the terms of the mortgage at the time 
HUD offers it for sale, if the mortgage secures an unsubsidized project 
that does not receive any of the forms of project-based assistance 
enumerated in paragraphs (4)(i) to (4)(iv) of the ``subsidized 
project'' definition in Sec. 290.3.
    (c) Applicability to mortgages securing unsubsidized projects 
receiving project-based assistance (partially-assisted projects) or 
securing subsidized projects. (1) The nondiscrimination requirement in 
paragraph (a) of this section applies to the project owner upon the 
sale of a mortgage without FHA mortgage insurance if, at the time HUD 
offers it for sale, the mortgage secures:
    (i) An unsubsidized project that receives any of the forms of 
assistance enumerated in paragraphs (4)(i) to (4)(iv) of the 
``subsidized project'' definition in Sec. 290.5; or
    (ii) A subsidized project, as defined in Sec. 290.3.
    (2) This requirement shall continue in effect until the mortgage is 
paid in full, including by a mortgage prepayment, except as provided in 
paragraph (d) of this section.
    (2) A subsidized project, as defined in Sec. 290.3.

This requirement shall continue in effect until the mortgage is paid in 
full, including by a mortgage prepayment, except as provided in 
paragraph (d) of this section.
    (d) Covenant requirement for all delinquent mortgages sold without 
FHA mortgage insurance. This paragraph (d) applies to the sale of any 
mortgage that is delinquent at the time HUD offers it for sale without 
FHA mortgage insurance, without regard to the subsidy status of the 
project. The mortgage purchaser and its successors and assigns shall 
require the mortgagor to record a covenant running with the land as 
part of any loan restructuring or final compromise of the mortgage debt 
and shall include a covenant in any foreclosure deed executed in 
connection with the mortgage. The covenant shall set forth the 
nondiscrimination requirement in paragraph (a) of this section. The 
covenant shall continue in

[[Page 11691]]
effect until a date that is the same as the maturity date of the 
mortgage sold by HUD.

    Dated: March 7, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.

    [Note: The following guide to part 290 will not be codified in 
title 24 of the Code of Federal Regulations.]

GUIDE

Disposition of Multifamily Projects and Sale of HUD-Held Multifamily 
Mortgages--Guide

General Provisions
    1. What subjects does this guide cover?
    2. What are HUD's management and disposition goals?
    3. What definitions apply in this guide?
    4. What provisions may be waived?
Management and Maintenance Provisions
    5. What maintenance and management standards apply to multifamily 
housing projects?
    6. How may HUD contract for management services, or require the 
owner of a multifamily project to contract for management services?
    7. What occupancy requirements apply to multifamily housing 
projects?
    8. How will rental rates be set when HUD is mortgagee-in-possession 
(MIP) or owner of a multifamily housing project?
Notification Requirements
    9. How will HUD provide required notifications?
    10. What notification must be given before foreclosure?
    11. Who has a right of first refusal for properties that HUD is 
selling, and what kind of notice must HUD provide?
    12. What kind of notice must HUD provide to tenants and the 
community when HUD is selling a project?
Disposition Procedures
    13. What are the different methods that may be used for the 
disposition of a multifamily housing project?
    14. What qualities does HUD look for in a purchaser?
    15. What kind of disposition plan will HUD prepare before selling a 
project?
Required Actions For All Multifamily Housing Projects
    16. What actions must be taken in the disposition of all 
multifamily housing projects?
    17. What actions must be taken concerning tenants who are displaced 
by the disposition of a multifamily housing project?
    18. What actions must be taken concerning very low-income tenants 
in the disposition of a multifamily housing project?
    19. What restrictions concerning nondiscrimination against Section 
8 certificate holders and voucher holders apply in the disposition of a 
multifamily housing project?
Subsidized Projects--Basic and Alternative Actions to Facilitate 
Disposition
    20. What are the basic actions that may be taken in the disposition 
of a subsidized project?
    21. What alternatives to the basic actions are available in the 
disposition of subsidized projects?
Unsubsidized Projects--Basic and Alternative Actions to Facilitate 
Disposition
    22. What are the basic actions that may be taken in the disposition 
of an unsubsidized project?
    23. What alternatives to the basic actions are available in the 
disposition of an unsubsidized project?
All Multifamily Housing Projects--Additional Actions to Facilitate 
Disposition
    24. What guidelines will HUD apply in determining which additional 
actions to take in the disposition of a multifamily housing project?
    25. May HUD reduce the sales price for a project?
    26. May HUD require additional use and rent restrictions?
    27. May HUD provide short-term loans to facilitate the sale of a 
project?
    28. Under what conditions may HUD provide up-front grants?
    29. What additional tenant-based assistance may HUD offer?
    30. How may HUD provide for alternative uses of units in the 
disposition of a multifamily housing project?
    31. What disposition assistance may be available to rebuild a 
multifamily housing project?
    32. What emergency assistance funds may be provided to tenants?
    33. Under what circumstances may HUD make a determination not to 
preserve a project or a part of a project?
General Provisions
    1. What subjects does this guide cover?
    This guide sets out, in a single document, the combined statutory 
(section 101 of the Multifamily Housing Property Disposition Reform Act 
of 1994, hereinafter, ``the Statute,'' codified at 12 U.S.C. 1701z-11) 
and regulatory (24 CFR part 290) requirements for the management and 
disposition of multifamily projects. Except as provided in paragraph 
(b) of this section, the requirements described in this guide apply to 
the sale of multifamily projects which are or were, before being 
acquired by the Department, assisted or had a mortgage insured under 
the National Housing Act, or which were subject to a loan or a capital 
advance under Section 202 of the Housing Act of 1959.
    (b) The requirements described in this guide do not apply to 
multifamily projects being foreclosed by HUD for which the decision to 
foreclose has been made before March 2, 1995, the effective date of the 
interim rule which implemented the Multifamily Housing Property 
Disposition Reform Act of 1994 at 24 CFR part 290, nor to HUD-owned 
projects where the initial disposition program has been approved before 
March 2, 1995. For such projects, the procedures in the regulations at 
24 CFR 290 in effect immediately prior to March 2, 1995 apply, unless 
HUD determines, on a case-by-case basis, to apply the new requirements.
    2. What are HUD's management and disposition goals?
    (a) HUD's goals are to carry out the management and disposition of 
HUD-owned multifamily projects and multifamily projects subject to HUD-
held mortgages in a manner that:
    (1) Is consistent with the National Housing Act, section 203 of the 
Housing and Community Development Amendments of 1978, and other 
relevant statutes;
    (2) Will protect the financial interests of the Federal Government; 
and
    (3) Will, in the least costly fashion among reasonable available 
alternatives, address the goals of:
    (i) Preserving certain housing so that it can remain available to 
and affordable by low-income persons;
    (ii) Preserving and revitalizing residential neighborhoods;
    (iii) Maintaining the existing housing stock in a decent, safe, and 
sanitary condition;
    (iv) Minimizing the involuntary displacement of tenants;
    (v) Maintaining housing for the purpose of providing rental 
housing, cooperative housing, and homeownership opportunities for low-
income persons;
    (vi) Minimizing the need to demolish multifamily housing projects;
    (vii) Adhering to fair housing requirements; and
    
[[Page 11692]]

    (viii) Disposing of such projects in a manner consistent with local 
housing market conditions.
    (b) Competing goals. In determining the manner in which a project 
is to be managed and disposed of, HUD may balance competing goals 
relating to individual projects in a manner that will further the 
purposes of the Statute.
    3. What definitions apply in this guide?
    The following definitions apply in this guide:
    Affordable means, with respect to a unit of a multifamily housing 
project:
    (1) For a unit occupied by a very-low income family, the unit rent 
does not exceed 30 percent of 50 percent of the area median income (not 
the income of the family), as determined by the Department, with 
adjustments for smaller and larger families; or
    (2) For a unit occupied by a low-income family other than a very 
low-income family, the unit rent does not exceed 30 percent of 80 
percent of the area median income (not the income of the family), as 
determined by the Department, with adjustments for smaller and larger 
families; or
    (3) The unit, or the family residing in the unit, is receiving 
assistance under Section 8 of the United States Housing Act of 1937.
    Cooperative means a nonprofit, limited equity, or consumer 
cooperative as defined under 24 CFR part 213. It may include mutual 
housing associations.
    Department means the United States Department of Housing and Urban 
Development, or HUD.
    HUD-owned project means a multifamily project that has been 
acquired by HUD.
    Low-income family means a low-income family as defined at 24 CFR 
part 813.
    Market area means the area from which a multifamily housing project 
may reasonably be expected to draw a substantial number of its tenants, 
as determined by HUD, taking into consideration the knowledge of the 
HUD office with jurisdiction over the project of the local real estate 
market and HUD's project underwriting experience. Submarkets may be 
used in large, complex metropolitan areas.
    Multifamily housing project means a multifamily project that is or 
was insured under sections 207, 213, 220, 221(d)(3), 221(d)(4), 223(f), 
231, 236, or 608 of the National Housing Act; or is or was subject to a 
loan under section 202 of the Housing Act of 1959; or was a Real Estate 
Owned (REO) multifamily project transferred by the Government National 
Mortgage Association to the Department. Multifamily housing project 
does not include projects consisting of one to eleven units insured 
under section 220(d)(3)(A) of the National Housing Act; or mobile home 
parks under section 207(m) of that Act; or vacant land; or property 
covered by a homeownership program approved under the Homeownership and 
Opportunity for People Everywhere (``HOPE'') program.
    Multifamily project means a project consisting of five or more 
units that has or had a mortgage (even if subordinate to other 
mortgages) insured under the National Housing Act or is or was subject 
to a loan under section 202 of the Housing Act of 1959, or a hospital, 
intermediate care facility, nursing home, group practice facility, or 
board and care facility that has or had a mortgage insured, or is or 
was subject to a loan under, these authorities. Multifamily project 
does not include projects consisting of one to eleven units insured 
under section 220(d)(3)(A) of the National Housing Act, which are 
classified as single family homes.
    Nonprofit organization means a corporation or association organized 
for purposes other than making a profit or gain for itself. 
Stockholders or trustees do not share in profits or losses. Profits are 
used to accomplish the charitable, humanitarian, or educational 
purposes of the corporation.
    Preexisting tenant means a family that resides in a unit in a 
multifamily housing project immediately before the project is acquired 
under this part by a purchaser other than the Department.
    Project-based assistance means assistance that is attached to a 
structure.
    Subsidized project means a multifamily housing project that is 
receiving, or immediately before its mortgage was foreclosed by HUD or 
the project was acquired by HUD, pursuant to the Statute, was receiving 
any of the following types of assistance:
    (1) Below market interest rate mortgage insurance under the proviso 
of section 221(d)(5) of the National Housing Act (hereinafter, a BMIR 
project);
    (2) Interest reduction payments made in connection with mortgages 
insured under section 236 of the National Housing Act (hereinafter, a 
236 project);
    (3) Direct loans made under section 202 of the Housing Act of 1959 
(hereinafter, a 202 project);
    (4) Assistance, to more than 50 percent of the units in the 
project, in the form of:
    (i) Rent supplement payments under section 101 of the Housing and 
Urban Development Act of 1965 (hereinafter, Rent Supp);
    (ii) Additional assistance payments under section 236(f)(2) of the 
National Housing Act (hereinafter, RAP);
    (iii) Housing assistance payments under section 23 of the United 
States Housing Act of 1937 (as in effect before January 1, 1975) 
(hereinafter, Sec. 23); or
    (iv) Housing assistance payments under Section 8 of the United 
States Housing Act of 1937 (excluding payments of tenant-based Section 
8 assistance) (hereinafter, project-based Section 8 assistance).
    Sufficient habitable, affordable, rental housing is available means 
that the HUD office with jurisdiction determines that there is an 
adequate supply of habitable, affordable housing for low- and very low-
income families available in the market area. Submarkets, consisting of 
portions of units of general local government, may be used in large, 
complex metropolitan areas. Local housing markets having an adequate 
supply of standard-quality rental housing would include housing markets 
in which the supply of rental housing available and in production is 
adequate to meet the anticipated demand (e.g., the housing market is 
balanced), as well as those in which there is an excess supply of 
rental housing (e.g., the housing market is soft). Rental markets that 
do not have an adequate supply (e.g., tight markets) are characterized 
by low rental vacancy rates, low levels of production and turnover of 
rental housing, and, usually, by high levels of rent inflation. HUD 
will make the determination of whether sufficient habitable, 
affordable, rental housing is available using established market 
analysis techniques, and will consider information that demonstrates:
    (1) The rental housing vacancy rate is at a low level relative to 
the rate required for a balanced market, typically a four percent 
vacancy rate; except that a rate lower than four percent may be 
considered in unusual circumstances if it can be demonstrated that 
there is an adequate supply of affordable housing for low-income 
families;
    (2) The number of rental housing units being produced on an annual 
basis is not large enough to satisfy demand arising from the increase 
in households, or, in markets where there is little or no growth, 
evidence that the number of additional rental units being supplied is 
not sufficient to meet the demand arising from net losses to the 
available inventory and the inadequate supply of rental housing has 
inhibited growth;
    (3) The shortage of housing is resulting in rent increases that 
exceed normal increases commensurate with the costs of operating rental 
housing;

[[Page 11693]]

    (4) A significant number, or proportion, of the households holding 
Section 8 certificates or rental vouchers are unable to find adequate 
housing because of the shortage of rental housing, including PHA data 
showing a lower than average percentage of units under lease and a 
longer than average time required to find units.
    Tenant-based assistance means rental assistance that is not 
attached to a structure.
    Unit of general local government means a city, town, township, 
county, parish, village, or other general purpose political subdivision 
of a State.
    Unsubsidized project means a multifamily housing project that is 
not a subsidized project.
    URA means the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (42 U.S.C. 4601-4655).
    Useful life means, generally, twenty years, but it may be more or 
less, as determined by the Department.
    Very low-income family means a very low-income family as defined at 
24 CFR part 813.
    4. What provisions may be waived?
    The Assistant Secretary for Housing may waive any regulatory 
provision issued under the statute. Each waiver must be in writing, and 
must be supported by documentation of the facts and reasons which 
formed the basis for the waiver. HUD will publish a Federal Register 
notice informing the public of all waivers granted under this section 
in accordance with the HUD Reform Act of 1989 and HUD policies 
regarding publication of waivers.
Management and Maintenance Provisions
    5. What maintenance and management standards apply to multifamily 
housing projects?
    (a) Scope. The provisions of this section apply to any multifamily 
housing project:
    (1) That is HUD-owned;
    (2) For which HUD is mortgagee-in-possession; or
    (3) That is subject to a mortgage held by HUD.
    (b) Maintenance and Management standards. With respect to projects 
within the scope of this section, HUD or the owner, as appropriate, 
shall:
    (1) To the greatest extent possible, maintain all occupied projects 
in a decent, safe, and sanitary condition, and in compliance with any 
standards established by the Department and under applicable State or 
local laws, rules, ordinances, or regulations relating to the 
accessibility and physical condition of the housing;
    (2) Maintain full occupancy;
    (3) Maintain projects for purposes of providing rental or 
cooperative housing; and
    (4) Manage projects in accordance with the requirements of the Fair 
Housing Act (42 U.S.C. 3601-19) and implementing regulations at 24 CFR 
parts 100 et al, which prohibit discrimination in the sale or rental of 
housing and in related transactions on the basis of race, color, 
religion, sex, national origin, handicap, or familial status; section 
504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) and implementing 
regulations at 24 CFR part 8 that prohibit discrimination against 
disabled individuals in Federally-assisted activities, and 24 CFR part 
9, which prohibit discrimination against disabled individuals in 
Federally-conducted activities; Title VI of the Civil Rights Act of 
1964 and implementing regulations at 24 CFR part 1, which prohibit 
discrimination based on race, color, or national origin in programs 
receiving Federal financial assistance; the Age Discrimination Act of 
1975 and implementing regulations at 24 CFR part 146, which prohibit 
discrimination based on age in programs receiving Federal financial 
assistance; and Executive Order 11063, as amended by Executive Order 
12259 (Equal Opportunity in Housing) and implementing regulations at 24 
CFR part 107.
    6. How may HUD contract for management services, or require the 
owner of a multifamily project to contract for management services?
    (a) Scope. The provisions of this section apply to any multifamily 
housing project:
    (1) That is HUD-owned;
    (2) For which HUD is mortgagee-in-possession; or
    (3) That is subject to a mortgage held by HUD.
    (b) Contracting for management services. (1) With respect to 
projects within the scope of this section, HUD may, or may require the 
owner to, contract for management services for the project with for-
profit and nonprofit entities and public agencies, including public 
housing agencies, on a negotiated, competitive bid, or other basis, at 
a price determined by HUD to be reasonable, with a manager determined 
by HUD to be capable of:
    (i) Implementing a sound financial and physical management program 
that is designed to enable the project to meet anticipated operating 
and maintenance expenses to ensure that the project will remain in a 
decent, safe, and sanitary condition, and in compliance with any 
standards under applicable State or local laws, rules, ordinances, or 
regulations relating to the accessibility and physical condition of the 
housing, and any such standards established by HUD;
    (ii) Responding to the needs of tenants and working cooperatively 
with tenant organizations;
    (iii) Providing adequate organizational, staff, and financial 
resources to the project; and
    (iv) Meeting such other requirements as HUD may determine to be 
necessary or appropriate.
    (2) HUD will conduct outreach efforts to minority-owned and female-
owned businesses to become managers of the HUD-owned projects covered 
by this section, in accordance with Executive Order 11625, as amended 
by Executive Order 12007 (Minority Business Enterprises), Executive 
Order 12432 (Minority Business Enterprise Development), and Executive 
Order 12138 (National Women's Business Enterprise Policy).
    7. What occupancy requirements apply to multifamily housing 
projects?
    (a) Multifamily housing project that is HUD-owned or for which HUD 
is mortgagee-in-possession. Occupancy in a multifamily housing project 
that is HUD-owned or for which HUD is mortgagee-in-possession shall be 
available on a basis that is comparable to the occupancy requirements 
that applied to the project immediately before HUD acquired the project 
or became mortgagee-in-possession, except that preference shall be 
given to tenants of other HUD-owned multifamily housing projects who 
are eligible for assistance in accordance with the displacement and 
relocation provisions at section 17 of this guide.
    (b) Evictions. Eviction from a HUD-owned multifamily housing 
project is governed by 24 CFR part 247, subpart B.
    (c) Threat to health and safety. Whenever HUD determines that there 
is an immediate threat to the health and safety of the tenants, HUD may 
require the tenants to vacate the premises and shall provide temporary 
relocation benefits as provided in section 17 of this guide to tenants 
required to vacate the premises.

[[Page 11694]]


                                     Project Rents While HUD is Mip or Owner                                    
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
Unit rents.............................  Unit rents in accordance with the rent setting requirements of the     
                                          project's mortgage insurance or direct loan program while HUD is      
                                          mortgagee-in-possession (MIP), or in accordance with the rent setting 
                                          requirements of the project's mortgage insurance or direct loan       
                                          program in effect immediately before HUD became the owner of the      
                                          project (section 8(a) of this guide).                                 
Rents payable by tenants...............  1. Tenant rent. Rent the tenant pays will be based on the income       
                                          certification and the rent payment requirements of the project's      
                                          mortgage insurance or direct loan program in effect while HUD is MIP  
                                          or immediately before HUD became the owner of the project (section    
                                          8(b)(1) of this guide).                                               
                                         2. Rent when tenant does not certify income. If a tenant does not      
                                          certify income, the tenant must pay the unit rent (section 8(b)(1) of 
                                          this guide).                                                          
                                         3. Utility allowance. For a tenant whose rent is based on a percentage 
                                          of adjusted income, HUD will use a utility allowance to reduce the    
                                          rent (section 8(b)(2) of this guide).                                 
                                         4. Project viability. HUD may adjust the rent to promote project       
                                          viability (section 8(b)(3) of this guide).                            
                                         5. Tenants with rental vouchers or certificates. Tenant pays rent in   
                                          accordance with policies and procedures governing such assistance     
                                          (section 8(b)(4) of this guide).                                      
----------------------------------------------------------------------------------------------------------------

    8. How will rental rates be set when HUD is mortgagee-in-possession 
(MIP) or owner of a multifamily housing project?
    Because of the subsidies involved in making multifamily housing 
projects affordable, the setting of rents involves two steps: first, 
establishing the rent on a unit that will be paid to the owner, and 
second, determining the rent that the tenant pays (with the difference 
made up by a subsidy), using a number of procedures to obtain income 
verification and notify tenants of changes in rent. These procedures 
are explained below.
    (a) Setting unit rents. Except as modified by this section, for a 
property where HUD is mortgagee-in-possession (MIP), HUD will set unit 
rents in accordance with the rent setting requirements of the project's 
mortgage insurance or direct loan program; or for a property owned by 
HUD, rents will be set in accordance with the rent setting requirements 
of the project's mortgage insurance or direct loan program in effect 
immediately before HUD became the owner of the project.
    (b) Setting rents payable by tenants. (1) Tenant rent. The rent the 
tenant pays will be based on the income certification and the rent 
payment requirements of the project's mortgage insurance or direct loan 
program in effect while HUD is MIP or immediately before HUD became the 
owner of the project, as affected by any of the factors in paragraphs 
(b)(2) through (b)(4) of this section. However, if a tenant does not 
certify income as required by this section, the tenant must pay the 
unit rent as determined under the rent setting requirements in 
paragraph (a) of this section.
    (2) Utility allowance. For a tenant whose rent is based on a 
percentage of adjusted income (except for rental voucher or rental 
certificate holders), if the cost of utilities (except telephone) and 
other housing services for the unit is the responsibility of the tenant 
to pay directly to the provider of the utility or service, HUD will 
deduct from the rent to be paid by the tenant to HUD a utility 
allowance, which is an amount equal to HUD's estimate of the monthly 
costs of a reasonable consumption of the utilities and other services 
for the unit for an energy-conservative household of modest 
circumstances consistent with the requirement of a safe, sanitary, and 
healthful living environment. If the utility allowance exceeds the 
percentage of the tenant's adjusted income payable as rent, HUD will 
pay the difference between the amount payable as rent and the utility 
allowance to the tenant or, with the consent of the tenant and the 
utility company, either jointly to the tenant and the utility company 
or directly to the utility company.
    (3) Rent adjustments for project viability. For a HUD-owned 
project, HUD may adjust the rent provided for in paragraphs (b)(1) or 
(b)(2) of this section if necessary or desirable to maintain the 
existing economic mix in the project, prevent undesirable turnover, or 
increase occupancy.
    (4) Tenants who are rental voucher or rental certificate holders. 
Tenants assisted with rental vouchers or certificates certify their 
income to the public housing agency (PHA) administering the assistance, 
and pay rent pursuant to the policies and procedures governing such 
assistance.
    (c) Income verification and rent notification procedures.
    (1) Income certification by tenants. (i) In subsidized projects. 
(A) For families residing in subsidized projects, when HUD becomes MIP 
or owner, HUD will request an income certification from each family as 
soon as practicable after HUD initially assumes management, unless the 
family's income has been examined by the owner or by HUD not more than 
four months before HUD's assumption of management.
    (B) For each family applying for admission to subsidized projects, 
HUD will request an income certification to determine the family's 
eligibility for a subsidized rent, and (if the rent is based on a 
percentage of adjusted income) the family's subsidized rent, in 
accordance with 24 CFR part 813.
    (ii) In unsubsidized projects. (A) For tenants in occupancy when 
HUD becomes mortgagee-in-possession or owner of an unsubsidized 
project, HUD may request an income certification from families who are 
not paying a subsidized rent.
    (B) For families applying for admission to such projects, HUD will 
request sufficient information for income verification to determine the 
family's ability to pay the unit rent.
    (2) Notice of increases in the amount of rent payable. Whenever HUD 
proposes an increase in rents in a HUD-owned multifamily project or a 
project where HUD is mortgagee-in-possession, HUD will provide tenants 
30 days notice of the proposed changes and an opportunity to review and 
comment on the new rent and supporting documentation. After HUD 
considers the tenants' comments and has made a decision with respect to 
its proposed rent change, HUD shall notify the tenants of its decision, 
with the reasons for the decision. A tenant in occupancy before the 
effective date of any revised rental rate must be given 30 days notice 
of the revised rate, and any change in the tenant's rent is subject to 
the terms of an existing lease. Notices to each tenant must be 
personally delivered or sent by first class mail. General notices of 
rent increases to all tenants must be posted in the project office and 
in appropriate conspicuous and accessible locations around the project.
    (3) Disclosure and verification of Social Security numbers. Any 
certifications or reexaminations of the income of tenants or 
prospective tenants in connection with tenancy under this section are 
subject to the requirements for the disclosure and verification of

[[Page 11695]]

Social Security Numbers, as provided by part 200, subpart T, of this 
title.
    (4) Signing of consent forms for income verification. Any 
certifications or reexaminations of the income of tenants or 
prospective tenants in connection with tenancy under this section are 
subject to the requirements for the signing and submitting of consent 
forms for the obtaining of wage and claim information from State Wage 
Information Collection Agencies, as provided by 24 CFR part 200.

                                    Pre-Disposition Notification Requirements                                   
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
Pre-foreclosure (section 10 of this      1. Timing. Not later than 60 days before foreclosure on any mortgage.  
 guide).                                                                                                        
                                         2. Recipients.                                                         
                                         (i) Tenants of the project, and                                        
                                         (ii) The unit of general local government in which the project is      
                                          located.                                                              
                                         3. Contents.                                                           
                                         (i) General terms and conditions concerning the sale, future use, and  
                                          operation of the project that HUD proposes to impose; and,            
                                         (ii) Whether temporary or permanent relocation is anticipated, and, if 
                                          so, available displacement and relocation assistance.                 
Right of first refusal (section 11 of    1. Timing. Before, or not more than 30 days after, HUD acquires title  
 this guide).                             to a multifamily housing project.                                     
                                         2. Recipients.                                                         
                                         (i) The appropriate unit of general local government;                  
                                         (ii) Public housing agencies in the project's market area;             
                                         (iii) The State agency or agencies designated to receive such notice by
                                          the chief executive officer of the State in which the project is      
                                          located.                                                              
                                         3. Contents.                                                           
                                         (i) Description of the project;                                        
                                         (ii) Invitation to recipients to make bona fide offers to purchase the 
                                          project;                                                              
                                         (iii) Offer of right of first refusal for period of up to 90 days;     
                                         (iv) Method by which the recipient may respond to HUD.                 
Notice to tenants and the community      1. Timing. Before, or not more than 30 days after, HUD acquires title  
 (section 12 of this guide).              to a multifamily housing project.                                     
                                         2. Recipients.                                                         
                                         (i) To the tenants of the project;                                     
                                         (ii) To the unit of general local government in which the project is   
                                          located; and                                                          
                                         (iii) To the community in which the project is located.                
                                         3. Contents.                                                           
                                         (i) Description of the project;                                        
                                         (ii) Proposed general terms and conditions concerning the sale, future 
                                          use, and operation of the project;                                    
                                         (iii) Invitation for tenants and their organizations, units of general 
                                          local government, and other public or nonprofit entities to submit    
                                          comments on the disposition plan, and/or proposals for disposition    
                                          which will be considered by HUD in making its property disposition    
                                          determination.                                                        
----------------------------------------------------------------------------------------------------------------

Notification Requirements
    9. How will HUD provide required notifications?
    (a) In general. HUD may combine two or more of the notifications 
required by the Statute, as appropriate, to simplify the disposition 
process. Disposition-related notifications (i.e., pre-foreclosure 
notification to tenants and units of general local government; pre-
disposition community and tenant input notification; state and local 
government right of first refusal notification) will be made, as 
appropriate:
    (1) 60 or more days before HUD forecloses on a project, or
    (2) Before, or not more than 30 days after, HUD acquires a project.
    (b) Methods of notification. (1) To tenants. The notices required 
to be made to tenants under the Statute will be delivered to each unit 
in the project, or sent to each unit by first class mail. Where HUD is 
mortgagee-in-possession or owner of a project, the notice will also be 
posted in the project office and in appropriate conspicuous and 
accessible locations around the project.
    (2) To the unit of general local government. The notice required to 
be made to a unit of general local government under the statute will be 
sent to the chief executive officer of the unit of general local 
government by first class mail. For purposes of receiving or sending 
any notices or information under the statute, the unit of general local 
government is its chief executive officer, or the person designated by 
the chief executive officer to receive or send the notice or 
information.
    (3) To the community or any other party. HUD will consult with 
tenants and their organizations, officials of units of general local 
government, and other entities as HUD determines to be appropriate, to 
identify community recipients of any notification required by the 
statute. Any notice required to be made to any party other than a 
tenant or a unit of general local government will be sent by first 
class mail.
    10. What notification must be given before foreclosure?
    (a) Timing and recipients of notice. Not later than 60 days before 
foreclosing on any mortgage held by the Department on any multifamily 
housing project, HUD will provide notice of the proposed foreclosure 
sale to the tenants of the project and to the unit of general local 
government in which the project is located.
    (b) Contents of notice. The notice will describe the general terms 
and conditions concerning the sale, future use, and operation of the 
project that HUD proposes to impose on a purchaser other than HUD 
through the foreclosure. The notice will also state whether temporary 
or permanent relocation is anticipated as a result of repairs or the 
proposed disposition, including any anticipated conversion of use, and, 
if so, the levels of displacement and relocation assistance available 
as described in section 17 of this guide.
    11. Who has a right of first refusal for properties that HUD is 
selling, and what kind of notice must HUD provide?
    (a) Timing and recipients of notice. Before, or not more than 30 
days after,

[[Page 11696]]
HUD acquires title to a multifamily housing project, HUD will provide 
notice of the right of first refusal to the appropriate unit of general 
local government, as well as public housing agencies in the project's 
market area, and the State agency or agencies designated to receive 
such notice by the chief executive officer of the State in which the 
project is located.
    (b) Content of notice. The notice will describe the project 
acquired by HUD, and contain an invitation to recipients to make bona 
fide offers to purchase the project. The notice will state:
    (1) That for a period specified in the notice, not to exceed 90 
days from the time the notification is made, HUD will not sell or offer 
to sell the project other than to a recipient of the notice, unless the 
recipients notify HUD sooner that they will not make an offer to 
purchase the project;
    (2) That if a recipient expresses interest within the specified 
period in acquiring the project, HUD will consult with the interested 
parties in the preparation of the disposition plan and the terms and 
conditions of the sale of the project. HUD will accept a bona fide 
offer to purchase the project if the offer complies with the terms and 
conditions of the disposition plan for the project, or is otherwise 
acceptable to HUD;
    (3) The method by which the recipient may respond to HUD with an 
expression of interest or a bona fide offer, or by which the recipient 
may notify HUD that an offer will not be made.
    12. What kind of notice must HUD provide to tenants and the 
community when HUD is selling a project?
    (a) Timing and recipients of notice. Before, or not more than 30 
days after, HUD acquires title to a multifamily housing project, HUD 
will provide notice of HUD's acquisition and proposed disposition of 
the project to the tenants of the project, to the unit of general local 
government, and to the community in which the project is located.
    (b) Content of notice. The notice will describe the project 
acquired by HUD, and the general terms and conditions concerning the 
sale, future use, and operation of the project as proposed by HUD. The 
notice will, as appropriate, state:
    (1) HUD has acquired the project.
    (2) During HUD's ownership, HUD will, to the extent feasible, 
assure that the project is maintained in a decent, safe, and sanitary 
condition.
    (3) HUD is developing a final disposition plan for the project.
    (4) HUD normally seeks to sell HUD-owned projects as rapidly as 
possible.
    (5) HUD's interest in learning of tenant, community, and local 
government plans and capacity for the acquisition of the project for 
use as rental or cooperative housing.
    (6) HUD's final determination of the terms and conditions to be 
imposed on the disposition of the project will not be made until after 
HUD considers the comments received from tenants, the community, and 
the unit of general local government within the specified comment 
period.
    (7) A brief description of a proposed manner of disposition of the 
project.
    (8) A description of the pending notice of the right of first 
refusal to purchase the project as described in section 11 of this 
guide.
    (9) That alternative uses of units in the project may be part of 
the project's disposition, and that:
    (i) Some of the units in the project may be made available for uses 
other than rental or cooperative uses, including low-income 
homeownership opportunities, or community space, office space for 
tenant or housing-related service providers or security programs, or 
small business uses, if such uses benefit the tenants of the project;
    (ii) Some of the units in the project may be used in any manner, if 
the Department and the unit of general local government or area-wide 
governing body determine that such use will further fair housing, 
community development, or neighborhood revitalization goals;
    (iii) Such alternative uses of units may only take place if:
    (A) Tenant-based Section 8 rental assistance is made available to 
each eligible family residing in the project that is displaced as a 
result of such actions; and
    (B) The Department determines that sufficient habitable, affordable 
rental housing is available in the market area in which the project is 
located to ensure use of such assistance.
    (10) That for any very low-income family who is a preexisting 
tenant of the project who upon disposition of the project would be 
required to pay rent in an amount in excess of 30 percent of the 
adjusted income of the family:
    (i) For a period of 2 years beginning upon the date of the 
acquisition of the project under the disposition, the rent for the unit 
occupied by the family may not be increased above the rent charged 
immediately before the acquisition; and
    (ii) The family shall be considered displaced for purposes of the 
preferences for assistance under sections 6(c)(4)(A)(i), 8(d)(1)(A)(i), 
and 8(o)(3)(B) of the United States Housing Act of 1937.
    (11) Whether temporary or permanent relocation is anticipated as a 
result of repairs or the proposed disposition, including any 
anticipated conversion of use, and, if so, the levels of relocation 
assistance available as described in section 17 of this guide.
    (12) That tenants and their organizations, units of general local 
government, and other public or nonprofit entities are invited to 
submit comments on the disposition plan, and/or proposals (e.g., 
expressions of interest to convert the project to a cooperative or 
other form of resident-controlled ownership, or other resident 
initiative), which will be considered by HUD in making its property 
disposition determination.
    (13) That comments must be submitted to HUD within 30 days of 
receipt of the notice.
    (14) That the full disposition recommendation and analysis and 
other supporting information will be available for inspection and 
copying at the HUD field office.

                                             Methods of Disposition                                             
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
Foreclosure sales. (section 13(a) of     HUD may dispose of a project at a foreclosure sale:                    
 this guide).                                                                                                   
                                         1. In accordance with the Multifamily Mortgage Foreclosure Act, or     
                                         2. In accordance with other Federal or State foreclosure law.          
Sale of HUD-owned projects. (section     HUD may sell a HUD-owned project using any of the following procedures:
 13(b) of this guide).                                                                                          
                                         1. Competitive bid;                                                    
                                         2. Auction;                                                            
                                         3. Request for proposals;                                              
                                         4. Negotiated sale, as described in section 13(b)(1) and (2); or       
                                         5. Any other method, on such terms as HUD considers appropriate.       

[[Page 11697]]
                                                                                                                
Transfer for use under other HUD         HUD, under an agreement, may transfer a multifamily housing project:   
 programs. (section 13(c) of this                                                                               
 guide).                                                                                                        
                                         1. To a public housing agency (PHA) for use of the project as public   
                                          housing; or                                                           
                                         2. To an entity eligible to own or operate 202 or 811 supportive       
                                          housing.                                                              
----------------------------------------------------------------------------------------------------------------



Disposition Procedures
    13. What are the different methods that may be used for the 
disposition of a multifamily housing project?
    HUD may use any of the following methods, as appropriate, for the 
disposition of a multifamily housing project:
    (a) Foreclosure sales. Foreclosure sales will be conducted, at 
HUD's discretion, in accordance with the Multifamily Mortgage 
Foreclosure Act, or other Federal or State foreclosure law, on such 
terms as HUD considers appropriate to further the goals and purposes 
stated in section 2 of this guide.
    (b) Sale of HUD-owned projects. HUD may dispose of a HUD-owned 
multifamily project by competitive bid, auction, request for proposals, 
or other method, on such terms as HUD considers appropriate to further 
the goals and purposes stated in section 2 of this guide. When HUD 
conducts a negotiated sale involving the disposition of a project to a 
person or entity without a public offering, the following provisions 
apply:
    (1) HUD may negotiate the sale of any project to an agency of the 
Federal, State, or local government.
    (2) When HUD determines that a purchaser can demonstrate the 
capacity to own and operate a project in accordance with standards set 
by HUD, and/or a competitive offering will not generate offers of equal 
merit from qualified purchasers, HUD may approve a negotiated sale of a 
subsidized project to:
    (i) A resident organization wishing to convert the project to a 
nonprofit or limited equity cooperative;
    (ii) A cooperative (e.g., nonprofit limited equity, consumer 
cooperative, mutual housing organization) with demonstrated experience 
in the operation of nonprofit (and preferably low-income) housing;
    (iii) A nonprofit entity that will continue to operate the project 
as low-income housing and whose governing board is composed of project 
residents;
    (iv) A State or local governmental entity with the demonstrated 
capacity to acquire, manage, and maintain the project as housing 
available to and affordable by low-income residents;
    (v) A State or local governmental or nonprofit entity with the 
demonstrated capacity to acquire, manage, and maintain the project as a 
shelter for the homeless or other public purpose, generally when the 
project is vacant or has minimal occupancy and is not needed in the 
area for continued use as rental housing for the elderly or families; 
or
    (vi) Other nonprofit organizations.
    (c) Transfer for use under other HUD programs.
    (1) In general. Subject only to the requirements of an agreement 
under paragraph (c)(2) of this section, HUD may transfer a multifamily 
housing project:
    (i) To a public housing agency (PHA) for use of the project as 
public housing; or
    (ii) To an entity eligible to own or operate housing assisted under 
section 202 of the Housing Act of 1959 or under section 811 of the 
Cranston-Gonzalez National Affordable Housing Act for use as supportive 
housing under either of those sections.
    (2) Transfer agreement. An agreement providing for the transfer of 
a project as described in paragraph (c)(1) of this section must:
    (i) Contain such terms, conditions, and limitations as HUD 
determines to be appropriate, including requirements to ensure use of 
the project as public housing, supportive housing under section 202 of 
the Housing Act of 1959, or supportive housing under section 811 of the 
Cranston-Gonzalez National Affordable Housing Act, as applicable; and
    (ii) Ensure that no tenant of the project will be displaced as a 
result of the transfer.
    14. What qualities does HUD look for in a purchaser?
    (a) Foreclosure sales. HUD will dispose of a multifamily housing 
project through a foreclosure sale only to a purchaser that the 
Department determines is capable of implementing a sound financial and 
physical management program that is designed to enable the project to 
meet anticipated operating and repair expenses to ensure that the 
project will remain in decent, safe, and sanitary condition and in 
compliance with any standards under applicable State or local laws, 
rules, ordinances, or regulations relating to the physical condition of 
the housing and any such standards established by the Department.
    (b) HUD-owned multifamily housing projects. Sales of HUD-owned 
multifamily housing projects may be made only to a purchaser determined 
by the Department to be capable of:
    (1) Satisfying the conditions of the disposition plan, as described 
in section 15 of this guide, for the project;
    (2) Implementing a sound financial and physical management program 
that is designed to enable the project to meet anticipated operating 
and repair expenses to ensure that the project will remain in decent, 
safe, and sanitary condition and in compliance with any standards under 
applicable State or local laws, rules, ordinances, or regulations 
relating to the physical condition of the housing and any such 
standards established by the Department;
    (3) Responding to the needs of the tenants and working 
cooperatively with tenant organizations;
    (4) Providing adequate organizational, staff, and financial 
resources to the project; and
    (5) Meeting such other requirements as HUD may determine to be 
appropriate for the particular project.
    15. What kind of disposition plan will HUD prepare before selling a 
project?
    (a) In general. Before disposing of a HUD-owned multifamily housing 
project, HUD will develop an initial and a final disposition plan for 
the project that specifies the minimum terms and conditions for the 
disposition of the project, the sales price that is acceptable to HUD, 
and the assistance that HUD plans to make available to a prospective 
purchaser.
    (b) Market-wide plans. In developing the disposition plan under 
this section for a HUD-owned multifamily housing project located in a 
market area in which at least 1 other HUD-owned multifamily housing 
project is located, HUD may coordinate the disposition of HUD-owned 
multifamily housing projects located within the same market area to the 
extent and in such a manner as the Department determines appropriate to 
carry out the goals and

[[Page 11698]]
purposes stated in section 2 of this guide.
    (c) Sales price. The sales price in the disposition plan will be 
reasonably related to the intended use of the project after the sale, 
any rehabilitation requirements for the project, the rents for units in 
the project that can be supported by the market, the amount of rental 
assistance available for the project under Section 8 of the United 
States Housing Act of 1937, the occupancy profile of the project 
(including family size and income levels for tenant families), and any 
other factors that HUD considers appropriate.
    (d) Community and tenant input. In developing the initial and final 
disposition plans, HUD will consider any timely input from officials of 
the unit of general local government affected, the community in which 
the project is situated, and the tenants of the project, including the 
comments received in response to the notice described in section 12 of 
this guide. To obtain this input, HUD may provide technical assistance, 
directly or indirectly, and may use amounts available for technical 
assistance under the Emergency Low Income Housing Preservation Act of 
1987, subtitle C of the Low-Income Housing Preservation and Resident 
Homeownership Act of 1990, subtitle B of title IV of the Cranston-
Gonzalez National Affordable Housing Act, or the Statute, for the 
provision of such technical assistance. Recipients of technical 
assistance funding under the provisions referred to in this 
subparagraph may provide technical assistance to the extent of such 
funding, notwithstanding the source of the funding.
    (e) Environmental requirements. HUD will perform, and include in 
the final disposition plan, the environmental reviews required by 24 
CFR part 50.

                                   Table of Actions to Facilitate Disposition                                   
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
All Multifamily Housing Projects.......  Required Actions                                                       
                                         1. Displacement requirements (section 17 of this guide).               
                                         2. Very-low income preexisting tenant--2 year rent freeze if rent after
                                          disposition more than 30 percent of adjusted income (section 18 of    
                                          this guide).                                                          
                                         3. Nondiscrimination against Section 8 certificate holders and voucher 
                                          holders (section 19 of this guide).                                   
Subsidized Projects....................  Basic Actions                                                          
                                         1. Provide project-based Section 8 assistance to at least all units    
                                          that, before acquisition or foreclosure, received: Rent Supp, RAP,    
                                          Sec. 23, project-based Section 8 (section 20(a) of this guide).       
                                         2. Vacancy in any assisted unit must be filled by a family that is     
                                          eligible for the assistance (section 20(b) of this guide).            
                                         3. Rent and use restrictions on BMIR, 236, or 202 subsidized project   
                                          units that were not covered before acquisition or foreclosure by Rent 
                                          Supp, RAP, Sec. 23, or project-based Section 8 (section 20(c) of this 
                                          guide).                                                               
                                         Alternatives to Basic Actions                                          
                                         1. Assistance to, or restrictions on, units in unsubsidized projects   
                                          instead of assistance to units in subsidized projects (section 21(a)  
                                          of this guide).                                                       
                                         2. Substitution of tenant-based Section 8 assistance to low-income     
                                          families instead of project-based assistance to units (section 21(b)  
                                          of this guide).                                                       
                                         3. Use of the additional assistance and restrictions permitted by the  
                                          Statute (section 21(b) of this guide).                                
Unsubsidized Projects..................  Basic Actions                                                          
                                         1. Provide project-based Section 8 assistance for all units that,      
                                          before acquisition or foreclosure, received assistance under:         
                                         (i) The new construction and substantial rehabilitation program under  
                                          section 8(b)(2) of the United States Housing Act of 1937 (as in effect
                                          before October 1, 1983);                                              
                                         (ii) The property disposition program under section 8(b) of such Act;  
                                         (iii) The project-based certificate program under section 8 of such    
                                          Act;                                                                  
                                         (iv) The moderate rehabilitation program under section 8(e)(2) of such 
                                          Act;                                                                  
                                         (v) Section 23 of such Act (as in effect before January 1, 1975);      
                                         (vi) The rent supplement program under section 101 of the Housing and  
                                          Urban Development Act of 1965; or                                     
                                         (vii) Section 8 of the United States Housing Act of 1937, following    
                                          conversion from assistance under section 101 of the Housing and Urban 
                                          Development Act of 1965 (section 22(a) of this guide).                
                                         2. Provide tenant-based Section 8 assistance to preexisting tenants of 
                                          LMSA-assisted units (section 22(b) of this guide).                    
                                         Alternatives to Basic Actions                                          
                                         1. Substitution of tenant-based Section 8 assistance to low-income     
                                          families instead of project-based assistance to units (section 23(a)  
                                          of this guide).                                                       
                                         2. Use of the additional assistance and restrictions permitted by the  
                                          Statute (section 23(b) of this guide).                                
All Multifamily Housing Projects.......  Additional Actions                                                     
                                         1. Discounted sales price (section 25 of this guide).                  
                                         2. Additional use and rent restrictions (section 26 of this guide).    
                                         3. Short-term loans (section 27 of this guide).                        
                                         4. Up-front grants (section 28 of this guide).                         
                                         5. Additional tenant-based assistance (section 29 of this guide).      
                                         6. Alternative uses (section 30 of this guide).                        
                                         6. Rebuilding (section 31 of this guide).                              
                                         7. Emergency assistance funds (section 32 of this guide).              
                                         8. Determination not to preserve (section 33 of this guide).           
----------------------------------------------------------------------------------------------------------------


[[Page 11699]]

All Multifamily Housing Projects--Required Actions
    16. What actions must be taken in the disposition of all 
multifamily housing projects?
    The requirements regarding tenants who are displaced (section 17 of 
this guide), unassisted very low-income tenants (section 18 of this 
guide), and nondiscrimination against Section 8 certificate holders and 
voucher holders (section 19 of this guide), apply in the disposition of 
all multifamily housing projects.
    17. What actions must be taken concerning tenants who are displaced 
by the disposition of a multifamily housing project?
    (a) Scope of section. This section applies to all HUD-owned 
multifamily housing projects and all multifamily housing projects 
subject to HUD-held mortgages. When HUD is not the mortgagee-in-
possession or owner, this section applies to the owner of the project, 
if HUD has authorized the demolition of, repairs to, or conversion of 
the use of the multifamily housing project.
    (b) Minimizing displacement. Consistent with the other goals and 
objectives of the Statute, all reasonable steps shall be taken to 
minimize the displacement of persons (families, individuals, 
businesses, and nonprofit organizations) from a project covered by this 
part. If displacement or temporary relocation will occur in connection 
with the disposition of a project, HUD may require the purchaser of the 
project to provide assistance in accordance with this section.
    (c) Relocation assistance at non-URA levels. Whenever the 
displacement of a residential tenant (family or individual) occurs in 
connection with the management or disposition of a multifamily housing 
project, but is not subject to paragraph (d) of this section (e.g., 
occurs as a direct result of HUD repair or demolition of all or a part 
of a HUD-owned multifamily housing project or as a direct result of the 
foreclosure of a HUD-held mortgage on a multifamily housing project or 
sale of a HUD-owned multifamily housing project without federal 
financial assistance), the displaced tenant is to be eligible for the 
following relocation assistance:
    (1) Advance written notice of the expected displacement. The notice 
shall be provided at least 60 days before displacement, describe the 
assistance and the procedures for obtaining the assistance, and contain 
the name, address and phone number of an official responsible for 
providing the assistance;
    (2) Other advisory services, as appropriate, including counseling, 
referrals to suitable (and where appropriate, accessible), decent, 
safe, and sanitary replacement housing, and fair housing-related 
advisory services;
    (3) Payment for actual reasonable moving expenses, as determined by 
HUD;
    (4) For displaced eligible families and individuals--
    (i) The opportunity to relocate to a suitable (and where 
appropriate, accessible), decent, safe, and sanitary dwelling unit in a 
HUD-owned multifamily housing project, in a public housing project, or 
in another HUD subsidized multifamily housing project,
    (ii) Assistance under the Section 8 Certificate program (see 24 CFR 
882.209(a)(4)(ii)(B)) or the Housing Voucher program (see 24 CFR 
887.155(c)), if the assistance is available; or
    (iii) The right to return, whenever possible, to a repaired or 
rebuilt unit.
    (5) Such other federal, State or local assistance as may be 
available.
    (d) Relocation assistance at URA levels. (1) General. Whenever 
assistance under 24 CFR part 886, subpart C (or other federal financial 
assistance, as defined in 49 CFR 24.2(j)) is provided in connection 
with the purchase, demolition, or rehabilitation of a multifamily 
housing project by a third party, any resulting displacement is subject 
to this paragraph. A displaced person (defined in paragraph (d)(3) of 
this section) must be provided relocation assistance at the levels 
described in, and in accordance with the requirements of, the URA, 
implementing regulations at 49 CFR part 24, and this section.
    (2) Definition of ``initiation of negotiations''. Under the URA, 
for purposes of determining the method for computing the replacement 
housing assistance to be provided to a residential tenant displaced as 
a direct result of privately undertaken rehabilitation, demolition, or 
acquisition of the real property, the term ``initiation of 
negotiations'' means the transfer of title to the purchaser.
    (3) Definition of displaced person. (i) The term ``displaced 
person'' means any person (family, individual, business, or nonprofit 
organization) that moves from the real property, or moves personal 
property from the real property, permanently, as a direct result of 
acquisition, rehabilitation or demolition for a federally assisted 
project. This includes, but is not limited to:
    (A) A person that moves permanently from the real property after 
receiving notice requiring such move, if the move occurs on or after 
the date of the transfer of title to the purchaser.
    (B) Any person that HUD determines was displaced as a direct result 
of acquisition, rehabilitation or demolition for an assisted project.
    (C) A tenant-occupant of a dwelling unit who moves from the 
building/complex, permanently, after the transfer of title to the 
purchaser, if the move occurs before the tenant is provided notice 
offering him or her the opportunity to lease and occupy a suitable, 
decent, safe, sanitary, and where appropriate, accessible dwelling in 
the same building/complex, under reasonable terms and conditions, upon 
completion of the project. Such reasonable terms and conditions shall 
include a monthly rent, including estimated average monthly utility 
costs, that does not exceed the greater of the tenant's monthly rent 
before transfer of title to the purchaser and estimated average monthly 
utility costs, or that is affordable, as defined in this part.
    (D) A tenant-occupant of a dwelling unit who is required to 
relocate temporarily for the project, but does not return to the 
building/complex, if either the tenant is not offered payment for all 
reasonable out-of-pocket expenses incurred in connection with the 
temporary relocation, or other conditions of the temporary relocation 
are not reasonable.
    (E) A tenant-occupant who moves from the building/complex 
permanently after he or she has been required to move to another unit 
in the same building/complex for the project, if either the tenant is 
not offered reimbursement for all reasonable out-of-pocket expenses 
incurred in connection with the move, or other conditions of the move 
are not reasonable.
    (ii) Notwithstanding the provisions of paragraph (d)(3)(i) of this 
section, a person does not qualify as a ``displaced person'' if:
    (A) The person is excluded under 49 CFR 24.2(g)(2).
    (B) The person has been evicted for a serious or repeated violation 
of the terms and conditions of the lease or occupancy agreement, 
violation of applicable Federal, State, or local law, or other good 
cause, and HUD determines that the eviction was not undertaken for the 
purpose of evading the obligation to provide relocation assistance.
    (C) The person moves into the property after transfer of title to 
the purchaser.
    (D) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for an assisted 
project.

[[Page 11700]]

    (e) Temporary relocation (URA and non-URA relocation assistance). 
Residential tenants, who will not be required to move permanently, but 
who must relocate temporarily (e.g., to permit property repairs), shall 
be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses 
incurred in connection with the temporary relocation, including the 
cost of moving to and from the temporary housing and any increase in 
monthly rent or utility costs. The party responsible for this 
requirement may, at its option, perform the services involved in 
temporarily relocating the tenants or pay for such services directly; 
and
    (2) Appropriate advisory services, including reasonable advance 
written notice of the date and approximate duration of the temporary 
relocation; the suitable (and where appropriate, accessible), decent, 
safe, and sanitary housing to be made available for the temporary 
period; the terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex following completion of the repairs; and the right to financial 
assistance provided under paragraph (e)(1) of this section.
    (f) Appeals. If a person disagrees with the purchaser's 
determination concerning the person's eligibility for relocation 
assistance or the amount of the assistance for which the person is 
eligible, the person may file a written appeal of that determination 
with the owner or purchaser. A person who is dissatisfied with the 
purchaser's determination on his or her appeal may submit a written 
request for review of that decision to the HUD Field Office responsible 
for administering the URA in the area.
    18. What actions must be taken concerning very low-income tenants 
in the disposition of a multifamily housing project?
    HUD will require that for a period of 2 years, beginning upon the 
date of disposition of a multifamily housing project, the rent for any 
unit occupied by a very low-income family, that is a preexisting tenant 
and that would be required to pay a rent that is more than 30 percent 
of the adjusted income (as defined in part 813) of the family, may not 
be increased above the rent charged immediately before the acquisition. 
Such a family will also be considered displaced for purposes of the 
preferences for assistance under sections 6(c)(4)(A)(i), 8(d)(1)(A)(i), 
and 8(o)(3)(B) of the United States Housing Act of 1937.
    19. What restrictions concerning nondiscrimination against Section 
8 certificate holders and voucher holders apply in the disposition of a 
multifamily housing project?
    The purchaser of any multifamily housing project shall not refuse 
unreasonably to lease a dwelling unit offered for rent, offer to sell 
cooperative stock, or otherwise discriminate in the terms of tenancy or 
cooperative purchase and sale because any tenant or purchaser is the 
holder of a Certificate of Family Participation or a Voucher under 
Section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437f), 
or any successor legislation. This provision is limited in its 
application, for tenants or applicants with Section 8 Certificates or 
their equivalent (other than Vouchers), to those units which rent for 
an amount not greater than the Section 8 Fair Market Rent, as 
determined by HUD. The purchaser's agreement to this condition must be 
contained in any contract of sale and also may be contained in any 
regulatory agreement, use agreement, or deed entered into in connection 
with the disposition.
Subsidized Projects--Basic and Alternative Actions to Facilitate 
Disposition
    20. What are the basic actions that may be taken in the disposition 
of a subsidized project?
    The basic assistance that HUD will provide and the basic 
restrictions HUD will require in the disposition of a subsidized 
project depend upon the profile of the project's units and tenants, as 
follows:
    (a) Assisted units--provision of project-based Section 8 
assistance. Except as noted in section 21 of this guide, and to the 
extent budget authority is available, HUD will provide project-based 
Section 8 assistance to assist at least all of a subsidized project's 
units that were covered, before acquisition or foreclosure, by the rent 
subsidies (Rent Supp, RAP, Sec. 23, project-based Section 8) included 
in the definition of a subsidized project.
    (b) Assisted units--tenant eligibility restrictions. The contract 
for project-based Section 8 assistance in accordance with paragraph 
(a), above, will provide that when a vacancy occurs in any unit that 
requires such assistance, but which was occupied by a family ineligible 
for such assistance, the owner will lease the available unit to a 
family that is eligible for the assistance.
    (c) Unassisted units--use and rent restrictions. HUD will require 
use or rent restrictions on BMIR, 236, or 202 subsidized projects to 
ensure that units that were not covered before acquisition or 
foreclosure by Rent Supp, RAP, Sec. 23, or project-based Section 8 rent 
subsidies remain available and affordable for the remaining useful life 
of the project.
    21. What alternatives to the basic actions are available in the 
disposition of subsidized projects?
    In the disposition of a subsidized project, HUD may take the 
following alternative actions instead of the basic actions listed in 
section 20 of this guide:
    (a) Unit substitution: assistance to, or restrictions on, units in 
unsubsidized projects instead of assistance to units in subsidized 
projects. Instead of providing project-based Section 8 assistance as 
described in section 20(a) of this guide, HUD may, in unsubsidized 
projects located in the same market area, provide project-based Section 
8 assistance to units to be occupied by very low-income persons, or 
impose use and rent restrictions to assure that units remain available 
to and affordable by very low-income families for the remaining useful 
life of the project. When this unit substitution procedure is used, the 
total number of unsubsidized project units provided with assistance 
and/or placed under use and rent restrictions must be at least equal to 
the number of subsidized project units that would have received 
project-based Section 8 in the absence of unit substitution. In 
addition, HUD will make tenant-based Section 8 assistance available to 
low-income families residing in the subsidized project's units that 
would have received project-based Section 8 assistance if this unit 
substitution alternative had not been used.
    (b) Substitution of tenant-based Section 8 assistance to low-income 
families instead of project-based assistance to units. Instead of 
providing project-based Section 8 assistance as described in section 
20(a) of this guide, HUD may enter into annual contribution contracts 
with public housing agencies to provide tenant-based Section 8 
assistance to all low-income families who reside, on the date that the 
project is acquired by a purchaser other than HUD, in units that would 
have been eligible for the project-based Section 8 assistance as 
described in section 20 of this guide. Tenant-based Section 8 
assistance may be used in this way as a substitute for project-based 
Section 8 assistance in not more than 10 percent of the aggregate 
number of subsidized project units disposed of by HUD in any fiscal 
year, and only if HUD determines that there is available in the market 
area in which the project is located an adequate supply of habitable, 
affordable

[[Page 11701]]
housing for very low-income families and other low-income families 
using tenant-based assistance. The number of units eligible for this 
form of substitution within the 10 percent limit will be estimated at 
the beginning of each fiscal year, taking into consideration the 
aggregate number of subsidized project units disposed of by HUD in the 
immediately preceding fiscal year and the disposition activity planned 
for the current fiscal year.
    (c) Additional actions. Instead of, or in addition to, providing 
project-based Section 8 assistance in the disposition of a subsidized 
project as described in section 20(a) of this guide, HUD may make use 
of the additional actions to facilitate the disposition of multifamily 
housing projects as described in sections 24 through 33 of this guide.
Unsubsidized Projects--Basic and Alternative Actions to Facilitate 
Disposition
    22. What are the basic actions that may be taken in the disposition 
of an unsubsidized project?
    The basic assistance that HUD will provide and the basic 
restrictions HUD will require in the disposition of an unsubsidized 
project depend upon the profile of the project's units and tenants, as 
follows:
    (a) Assisted units--provision of project-based Section 8 
assistance. Except as noted in section 23 of this guide, and to the 
extent budget authority is available, HUD will provide project-based 
Section 8 assistance for all of an unsubsidized project's units that 
were covered, before acquisition or foreclosure, by an assistance 
contract under:
    (1) The new construction and substantial rehabilitation program 
under section 8(b)(2) of the United States Housing Act of 1937 (the 
1937 Act) (as in effect before October 1, 1983);
    (2) The property disposition program under section 8(b) of the 1937 
Act;
    (3) The project-based certificate program under section 8 of the 
1937 Act;
    (4) The moderate rehabilitation program under section 8(e)(2) of 
the 1937 Act;
    (5) Section 23 of the 1937 Act (as in effect before January 1, 
1975);
    (6) The rent supplement program under section 101 of the Housing 
and Urban Development Act of 1965; or
    (7) Section 8 of the 1937 Act, following conversion from assistance 
under section 101 of the Housing and Urban Development Act of 1965.
    (b) LMSA-assisted units--provision of tenant-based section 8 
assistance. HUD will provide tenant-based Section 8 assistance for 
families that are preexisting tenants of unsubsidized projects in units 
that, immediately before foreclosure or acquisition of the project by 
HUD, were covered by an assistance contract under the loan management 
set-aside program under section 8(b) of the United States Housing Act 
of 1937.
    23. What alternatives to the basic actions are available in the 
disposition of unsubsidized projects?
    In disposing of an unsubsidized project, HUD may take the following 
alternative actions instead of the basic actions listed in section 22 
of this guide:
    (a) Substitution of tenant-based Section 8 assistance to low-income 
families instead of project-based assistance to units. Instead of 
providing project-based Section 8 assistance as described in section 22 
of this guide, HUD may enter into annual contribution contracts with 
public housing agencies to provide tenant-based Section 8 assistance to 
all low-income families who reside, on the date that the project is 
acquired by a purchaser other than HUD, in units eligible for the 
project-based Section 8 assistance as described in section 22 of this 
guide. Tenant-based Section 8 assistance may be used in this way as a 
substitute for project-based Section 8 assistance only if HUD 
determines that there is available in the market area in which the 
project is located an adequate supply of habitable, affordable housing 
for very low-income families and other low-income families using 
tenant-based assistance.
    (b) Additional actions. Instead of, or in addition to, providing 
project-based Section 8 assistance in the disposition of an 
unsubsidized project as described in section 22 of this guide, HUD may 
make use of the additional assistance and restrictions for the 
disposition of multifamily housing projects as described in sections 24 
through 33 of this guide.
All Multifamily Housing Projects--Additional Actions to Facilitate 
Disposition
    24. What guidelines will HUD apply in determining which additional 
actions to take in the disposition of a multifamily housing project?
    The additional actions to facilitate disposition available under 
this subpart are intended to replace, supplement or make more cost 
effective the Section 8 assistance that would otherwise be required, 
and are to be provided in a manner consistent with the goals and 
purposes stated in section 2 of this guide and, unless otherwise noted:
    (a) On terms that will ensure that at least the units in the 
project otherwise required to receive project-based Section 8 
assistance as described in section 20(a) of this guide (for a 
subsidized project) and in section 22(a) of this guide (for an 
unsubsidized project) are available to and affordable by low-income 
persons for the remaining useful life of the project, with use or rent 
restrictions as HUD may prescribe; and
    (b) With tenant-based Section 8 assistance to any very low-income 
families who would have received project-based assistance under Section 
8 as described in section 20(a) of this guide (for a subsidized 
project) and in section 22(a) of this guide (for an unsubsidized 
project), but because of action taken as described in sections 24 
through 33 of this guide, did not receive such assistance, and are left 
residing in units of the project with rents that exceed the amount 
payable as rent under section 3(a) of the United States Housing Act of 
1937 for very low-income families.
    25. May HUD reduce the sales price for a project?
    HUD may reduce the selling price of a project. The sales price for 
a project will be reasonably related to the intended use of the 
property as affordable housing for very low-income tenants after sale, 
any rehabilitation requirements for the project, the rents for units in 
the project that can be supported by the market, the amount of project-
based Section 8 assistance being made available by HUD in the 
disposition of the project, the occupancy profile of the project 
(including family size and income levels for tenant families), and any 
other factors that the Department considers appropriate.
    26. May HUD require additional use and rent restrictions?
    HUD may require units in a project to be subject to use or rent 
restrictions to provide that the units will be available to and 
affordable by low- and very low-income persons for the remaining useful 
life of the project.
    27. May HUD provide short-term loans to facilitate the sale of a 
project? HUD may provide short-term loans to facilitate the sale of a 
multifamily housing project if:
    (a) Authority for such loans is provided in advance in an 
appropriation Act;
    (b) The loan has a term of not more than 5 years;
    (c) HUD determines, based upon documentation provided by the 
purchaser, that the purchaser has obtained a commitment of permanent 
financing to replace the short-term loan

[[Page 11702]]
from a lender who meets standards established by the Department; and
    (d) The terms of the loan are consistent with prevailing practices 
in the marketplace or the provision of the loan results in no cost to 
the Government, as defined in section 502 of the Congressional Budget 
Act of 1974.
    28. Under what conditions may HUD provide up-front grants?
    HUD may utilize the budget authority provided for contracts issued 
under this part for project-based Section 8 assistance to (in addition 
to providing project-based Section 8 rental assistance) provide up-
front grants for the necessary cost of rehabilitation and other HUD-
approved related development costs to reduce the level of Section 8 
contract rents if HUD determines that action under this section is more 
cost-effective than providing project-based Section 8 assistance as 
described in section 20(a) of this guide (for a subsidized project) and 
in section 22(a) of this guide (for an unsubsidized project).
    29. What additional tenant-based assistance may HUD offer?
    To facilitate the sale of a multifamily housing project, HUD may 
make tenant-based Section 8 assistance available to families residing 
in a multifamily housing project who are eligible to receive tenant-
based assistance but who do not qualify for project-based assistance.
    30. How may HUD provide for alternative uses of units in the 
disposition of a multifamily housing project?
    (a) In general. Notwithstanding any other provision of law, after 
providing notice to and an opportunity for comment by preexisting 
tenants, HUD may allow up to:
    (1) 10 percent of the total number of rental housing units in 
multifamily housing projects that are disposed of by the Department 
during any fiscal year to be made available for uses other than rental 
or cooperative uses, such as, low-income homeownership opportunities, 
or in any particular project, community space, office space for tenant 
or housing-related service providers or security programs, or small 
business uses, if such uses benefit the tenants of the project; and
    (2) 5 percent of the total number of rental housing units in 
multifamily housing projects that are disposed of by the Department 
during any fiscal year to be used in any manner, if HUD and the unit of 
general local government or area-wide governing body determine that 
such use will further fair housing, community development, or 
neighborhood revitalization goals.
    (b) Computation of number of eligible units. The number of units 
eligible for alternate uses in any fiscal year will be determined at 
the beginning of the fiscal year as the applicable percentages in 
paragraphs (a)(1) or (2) of this section (i.e., either 10 percent or 5 
percent) of the estimated total number of units to be disposed of in 
the fiscal year, taking into consideration the total number of units in 
multifamily housing projects disposed of by the Department in the 
immediately preceding fiscal year, and the extent of the disposition 
activity planned in the current fiscal year.
    (c) Displacement protection. HUD may take actions under paragraph 
(a) of this section only if:
    (1) Tenant-based Section 8 assistance is made available to each 
family eligible for such assistance residing in the project that is 
displaced as a result of such actions; and
    (2) HUD determines that sufficient habitable, affordable rental 
housing is available in the market area in which the project is located 
to ensure use of such assistance.
    31. What disposition assistance may be available to rebuild a 
multifamily housing project?
    (a) Notwithstanding any provision of section 8 of the United States 
Housing Act of 1937, HUD may provide project-based assistance as 
described in section 20(a) of this guide (for a subsidized project) and 
in section 22(a) of this guide (for an unsubsidized project) to support 
the rebuilding of a HUD-owned multifamily housing project rebuilt or to 
be rebuilt (in whole or in part and on-site, off-site, or in a 
combination of both) in connection with a disposition under this part, 
if HUD determines all of the following:
    (1) The project is not being maintained in a decent, safe, and 
sanitary condition;
    (2) The costs to HUD for rebuilding are such that the monthly debt 
service needed to amortize the cost of relocating tenants, demolition, 
site preparation, rebuilding, operating expenses, and a reasonable 
return to the purchaser cannot be provided with rents that are within 
120 percent of the most recently published Section 8 Fair Market Rents 
for Existing Housing (24 CFR part 888, subpart A), and would be less 
expensive than rehabilitation;
    (3) The unit of general local government in which the project is 
located approves the rebuilding and makes a financial contribution or 
other commitment to the project determined by HUD to be satisfactory;
    (4) The rebuilding is a part of a local neighborhood revitalization 
plan approved by the unit of general local government.
    (b) The provisions described in section 17 of this guide apply to 
any tenants of the project who are displaced through an action taken 
under paragraph (a) of this section.
    32. What emergency assistance funds may be provided to tenants?
    HUD may make arrangements with State agencies and units of general 
local government of States receiving emergency assistance under part A 
of title IV of the Social Security Act for the provision of assistance 
under that Act on behalf of eligible families who would reside in any 
multifamily housing projects.
    33. Under what circumstances may HUD make a determination not to 
preserve a project or a part of a project?
    HUD may determine to demolish, or otherwise dispose of, a HUD-owned 
multifamily housing project, or any portion of such a project, or to 
foreclose a HUD-held mortgage on a multifamily housing project, without 
ensuring its continued availability as affordable rental or cooperative 
housing for low- and very low-income families under appropriate 
circumstances which may include one or more of those listed in 
paragraphs (a) through (g) of this section, below. If HUD decides not 
to preserve an occupied multifamily housing project at a foreclosure 
sale or sale of a HUD-owned project, tenants must be provided 
relocation assistance as described in section 17 of this guide.
    (a) The costs to HUD of rehabilitation are such that the monthly 
debt service needed to amortize the cost of rehabilitation, operating 
expenses, and a reasonable return to the purchaser cannot be provided 
with rents that are, for subsidized and formerly subsidized projects, 
within 120 percent of the most recently published Section 8 Fair Market 
Rents for Existing Housing (24 CFR part 888, subpart A) or, for 
unsubsidized and formerly unsubsidized projects, within rents 
obtainable in the market.
    (b) Construction is substantially incomplete.
    (c) Preservation is not feasible because of environmental factors 
that cannot be mitigated by HUD or the purchaser. For example, when the 
project is located on a site that cannot be made to comply with the 
Section 8 Site and Neighborhood standards in 24 CFR 886.307(k) because 
of factors that adversely affect the health, safety and general welfare 
of residents such as air pollution; smoke; mud slides; fire or 
explosion hazards. Preservation may also be infeasible because of 
significantly deteriorated surrounding

[[Page 11703]]
neighborhood conditions with inadequate police or fire protection; high 
crime rates; drug infestation; or lack of public community services 
needed to support a safe and healthy living environment for residents.
    (d) HUD determines the project is unfit for rehabilitation.
    (e) Rehabilitation would cost more than constructing comparable new 
housing.
    (f) A reduction in the number of units in the project will enhance 
long-term project viability, for example, demolition of a building to 
provide space for a playground, open space, or combining one-bedroom 
units to create larger units for families.
    (g) Continued preservation of the project as rental or cooperative 
housing is not compatible with State or local land use plans for the 
area in which the project is located.

[FR Doc. 96-6791 Filed 3-20-96; 8:45 am]
BILLING CODE 4210-27-P